What Dentists Want to Know — Listener Q&A #14 – Episode 232

Why your financial advisor should do more than just put money in your investment accounts.  

On this episode of the Dentist Money™ Show, Reese and Ryan once again answer your questions. Decisions about finances, taxes, legal issues, insurance, and real estate all have a major effect on the trajectory of your net worth.

Your finances are much more complex than many dentists think. Every transaction can have major implications with a bad decision costing you years of wealth accumulation. Who is asking the right questions for you? And, how much is their advice really worth?

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Podcast Transcript

Ryan Isaac:
Hello, Dentist Money Show listeners. This is Ryan Isaac. We’ve got a great episode for you today. Reese and I scoured the Seven Seas of the internet. We dawned our pirate belts and captain hats and swords and squash buckles, and we found the most exciting and profound and thought provoking questions on the internet about finances and money and investing in debt and spending all those great things. And we answered your questions and added our thoughts on this episode of the Dentist Money Show. As a reminder, go to the Facebook group, dentistadvisors.com/group. Post your questions in there. We will answer them directly and we will likely use them as content for the show. So thanks again for tuning in. Thanks for listening. We really appreciate it. Enjoy the show

Announcer:
Consult an advisor, or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor. 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 here with my trusty old cohost, Sir. Ryan Issac.

Ryan Isaac:
Still trusty, never rusty.

Reese Harper:
Colombia the Gem of the Ocean.

Ryan Isaac:
What’s the history of that song by the way? You’ve been singing it this morning.

Reese Harper:
Well, I first learned it at the Harper Family Reunion in Sun Valley, Idaho, where four generations of Harper’s gathered together in the woods and brought…. It’s like a classy kind of redneck gathering. Okay.

Ryan Isaac:
It reminds like-

Reese Harper:
Some people show up and they pick the dried [shrut 00:01:43].

Ryan Isaac:
…I picked the dried Shrut.

Reese Harper:
Yeah. Some people show up in a truck and there’s still potatoes in the back of their truck, like rocks from cleaning out their fields and they just… After they got done working, they drove out to Sun Valley. Some people show up in huge fifth wheel motor homes. Some people stayed in the cabins. It was at the youth ranch in Sun Valley, Idaho, where it was hundreds of people get together and we prepared for the great race, the Great American Race.

Ryan Isaac:
[inaudible 00:02:15] Harper. And there’s a [inaudible 00:02:16] that’s actually, we’re going to tie that in today.

Reese Harper:
There’s a blacktop basketball court in the middle of the youth ranch. And everyone by age group would set themselves up to race. So the two year olds would go, and then anyone who can walk and then the three year olds and then everyone who’s four and everyone who’s five. They eventually get up to the adults. It’s very competitive. And some people just do one length of the blacktop. Some people have to go back and forth and it’s a dusty pebble rock surfaced, blacktop basketball court, where you got a bunch of very competitive adults running and pivoting on a dime at the one end of the basketball court.

Ryan Isaac:
Oh, You got to go and turn.

Reese Harper:
And turn and head the other direction. So you get them sliding, slide into the end slide and back.

Reese Harper:
It was a very bloody and scratchy chippy time. And a lot of debate, the referees were never… It’s never easy. A lot of the adults felt they won when they really, it was a tie. Anyway, the thing that we did [crosstalk 00:03:24] to end our family reunion, we say in Columbia, the Gem of the Ocean as a parting gift. And I’ve never really understood how it got started. It like it goes on forever. If you haven’t seen that song, just go Google it and listen to Columbia, the Gem of the Ocean. And everyone just sat in this big group and we sing it. And when you’re like a 10 year old kid and you’re just like, “Why are we singing this song?” I do not know. I don’t understand it.

Ryan Isaac:
It doesn’t matter.

Reese Harper:
It doesn’t matter. I would set up little traps to catch squirrels and chipmunks. I would roast my marshmallows. It was a good old time. And I guess it just really, it just felt like the time to share that with the audience.

Ryan Isaac:
Well, you didn’t know this, but today what we’re going to get ourselves into here is we scour the internet for gems of good financial questions.

Reese Harper:
Mm-hmm (affirmative) Really?

Ryan Isaac:
It’s perfect time… You didn’t know that it was a perfect tie in, Gem of the Ocean.

Reese Harper:
You’d be surprised what I found today to tap this off.

Ryan Isaac:
That’s what I’m talking about. C.

Reese Harper:
How’d you hear that kind of went out of tune.

Ryan Isaac:
[inaudible 00:04:36] Yeah. It resonated some feedback.

