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A thought-provoking conversation between a financially inquisitive dentist and a wealth advisor.
Reese’s guest on this episode of Dentist Money™ is Dr. Richard Low, host of the Shared Practices Podcast. With two podcast hosts asking each other questions, Reese and Richard cover a wide range of topics—from target date funds vs mutual funds vs index funds, to selecting the right type of mortgage depending where you are in your career. It’s two podcast hosts for the price of one!
Reese Harper: Welcome to another episode of the Dentist Money Show. I’m Reese Harper, your host and I recently had a chance to sit down with my friend Dr. Richard Lowe.
Reese Harper: Richard is the host of the Shared Practices podcast and this was the first time we’d had a chance to get together on our show. The two talkative podcast hosts discussing dental finances, we ended up covering a lot of ground as Richard asked me quite a few questions that he thought a typical practice owner would want to know about their finances.
Reese Harper: I thought it was a really interesting episode and I appreciate Richard’s perspective on both his show and ours.
Reese Harper: Make sure and visit us at dentistadvisors.com and check out our education library. You’ll find a lot of videos, podcasts and new articles that we’re releasing every week.
Reese Harper: Also, when you go to the website, don’t forget to book a free consultation clicking the book free consultation button where you’ll be paired with one of our dental-specific financial advisors on a day that works for you.
Reese Harper: We book appointments on off-days, lunches, even on some Saturdays. Just check out the calendar and find a time that’s convenient. Call us anytime at 833 DDS Plan. You can also text us at the same number.
Reese Harper: Don’t forget to submit your financial questions on our free Facebook group at dentistadvisors.com/group. We take the questions from the Facebook group and use them in the podcast.
Reese Harper: Thanks again for listening and enjoy the show.
Speaker: Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advise. This program is furnished by Dentist Advisors, a registered investment advisor.
Speaker: This is Dentist Money. Now, here’s your host, Reese Harper.
Reese Harper: Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Reese Harper and I’m excited to welcome a good friend of mine to the show, Dr. Richard Lowe.
Reese Harper: How’re you doing Richard?
Richard Lowe: Doing awesome. It’s so nice to be on your show finally, like I’ve had you on mine a couple.
Reese Harper: Me and you have talked a lot. Finally nice to get this conversation on the airwaves.
Richard Lowe: And I listen to yours. There’s probably 15 podcasts in my hotcast app and there’s two that I stay up to date with, there’s like yours and a running podcast and like a couple other ones that I’ll catch up on once in a while but I’m…
Reese Harper: That’s a huge honor man because you’re, I mean Shared Practices is an excellent podcast. You’ve added a ton of value to the dental community, so the fact that you tune in once in a while to our show, I love it. Thanks for doing that.
Richard Lowe: Religiously. Not once in a while. I’m right there with you.
Reese Harper: Aw. Thanks man. Well, I’m excited to have a good conversation today about some of your experience. You know, you’ve got a lot going on right now with the, I guess, is it Fort Hood that you’re at right now, in southwest Oklahoma? Is that right?
Richard Lowe: That’s good. I was at Fort Hood. I did a two year residency out of dental school. I’m three years in the army, three and a half. I did two of those in a residency at Fort Hood. Then, I’ve been here at Fort Sill in Oklahoma-
Reese Harper: Oh, that’s right. Fort Sill. Yeah.
Richard Lowe: I still Fort Hood all the time.
Reese Harper: Shout out to Fort Sill though. Sorry about that people.
Richard Lowe: No. No.
Reese Harper: Wait. Fort Hood’s in Texas right?
Richard Lowe: Yup. It’s about an hour away from Austin and this is about an hour away from Oklahoma City.
Reese Harper: There’s a lot of people in … I mean Fort Sills is a big base isn’t it?
Richard Lowe: Fort Hood’s the big one.
Reese Harper: Oh, Fort Hood’s the big one. Yeah.
Richard Lowe: Ft. Sill is like one of the training basis. So, I see patients who have never been to a dentist in their whole life, they come for basic training.
Reese Harper: Cool.
Richard Lowe: We’re just like, clean them up. Just like damage control.
Reese Harper: Well, today the cool thing is we thought we would do an interview today about a lot of things that Richard has gone through. He’s had a lot of personal financial decisions to make. He has some practice decisions to make right now. The cool thing about this interview it’s going to be more like, almost like a consultation, where I’m going to get Richards perspective on some things. He’s going to ask me for my perspective on some topics. I think we’ll be able to really get to the … have an interview that really feels like a conversation between a dentist and a financial advisor, to some degree.
Richard Lowe: Yeah.
Reese Harper: So, it’ll be cool. But let’s talk about the first one. What’s the first question that comes to mind for you, in terms of your, you know, one of these beliefs or one of these ideas that you had, that you wanted to discuss?
Richard Lowe: Yeah. So, recently on your guys’ awesome Facebook page, someone had, I think it was Ryan that posted, “What are some books that you all had read? What are your favorite financial books?” I, of course, word vomited on there and shared like five books that I love.
Reese Harper: Yeah. There’s some great ones. I love that post. Yeah.
Richard Lowe: So, there was this real sense of relaxation deep inside me when I realized, “Oh, this isn’t that bad. Index funds actually do better than if I were to work really, really hard. It was so nice to realize that index funds were less work and a better solution. I didn’t need to work about picking different currencies, you know, gold and all these different segments of the market, and trying to navigate the entire market. There was kind of this emboldening, “Oh wow I can do this myself.”
