how to find a fee only financial planner for doctors with tim baker cfp

How to Find A Financial Planner You Can Actually Trust

how to find a fee only financial planner for doctors with tim baker cfp - fee-only financial planners

Tim Baker, CFP, and owner of Script Financial sat down with me to discuss fee-only financial planners and how they provide unbiased advice that is truly in the best interest of their clients. Sadly, only 3% of all financial advisers are fee-only, leaving most advisers out there with interests of their own when it comes to your financial well-being.

Tim and I have a great discussion on how advisors get paid and the differences between fee-only financial planners and fee-based. While those sound very similar. It’s already hard enough to understand a lot of this stuff. The industry is set up to confuse people which I think is ridiculous.

We really talk about the differences between fee-only and fee-based advisors. Tim goes into why fee-based advisors charge what they charge, what their motives are, and where a lot of the conflicts of interests are. While I haven’t worked as a fee-based advisor before, Tim has. He gives us the goodies in this episode.

This is what you need to know about fee-only financial planners.

Contents

Tim was once a fee-based adviser, and he pulls back the curtain in this episode, exposing the nasty truths on how most planners make money.

You will be shocked to hear how the industry is structured, but we will break it all down so you can be prepared the next time you are approached by an adviser with goals of their own.

What you will learn:

  • The difference between fee-based and fee-only financial planning.
  • Commissions and fees and how they are structured.
  • What is the trail of commission, and what does it mean for you?
  • Which types of investments to avoid.
  • Why true financial planning should focus on your goals in life.
  • What you are not being told by a fee-based financial planner.
  • The secret structure of the financial planning industry.
  • The Purpose of a Fiduciary Oath and why you need to make sure your financial planner has one.

Don’t Forget to Add to Your Toolbox, Get Involved and Help. Here’s how:

If you enjoyed this episode, I’m sure you would enjoy reading this: 8 Questions to Ask a Financial Advisor Before Hiring Them

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Full Transcript: How to Find a Financial Planner You Can Actually Trust

Ryan

Do you know all the conflicts of interest that exist between you and your financial planner? Do you actually know how your financial planner’s getting paid? In this episode, we’re going to pull back the curtain and expose all the nasty truths on how planners make money.

Ryan

Hello, and welcome to the Financial Residency Podcast. I’m your host, Ryan Inman, and today we’re going to be talking with Tim Baker, owner of Script Financial, which is a fee-only financial planning firm that works exclusively with pharmacists. Tim is also the co-owner of Your Financial Pharmacist, a giant online community exclusively for pharmacists as well. I’ve had the great pleasure of knowing Tim for a few years. Tim’s a great guy. We met through the XY Planning Network, which ironically, this is exactly where we are recording this. We are live from the FinCon booth at the XY Planning Network’s conference in Dallas.

The difference between fee-only and fee-based financial planners.

Tim and I have a great discussion on how advisors get paid and the differences between fee-only and fee-based advisors. While those sound very similar, I kind of think it’s the intention of confusing people. It’s already hard enough to understand a lot of this stuff. The industry is really set up to confuse and have this giant black box, which is, I think, ridiculous. We really talk about the differences between fee-only and fee-based. He goes in a little bit about why fee-based advisors charge what they charge, what their motives are, and really where a lot of the conflicts of interests are. While I haven’t worked as a fee-based advisor before, Tim has. He kind of pulls back the curtain and exposes a lot of stuff that is common knowledge if you work in the industry, but is not common knowledge if you don’t have kind of that insider track.

You know, it might sound like I’m hating on fee-based advisors a lot in this episode, and Tim as well, and that’s not to say that they’re not great people. I know actually quite a few fee-based advisors that are amazing people outside of work, but I don’t align my values and a lot of fee-only advisors, they don’t align their values with fee-based advisors. As we go through this show, you’re going to realize that a very small population of people who call themselves financial advisors are fee-only. I believe it was [NAFA 00:02:48] that did the study that said less than 3% of all advisors out there … That could be an investment advisor, a financial planner, a financial advisor … There’s all sorts of names for this. But less than 3% of them are fee-only. If you line up 100 advisors that want to talk to you, three, or less than three of them, are going to be fee-only.

It is hard to find fee-only financial advisors specializing in working with physicians or pharmacists.

You’re going to understand after hearing this episode why that matters and why that’s a big deal. To then find someone that specializes in your industry … So physicians that are listening to this, finding a fee-only advisor that specializes in working with physicians, or in Tim’s case, a fee-only financial advisor that works exclusively with pharmacists, is even harder to find. Also, before today’s show, I want to make sure to announce this important disclaimer. I am a fee-only financial planner and a fiduciary for my clients. But let’s be honest. I don’t know you or anything about you. This show is for educational purposes only and shouldn’t be taken as legal or financial advice. Please consult your attorney, CPA, or your fee-only financial planner before you take any action or make any important financial decisions. Before we jump into the interview with Tim … Here is this week’s digestible tip.

