The Retirement Success in Maine Podcast Ep 012 - How Should Retirees Be Using a Financial Advisor with Michael DiJoseph, CFA

 

 

Transcript

Ben:                 Welcome everybody. My name is Ben Smith. I'm happy to have you all here today. I am joined by my colleague, the Paul Pierce to my Antoine Walker, Curtis Worcester. How are you doing today, Curtis?

Curtis:              I'm well, Ben, how are you?

Ben:                 I'm doing really well. We have a really excellent guest here today. We work with lots of different investment providers across our footprint at Guidance Point and one that just resonates with us in lots of different realms has been Vanguard. And we've been talking to Vanguard a lot about this podcast that we're doing and our relationship manager Kelly Orr and her internal Njeri Kimani.

Ben:                 We've been talking to them about this idea of financial advisors. What are their roles, what is some thinking behind them? And Kelly has been saying, "Geez, you got to talk to my colleague Mike DiJoseph. Mike is one of the leading experts at Vanguard on this topic and how people in the public are using financial advisors, how they should be using advisors.

Ben:                 And we recently had a really great conversation with Charlie Dibner. And Charlie kind of has this whole conversation about the evolution of financial advice, how it's impacted him personally. We talked about that and how it's impacted us. But what's pretty fun about our conversation with Mike today is that Mike was one of the writers of this very big thought leader pieces, Advisor’s Alpha. And as we were kind of, we've been shaping our firm Guidance Point Advisors, a lot of the things that Mike and his team were writing in that thought leadership piece we've taken to heart and we've been building our firm around.

Ben:                 So just the opportunity to have Mike on the podcast today was something we just had to jump back and talk about the role of a financial advisor and how retirees and the public should be using a financial advisor. And then how that will evolve over time. So Mike, I want to welcome you to the show today. Thanks for coming on.

Mike:               Thanks Ben and Curtis for having me. And I will say you guys did not prep me as a Sixers fan to expect a Celtics intro but you said some nice things, so I think I'll hang around.

Ben:                 Okay, I appreciate that. Well and, and the Sixers are still waiting for their chance, right? So you've got a good team this year, but the Celtics are in there too. So we'll, we'll just agree to disagree on the basketball front. Right? Mike, what I'd love to do is maybe just first if you could just explain your role at Vanguard. Again, we gave a little bit of a plug for you there in terms of some the research that we really have reacted to and really loved. But could you just talk about your role at Vanguard today and how it's just evolved over the time here?

Mike:               Sure thing. So, actually just moved into a new role within the last month or so and before that it would probably be easier to explain if I explained where I came from. And so I spent most of the last decade in what's called Vanguard's investment strategy group. And so that's the group at Vanguard tasked with answering the question, what does Vanguard think? Whether it's about the markets, the economy retirement income or in the case of Advisors Alpha, what do we think about the advice industry and best practices for advice and how advisors can help align their clients with their business and things like that.

Mike:               And so I was an investment strategist group in that team responsible for writing research papers, doing analysis, going out within the industry and kind of talking to people and articulating that thought leadership that we've created and are focused primarily on this Advisor's Alpha topic. But also spent quite a bit of time working on retirement income research. But about a year working on the macro economics team and a number of other items as well mostly related to portfolio construction and advice.

Mike:               And so within the past month or so actually moved over into our financial advisor services department and I'm kind of being asked to take on a little bit of a unique role and that is to bring those topics that I've worked on over in the investment strategy group into life. So kind of helping operationalize that. Whether it's their content, so looking at evolving content and working with the marketing organizations here around Advisor's Alpha and how can we help better serve advisors?

Mike:               We have Vanguard talked about being the advisor to the advisor, right? How can we help you help better serve you? Is that through service offers potentially looking at technology solutions as well. So I kind of talk about it as far as creating and articulating the thought leadership and methodology of Vanguard to now bringing it to life. Really excited to be over here.

Ben:                 Nice. Well congratulations on that move. That sounds like a really fun to actually not only just think about things and have the academic side, but then actually start implementing those thoughts and pushing that out to actually make change, right? Actualizing change is a really tough thing to accomplish. And kudos to you to kind of take that on. You and I have talked a little bit offline previously and I think the audience would really love to hear your background story. And in terms of obviously you went to Villanova, I know, but can you talk about, well, kind of your academic background, where you're from, but also then into the career path of finance and how it led you over to Vanguard?