Richard Lowe: At the same time, I realized after listening to you and talking with others, picking the actual funds is one set of decisions. Another set of decisions is where to have those funds and balancing that with liquidity, and doing all of the jobs to make the right decisions, that’s the set of expertise and knowledge that I am .. it was your episode on the jobs that need to get done, that put the nail in the coffin of I’m actually going to hire Reese once I have money. Whereas before, I’m was secretly like “OK, I’m going to figure the elements on my own and I’m going to be a DYI guy ane just do my own index funds. Once you guys laid out the job to be done, concept, it made me realize I don’t want to do any of those jobs. I totally want Reese and his team to help me have all the information I at hand to make these financial decisions.
Reese Harper: Was that because the jobs felt time consuming for you, or the jobs felt intellectually challenging, or a little of both? What about that do you think turned the corner for you? In your personal financial life, were you starting to get to a point where you where were like, “Okay, my situation’s starting to get a little bit more complex, and that’s part of it, too.” Give me a sense for that journey, because I think a lot people go through that journey.
Richard Lowe: For me, I feel like the complexity of making those types of decisions. The two things, that for me, were the big turning points. One was, I like learning about and picking funds. That part is exciting for me, the actual investing side of things. But, having an understanding of which funds to do this in, tax-wise, how to balance these things, how much liquidity, versus other investments …
Reese Harper: Okay. It’s all the jobs.
Richard Lowe: All those questions are some of the more important ones, and the fact that giving me the time back on keeping up with all of these little decisions, and over time as my situation changes financially, having you guys very much on top of that, those changes in my financial situation. So, it’s less the overwhelmingness of investing. But, I think that’s more personal to me and more of the giving the time back and allowing me to make the best overall decisions with my current financial situation that kind of sold me on this idea of having you guys do all that. What also turned me onto you guys is that I don’t feel that you have any conflict of interest of selling me a set of funds. I understand that you guys are completely on board with index funds and doing what’s right and giving us the education. It was like, which we can get to this later, but it’s like your lack of sales and your lac of conflict of interest, is what makes me trust you guys so wholeheartedly.
Reese Harper: I never really had an interview quite this way. So, I think I need to just let the audience know that there’s no, before bringing Richard on today, we didn’t even know that he … we had a set of questions, but I’m not paying Richard Albright? I’m not paying Richard to give us pats on the back.
Reese Harper: But hopefully you’ve learned something from listening to our content. It’s at least given you confidence to make some decisions or avoid some mistakes. So, tell me about this … There’s question that I’m sensing underlying about the funds selection anyway that may be coming to the top.
Richard Lowe: There’s this book I read called Avoiding Black Swans. I should pull up the title, but yeah, the black swans book. It’s in your Facebook group. If someone wants to find out the exact title, they got to go join the Facebook group. The takeaway was NX funds were great, but you can do a little bit better than just a general U.S. Market Index fund. The way you can do better is that you can buy three different higher risk, high reward types of index funds that are independently correlated, so they move separately. So, as one goes up, it doesn’t mean that the other two go up right in toe with it. Maybe they do this time. Maybe next time they won’t. So, the three types of index funds were international, small cap, and value fund.
Reese Harper: Yeah. Eugene Fama and Kenneth French are two researchers. One works for the University of Chicago and one’s a Dartmouth professor. They came up with this thing called the three factor model, that smaller companies in an index will grow more than the bigger ones, and that companies that have what’s called a high book to a market value, or they look more like a stodgy old railroad and not a high growth tech stock, these are called value companies. Their financials make it look like a dental practice that’s selling for you know, 20% of collections.
Richard Lowe: They’re down on their luck, is the way they put it.
Reese Harper: Yeah. On average, those are better.
Richard Lowe: Some of them might fail and some of them might make a comeback.
Reese Harper: Yes. Exactly. Anyway, bottom line is those are two attributes that are really critical. Some attributes of stocks make them grow more. So, what’s your question about those attributes, or I guess it’s coming to mind?
Richard Lowe: So, the idea in this book was that if you invested in these as your index fund selection … so you have a combination of small companies, index funds, value company index funds, and international that you could then decrease your exposure to the equity market. So, say that someone thought like, “Oh man, these three are going to give me returns over time and they double down. They’re like, “Okay maybe I was 40% in stocks and 60% in bonds, or 60 percent in stocks and 40% in bonds. Now they’re like, “Oh well, if I’m going to gt a better return on these three, maybe I should bee like 90% in stocks and 10% in bonds. Over time, it’s going to play out. Their argument was that instead, you should say you can get more growth with a smaller exposure, if you are in these three types of inducees, then have a little bit more secure for the rest of your investing. So, have more in bronze or something that’s a little bit more stable. So, I jut wanted to see how you guys used this Fama french model, and how much you actually to that. You know, do you actually recommend for people to get small cap value in international funds. Is that part of your methodology of actually picking the funds once we get down to it?
Reese Harper: Yeah. Let’s break this down just a little bit. So, to clarify, in my mind, there’s attributes of stocks, and then there’s geography. I don’t want to … you kind of put international and small cap and value in the same conversation. International’s not an attribute of a stock. That’s just a country of domicile. The small and value attributes could exist in Russia or in Germany or the United States. But, that’s not one of the three factors. The three factors, in the the three factor model are small companies grow a little bit more than big ones do over time. The reason they grow more isn’t a subjective kind of guess, like, “Oh, look at history.” They’re going to grow more in the future because they grew more I the past. Smaller companies inherently, are riskier. The primary argument is that it’s a risk issue, a small business, a very, very small stock in the public market, doesn’t have as high of a probability of sticking around, as the big ones do.