Ryan

If you’re working with someone that helps you manage your money, helps you get your goals in order, understand your cash flow and budgeting, then call themselves a financial advisor or financial planner and investment advisor or any other name that they want to call themselves, a financial coach. Whatever it may be, find out how they’re paid. Ask them point blank. Is the only money that you make what we have discussed and signed in a client agreement? Or can you make commissions and referrals from different links or you get kickbacks from introducing me to people? How do you actually get paid? Listen and truly understand how they get paid before you continue working with them. You need to know what conflicts of interest are truly in your best interest or if they’re in the best interest of them.

I got Tim here, Tim Baker, and I’d like to introduce you. Tim, can you just tell us a little bit about yourself and what you’re up to?

Script Financial is a very niched-down firm.

Tim

Yeah, my name is Tim Baker. I am a certified financial planner and owner of Script Financial. What Script Financial is a fee-only financial planning firm for Gen X and Gen Y pharmacists. That’s our niche. Similar to you, Ryan, very niche-down. You do physicians and I provide financial planning for pharmacists, so really enjoying our time here in Dallas. Talked to a lot of great people, and learning what others are doing, and just excited to be here.

Ryan

Awesome. Well, I’m excited to have you here. You guys are doing some great stuff through Script Financial and then yourfinancialpharmacist.com, I believe is what it is.

Tim

Yeah, I guess I should have brought that up. I’m also the co-host of the Your Financial Pharmacist Podcast, which is a podcast with my partner, Dr. Tim Ulbrich, who is the associate dean of Northeast Ohio Medical University in Ohio. Basically, we distribute a podcast every week on a variety of financial topics. We have “A Debt Free Pharmacist,” we have “Ask Tim & Tim.” We’re fixing to launch our 10th episode tomorrow. It’s pretty new, but we’re excited. Also part of the Your Financial Pharmacist team is Dr. Tim Church, who is a pharmacist down in Florida with the Veterans Administration. Lots of Tims, lots of pharmacy, lots of personal finance, but I think it’s a good group and we’re excited to push out content via the blog but also the podcast. It’s a good group to work with.

Ryan

Yeah, that’s awesome, so it’s three Tims at yourfinancialpharmacist.com and that is “Your Financial Pharmacist Podcast,” I believe, is the title?

Seven Figure Pharmacist is a great book!

Tim

Yeah, that’s the title of the podcast. If you go to yourfinancialpharmacist.com, you’ll see links to the podcast there. I guess another mention that I should bring up that is if you’re a pharmacist out there and you’re listening to the podcast is the two other Tims wrote a book that was released this year called “Seven Figure Pharmacist.” I wrote the foreword for the book …

Ryan

It’s a great book.

Tim

… and it’s a great comprehensive look at the financial planning and directed toward the pharmacist who will typically come out of pharmacy school with average of $150,000 in debt and just how to navigate that, and insurance, and all the questions that you have. Also, if you go to yourfinancialpharmacist.com, you can find a link to purchase the book. I highly, highly recommend it. These guys, you know, they know what they’re talking about and it’d be a great resource. Again, excited to work with those guys and continue to roll out that great content.

Ryan

Awesome. Well, we are going to jump in today to talk about how advisors get paid. The reason why I thought I’d bring you on to talk about this today is one, it’d be more fun to have a conversation about it as opposed to me just talking about how myself along with some of the other people in the industry get paid. I know that you’ve worked a few different areas inside the industry that I actually haven’t, so I think that we’re going to get a good refresher on some of the new stuff, but really talking about the difference between fee-based and fee-only financial planning. I get asked all the time. The industry really, I mean, I feel is built on confusing people and the fact that you call it fee-based versus fee-only commissions and all these kind of things. If you could just kind of take it from a high level and let’s just talk on maybe what commissions are. Start from there and really talk in detail about fee-based planning.

Fee-based and fee-only financial planners are not synonymous.

Tim

Yeah, it’s such an interesting topic and it’s really kind of a black box in a way that a lot of people don’t really understand the whole dynamic. For a lot of people that come to talk to me, they think that fee-based and fee-only are synonymous, and they’re really not. I think for listeners to understand, you basically have a commission-based advisor, you have a fee-only advisor, and then you have all the gray area in between, which is fee and commission. The fee-only role would like that to be the designation, but the fee and commission is also called fee-based. To kind of back up to talk about a commission, a commission is really the compensation that the advisor sells as a result of selling a product.

Ryan, you come to me, you’re a pharmacist and you say, “Hey, I really would love to open a Roth IRA and buy a mutual fund.” If I am a fee-based advisor, I can sell you a mutual fund and earn a commission on that mutual fund. If it’s an upfront commission, which is an A share, I can earn a 5% commission. If it’s a C share, I can earn a 1% commission with a 1% trail. This is a little bit more technical, but there is a conflict there because every product has a different commission schedule and you have to ask the question of, “Is this really in the best interest of me or is it in the best interest of the client?” I think what the fee-only world does is it separates the product and the advice that’s given. In my world, when you say, “Hey, I really want to open up an IRA and invest,” I could say, “Okay, well, I can buy you whatever product.” I don’t care about the product. My compensation remains the same. That’s really the difference, is separating the product from the advice, and that’s what the fee-only world does.