Reese Harper:
We lost our [inaudible 00:04:40].

Ryan Isaac:
You plugged it into a distortion paddle.

Reese Harper:
Yeah.

Ryan Isaac:
Okay.

Reese Harper:
That’s a sign for those of you who have not heard the bells. That is a sign of listener Q and A. It’s our new listener, Q and A, C for chee moment.

Ryan Isaac:
C for chee. We scoured the web for the best questions. We found some great ones, just a little plug, by the way. A lot of these questions come from our own Facebook group, dentistadvisors.com/group. And they come from other places too.

Reese Harper:
Yeah. We get a lot of questions. And our dentist advisors, Facebook group, we get a lot of direct message, feed questions. I get a lot on Instagram.

Ryan Isaac:
That’s true, yeah.

Reese Harper:
If you have… If you want to ask me a question directly @reese harpercfp on Instagram, or you can go to @sirryanissac on Instagram. They’ve got a good little audio recorder deal. And I get a lot of questions in there from dentists.

Ryan Isaac:
Yeah. We’ll shoot back answers we’ll use it for content [inaudible 00:05:34].

Reese Harper:
We don’t have a large following friends, but our following is loyal and they ask a lot of questions because they know they’re going to get straight answers from Sir. Ryan Issac shooting them straight.

Ryan Isaac:
Sorry, my six shooter.

Reese Harper:
Yep.

Ryan Isaac:
I mean, know what that means? All right. First question. We’re going to tackle here. This is a… We want… If you want to shout out for your question, we’ll do that when you post in our group. But I won’t name any names from anyone else’s group. These are just good questions. This did come from the Dental Investment Group. So thanks. Sunny and crew over there. This person was considering the purchase of a seven figure commercial building a little… Was that D or G or C?

Reese Harper:
That’s an intro is a G to introduce your question.

Ryan Isaac:
That’s a G. I knew that was a G. Considering purchase of a pretty expensive commercial building over a million dollars. They’re going to pay for it. Or some of it through a refer. They’re going to refinance a residential property rental property that’s paid off. So they’ll refy some of the equity out of there and get some money out of there. They’ll pull equity out of another commercial building that they have a couple hundred thousand bucks.

Reese Harper:
It’s a rental they’re going to pull out of, right?

Ryan Isaac:
Two things. Yeah, exactly.

Reese Harper:
Yeah.

Ryan Isaac:
Another commercial building and a rental. And then… So this person has five to seven years more to practicing. They’ll be bringing on an associate or selling to a DSL. They’re not sure they’re still figuring that out. But so the question was, “Is this too much leverage?” That was the question. So I would preface this preface, what did I just say? Preface is the right word.

Reese Harper:
People know you can’t speak English.

Ryan Isaac:
Keep calm.

Reese Harper:
It’s not your first language.

Ryan Isaac:
If you’ve known me, [crosstalk 00:07:11].

Reese Harper:
Finance is your first language.

Ryan Isaac:
Uh Math. I actually have this physics. This…

Reese Harper:
Here we go.

Ryan Isaac:
Mechanical engineering professors, this German guy. I wish I remember his name. He was one of the most interesting, crazy people I’ve ever known, but he had always yell. He’d always be like, “Math is the only pure language. It’s the language of God.” You’re like, “So math”, math is my first language.

Reese Harper:
That’s good. I like this. So to recap through-

Ryan Isaac:
There’s this-

Reese Harper:
let’s say it’s a… I think, I don’t remember the exact price of the building. This was at a-

Ryan Isaac:
1.25.

Reese Harper:
So it’s 1.25 and then you have a… You’re going to take out equity out of the rental.

Ryan Isaac:
Yes.

Reese Harper:
And take out equity out of another commercial building?

Ryan Isaac:
Yes.

Reese Harper:
Which totaled like… Which put the other two properties in a high leverage situation.

Ryan Isaac:
Yeah. Rentals paid off. So we’re going to take money out of a paid off property. You’re going to get another mortgage on it.

Reese Harper:
Okay. And then what are we doing with the other property?

Ryan Isaac:
We’re going to pull 200 grand out of equity from the other one.

Reese Harper:
So we’re going to pull 200 grand out and cash out our rental-

Ryan Isaac:
Residential paid off residential.

Reese Harper:
…in order to inject enough cash to buy the commercial [crosstalk 00:08:26] property.

Ryan Isaac:
That is correct.

Reese Harper:
And I’m going to have it for five to seven years, right?

Ryan Isaac:
Exactly.