Richard Lowe: I do want to ask one thing.
Reese Harper: Yeah yeah.
Richard Lowe: You’re bringing up the Russell 2000, the SMP 500. How many actual stocks are there? What is the-
Reese Harper: In the United States or globally?
Richard Lowe: In the U.S.
Reese Harper: It’s just under 4,000 right now, I believe.
Richard Lowe: Interesting. I didn’t realize it was that-
Reese Harper: So, it’s between, you know, I’m not exactly sure the exact number, because it does change every day. But, you know, it’s probably between 3500 and 3700 right now, if I had to guess at it. I know it’s above, right in the mid 3,000s.
Richard Lowe: Interesting.
Reese Harper: Then, you know, globally, it’s going to be … there’s a lot more stocks globally, for less value. Like, the United States, actually makes up, those 3,000 and change stocks make up half of the world’s stock market.
Richard Lowe: Okay.
Reese Harper: And the rest of the world combined is about equal a little less actually that what the United States is, but we’ll call it 50/50.
Richard Lowe: Okay.
Reese Harper: But, there’s a lot more stocks in that mix. They’re a lot smaller companies. They’re not as mature. I don’t know, globally, the exact number, but it’s definitely, the last time I remember looking at this, it was close to 14,000 total. So, probably more than 10,000 internationally and in the 3,000 range domestically.
Richard Lowe: Cool. I’d never [crosstalk] had anyone break those numbers down for me. So I was like …
Reese Harper: You got to actually care to look into it. So, the questions you’re asking, I’ve asked at some point, you know. So, originally clarifying your question, is international the same as small companies or the second attribute being value companies. Okay. Value and growth, we talked about a little bit. Those can exist in the whole world. The third attribute of the three factor model, is actually what they call cap M, which is basically saying that stocks actually have a premium over bonds, all things considered. That one’s kind of an older … it’s not really three new things. It’s just the three factor model builds on the original research, done by another researcher.
Reese Harper: I won’t confuse you with new names, but the the capital asset pricing model, or cap M was the first theory that kind of definitively proved that stocks are a higher returning risk asset than bonds and kind of displayed that. So, the three factor model builds on the original cap M theory. That cap M theory is the first of three factors and the next two factors are the small cap effect and the value effect. So, those are the three factors. In recent years, there’s been a lot of conversations about a fourth factor called profitability. There’s also some debate around a factor that there’s been no definitive research proving this, yet, but momentum is another factor that’s being contemplated. You can build indexes that target highly profitable companies. You can build indexes that target companies with momentum, meaning the ones that had the fastest growth in recent periods. Ones that are moving quickly right now. There’s a company called AQR that’s a really advanced, active management stock picking shop that focuses on momentum, and they fundamentally would disagree with what we’re talking about there around the three factor model. They’re very, not fundamentally, they’ll acknowledge that those things exist, but they will attribute these factors to-
Richard Lowe: They’d agree on stocks and bonds. They’d agree on that one.
Reese Harper: Yeah. And they might agree a little bit on small and value as it relates to certain market cycles. But, they would say these factors aren’t prevalent in every market cycle. You know. They’re highly dependent on economic conditions. They’d invest on a different attribute, called momentum.
Richard Lowe: I, and this is like the kind of stuff I’ve been waiting for now, like a hundred episodes to talk to you about. But, so, I want to circle back then. Is doing indexes of subsets of the market, like this, either small cap or value, doing it here or doing it globally, are you cheating? I feel like you’re no longer a true Jack Bogel …
Reese Harper: Yeah. You’re not.
Richard Lowe: Investing.
Reese Harper: You’re not.
Richard Lowe: Because you’re not buying the whole market. You’re saying, “Oh, well, I think I can buy the average and buy everything and just diversify, but I really don’t want to. I really want to secretly take a step back.” It’s almost like a direction in the active management.
Reese Harper: It is. It’s a step towards active management. It’s a step towards acknowledging that not all stocks are equal, so you can’t call this strategy that we’re talking about indexing. It’s not indexing. True indexing is a market cap wait, with no attribute selection. You know, you’re not trying to lineate between value and growth, and small and large. You’re going to literally own the market. I’m going to acknowledge that, but I’m going to try to tell you why I think it’s still smarter. You heard me kind of ripping on index investors a little bit. I called them dumb. The reason I said that is they just want the answer. They don’t want the knowledge. They don’t want to really know. Sometimes they just want the answer. Tell me what to buy so I don’t have to pay anyone and think. You know. Now I can be just blissfully ignorant about the future. Then, anytime anyone even talks to me about investing, you’re like, “No. No. No. Indexing. No. No. No. Jack Bogel. No. No. No. Little Book of Investing.”
Reese Harper: It’s not that simple man. Does Vanguard have a conflict of interest here to promote indexing potentially, and not acknowledge any benefits of active management? Well, yeah, because inherently when you tell people there’s nothing they can do to make their returns go higher, and all they got to do is let it sit there and don’t do anything, then the phone doesn’t ring. Your staff doesn’t have to service people. There’s no cost of any kind of support, or, you know, education. So, there’s a conflict of interest that indexing firms have in that they’re not telling their customers the whole story sometimes. The truth is that there are attributes that, in your 401k, if you’re going to put money in for the next 25 years, and you’re not emphasizing a factor, you’re going against Nobel Prize research, that’s been generally accepted by the investment community. What if I told you small cap tilts, or tilting your portfolio with small caps, that’s not a cheating way to go.