Conflicts of interest arise when you work with fee-only financial planners.

It’s not to say that the commission or the fee-based advisors are out there, I used to be one. I can kind of go in that in a second, but they’re not bad people. My whole point is why introduce the conflict of interest there if you don’t need to? For someone like me to make the pivot early on in my career and just have my clients know that I have their best interests in mind, to me, that’s a warm blanket for the client and it’s a warm blanket for me because I want them to know that fact.

Ryan

Awesome. You said a couple great things here that I want to jump back to. Let’s go back to fee-based and when you’re talking about commissions and share classes. You mentioned something that’s interesting that I haven’t talked about yet, is trails. Can you kind of just go quickly again and recap what the commission structure would be on what that exactly is, and the trail piece on there and what that exactly means?

Tim

Sure. For an A share mutual fund, if I get a client that’s looking to come on board with me and they show me their portfolio, I might see mutual fund A, B, C and then an A at the end, and I know that … Or CO, which is class A. I know that that particular advisor, if they bought $1,000 for the mutual fund, they were charged probably a five to six percent commission. I think the typical one is about five and a half or 5.75. They charge that upfront. That’s an immediate haircut on that $1,000 investment. Then there’s nothing after that, so when they sell out of it, there’s no commission. They might pay a trading fee. You take the bite out of the investment upfront.

You also have what’s called C share where it’s a smaller bite upfront. It’s a 1% commission upfront that goes to the advisor, and then every year … It’s almost like a fee-based account where it’s every year, you’re charging 1%. In the long run, those particular types of accounts, although it’s less painful in the beginning … Over the long run, it’s more painful to the account as it grows. Working with a fee-only advisor who sells no load mutual funds, or ETFs, or whatever where there’s no commissions that come out and the investments are allowed to grow unadulterated is the way to go.

Don’t be afraid to ask questions.

Those are things that you have to understand, and those are the hard questions that you should be able to ask your advisor. They should be able to say exactly this is what I’m going to get paid, and this is what that looks like. For a lot of people, they’re either scared to or the advisor will dodge the question. The transparency is huge in when working with someone is dealing with your money, and I wouldn’t afraid to ask that in the least bit.

Ryan

No, not at all. A lot of advisors, they … I should say, some of these guys that sell these products … They’re master salesmen. They’ve got a way with words that you ask a question, they’ll redirect it, and you’ll forget what you’ve been talking about.

Tim

Yeah.

Ryan

It happens to me, and I’m an advisor. I’ll be talking to someone about what they do in a different industry, or excuse me, in a different manner, and we’ll be asking … I’ll go, “How do you pay? What do you do? What do you do?” And then literally never get question answered. I work in this industry and I see it. For the client to be able to talk … And openly. You should be talking with the advisor on your goals, and your life’s dreams, and the possibilities that are coming up, and the potential challenges. When you open up to an advisor that way to really get help, you should be able to feel comfortable to say …

Tim

Absolutely.

Ryan

… “How actually do you get paid again?”

Tim

Right.

Ryan

It should actually be communicated very upfront.

Tim

Yeah.

Ryan

Prospect meeting.

The real value is making sure that clients know their “why” as they are planning.

Tim

It does need to be a mutually beneficial arrangement. The client has to feel like the advisor, the planner has their best interest in mind, and the planner has to feel like they can build a business on helping clients achieve their ‘why,’ like you talked about. All this product stuff and all … It’s all great to talk about, but really it’s a tertiary issue to the issue of why are we here, why do we accumulate this thing called money, like what’s the purpose? I think working with an advisor that can zero in on your ‘why’ and keep that in the forefront of your mind as you are planning over the course of 10, 20, 30 years … That’s the real value.

Ryan

Absolutely.

Tim

The fee-only and the products … That stuff is important, but really working with someone that you trust and you feel comfortable, almost asking anything and having that honest back and forth, and keeping your ‘why’ at the forefront of the conversation is even more invaluable.

Ryan

Yeah. The question shouldn’t be, “How much money do you have? How much money do you have to invest?” The question should be, “What’s your value of money? What are you trying to do? What are your dreams? What do you want to accomplish when you start to do?”

Tim

Yeah.

Ryan

“Do you really want to work in medicine?” One of the big discussions I have is doctors … And I’m sure pharmacists are the same way. Doctors don’t get into medicine to become rich. They become doctors to help people. A lot of people prey on that, which is really unfortunate and we can talk a little bit more about that. They don’t always want to work full-time in medicine, but getting through and working through their problems, and working through their goals, and seeing what they really want out of life, it usually comes up that, “Yeah, I don’t want to work crazy hours and be on call three nights a week and do this. I would rather work three day, work a point five schedule, or go down a little bit lower and never quote-unquote ‘retire.'”