Reese Harper:
So the question is, “Am I over leveraging at this stage of my career?”

Ryan Isaac:
Hey, Matt, what do you like to drink or snack on when we do our webinars every month?

Matt Mulcock:
Yeah. That’s a good question. I’m usually hitting a Red Bull, but it’s hard because there’s an evening webinar.

Ryan Isaac:
Yeah. These evenings webinars taking place 6:30 PM, mountain standard time.

Matt Mulcock:
Mountain time.

Ryan Isaac:
Once a month.

Matt Mulcock:
Where do you find it?

Ryan Isaac:
Well, if you’d like to find the webinar or you’d like to register for it, you go to dennisadvisors.com/webinar, or just go to the website and click on webinars under the education tag.

Matt Mulcock:
It’s a good time.

Ryan Isaac:
It’s a great time. What kind of things do we cover in our webinar, Matt?

Matt Mulcock:
So each month we’re going to hit an element, right? So it’s going to be some component of your financial life. We’re going to dive a little bit deeper than we would like on the Dentist Money Show, right? We’re going to draw pictures. There’s live polls. You can ask questions.

Ryan Isaac:
Yeah. It’s great time.

Matt Mulcock:
Yeah. It’s a good time.

Ryan Isaac:
Well, we’d love to see you in attendance at one of our fantastic webinars. Just go to dentistadvisers.com. Sign up today for the next one. Thank you very much.

Reese Harper:
There were a lot of responses that came to this question right away, right? I saw a lot of people immediately giving him a thumbs up or thumbs down answer based on the data that he provided, which is very typical for someone who make a yay or nay, like yes do it.

Ryan Isaac:
Yes.

Reese Harper:
It’s like, “Yes, that sounds good.”

Ryan Isaac:
Perfect.

Reese Harper:
Commercial real estate is great. Or you have way too much leverage you’re way too leveraged, right? Like immediately yes or no. Some people wisely said, “I don’t have enough data. I don’t have-

Ryan Isaac:
Yes.

Reese Harper:
…I don’t have enough information.

Ryan Isaac:
Does not compute.

Reese Harper:
Does not compute. And what are the things that we do not know? Number one, we don’t really know what income is. Is that right? I don’t really know what-

Ryan Isaac:
Don’t know, we don’t know.

Reese Harper:
I don’t know what income is. So I can’t even tell you if you’re too leveraged until I know how much you make, because the precise [crosstalk 00:10:32] definition of leverage isn’t the… This question was asking about an asset to debt ratio, right? Do I have too much debt for my level of my assets and my response to that would be, “I don’t know”, because leverage is not defined that way. The way I see it, it’s defined as how much of-

Ryan Isaac:
Disturbing context.

Reese Harper:
…your income is going towards those payments. That tells me if [crosstalk 00:10:57] it’s more concerning to me.

Ryan Isaac:
Yeah. And it’s like the way that we track every piece of financial data for all of our clients, they’re all ratios, all of our elements every month are ratios, they’re not single pieces of data in isolation. It’s not, “This is how much debt you carry only.” It’s, “This is how much debt you carry compared to your income and your net worth and your liquidity.” And everything’s a comparison.

Reese Harper:
Yeah. And so if someone was making $250,000 and they were to have a $900,000 loan on that new commercial building, plus a $200,000 loan on their residential rental, plus a… I don’t know what the loan is on the commercial.

Ryan Isaac:
Oh, the commercial. Oh, you know what that actually was in there. The commercial debt… I think it was worth like here I’ll get to it right now.

Reese Harper:
It’s okay.

Ryan Isaac:
It was worth like eight something. And…

Reese Harper:
Clearly there’s debt on the residential there’s debt on the commercial. And now we’re going to have-

Ryan Isaac:
Four hundred.

Reese Harper:
…a new commercial loan.

Ryan Isaac:
Four and a quarter on the building worth eight.

Reese Harper:
And so-

Ryan Isaac:
[crosstalk 00:11:58] leveraged.

Reese Harper:
I think if your income was… Depending on where your income is at you’re going to be fine on that transaction from a… But if your income is… Let’s say you’er… if we calculate all the payments and your total payments on all the buildings was 45% of your income, I would probably start to get nervous and say, “Yes, you probably are a little too leveraged” because we haven’t even added up your primary residence mortgage, which I assume you still have from this question.

Reese Harper:
So just interesting to me though.

Reese Harper:
There’s a lot of other pieces of data. Those are some, the income level is one. What other things would you ask?