Reese Harper: You’re just saying, “Okay, it’s a higher returning attribute though and instead of being more conservative with the general market, I’ll be more aggressive and emphasize that factor.” You’re not saying I’m going to pick which small cap stocks are the best, you know, which I’m going to go exclusively small cap, you know. You don’t have to do that. The more you, and I would suggest that that’s not the right approach. Like, you wouldn’t wan to go my version of indexing wouldn’t exclusively target small capitalization stocks, or the small companies, because you could go through a long period of time where you don’t actually even perform like the market performs. That’s a risk you’re taking.
Richard Lowe: Right.
Reese Harper: To answer your question, most index funds, if you know what you’re looking at, either build themselves around a market cap weighted number of stocks, like the SMP 500, or they build themselves around attributes. So, you can buy index funds that are attribute driven, or you can buy index funds that are market cap weighted. The ones that are market cap weighted, and that don’t rebalance hardly at all, are the cheapest.
Richard Lowe: I feel like there is two spectrums that I really wanted to see where you guys were. So, the number one spectrum is between puts and picking individual stocks and leveraging yourself and thinking that you’re a stock trader while you’re a dentist. That’s one extreme. Then there’s the …
Reese Harper: Mm-hmm (affirmative). Which is insane. Which is insane
Richard Lowe: I’ve got a buddy…
Reese Harper: Just get that out there.
Richard Lowe: I’ve got a buddy doing that and I make fun of all the time. Caleb this is for you.
Reese Harper: Even me, master’s degree in finance. I’m just telling you. You have to go full time in this, get your CFA and you’ve got to be a specialist that only focuses on one sector, one trade, one trade type. You’ve got to get really, really, really good at lean hogs and iron condors or whatever you want it to be. But there is no such thing as a successful generalist investor in the active space. You’ll just get spit out.
Richard Lowe: I want to stick on the spectrum here. So, there’s the spectrum of that’s on one end and then the Jack Bogel disciple who’s just SMP or total market-
Reese Harper: Target date.
Richard Lowe: Target date.
Reese Harper: Mutual fund.
Richard Lowe: Plain indexing. I think that spectrum of going from picking funds to indexing. There’s so many cost advantages of going all the way to that end, you lose your ability to turn the dial on risk versus return.
Reese Harper: Well, let’s clarify. Let me clarify how I think our view is, because I would say that there is a place for straight purest market cap indexing. But, buying a target date fund is not that.
Richard Lowe: Right.
Reese Harper: Buying the SMP 500 is not that. The way to purest index is to really … a purest indexer acknowledges that there are more than 3,000 stocks in the world and they allocate across the globe in a ratio the globe exists. Well, the target date funds at Vanguard don’t do that. It’s like 70%+ U.S. focused. In the world, that’s not how it is. It’s 50/50 across the world. So, a purest indexer would own all the stocks in the ratio they exist in the world, and that would be the most diverse and the most true to Jack Bogel’s book, indexing at it’s extreme would not just be to blindly buy a target date fund or have most of your money in the SMP.
Reese Harper: That’s not even diversified. That’s not acknowledging that Brazil is like 3% of the world now, and that Russia and China an India are like an increasingly large part of the global market. You have to index across all these places. You can’t leave things out, you know, an be selective about what you leave out. Now, I like that style of indexing, for people with shorter time frames, because if you don’t have a long time frame, then those factors that me and you talked about they might not pan out. They might not have a chance to exist. We don’t, if we’re 10 years away from our goal, I probably don’t advocate for targeting factors. You know. I mean, it’s just too speculative. You know.
Reese Harper: These factors are for very, they’re for 10-15 year plus money, and that usually is your qualified plan or your after tax accounts that you’re investing in in your 30s and your 40s. But, it’s not investments you’re making in your 50s and your 60s, late 50s and early 60s, because you might invest a dollar and in a small in value premiums that you want to see, don’t even show up for 15 years. And you’re like took more risk and you didn’t get rewarded for it. You want to make sure you have a long enough time-wise to take the risk of the factors. We actually have two portfolio types. We have straight indexing portfolios, that use an approach like I described earlier, global diversification. You know, U.S., we don’t have a home county bias. We have a significant exposure to Europe and Asia and Latin America, and it’s much more significant. It’s global market cap at it’s weight.
Reese Harper: We do it the way the world exists and we don’t guess about, “Well, a little bit more U.S. maybe a little more Australia.” No. It’s we just let the market tell us. If the U.S. is the best place to invest money, then more capital will flow there, and we’ll … we’re just true indexers in those. Those have out-performed in the last five years, the other portfolios that we have, which are smart indexing, small cap and value, too. But, not every year. For some clients, not, depending on the time they started in the last five years, some clients are better off with those smart indexes portfolios.