Community pharmacists are under immense pressure to fill scripts, which creates transaction behavior.

Tim

Yeah.

Ryan

That conversation never takes place with … Really, with fee-based … Some fee-based, they’re not all bad people. But definitely not the commission guys that are pumping life insurance and things like that.

Tim

Yeah, I mean, and oftentimes it’s … It’s, “Hey, let me sell you a crappy annuity or something and get my commission and move on.” It’s very transactional in nature. That could be true in the pharmacy world. You have community pharmacists that work for big chains. It’s basically they’re under pressure to get their scripts filled, and there’s some analogies there. It’s rampant in just in healthcare too, just to see as many patients and all that kind of stuff. That commission, that transactional behavior, doesn’t work in healthcare, in my opinion, and it doesn’t work in financial planning.

Ryan

Yeah.

Tim

It’s the planners that I think that can slow down and say, “Why? Why are we here? Why focus so much time and energy and effort on this thing called money?” I think if you can answer that and you can keep your answer at kind of the forefront of your mind throughout your life and your career, you’re going to be wealthy regardless of if there is five million dollars in your bank or five thousand dollars in your bank.

Ryan

Yeah, absolutely. I think in order to move the industry forward, like us as planners need to keep doing a good job. Obviously, you guys are doing great over at Script Financial. I do want to switch it into a little bit more on how advisors could be compensated. As a fee-only advisor, I know that when … Tim, you’re going to become my client. What we agree upon is my price, whether it’s $100 a month, $500, whatever it is. What we agree upon is the exact amount I’m going to get paid, but you’re going to pay me. If I refer you to a CPA, I’m not getting a referral.

This is how advisors are compensated.

Tim

Sure.

Ryan

If I’m not going to refer you to an insurance company that can help you with disability, I’m not going to get paid a commission. Can you kind of talk on the other side of this and say, “Here’s a lot of the sneaky ways that other people are getting paid,” that maybe people listening that are working with fee-based advisors don’t know that they’re actually paying.

Tim

When I was in the fee-based world, when a client would ask me, “Well, how do you get paid?” I cringed at that question, not because I was doing all these sneaky things. It was more of I had to ask the question, “Well, how much time do you have? Because it’s going to take me a long time to kind of go through the laundry list.” I could either charge you an hourly rate, I could charge you a percent of assets under management. That’s when if you have a 401k or 403b to roll over to me to manage, I would charge a percent of that. It could be, like I said, a commission from an A share or a C share, it could be a commission from an annuity or a life insurance product, or something like that. I couldn’t with certainty tell a client upfront that this was going to be their fee. To me, that’s super frustrating.

It’s frustrating when you don’t know how much a financial planner is getting paid.

It’s kind of like the example that I give. We recently moved to a new house in Baltimore and we hired movers. We were trying to be smart with our budget there and we hired kind of basement-level movers and really skimped on the fee, but then when we got to moving our TVs, they’re like, “Sir, this is gonna cost you another 40 bucks per TV.” Just the fact that I didn’t know it upfront and I was being … I felt like upcharge. He could’ve said it would’ve an extra 40 cents, I would’ve been upset that I just didn’t know upfront.

Ryan

Yeah.

Tim

The way that I do is similar to you. I kind of do of a calculation that’s based on income and net worth that I outline for the client, and then I show them that as part of our process, an on-board process with Script Financial. Basically, that is a fixed fee for that year, and-

Ryan

Yeah, it’s an agreed-upon price …

Tim

Right.

Ryan

… that you’ve set and that our client have set together. It’s fair market value for your services, and your advice, and your expertise. That is all the client is paying.

Tim

Right.

Ryan

If you refer them to anything else, you’re not being compensated.

Tim

Right.

Ryan

You can’t get a $10 Starbucks card, and I want to kind of back up here for a second. Tim said he was fee-based and now he’s fee-only. I don’t want people to think that one, all fee-based people are horrible, but that you aren’t a bad guy. The entire industry is built on this.

Tim

Right.

Ryan

We are the outliers. Fee-only is the outliers. Right now, I think NAFA did a study that less than 3% of all advisors are fee-only. I want to emphasize that. Three percent of all advisors are fee-only. That means out of 100 different advisors out there, they’re all being charged in this really horrible way that we’re kind of describing.

Less than 3% of all advisors are fee-only.

Tim

Yeah.

Ryan

Most people are completely unaware of it, and that fee-only … It exists, it’s there. Honestly, I think it’s here to stay. This is the way the future is moving.

Tim

Yeah.

Ryan

It’s a different way to really look at your investments and your financial planning.

Tim

Yeah, and I think you say it’s 3% of financial advisors there. That’s another thing. I forget who did the study, but there’s maybe 100, and I don’t know the study, of just different ways to call a financial advisor a financial advisor. You could be a financial planner, a wealth advisor, a life insurance agent, there’s no … You could be a wealth ninja.

