HOW TO MINIMIZE THE NEED FOR A FINANCIAL ADVISOR
I want to talk a little bit about life as a financial advisor in its traditional form. Then I want to talk about life as a modern, licensed financial entrepreneur, where the industry is going, and maybe a little bit about how the difference between the two affects things from the client perspective.
When I was starting off as a young financial advisor working for a small broker/dealer-style firm, they had me get all the licenses and basically said, “Hey, once you get the licenses, you're good to go.” Most of the firm was former military, and many of them were West Point grads, so I assumed things were good to go because I was licensed and had all this experience around me. But things definitely didn’t play out that way. I was working under a Certified Financial Planner and around many successful advisors in the firm, but it still seemed like everybody was just making things up as they went along. And even though these people were very successful, were making a lot of money, and had relatively happy clients, I just didn’t understand what it was all for. It was very confusing; but like any good soldier, I kept following orders.
I also read all the books I could find about building a financial planning practice, because I was really struggling, and nobody was very good at teaching the “business” part of being a financial advisor. They just said, “Go talk to nice people and tell them to invest with you.” Gee, thanks for the tip…
I realize now that this is normal in this industry; firms don't really teach you how to be successful, they just teach you how to bug your friends and family, which is difficult for a lot of new advisors, so there’s a 95% failure rate. In some ways that's good for people like me, because I was motivated by that pressure to go and figure out a way to provide value so that people would seek me out, and I wouldn’t have to bug my friends and family. As it turns out, I ended up creating something bigger that I believe will have a huge impact on the way people look at being a veteran in the next decade.
Most financial advisors who don’t make it in the financial industry just think they weren't good at it. But that's not what's really happening.
How Traditional Financial Advisors Add Value
A lot of these financial books talk about how to build a client practice and tell you to think about the investment advice you offer to your clients as value. They give you all sorts of gimmicks. Usually it's some sort of calculation and chart and way of reviewing the client’s money. That's supposed to be the big value-add. But really it's just more things that confuse people, because people simply don't understand what their money's for, at least not in a sense that's going to make them truly wealthy. Our education system has led them to believe that everything's about getting a paycheck. You get money, then you buy things. You save a little bit, then you retire. From a traditional financial advisor's perspective, our goal is just to help clients save money a little better. We advise them to stay out of debt and put some money in the stock market so they can beat inflation, which exists for all sorts of nefarious reasons. We encourage them to grow their assets.
The reality is our government needs people to have money available in retirement so they can survive and not need to live off the government dime. They also need them to pay taxes on that money because we are sitting on 22 trillion dollars of debt, and there is no money to pay for future social security and health care. Most retirees don't realize just how much their retirement income is going to be taxed. But, again, most traditional financial advisors don’t have these conversations. It's not their fault―it’s not what they're taught or told to do.
So I always struggled trying to figure out what is the value-add other than just reviewing a client’s finances? Sure there’s value there, but as an individual financial advisor, how do you differentiate yourself? One book I read called Simple Wealth, Inevitable Wealth by Nick Murray poses the question: How are you earning, which is to say justifying, that 1% (on average) fee that a financial advisor receives on the assets under his or her management? The usual answer is that if we invest a client’s money a certain way we can expect 7-8% growth, and even after paying the financial advisor fee, the client sees an average 6.5% return, “which is about the same as the market performed, Mr. Client. But you got to talk to me about it, so it cost 1%.” Blah blah blah…
Whatever. The financial companies are good at using all sorts of justifications for their fees. They have all their whiz-bang calculators, they have marketing, they create education, they do analysis, etc. But Murray’s point was this:
You put your people in a portfolio that works out the way it works out. The justification for that 1% fee is to prevent your client from making the one big mistake, which is pulling their money out of the market at the wrong time.
Intellectually we know not to make this mistake, but emotionally, the annual DALBAR study shows it happens every time there is a market correction, especially in older people with larger assets who are nearing retirement. When the market starts to go down, they start to pull their money out of the stock market, which makes the market go down even further. According to Murray, the justification for the 1% fee is the fact that you are there for behavioral investment counseling to prevent your client from making that one big mistake.
In the traditional sense of financial planning, if the market crashes, as the good financial advisor, you're supposed to say, “Don't worry, Mr. Client, it always works out.” And at one time, that was generally true, and I could have justified my 1% fee and called it a day. But the demographics are very, very different now. We have more older people, 10,000 baby boomers retiring every day, more retirees than we have younger people entering the workforce. And so the next time the market crashes, these retirees are not going to keep their money in the market because they're gonna want to protect it. And the younger people aren't going to have money to put into the market to compensate for the loss of the baby boomer money. So the rebound isn't going to be like it was in 2008―at least that's the general thought.
Adding Value in the Modern Age
I think that for most people, the traditional financial planning approach of preventing the client from making the big mistake is still a good and valuable approach. But in my search to find a better story to tell and a more compelling way for people to think about financial services, I realized that wait, this isn't about money, this is about opportunity! Money is just a tool a person uses to go create the opportunity and influence and lifestyle that they want. I decided that if I was going to be a true financial advisor, if I was going to justify 1% or any sort of compensation, I wanted to be able to explain to my clients that there's this other lifestyle, there are other ways of getting income besides the traditional 9-to-5 job. And there are other ways of thinking about how to save and invest your money without just buying real estate and flipping houses or day-trading stocks.