Reese Harper: Personally for me, I don’t use ETFs right now in my own personal portfolio, for those smart indexes, because there are not … I like to have as few of positions as possible that target these indexes. So, I have one United States index, that’s managed by DFA, and Dimensional Fund Advisors is the company that probably has the most deep intellectual experience around smart index creation, that I’m comfortable with in one fund. They’re … you can have one United States mutual fund that takes a market cap rate position, a 10% tilt, you know, a 40% tilt towards these attributes. And, what they do inside the indexes is they still own the same number of stocks that you would in the market cap weighted tilt. So, let’s say there’s 3500 stocks in the straight index. Then, there’s 3500 stocks in the aggressively tilted index, all they’re doing is they’re weighting the stocks that have these attributes at a higher percentage than they would if they were in the market cap weighted versions. The beauty of that is you’re not having to combine multiple mutual funds together.
Richard Lowe: Change the dials on the …
Reese Harper: It can change the dial internally in the fund structure, but you don’t have to have capital gains that you create by selling and buying your small cap and your value fund and mixing it with your SMP 500. When Vanguard … well, a lot of people when they build their portfolios at Vanguard, they’re on like five funds, but they’re the U.S. targets.
Richard Lowe: That’s one of the problems. I was looking at everything. I was like-
Reese Harper: It’s a mess. It’s an absolute mess.
Richard Lowe: If I want to do smart indexing, I need to buy chunks of all these different funds. Then, you want the admiral version, say, then you need like 10 grand, at least in all these-
Reese Harper: In each, and then you’re out of bounds and you’re not diversified properly.
Richard Lowe: Which I, you don’t understand how happy I am right now that you just cracked open your two different styles and then also your personal and this other company like.
Reese Harper: Yeah.
Richard Lowe: We got there Reese. I’m so happy right now. I want to bring this back, because I feel like I’ve sent people over to you. They have then said to you, “Well, you’re kind of expensive.”
Reese Harper: Kind of expensive.
Richard Lowe: Yeah.
Reese Harper: I mean, we have, of our inbound calls, probably two-thirds of them end up signing up right now, of in bound calls. One-third of people probably say, “But I can do that cheaper or on my own.” Or I don’t know.
Richard Lowe: This is, for me, this was the nail in the, well I’ve already said that, but nail in the coffin, was the jobs to be done, but there’s a couple layers of things that I love about you guys. So, the love is just increasing. This interview just solidified all that for me, because there’s the education piece. There’s the elements. There’s the understanding your whole financial picture, and giving that to them. So that they can make decisions about their own life situations, their own financial picture. So that’s layer number one. Layer number two is all of the jobs that were required to get to that first state, and just the time back, that 44 hours of staying on top of all these things that I just said-
Reese Harper: Well, I guarantee it’s not going to take anyone else … I mean, for us, we’re efficient. It will take us 44 hours right?
Richard Lowe: Or 80 or 120. You know what I mean? Three times as much time to do the same things and the little things that just aren’t going to get done. I don’t want to do, I have zero interest in doing these little things to make the right decisions. So, that’s layer number two. Then, layer number three is you’re actual skill and philosophy at tilting and when to tilt, and not to tilt, and the way that you structure that, and the way that you index. I’ve secretly thought, “I think the way that they index is better, but I don’t know what they’re doing better.” You’ve proven to me today that you have such deep knowledge and expertise and strategy around the way and when and how you tilt, and how you invest these funds, that it’s just all the layers. It’s just I am very happy. It’s that meme of “Take my money,” the Futurama guy that’s just …
Reese Harper: Well, I appreciate you at least looking at that. I think the important takeaway for today is probably just seeing the complicated nature of indexing. That is a really good takeaway from this. I think it’s just not a simple conversation and the more we dumb it down, the less … it’s just not a service to consumers. If someone thinks that paying five basis points in a target date fund right now is the way that they’re going to retire faster, you’re basically flushing money down the toilet, because there’s a very, just for a slightly higher expense, we’re not talking like triple the cost. We’re talking about like, you know, paying an extra 40 bucks a year. You know? On your mutual fund expense ratios. You’re going to have an index that’s more precise to your goals.
Reese Harper: Now, fair criticism if somebody looks at hiring a financial advisor, and they’re like, “I don’t know if I can really afford to hire them.” We haven’t been targeting everyone for the last five years, as a firm. We know that there’s a big market. We know that people who are starting out, or opening their first practice or they’re in school, or they’re associates, they need a service model that we currently, we don’t have. We haven’t put all of our money and time and energy into that service model. That is coming and I rec … the two-thirds of people that are saying no to us, it’s usually because they’re just not in the right stage of their career.
Richard Lowe: Right. I’m kind of a Dave Ramsey apostate.
Reese Harper: Okay.
Richard Lowe: But secretly I still have Dave Ramsey influences and thoughts. There’s a lot of really, really good behavioral stuff I feel like. So, these next two questions relate to that. So, one is lifestyle creep. One way that I want to do that is to force ourselves to get a 15 year mortgage on a home, so that we buy a smaller home.
Reese Harper: Yeah.
Richard Lowe: Then, eventually as I’m investing and as I’m paying down other debts, to also paying down that 15 year mortgage, to the point where someday we don’t have a mortgage. What do you think of that strategy as a way to force your own hand, at not going nuts with lifestyle creep?
Reese Harper: I think it’s, for me, it’s a perfectly appropriate choice, if that’s your goal. You know, if that’s your goal, meaning, it’s fine. But, my real opinion would be it’s just oversimplifying the issue. The real issue is what percentage of someone’s income is going towards interest expense to service debt and what percentage do they have in free cash flow to do whatever they want to do with it? Then, what are they doing with it? Are they spending it all, or are they saving it?