Ryan

Tax advisor.

Tim

Yeah, there’s a million … That’s-

Ryan

Financial coach.

When you work with a financial planner, you’re going to want to know how they are compensated.

Tim

The designation itself is hard to nail down, but when you’re talking to a professional and you’re looking to engage with them, you’re going to want to ask how they get compensated, are they a fiduciary, have they signed a fiduciary with which I know that you have. It’s on your website.

Ryan

Absolutely. That’s a great point, it’s to sign a fiduciary oath.

Tim

Really, it’s a difference between … We talk about this fiduciary standard of care versus the suitability standard of care. Really what that means, what I tell clients is … Ryan, if I’m selling you a suit, if I’m following the suitability standard of care, I just have to take your measurements and make sure that suit fits. If I’m following the fiduciary standard of care, not only does the suit have to fit, but it needs to look damn good on you. That’s in your best interest. You can make a case that, “Hey, client. This annuity that I’m gonna get an 8% commission on … That is suitable for your particular financial situation.” But it is sure as heck not going to be in your best interest in nine times out of 10. Again, this is in very general terms.

I will say when I was in the fee-based world, there were mutual funds out there that I knew that paid me a higher commission. I knew that if I sold annuity, I would get a higher commission. I knew if I sold whole life versus term life insurance, I would get a higher commission. Those decisions shouldn’t pull the advisor one way or the other. It should be about looking at … In my case, I look at the goals, and I look at the balance sheet of that particular client, and I say, “This is the recommendation that I feel will grow your balance sheet and protect it.” Anything less than that, to me, is … Falls below that fiduciary standard.

As another example, when I was in that world, I was starting my business. I would partner with mutual fund wholesalers. These are guys that would come into your office and say, “Hey, sell my mutual fund,” and I’d be like, “Okay, yes, cool.” Then they would say, “Hey, can I help you do a happy hour and throw some bucks to cover your happy hour?” Then they would that and I’m like, “Alright, well now I kind of feel obligated to, like, sell their fund.” That’s just kind of part of business, but at the same time, I felt a little slimy. I needed to take a shower. Again, they’re good guys, but that shouldn’t play into the decision for me to pick the products out that meet our clients’ goals, meet their ‘why,’ and unfortunately, it does. To me, the fee-only kind of takes a lot of that stuff out.

Let’s be clear. Every model out there has a conflict of interest. I’ve heard of conflict-free advice. I don’t think it exists. I have a conflict of interest in my own pricing model, but I disclose that upfront. I let them know if I give them this type of recommendation, it does affect my compensation in some degree. I think if an advisor can’t answer that question of what their conflicts of interest, I would take that as a major red flag.

Ryan

It’s the most conflict-free you’re going to get, is by working with a fee-only financial plan, not a fee-based. Again, I know they’re confusing, but every model has its ups and downs. Everyone’s got to eat, everyone’s got to work. As long as your advisor, one, is … I believe fee-only is the only way to go. But as long as your advisor can communicate effectively what it is, that there could be a conflict of interest, and you’re okay with that, then it would be worth proceeding, so I…

 

Tim

Yeah, and one of the examples of this is … Ryan, if you’re a client and I charge you just based on assets under management. That is cash in an account, whether it’s a brokerage account or an IRA, and I’m basic … You know, it’s $100,000 and I’m being paid 1% to manage that for you. If you walk out of this expo in Dallas and you trip and fall on another $100,000 and I’m being charged on AUM, or you’re being charged on AUM … You say, “Hey, what should I do with this?” If I’m being compensated based on AUM, it’s in my best interest for you to invest all $100,000, but that might not be in your best interest. You might have some debt that you want to pay off. I know you’re big into real estate so maybe you want to invest in some properties. There is conflict there and you could be fee-only and just do AUM.

An advisor that is upfront and honest and has your best interest in mind.

That’s just some things to know. Don’t be afraid to ask the question, “Is this recommendation … How does your compensation change?” An advisor that is upfront and honest and has your best interest in mind, “Well, it’s going to change my X, Y, and Z,” and let you know upfront.

Ryan

Absolutely.

Tim

Like I said, there isn’t anything that’s conflict-free, but just get that upfront and then make the determination. Ultimately, it’s not your advisor’s financial plan. It’s your financial plan. The advisor is there to give you advice, maybe give you some alternatives, and then go forth and conquer. That’s kind of the idea there.

Ryan

Yeah, so when we’re talking about it and it’s that concept of you basically fell into an extra $100,000. If you had an aversion to debt and you had some student debt, it might be best to pay that off.

Tim

Sure.

Ryan

If you’re going for public student loan forgiveness, maybe it’s not. Your advisor should be able to tell you, “Hey, this is why I don’t think we should be paying off the student debt, but guess what, you’ve got a mortgage and you owe $200,000 on it. Maybe we chip away at some of this mortgage.”