Ryan Isaac:
Oh, I was just going to maybe frame this in the context. If this was a new client of ours, let’s say they just hired us. We’re going to be their advisor. And this was one of their main primary, first priority is to figure out What would we gather and use to answer this question? So you’ve said, “Other debt” you’ve said, “Income”. I would go a little bit on goals here, a five to seven year exit. It just be interesting to know what else does this person have on their balance sheet? Is there other real estate? Is a big chunk of their retirement coming from real estate? How liquid are they in after tax accounts? How much is sitting in pre tax retirement accounts? What do they spend every month? Who’s managing these things? Do they even like real estate? Why are you buying a big building five years before you stop? Are you going to keep buying?

Reese Harper:
You’re asking too many [crosstalk 00:00:13:31].

Ryan Isaac:
…in retirement.

Reese Harper:
…questions. You’re confusing my listeners now.

Ryan Isaac:
Those are millions. They don’t know.

Reese Harper:
These are all… No [crosstalk 00:13:37] it’s like, hold on. Anyway, what I was going to say was I want to pause on a couple of those, because I think they’re really great.

Ryan Isaac:
Yeah. Cool.

Reese Harper:
You said… You highlighted this goal kind of concept. And I feel like if you’re going to go and buy a new piece of property, that’s five to seven years away from liquidation. You got definitely want to put the brakes on because you could be going into a 2000 and what say we’re in 2011 right now, or 2007. It’s very different if I’m in 2011, versus if I’m in 2007 or 2006, if I’m in 2005, I’m buying right at the point of a pretty steep appreciation in property. But seven years later, I will be at the bottom of the real estate market. And.

Ryan Isaac:
I will lose my shoe

Reese Harper:
I will lose my shirt on this deal.

Ryan Isaac:
You could have said something else. And that’s assuming liquidation is the goal too, right?

Reese Harper:
Yeah, we don’t know.

Ryan Isaac:
So the answer if this person’s like, “Should I buy this seven years before I’m going to sell?” You’d be like, “No way, man. Don’t do that.”

Reese Harper:
Totally.

Ryan Isaac:
Don’t leverage other things to buy a commercial building. You’re going to sell in seven years.

Reese Harper:
But if this Person said, “I want to hold. This property is in a”-

Ryan Isaac:
30 year.

Reese Harper:
…Here’s what I would say, “Yes, do it”.

Ryan Isaac:
Okay final answers.

Reese Harper:
If your other properties are in mediocre to average locations, and you’re planning on selling that residential rental, because the cap rate or the income that you’re going to generate from the new commercial building because of the location and because of the prime spot that it’s in and that you’ve acquired this land from several years ago and you’re sitting in a good debt to income position potentially, because it’s going to kick off such a high yield. Like maybe you’re going to make nine or 10% on it if you put renters in there and it’s already new and its conditions are great. And you plan on holding it for 20 years because it’s your retirement income plan, then I’d say, “Okay, that makes sense to me.”

Reese Harper:
Dump the rental that’s about to need a complete remodel and… Or just finance this property and minimize the down payment that you put towards it. Because if it’s kicking off that much of a yield man, it’s going to be… It’ll kick off enough profit for you to be able to make repairs to your other properties or maybe pay them down as well. Once you leave the building and you hold onto it through retirement.

Reese Harper:
So a great question a lot there. I think the theme here is before you make a decision, consider all of the implications of that decision, because you’re… If you’re going to refinance properties and pull equity out, that’s not always a non taxable event. In some cases that you’ll pay tax to do that, and that’ll create a capital gain and that may affect your overall return that you’re going to earn from the new purchase. And for the most part, Ryan and I don’t like the idea of building wealth inside of real estate over short periods of time. It’s not a good short term.

Ryan Isaac:
Same with stocks. [crosstalk 00:16:51] It’s still the same way with the public markets.

Reese Harper:
It’s not a short term practice. This isn’t a five year flip it decision, usually, you don’t quite make enough money and it’s a short period of time. Anyway. Great question. Love it.

Ryan Isaac:
What do we have next on the docket today?

Reese Harper:
That felt like a gem of the sea.

Ryan Isaac:
I think it was definitely a C for chee.

Reese Harper:
C of the gem of the ocean.