If you want to financially plan for retirement, and for sending kids to college, and for buying a house; if you want to keep all that on the table but you still want flexibility and control; if your primary goal is not retirement and college and home ownership but to have a different kind of lifestyle post-military, then, ding, ding, ding― that's when I realized that, oh, there's these modern investment and insurance vehicles that are perfectly designed to free up time and to add more protection, while also allowing liquidity of assets, reduced taxes, and benefits, way beyond what you get from traditional savings. With these vehicles you get growth, and you are able to access your money without any sort of risk.
What I am offering as a wealth and liberty guide goes beyond behavioral investment counseling. I’m offering a new way of thinking. I am offering to show you how to replace your scarcity mindset with a wealth mindset. You probably don’t even realize that you have been conditioned to have a scarcity mindset. A scarcity mindset is an expectation of scarcity that pervades and undermines everything that you try to do.
Moving Beyond a Fixed Scarcity Mindset
We’ve been led to believe that focusing savings on retirement, and college, and home ownership―that is, focusing only on financing the future at the expense of doing the things we might want to do with our lives in the present―is the right thing to do. Anything else, we are told, is risky. But once you discover that there are new ways you can leverage your benefits and your money that are not scary, and that are actually less risky and less costly, well, then things get very interesting, because inevitably you’re going to ask, “Why hasn’t anyone told me about this before?”
Well, It's not that they're not telling you about it; it's just that because of the high turnover rate in the financial industry, it’s really only the most savvy investors and financial advisers who have been noticing this change. And the majority of advisers that are successful have been in it for so many decades, they're not looking to change. They already make so much damn money, why innovate? Instead, they do what politicians do. They lobby to create standards and regulations that force the masses to shirk self determination in favor of “what’s best for them.”
However, the financial industry is just like any other industry: just like the iPhone, just like Uber. The innovators have been busy, and the early adopters, such as you and me, are now seeing how to create opportunity. I don’t know about you, but this story I’ve told about my early days in the financial industry keeps me motivated. Because as a brand new financial adviser, I certainly felt like I was a laggard. I’m sure the majority of the 95% who cycle out of the industry would say the same.
Innovation in the Coming Decade
So luckily, about seven years ago, I started to learn about the innovators. Then I went and met them. I learned from them. I worked with them. Finally, I realized that I’m one of the early adopters in this next phase of what’s to come. This is why I’m motivated to find the other early adopters and to train them on how to best use what the recent innovators have created for us. Then we can all influence the 230,000 service members who transition to civilian life each year. They have an opportunity during their transition to opt out of the status quo and join the early majority who are seeking modern opportunity. Most Americans don’t get that kind of opportunity. Once they graduate from college, they’re in debt! And they quickly become preoccupied with the hustle: start a family, get promoted, raise kids, buy houses, pay bills, sacrifice.
That’s the thing I think is so funny about the fear and scarcity mindset we put around the “military transition process.” They are “training” us on how to get out of the military, and this training doesn’t feel all that different from the training we get on equal opportunity, sexual harassment, or substance abuse. It’s just a box to be checked. Yet, we act surprised and just follow their orders even though we knew this day was coming from the moment we entered the military!
Transition is an opportunity we’ve had on the horizon and been preparing for, either consciously or subconsciously, the entire time we have been in the military.
During your service you had a steady job with good benefits and free housing; you could have stayed out of debt and saved some money for the opportunity that transition provides. The fact is, it’s a life-changing opportunity whether you are prepared for it or not. You have (or had) the ability to choose. But most don’t choose, and they don’t prepare. They just keep following orders.
Some of those orders are the mindsets of financial professionals from the previous decades who influence how most people think about money. They are the laggards… So they keep preaching about saving for retirement. But in modern times, this doesn’t motivate you. So you don’t save intentionally, and when it comes time for your opportunity to change your life when you leave the military, you don’t want to take a “risky” option by using the money that you have managed to save to create the post-military life that you want. The money that you have locked into a retirement account doesn’t feel accessible. So you’re a bit stuck, and you need to take a corporate job to keep paying the bills and saving more for retirement. On and on it goes until you’ve completely given up on finding the liberty for yourself that you fought to defend.
I find this completely unacceptable for myself, and I hope I find more of you who find it unacceptable too.
Yet, there are people still trying to drive taxis and sell DVDs. There will always be a market for the laggards. And that’s fine! That’s how the free market works. But I’m looking forward and have a bigger vision. I don’t want to waste any time trying to convince a laggard they need to catch up, because it won’t happen. It’s completely commonplace that the world undergoes a radical transformation and most people just don’t see it.
The majority of financial advisors are in their mid-sixties and are going to be retiring soon. What happens with all that money from their clients is another story. And we believe that as these older financial advisors retire and the management of those client assets shifts to younger financial advisors, the financial strategy of the next decade is going to be this wealth and liberty strategy that offers more automation, risk protections, tax advantages, and income opportunities. We can take 90% of the current work off the table, then leverage various investment and insurance products to protect how your assets work out and how you can get flexibility with them, versus being stuck in the standard 401k/Roth IRA trap.
The wealth mindset is for the 10% of people who are looking to step out of the grind. This is a strategy for the future, for opportunity, for those leaning more towards an independent lifestyle. If that sounds like you, then we need to talk.
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