Tim

Yeah.

Ryan

“Hey, you actually have built up your emergency fund, but you’ve been mentioning a lot that you want to take that … Your parents on a trip to, you know, Greece and check this out, but you were going to do that in three years. Maybe we accelerate it a little bit and you do that in two years and invest a portion.” That is all the conversation you should be having.

A financial advisor provides recommendations based on what they know about you.

Tim

Yeah.

Ryan

When your advisor looks at it in a whole. That is their job, is to look at your entire financial picture and say, “Based on what I know about you, everything you’ve provided, this is my recommendation.” You absolutely should say, “Does your advice change based on your compensation?”

Tim

Right.

Ryan

Even if they’re fee-only. If they’re telling you, “Hey, put all this money into, you know, your taxable account at TD Ameritrade,” or, “Hey, you should put $5,500 into your IRA and make sure you’re maxing out this.” You still should, even if you know the right answer. Still ask it. Get in the habit of asking.

Tim

Yeah, ask the question. Absolutely.

Ryan

Get in the habit of asking. It’s going to be better. I want to touch just quickly on what are some ways that advisors could get paid that consumers wouldn’t know? Our listeners here are listening and going, “Okay, now I get the difference between fee-only and fee-based. How could some of these fee-based things be paid that I just don’t know?” Are they actually paying it or is it a referral fee and …?

Tim

Yeah. There’s bunch of way … I mean, it could be referral fees, it could be commissions that maybe aren’t necessarily disclosed.

What do referral fees actually mean?

Ryan

Let’s jump into the referral fees. What is that actually mean? I’ve said it a few times, you’ve said it. Let’s jump in.

Tim

A referral fee is basically where you have kind of a network of, say other professionals that you work with. Whether it’s a real estate agent or a loan broker or a CPA that … They’ll give you what’s called a finder’s fee or a referral fee. Again, these situations aren’t necessarily the worst thing in the world, but they need to be disclosed. The fee-only advisors, they don’t take these because it might not be in your best interest to work with this particular CPA or this particular real estate agent because they just don’t fit your needs. I think this comes into where you see a lot of square peg, round holes. It’s the same thing with the product. It’s like I’m trying to force you into this annuity because I know it’s probably not in your best interest, but I’m going to get paid on it. Same thing. I’m trying to force you into this relationship with a guy that I am friendly with and we do business with, but it’s maybe not in your best interest because I’m going to get that $500 or whatever it is that referral fee.

Ryan

Or it could be indirect.

Good fee-only financial planners are mindful about paid referrals and how they affect you.

Tim

Yeah.

Ryan

I refer you to this X, Y, Z Accounting and they do taxes. No, I don’t get any referral fee from it, but he takes me golfing every couple weeks at the country club and buys my round and all that. That still counts.

Tim

Right.

Ryan

That still counts. Even if it’s not a cash amount that is being transferred to my bank account, if the guy’s taking me out or the gal’s taking me out golfing or drinking or whatever it might be … On a nice trip with the family, anything. Even a $10 Starbucks gift card. Fee-only financial advisors can’t even accept a $10 Starbucks gift card.

Tim

I still come across this as a fee-only advisor because again, there’s not many of us out there. When I tell these offers that are out there on the table, I’m like, “Look, I’m fee-only. I don’t play that game.” If you can rather pass the savings on to my clients in a way, whether it’s a discounted thing or just give them the gift card, I’d rather the client be taken care of. Again, the differentiator for us is going to be the fact that we’re fee-only, the fact that we are both niche and focus in on the needs of physicians and pharmacists. There’s more than enough business there and more than enough people to help that I don’t need to worry about these referral or these finder’s fees.

Fee-only advisors have their clients’ best interest in mind.

Ryan

Well, and to that point, if I don’t feel like I am being compensated enough, I need to renegotiate with the client.

Tim

Right.

Ryan

That’s the thing on the advisor, that if you and I agree to work together and our fee’s going to be $2,000 for the year and it’s going to include everything, soup to nuts, everything is included in this … But I need to go out and make five referrals and put you into these things to make an extra thousand bucks, that is almost a fail on the advisor’s business. I should say, “Hey, I actually need $3,000 for this relationship, not $2,000.” But charging $3,000, if that’s the case … This is just an example, but if that’s the case, I’m charging $3,000, I know that … And the client will know that everything that I am actually recommending is a true recommendation based on your financial strength and based on your financial life, and what is actually not suitable, but a fiduciary responsibility to tell you this is what is truly best for you, and it’s as much conflict-free advice as I possibly could give.

Tim

Again, to reiterate the point, the fee-based world is not evil or anything like that. When I left my last firm to launch Script Financial, one of my mentors said, “Hey, do you think that I would knowingly defraud people or put them in a product that wasn’t right for them?” I said, “No. I don’t.” He’s a great guy, he still is, I still have contact with him. But my point is if it doesn’t have to be part of the equation, then why would I let it be? If there’s a better way to do it, then we should adopt that way. For a lot of people, they’re more entrenched in that model so it’s difficult to pivot out of it. I understand that, but I … Again, I think if you have the ability to work with someone in that model, that’s what I would recom … If I was hiring a financial advisor, I would hire a fee-only financial advisor.