Ryan Isaac:
Okay. So we started talking about this question back in episode 212, why there’s more to ROI than you think. And then we answered those questions. The questions we posed in 212, we answered ourselves thanks our listener, Shout out to Clint, the Kalman, on episode 214, we answered these questions, but one of the questions has to do with the job of a financial advisor and like trading and rebalancing accounts. And so here’s the question or here’s the thought, okay, “Someone hires a financial advisor when they’re starting out in their smaller, the dollar amount of the fees they pay. And we’re just going to assume this advisor as a fee only fiduciary advisor, okay. It’s only just, they’re getting paid a fee. There’s no commissions, anything like that.

Reese Harper:
For those who are tuning in for the first time you’re going to want a reference there’s different types of financial advisors out there, and you may be in what we call the Wolf in sheep’s clothing, or the sheep in wolf’s clothing. I don’t know.

Ryan Isaac:
She might be in what they call a bear trap.

Reese Harper:
[inaudible 00:18:16] affectionately refer to as death.

Ryan Isaac:
You might have your hoof in a bear trap.

Reese Harper:
Your hoof is caught in a giant bear trap. Okay.

Ryan Isaac:
Of commissions. Another discussion. But anyway, someone starts with a fee only financial advisor in terms of dollar amounts. Their fees are relatively small because their accounts are small complexities, very small, but over the years, this person eventually accumulates millions of dollars and a fee to a standard going rate competent fiduciary financial advisor becomes tens of thousands of dollars per year that this person is paying for comprehensive financial advice. Okay. It’s like down the road, we’re like 20 years.

Reese Harper:
I’ve got millions and now I’m paying that.

Ryan Isaac:
I’ve got millions and millions of dollars and I’m paying someone 20 30 grand a year for financial advice. We’re making a lot of assumptions here. The person’s a fiduciary that there’s high amounts of planning and communication and a very complex process being [crosstalk 00:00:19:17].

Reese Harper:
They’re spending 15 to 20 hours a year on your case, okay-

Ryan Isaac:
Easily.

Reese Harper:
So there’s some good.

Ryan Isaac:
A lot of work is being exchanged for the money.

Reese Harper:
I don’t know where you’re going with this, but I’m just helping support the thesis.

Ryan Isaac:
Yeah. These are these of the assumptions. Okay. But so here’s this train of thought is that at some point there’s a dollar amount where someone starts going, “Uh that’s a lot.”

Reese Harper:
Hey, bud.

Ryan Isaac:
I’ve gotten a lot of advice over the years. Isn’t it just the same thing. If now that it feels like a lot of money. I just take these accounts. I know what the holdings are because we’ve been doing them for 15 years. I’ve seen the rebalancing. You’ve helped me automate my savings every month. I kind of shouldn’t I just take these accounts, put them in my own name somewhere, stop paying an advisor and just… I can set up my own automated drafts and I can just keep the money going into these small group of mutual funds in my low cost diversified account.

Ryan Isaac:
And should I just do that? Cause now that I know what the allocation is, I can just save the fee and I can just go set up my own automated drafts and I shouldn’t pay an advisor that much money at some point in my life, right?

Reese Harper:
So you’re saying that there are some people that think this way?

Ryan Isaac:
Yes. I’ve seen this argument and actually have this conversation. And I think this stems from a misconception that… Well, it’s a misconception based on somewhat reality because the misconception is that all an advisor is doing is their main job is just to put money in your accounts.

Reese Harper:
Well, and most [crosstalk 00:20:46] for a lot of advisors, that probably is what they are doing, right?

Ryan Isaac:
That’s what’s happening?

Reese Harper:
Their business is primarily just a intermediary for you to give them money and for them to buy stuff.

Ryan Isaac:
Yes, give us money, buy stuff. And that stuff could either be mutual funds or index funds in an investment account. It could be a insurance policy or an annuity that misconception is happening just because in reality, that’s what a lot of is happening in the industry.

Reese Harper:
Yeah.

Ryan Isaac:
But that’s not the case in our assumptions. So-

Reese Harper:
That is the way to make the most money possible as a financial advisor. If you just take people’s money, charge them 1% and then don’t do anything and hope they don’t bother you.

Ryan Isaac:
And this isn’t a sarcastic joke, by the way, this is actually bragging rights as a financial advisor.

Reese Harper:
I was talking to somebody recently who were like, “Dude, I’ve got 300 clients and I just have them trained do not call me.” I’m, Oh, wow, good for you.” I sure hope the rest of the world feels so committed to their profession and helping others. I’m glad you’re so caring and sticking your neck out there.

Ryan Isaac:
They have the bragging rights though. That’s like a… So for anyone who’s familiar with our industry, that’s a thing.

Reese Harper:
Okay.

Ryan Isaac:
It’s a thing.