Richard Lowe: So, let’s say this though. Do you think someone should buy life insurance, because it’s a for savings vehicle?
Reese Harper: No.
Richard Lowe: No. Right. Do we think that is it important for people to have a 15 year mortgage, instead of a 30 year mortgage, because they won’t have over their lifestyle and they’ll just get creeped, you know?
Reese Harper: I like that one better, because it’s not a bad place to put the money. It’s a good way to control. This example is one of behavioral controls that I don’t feel like it’s a bad or good thing. I’m neutral about this one.
Richard Lowe: It’s a strategy.
Reese Harper: Yeah. I’m fine with it. I’m fine with it. If you forced me to put my home on a 15 year mortgage because of lifestyle constraints, my business would not be what it’s worth today, because the extra two grand a month, probably was the reason I was able to hire someone seven years ago, real early on, that made a big difference. So the more you’re career becomes a fixed issue, meaning there is no opportunity costs anymore, meaning if you’re a single location and your know you’re always going to be a single location. You know you’re always going to keep collecting 1.2, and you’re going to be making 410,000. Then, if you’re going to not have self control to save that money, then put it on a 15 year mortgage, because that’s way better than just like getting lifestyle creep and having it explode on you.
Richard Lowe: Yeah.
Reese Harper: But, you know, I’d like to think that self discipline can exceed the financial instrument, you know. You don’t buy an annuity because you don’t want to freak out during a stock market crash. You just don’t freak out during a stock market crash and you have some self discipline and work with a financial advisor, because it’s much less expensive. You don’t buy whole life insurance for a for savings plan, and you don’t put you don’t put your house on a 15 year, because you’re afraid your going to spend it all. You know, you do it, because you’re housing costs, probably in the market that you’re in are probably pretty reasonable. If you’re still saving 15-20% of your income beyond that 15 year mortgage, then I like it. I mean, I like it, especially if your career is fixed. Mine has never been that way, meaning every dollar of real estate acquisition and every dollar of real estate equity and every dollar of anytime I want to save money for my future, it comes at the expense of growing the business. Some dentists are in that same case.
Reese Harper: If you’re trying to grow a multi-location DSL, if you’re trying to have a large exit, every dollar you spend on saving money for retirement, in a liquid vehicle comes at the expense of growing that asset. So, a 15 year mortgage is a pretty permanent retirement decision in my mind, and I wouldn’t do that until I was at a point where I knew I wanted to live in that house forever, and that it was my final property. At the moment I knew that, and my career didn’t have a lot of opportunity costs, then I would do the 15 year. In my mind there’s no reason to put it on a 15, because I’ll just make it a 15.
Richard Lowe: So, the next one. Budgeting. This is something that is really hard to do. I think a lot of people think they should or they don’t want to. There is a significant upside, if you can actually fit some sort of budgeting into your life, there is a financial upside to that. Of your clients, what percentage would you say have, are actively budgeting and living by a budget?
Reese Harper: Well, like I said earlier, because we started out practice kind of targeting the higher end of the market, meaning the dentist that was just super busy, super successful, the orthodontist, the specialists that was just like overwhelmed, they budget through the elements framework. Our element system is their budget. They’re very big, big, broad brushstroke budget items, like, you saved 31%, so consequently, you spend 51% or you spend 42%. We tell them whether that’s good or bad based on a year that has passed. Then they make an adjustment for the future year by us increasing their auto-draft, or bringing it to their attention that their spending spiked in a given year, or it’s them slowly growing. Those people don’t … you can tell them what you want. You can give them the best software in the world. You can have hours of conversation about it’s importance. They will not budget.
Reese Harper: Now, they like to know what they spend. They like to know whether it’s changing. That, to me, is very different than budgeting. Budgeting is the act of planning your spending and holding to that plan, which, everyone should do that for years of time, during their early career. Everyone should do that for years, because the habits you build doing that will teach you how to make decisions in a way that’s really healthy.
Reese Harper: We all have these moments of financial anxiety or stress when we realize what we wanted, or what we thought we wanted to do, I mean, say specifically what we hoped we could do, or what we hoped we could afford, or what we wanted, maybe isn’t in the cards for us. It kind of feels like … sometimes it’s a house we wanted. Sometimes that’s a big vacation. Sometimes that’s just an upgrade to our practice. Sometimes that’s bringing on a partner. I mean, there are these things we want, and then when we get down into them, we realize, if we do the budgeting in that moment, we look at budgeting. The way I look at budgeting, which is through this elements framework, then we realize certain decisions are just not options. I think personal spending is most effective when you’re looking at it every month and acknowledging what you spend. You’re not sure, after you’ve done it for a year or two, if you’ve never done it, it’s definitely worth the exercise.
Richard Lowe: That’s the retrospective, like on a monthly basis, retrospective budgeting. So you’re-
Reese Harper: Always that forever. Always that forever. But, proactive budgeting in advance, planning it out and not allowing yourself to do anything that’s not in your budget, that’s very healthy and I think everyone should do it or several years. But the higher income professional community, kind of the entrepreneurial, outcome entreprofessional community, they will not do that on a sustainable basis, once they become busy, busy people. I just don’t think it’s necessary. I think what is necessary is the retrospective 30 day look, and acknowledging what you spent, categorizing what you spent, and whatever act you choose, our clients use our platform. It’s powered by E-money Advisor, currently. There’s dozens of them. Personal Capital, Mint, Quicken …
Richard Lowe: I use YNAB.