Ryan

Absolutely.

Tim

Again, to reiterate the point, I am a fee-only financial advisor and I need a financial advisor because I need someone to objectively look at my situation, my goals, and hold me accountable to it. If my goals are A, B, and C, and me and my significant others are doing X, Y, and Z, I need someone to call me on the carpet and be like, “Look, we need to right this ship here.” So much of money is behavioral. It’s an emotional thing, and I think having that coach, that nag, that person to move you in the direction to meet your goals and to achieve your ‘why’ is hugely important. Obviously, I am biased. Full disclosure. I am a financial planner so I’m going to say that, but I’m a big believer. I think that people that will invest in this and take financial literacy seriously, and because I think there’s a void there in our country, I think they’re going to be better off in the long run.

Financial Residency was started to increase financial literacy.

Ryan

Yeah, and that’s one of the reasons why we started the podcast, is to increase financial literacy among physicians, to provide you the education you haven’t received in residency. I know firsthand. My wife, we’re going through residency, was pitched a ton of products. Thankfully, she was married to someone who was in the know, someone who lives, and breathes, and dies this stuff. I love numbers, I love finance, I love planning.

Tim

Yeah.

Ryan

This is how I geek out. Thankfully, she was married to me, and a lot of our friends are very thankful because I’ve saved them from making a lot of big mistakes.

Tim

Yeah.

Ryan

But people aren’t lucky enough to be married to … Or unlucky, if you think about it, because she’s got to hold a budget and I hold her to a budget. But they’re not lucky enough to be married to someone like that. When you’re going through, just arming yourself with the education. I know that you’re a little biased. I’m a little biased by saying like, “Hey, having a coach that’s accountable, that keeps you going down the right path, that doesn’t allow you to veer off, that doesn’t allow you to blow up your plan over something stupid,” or … Trust me, physicians, you guys are going to be pitched a ton of crap.

Tim

Yeah.

Ryan

You’re going to be pitched a ton of it.

Tim

Yeah.

There are so many terrible investment products physicians will be pitched.

Ryan

This land deal or this other … A non-liquid REIT or some other terrible …

Tim

This whole life policy.

Ryan

These whole life … Oh, my gosh. There’s so many different things you guys are going to be pitched.

Tim

Yeah.

Ryan

Having someone that can review it to just hold you accountable and say, “Don’t blow up your plan. This isn’t where you need to go.”

Tim

It’s the same with pharmacists. They are pitched a lot and there’s kind of a lot of different directions people are coming at them. It’s easy to kind of be allured by some of these salespeople out there because they’ve refined it, but again, having that trusted advisor that you can just bounce a lot of this stuff off of is hugely important. When we talk about the financial literacy stuff, it is not taught. Everything that I learn about financial literacy I learn from my parents, which they were not bad, and then I learned when I got into this industry.

Pharmacists aren’t taught about investment strategies in school.

I tell this story when I speak. Financial planning is a third career for me. The first one was the army and the second one was … I was a material manager, so think moving boxes from A to B. I got into that job, I was earning good money, I had access to a 401k. I went to set it up and I’m setting up my allocation. I’m like, “What the heck is small-cap value fund?” So I go, I buy “Investment for Dummies,” I read the first five pages and I’m like, “Nope, I’m gonna pick every fund that returns the highest,” which at 20-something was okay. But I was basically flying by the seat of my pants. The point is that it’s not something that we’re taught. Pharmacists are PharmDs, they’re doctors, obviously you work with doctors that are very highly educated. But I’ve had those clients come to me and say, “Hey, Tim. I don’t know what a mutual fund is.” You know what? That is completely okay. We’re going to … with that.

Ryan

Absolutely.

Tim

We’re going to work through that. Knowing that is important. If they don’t know it … For me, they have the education there and we can go through that, or they have me. I’m going to give them the recommendations and they’re going to know that if they have any question that a dollar sign is there, then I’m going to be their guy.

Ryan

I want to go back to this. We did have the disclosure that we’re financial planners and that we have a little bit of a bias here in saying that. I’m going to tell the listeners something right now. You guys are significantly smarter than Tim and I.

Tim

Yeah.

Ryan

You guys are doctors.

Tim

No question.

Fee-only financial planners are money nerds who like dealing with other people’s finances.

Ryan

You guys are doctors, but you’re smarter in a different way. You guys take care of people, you heal people, something that we can never do. We just happen to be money nerds that really like dealing with finances and other people’s finances.

Tim

Yeah, and just humping them. Yeah.