Reese Harper:
Trying to think of a parallel in dentistry. It would be like, “Come on in” dentist says, “Dud you know what’s cool. I got 4,000 active patients and it’s just me-

Ryan Isaac:
On a payment plan.

Reese Harper:
…with no associate on a payment plan. And if they come in [crosstalk 00:22:29] and they sit in the chair. I literally give them nitrous and tell them I do stuff on their teeth and they don’t even know.

Ryan Isaac:
And they only do it once every three years.

Reese Harper:
And… [inaudible 00:22:39] they don’t even know. So it’s awesome.

Ryan Isaac:
Oh, it is.

Reese Harper:
That is kind of the parallel. It’s scary, it’s sad.

Ryan Isaac:
That’s where this comes from. It’s sad. It’s scary.

Reese Harper:
And then on alternatively though [crosstalk 00:22:53] in… I know you’re going somewhere with this, but-

Ryan Isaac:
No, keep going.

Reese Harper:
…a firm like ours, we’re actually really asking the question, “Man, we could spend a hundred hours a year on each client and not run out of things to do, but we would go broke.” So how… What’s the amount of time that you can dedicate that is generous and fair and it gets all the essential things done that they need to have done, but don’t like over service because then you’ll have to charge too much. And you want to find a nice, happy, medium between like, “How can we keep our pricing accessible for people, but do all the essential things they need to have done and not miss things and be responsive.” If You want it to be when they call in that, you’re able to pick up the phone and you can get back to them quickly and you can…

Ryan Isaac:
And you have a process that during the year has gathered enough data. So when someone calls in you give an educated answer based on data and context and history-

Reese Harper:
Yeah. For those-

Ryan Isaac:
…and progress, not a guess.

Reese Harper:
…of you who’d not yet seen our system, you may not have a relationship like that, but most relationships are, you will call into your advisor and he will say, “Okay, well we should have a meeting and talk about that. Can you bring in all your stuff? Or can you get me everything?” And that is inefficient. It takes a lot more of your time. You want to be able to have answers on demand more quickly. [inaudible 00:24:19] have a question.

Ryan Isaac:
Yeah. I’ll ask this another way.

Reese Harper:
What’s the question? That’s the question they’re asking, right?

Ryan Isaac:
Yeah. That’s the question I’m asking, right?

Reese Harper:
And your answer is, “Hey, that’s not actually the thing you were paying for all along the way.”

Ryan Isaac:
If it was then yes.

Reese Harper:
If it was You need to bounce and find a new person.

Ryan Isaac:
Yeah. [crosstalk 00:24:42]

Reese Harper:
Because you’re paying a lot of money for this thing you should be getting a lot of value. Yeah.

Ryan Isaac:
What an iPhone have to do for you. So if all you need is an account with some cheap mutual funds and an auto draft, then you can do that cheaply. You should leave your advisor and go do that somewhere else. If that’s all it is.

Reese Harper:
Yes. But we would suggest that for most of you, there are a lot of things that you’re probably not doing without an advisor.

Ryan Isaac:
Yeah.

Reese Harper:
That might be worth paying for at the point in your life where your complexity is the highest and your time is the most limited. And you’re trying to spend time with your relationships probably more than anything. And you’re trying to like back off of the intensity of work and money it’s like precisely the time in life where the financial advisor adds the most value. There’s the most tax related tasks. There’s the most legal related tasks. There’s the most insurance related work. There’s the most amount of investment and tax related, planning on your investments at that stage.

Ryan Isaac:
In different buckets, you have the most amount number of accounts you’ve ever had with the biggest balance and a bit of a bend.

Reese Harper:
Yeah. And there’s the biggest cost. The cost of withdrawing money, the right way out of each account in a tax efficient way is not easy to figure out as we’ve seen, even in the last couple of years as tax laws have changed even more. And so I feel we look at situations… When we look at complexity, we see that the more people accumulate and the more wealth they accumulate, that is the time when they have the most work to be done. And it correlates pretty well with net worth and assets that you accumulate that correlates with complexity.

Ryan Isaac:
Income, yeah.

Reese Harper:
And so when you’re younger you don’t have quite as much complexity, but that also-

Ryan Isaac:
But your fees are smaller.

Reese Harper:
…your fees are smaller. Yeah.

Ryan Isaac:
You pay less money for it.

Reese Harper:
Yeah.

Ryan Isaac:
It’s pretty commercial rate. My personal bias from my experience in this industry, and I think data and science back this up pretty well. I would also tell that client who’s been with an advisor for that long has accumulated that much money, that without a competent advisor in the picture, that entire time you would not have accumulated that much money.