Reese Harper: YNAB is a great one. Yup. There’s hundreds. I would just say that the important thing is retrospectively, at least looking back at the end of the month. Then, looking … I look at 12 month trends. I look at 3 month trends. You shouldn’t be having your, you know you’re spending too much if you’re savings rate is declining, as your income is growing. If your savings rate is going down, and your income’s going up, you got a big problem. If your spending is going up, you don’t necessarily have a problem. My spending’s much higher today than it’s ever been. But, I don’t have a problem. That’s just because my savings rates so high. You know. I think that you can continue to increase the amount you save and spend more as long as you’re earning more. If you’re not earing more, then you need to make sure you hold your savings rate, and at least hold it at 20% or more, at a minimum. I prefer to see it at 25, but that’s kind of how I think about budgeting. I just feel like it’s a guilt shame kind of oriented subject. It takes people away from the real issue, which is like what are we going to do this month. Unless we start extracting money from your account and not having you touch it, I don’t trust a lot of people to budget their way to financial peace.
Richard Lowe: That’s, you know, the automated potion of making the decision that we are going to save and then putting that on an automated schedule, that you’re monitoring and updating, is so freeing, because then, if you’re continuing to grow and your continuing to monitor that, then you can spend more, and feel great about it. So it seems like you guys have, for the people who are in this growth mode, and who are at that higher end, your platform serves as their budget. For everyone else, who is not quite yet your client, or maybe they’re going to be a better person for your app that’s coming out, or the most basic involvement with you guys, a little bit more intense budgeting makes sense for a period of time. So, that was the perfect answer.
Reese Harper: Yeah. I’m working on the right way to budget, for people. It’s going to be a big part of our platform, but it’s probably going to be B2 and B3. We have big visions for what we’re building with this technology. I think budgeting, a critical part of it. Most apps don’t … most apps budget in a vacuum. It really, it’s not that helpful outside of the financial planning context. Budgeting outside of financial planning being your primary objective, meaning, “I’m going to do this next. This is my next thing. This is what I’m doing.” You’re saving up for a practice right now. You’re trying to buy a practice. You’re trying to maybe buy a home in Indianapolis. You know, you’ve got all these goals. Budgeting in that context is really important. But, to me, that’s very different than …
Reese Harper: I just feel like budgeting ends up being a guilt thing that couples end up doing with each other, and one person resents it and the other one doesn’t. It becomes a really negative kind of thing. I just think that the more effective way to do this is report back to … the technology should just be really clear about telling you what you just spent. Right. How much it was, and what it went to, and where it went to. If you know that … if the app could just, in a really nice way tell you …
Richard Lowe: So, you’ve done this already on the show, of pulling back the curtain on how you’re simplifying your financial package. It’s easier for your clients to say yes. Talk to us about your development selling your services. It’s like right now, we’re doing a whole season on case acceptance. You wouldn’t want to tell a patient, “Hey, guess what. I’m taking a bunch of sales courses on how to get patients to accept more treatment,” because that’s kind of awkward. It can feel really weird to say it like that. I’m asking you to do exactly that, because we’re your clientele, and you’re closing these cases and your getting people who are now your clients. Where have you grown or what has helped you to get better at helping clients join you guys, and what did you do?
Reese Harper: Candidly, one of the weakest parts of our business right now is our sales training. Okay. For the first time in 15 years, we are bringing in a sales training psychology coach next year for a two day event. It’s someone I’ve known for like eight years. He’s not even really a sales training coach. He’s like a business shrink coach. It’s Peter Shellard, the guy that I’ve had on my podcast before. The reason I’m bringing him in is I’m like, “We’ve never done sales training here and I don’t even know what it means.” I don’t know what sales is. We need to talk about that. The reason I’m sharing that is, in my experience … this has been my personal experience. I know other people have alternate experience. Product always wins, in my own experience. Product wins.
Reese Harper: Some people will say marketing and sales wins over product. You can sell and market your way to a bigger business that sells spam, right, than you can call a local craft sausage company, like Creminelli Sausage here in Salt Lake. Marketing and sales wins with spam. It was a bad product. But, it’s got a big inventory of marketing dollars and a good sales process and distribution strategy. The thing that I’m worried about in my own business is just being able to articulate our value proposition clearly and being able to articulate why it’s important for people to hire a financial advisor, because you know, I think I’m trying. I’m building this app right now with the entire intention that the user will never have to hire and advisor. That is my goal with it. I’m not trying to upsell personal capital. I’m pretty sure … I don’t know if you’ve ever been a customer of personal capital or variety of apps, but, their app is an upsale platform. It’s a [crosstalk 00:48:20].
Richard Lowe: You go to and you realize, “I’m not learning anything here. This is not for the service at the end.”
Reese Harper: Yeah, I’m not building a lead gen tool. I want this, if it’s possible for what’s in my brain to get in someone else’s brain and have them save money, and not occupy another human’s time, I’m going to do everything I can to make that possible. I’m incentivized to make that happen.