Ryan

It’s what we’ve gone to school with, it’s what we’ve trained for. Just like you guys have gone through residency and you trained, we’ve done the same thing inside of here. But you guys can do it yourself. If you have the time, and the dedication, and the desire to want to learn all these fun things that we think are fun, you can. But if you don’t think you can, or you don’t have the time, or you don’t have the desire, or you don’t think that you can hold it to a plan when the market corrects 25%, you really should reach out to someone.

Fee-only advisors will basically steer you from walking off the ledge.

Tim

Yeah, and sometimes it’s just a sanity check, and like you said, it’s … Especially in the investment world, your body, your human behavior will tell you to act in a way that you should really act the opposite. When the sky is falling, you should buying in. When everything is bullish like it is now, you should be more cautious. I think an advisor will basically steer you from walking off that ledge.

The investment is just one part of the financial plan. The CFP Board said there’s five others. You have a state insurance, and retirement, and fundamentals, and all that kind of stuff. It’s just one portion of it, but just to keep all the balls in the air in terms of like, “Hey, Ryan, did you do your state plan document?” You know, “Where are we at with quoting and buying a life insurance or a disability policy?” You know, “Hey, you had a child. What’s the 529 situation look like?” Or you want to buy a house, to having a down payment, or working through loans for doctors, or something like that. There’s so many things. Just a monthly spending plan because the budget is a yucky word. Just having those discussions and all that kind of stuff. It’s a lot of stuff, and absolutely, you could learn just about anything via YouTube. You can learn this stuff. It’s just a matter of having the coach, having that objective approach, be able to provide that shortcut. It’s a lot of [crosstalk 00:37:51] behavioral.

Ryan

It’s almost like a personal trainer.

Tim

Yeah, yeah. Absolutely.

Ryan

Actually listening to this and hearing you speak, it actually seems almost like personal training in effect.

Tim

Almost, in a way, some financial planners get upset that when I say that because it almost … Not trivializes or commoditizes the industry. If you can affect behavior and move your client in a way that is going to keep their ‘why’ in the forefront of their mind and the forefront of their plan, that is a powerful thing. That is much more valuable, I think, than saying, “Okay, well, let’s do a backdoor Roth IRA conversion,” or something like that, or picking the absolute most efficient disability policy, or the right repayment plan. Those are just very secondary, in my opinion.

Here’s the real value bomb.

Ryan

Here’s the value bomb, guys and gals out there. The reason why financial planners focus on the investment returns and the investments itself is because that is where the money is. The fee-based guys, they know that they can just charge AUM and qualify you as a client right away knowing what kind of accounts you have, 401ks, IRAs, whatever. Knowing what’s in the account. That’s where the fee sits, that’s where it is. That’s why all the talks are technical. They don’t really get into the actual true planning. What Tim and I have been describing here is true financial planning.

Tim

I think also because the investment is just kind of the sexy part of the plan. You have the talking-heads, and what the market is doing, and all that kind of stuff. Really, my approach to investing is it should be as boring, I think, as paying off a student loan or budgeting. I think the sexier and the more sizzle that it has, probably the more that you’re paying and the more volatile it could potentially be. I’m a very much a proponent of keeping it simple, stupid, and knowing that the investment is part of the plan. But all the other stuff that we’re talking about and with kind of the behavioral finance and all that, is even more important. Other fee-based advisors will lead with product and they’ll lead with investments because that’s typically a black box. That’s the best way to qualify them and that’s how they get paid. It’s understandable, but again, I think that there’s a better way.

Ryan

Yeah. This is true financial planning, and I’m so excited to be a part of the XY Planning Network, to have met you through this. This is the future of planning. Thank you so much for being on. I’ve had a great time. I think everyone’s learned a lot. You definitely dropped some knowledge here and I appreciate it, so thank you so much for being on.

Tim

Thanks for having me on and appreciate it.

Grow your relationship with a financial planner who has your best interest at heart.

Ryan

Awesome. Well, there you have it. Thank you so much, Tim, for taking out the time at the conference to have this discussion with me. I’ve had a great time and I hope that you, as listeners, had a great time as well and took something of value out of this. It’s kind of a black box, as we talk about, and there’s so many different ways that fee-based advisors can get compensated that it’s really hard to tell if they’re giving you true, accurate, honest recommendations that really benefit you, or if it really benefits them. I encourage you to go, if you’re working with an advisor, to ask them how they get paid, what are all the sources of income that they can get from our relationship working together. I know that in my practice, I try to have as much transparency and to have as little conflicts of interest as possible. It’s honestly just the only way I can sleep at night. I’ve never worked as a fee-based advisor, so I really appreciate Tim coming on and explaining all the other things and different ways that fee-based advisors can get compensated.

Next show, we’re going to have Travis Hornsby from Student Loan Planner on, and I’m really excited to have this conversation with Travis. We tackle a ton of student loan debt questions, things that are coming up, things that have been proposed by the administration here. It’s chock-full with tons and tons of great info. Thank you again. I hope you had a great time listening to the conversation between Tim and I, and until next time.

 

Ryan Inman