Reese Harper:
Yeah.

Ryan Isaac:
I don’t believe that you would have. I think it’s…

Reese Harper:
Most people… [crosstalk 00:27:04] I would think it’s fair. I would say most people will not accumulate as much wealth when self-directing without the input of an accountability partner.

Ryan Isaac:
Yeah. I don’t believe that at all. Yeah, totally.

Reese Harper:
What do you think?

Ryan Isaac:
I totally don’t believe [crosstalk 00:27:17] at all.

Reese Harper:
I just know my clients, my personal clients, looking at the way they make decisions with the… Sometimes the somewhat emotional high stress life that they lead. They are more likely to have… I just know that I’ve protected their wealth just by being there and talking them through decisions that they would have otherwise just made that would have cost them. It’s not always like speculating on an investment that they would have done. So now it’s just like making a bad tax decision or making a bad debt decision or making a bad practice expansion decision. And these things are so consequential. They’re so costly that you’re almost at 1% on your liquid assets. If you’re paying 1% to a financial advisor, it almost pales in comparison to the cost of the mistake. The cost of the mistake is infinitely more than the cost of having an advisor along the way.

Ryan Isaac:
Especially with multiple mistakes compounding over years and years.

Ryan Isaac:
We wanted to take a break for just a second, remind you how easy it is to book a free consultation with one of our dental specific advisors. What you do is you go to dentistadvisors.com and you’ll see a big green button that says, “Book free consultation.”

Reese Harper:
Can’t miss it.

Ryan Isaac:
Click that button and book a time that works for you. Or you can just call us at 833-DDS Plan. Let’s start a conversation about how we can help you with your finances.

Ryan Isaac:
Let me ask you this another way. Here’s the other way this question is posed is, “Well, Why do I pay more money to have someone manage a million dollars than I do to have them manage 10 grand? Because isn’t it like, don’t you push the same buttons? Isn’t like why does it cost more money to manage more? like isn’t the same process isn’t trading the same thing, trading a million dollars or investing a million dollars. Isn’t the same as 10 grand.” You hear that a lot. And you were addressing that in those other episodes.

Reese Harper:
Yeah. It’s a little more complicated, but not very much just on the investment side.

Ryan Isaac:
The logistics.

Reese Harper:
The logistics.

Ryan Isaac:
Cushion the [inaudible 00:29:33].

Reese Harper:
Well the cost of making a bad trade and making a tax mistake on a million dollars, let’s say you were to rebalance account and trigger capital gain. I’ve got a multimillion dollar account right now that I’ve been obsessing over for three weeks because of the tax impact of any trade I’m about to make.

Ryan Isaac:
I’m doing that right now. [crosstalk 00:29:51]

Reese Harper:
Yeah. It’s like, “Ooh yeah,” It’s like each position has hundreds of thousands of capital gain in it. So I can’t just be as cavalier, the account moves to a custom place. If it’s a comprehensive relationship and you’re dealing with taxes, debt, real estate questions, practice management, relationships, coordinating ideas between consultants and practice brokers. My main conversation this morning was comparing multiple offers from different practices, two different DSOs. It’s like what financial… If your financial planner is that active in your life, that they’re analyzing your compensation for your associate.

Reese Harper:
And they’re… The thing you would like them to do, hopefully, right? You hope that you hire-

Ryan Isaac:
Or pick up the phone or answer a text or an email, whatever you want.

Reese Harper:
…If it’s Saturday and you’re stressed out and you want to kick a text over to your advisor, that’s a personal person. Who’s known you for a decade and understands.

Ryan Isaac:
Who lives in a house, not a call center?

Reese Harper:
Yeah. And they’re just there-

Ryan Isaac:
Has a family.

Reese Harper:
…or they want to meet for… They want to grab coffee or a quick lunch and chat with you. I just feel like that person, you can’t really… I’ve looked at this a million different ways and it just costs more hours and more time to service people that have larger net worth and higher incomes and bigger investment account balances. It just correlates with questions that they have in their life that are more complex.