Reese Harper: That being said, there is something about human connection and human interactions that is really, really important. I feel like most of us are better together. We’re better collectively. We’re better with other humans. We’re better with accountability. We’re better with friends. We want relationships. Some things, especially related to behavior change or education, I mean, I’m a customer of Plural Sight. I’m a customer of Linda. I’m a customer of how many online learning platforms. Mac Pro Video. You name it right. But, my most effective learning is always with other humans. That is where I learn, whether it’s a podcast, whether it’s a meeting, whether it’s an event. Why did dentistry … events in dentistry are still very vibrant. You know? It’s because people want to learn a lot of times in social settings. They want to learn from other humans. They like live. They like information. They’re more engaged when you’re doing video based training. A lot of the time, it’s a multitask issue and you’re not really emotionally there.
Reese Harper: The focus I would place on sales, to answer your question, has more to do with building the best possible product you could possibly build, and don’t think about how you’re going to sell it. Just build an amazing experience, and build an amazing product. Tell me why my product’s not the best product and I’ll fix that. But, telling … if people don’t listen to my content, and they don’t want to follow the way we’re thinking, I’m not going to go chase them down. You know, I just want to focus on the product. Life’s too short.
Reese Harper: The product needs fixed. The product needs to be better. The product needs enhancement. I don’t have time. I’m just going to go make it better. Then, let people continue to find us. That’s the way you build good stuff. Too many people focus on sales first. It’s like, open up a generic practice, with a generic vision, generic mission, no brand, no staff culture, no service values, and then go try to sell it. It’s just like we’re skipping way too much. You know? I just feel like that will come. Sales will come. Growth will come, but it comes to people who love people, who want to make a difference and want to make an impact. That’s where it comes the most, I feel like.
Richard Lowe: I love this, because at the heart of doing it well, I feel like is the conviction that what you have to offer has a great deal of value and that you are looking in the best interest of who you are helping. The true value is there. The passion is there. The take it or leave it attitude, ironically, can be one of the best converting methods of getting people on board, because they don’t feel that you’re selling them on anything. Not that you’re not intelligent about your funnel of people coming in, and your offerings that you have on your website, and the content that you guys are producing. So, I appreciate-
Reese Harper: Yeah. That’s good insight. That’s good insight.
Richard Lowe: I appreciate you opening up and saying, like, “That has not been our focus at all.” Because I think-
Reese Harper: Yeah. I mean sales, case acceptance sales, I think, that is very common, as a … I feel like people feel like that’s where the problem lives a lot of times. “I’m just not getting patients to accept my treatment.” We get a lot of training and coaching on it. I think in dentistry, a lot of times it’s probably more important than my business. I don’t think they’re directly comparable. I wouldn’t want to send the impression that you shouldn’t have training on that, as a dentist. In my own experience, in my industry, at least, there’s way too much focus on that. One liners. Elevator pitches. Hats. Gimmicks. I can’t stand it. It’s like the truth’s the truth. If you’re hiding that from a consumer, you’re not an advisor. That bothers me.
Reese Harper: I think that dentists sometimes don’t do a great job of explaining the truth about the negative effects of delaying oral hygiene and the negative effects of not being proactive with your total oral health. I think they don’t do a good job of that generally. So, that’s why people don’t come in. But, it’s not because I’m a good … you need some of that. You have to really believe that your service experience … right now, the way that I would look at it, I would say if people aren’t coming in, it’s because you don’t have a good service experience, because you’re not communicating.
Richard Lowe: I loved it when … there’s this book called Roadside MBA that I listened to in dental school, that talked about different services or goods that you can sell. One of them was, it was the realization that the experience of a dental office and the service of dentistry are the two products that we’re offering to people. Patients can’t judge for themselves the dentistry in a lot of ways, or in a lot of cases. They can’t really tell if this filling was better or worse than the next filling. But, the experience of being at that dental office, and how they felt and the values that were there, and the team that was there, that they can judge. They often judge the clinical dentistry, based on that experience, whether or not that’s a fair comparison or fair transfer of value. So, focusing on really making the best experience for the patient and focusing less on trying to extol the virtues of how good our dentistry is, and focusing more on what the patient cares about, and building that experience that your wife drives an hour and a half for can make a big difference.
Reese Harper: Yeah. That’s great insight man. Covered a lot of ground today. I really appreciate you coming in and take the time to have this conversation. I think it’s been an important one, and hopefully been insightful for people. I look forward to having you back again, as you get your crew out to the next stage of your life, which sounds like a pretty exciting next one. We’ll kind of dive into that more next time. Any parting thoughts you’d like to leave with listeners before we go?
Richard Lowe: No. Just if anyone is in that state where they’re pre-ownership, they want to be owning a practice, they feel like they’re in this early stage, come listen to our podcast, The Shared Practices podcast. We’re full of stories and examples, a roadmap of how to go from dental school to owning a practice and then learning how to run that practice.
Reese Harper: Yeah. It’s a great resource man. There’s few people like Richard, who are as passionate about this topic. It’s a great resource for people in that stage in their career. So, go enjoy it. Thanks again Richard, for coming on. Look forward to having you on again, next time.
Richard Lowe: Awesome. Thank you Reese.
Reese Harper: Thanks. Man, thanks Richard, for a great episode. I really appreciated his approach, taking the questions from the dentists point of view, and asking them in a way that I think was really helpful for all of our audience. If you ever have a chance, go to dentistadvisors.com/schedule to have a real consultation with a real financial advisor, and there are no questions that are off limits. Make sure and take the time also, to join our Facebook group at dentistadvisors.com/group, where you can ask questions that we’ll use on our upcoming Q and A episodes. We also answer the questions right there, and give you a chance to be able to get feedback right away. Thanks again for listening. Carry on.Investing, Income