Reese Harper:
And so getting paid on someone’s account, it’s an imperfect system a little bit, right? It’s not perfect. Two people with a million dollars, aren’t perfectly identically complex. A lot of it has to do with their income level and their-

Ryan Isaac:
Personality [inaudible 00:31:54]

Reese Harper:
…personality profile and the number of entities they have. And, but man do you want your financial advisor to be racking up hours and sending you an invoice every week? Do you want to think that every time you pick up the phone, you’re going to get billed 400 bucks an hour? That’s what it will become if you feel that way, it will turn into a legal industry or a tax industry where it’s all fixed fee work and there’s not any value based billing at all. And I think it’s just important for people to realize when they’re trying to drive down costs of service providers. I just think that might be the wrong place to focus. If they’re really adding a lot of value, if they’re not adding value, then you should definitely not-

Ryan Isaac:
Discuss it with them.

Reese Harper:
Yeah.

Ryan Isaac:
Make sure you’re getting them. Maybe they can, and you’re not getting the most out of it, discuss it with them but if they [crosstalk 00:32:50]

Reese Harper:
Or swamp people out. If there’s two CPAs and both of them charge you $500 a month or both, or a thousand dollars a month, and one has three times the value because they’re specialist and because they’re narrow and focused on your industry and they have a better service lineup, yeah, you should switch. You should switch service providers to get maximum value for what you pay. But sometimes a little bit more payment can result in four times the value or sometimes less money can result in triple the value. It just depends on your situation, but I don’t think people realize that AUM based financial planning, when they pay a percentage on their investment accounts, you’re not paying for them to manage the account anymore. Not in today’s world. That used to be the case, I think it in-

Ryan Isaac:
Yeah, that’s what technology disrupted.

Reese Harper:
That’s what technology disrupted. And now if you’re going to compensate somebody in that manner, they really should be providing more value and… What I’m saying is most people are looking to us to leverage their time. They’re trying to not have to deal with this. And if we’re… The bigger they get and the more they have in assets and investments and real estate and net worth, it just adds a lot of hours to do planning the way our clients want it done. And so I think that’s why that question is confusing to people, but also the right answer that, I think at least for us, that’s the right answer for us.

Ryan Isaac:
I like that topic too. Like what creates complexity? I think sometimes people hear that and they’re, “I’m just a dentist with a practice. Why is that complex?” We should probably hit that on another one because I think that’s a great question. And I don’t know if you want to touch on this. It’s on the same subject though. As an advisor, the stress level of dealing with someone with a little bit of liquidity and money versus working with someone with a lot of liquidity and money, it’s just a totally different interaction when you’re helping people make major financial decisions with hundreds of thousands or millions of dollars, the pressure and stress of that is so much greater than when you’re making those decisions with small amounts of money.

Reese Harper:
And consequently, the cost of a financial advisor who can handle that pressure and deal with that stress and has the experience-

Ryan Isaac:
Here you go.

Reese Harper:
…level to manage that complexity-

Ryan Isaac:
What does it cost a firm to hire that person?

Reese Harper:
…that person is not going to be working for cheap because it’s too stressful. The job is not easy and you want them to be compensated well because they’re to be helping provide you with advice in so many critical areas of your life, precisely, at the time you need it most and can have a major effect on the trajectory of your future. So I just think it is more stressful. I’ve definitely felt that as people get more complex and wealthier, and it’s nice to have somebody you’ve been along the journey with, since you were not… I like growing with people you have a chance to get to know them and really provide your best advice in year 10 man.

Ryan Isaac:
[inaudible 00:36:12] six years.

Reese Harper:
Year 10 to 12 year. You’re seven to eight with a client. You’re five it’s way, better than year one. Your advice is just a lot more informed because you know them so well.

Ryan Isaac:
Yeah, it’s all agreed. Anyway. Okay. I like it. Those were the gems of the sea that we found this week and-

Reese Harper:
Thank you for the family reunion, Columbia.

Ryan Isaac:
…Started with the jingle. And we started with a black top ladder racing story, the Harper Family Reunion. And in with a little note here, I guess.

Reese Harper:
Thank you friends.

Ryan Isaac:
Thanks for tuning in. Thanks for listening. We really appreciate the support. And for you guys listen to the show every week. We take questions from our Facebook group, dentistadvisors.com/group. We also Don our sea captain hats and we Sail the Seas of Cheese on the internet and we find good questions. So just keep them coming. Just post everywhere. You can. We’ll find these questions. We’ll put them here. If you want to have a chat with one of our advisors about any of these things, we have knowledgeable, experienced, very happy, nice people standing by who can answer your questions. So go to dentisitadvisors.com.

Ryan Isaac:
Advisors are standing by. Advisers, standing by. And it’s like a telephone. Just call, they’re waiting for your call right now. dentistadvisors.com book a free consultation. Thanks again for joining us. We’ll catch you next time.

Reese Harper:
Carry on.

Investing, Real Estate