Mike:               Sure. So I'll take a giant step back actually. So when I was really young, I was really close and continue to be. I'm blessed enough my grandparents are still alive and I was really close with my grandfather who was a business owner and he owned a restaurant and bar and a place that did catering for weddings and things like that. And I just really grew up, spent most of my youth there helping him. And part of that was just helping him with the business aspect of it. And I just got totally obsessed with business and entrepreneurship, loved helping him with some numbers and all of those things. And at an early age and I was really into the stock market game and things that most 10 year olds aren't really all that into.

Mike:               There was never a doubt in my mind. Even going into high school, there was no doubt in my mind that I was doing business when I got to college. I didn't know a whole lot about the business obviously. And so I actually grew up down in Southern New Jersey down at the beach. I'm from Ocean City, New Jersey. And so wound about an hour and a half away at Villanova and majored in finance Villanova being the wonderful, Augustinian, well-rounded educational institution it is.

Mike:               We had a very robust core curriculum around things like philosophy and psychology. And I think I ended up with this really technology forward and data forward finance education kind of melded with a bit of a psychology and kind of the different way of thinking about things. Kind of like strategic thinking. And so actually when I got out of college, I took a role with an advisory firm. So I actually entered the advice industry directly out of college and I spent about a year there and I realized it wasn't really for me. So I remember being in the first year and we're at our Christmas party and everyone's talking about how much money did we make this year and what have you.

Mike:               And I just really kept thinking I want to be at a place where I'm making money for clients, not off clients. And it's not to say that anyone was doing anything wrong there. It was a firm full of great people. Unfortunately I just knew about Vanguard and kind of feeling that way and just knowing about Vanguard and how it's client owned and completely client centric. I just felt like it was a place that I had to be and I really tried hard to get myself into the door at Vanguard, which I was fortunate enough to do before the financial crisis and Vanguard was a different place then too.

Mike:               We were much smaller, much more retail focused. Right? We didn't have a whole lot of ties in the advice world and things like that, but I knew they were trying to go in that direction and I thought it would be something that I would like to be part of taking what I learned as an advisor the do's and the don'ts and kind of applying that to a bigger organization that it's actually going to be working with advisors.

Ben:                 And I know you just kind of touched on that a little bit in terms of being at that Christmas party and not feeling the culture right? Is that just something that was amiss? Can you just talk about just that environment of what things were they engaging in that that just didn't align with what you were kind of what were your career path you want to go?

Mike:               Yeah. Yeah. So it was a couple of things. I mean culture wise, and this was a broader shift in the industry that's really happened over the past decade plus, past 15 years. It's just the shift from kind of the transaction based financial advice delivery to one that's more of a holistic wealth management. So if you kind of think back on the history of the financial advisor, if you will, is really the stock broker effectively. I mean there wasn't an advisor giving you retirement advice necessarily.

Mike:               I mean there were some, most of the revenue, most of the head count in the industry was really are just we're a stockbroker for you. You call us up, we'll buy and sell the stocks that you want, individual securities. And then these kind of solid shift in the late 90s and early 2000s with the the discount brokerage platforms where folks like you and I could go on and we could buy and sell stocks online at the click of a button, which you better believe I was doing in college.

Ben:                 Sure.

Mike:               Not very well, I'll tell you that unfortunately.

Ben:                 Mike in terms of in terms of that, sorry to interrupt there for a second, but in regards to the that kind of that stock picking part is there was this philosophy too is not only would you just take the order but there some times of selling the idea of a stock, right? That was a lot of that was happening too as well. We also have inside baseball research, we know that there's a certain position that we think is going to do well. We're going to talk to you, the end client on why you should buy this as well as kind of what's happening there too.

Mike:               Yeah, exactly. And what we actually found out after the fact was that a lot of those recommendations were being driven by a banking relationship. So if you're a Bureau technology company that wants to go public, you'll go to bank X, Y, Z and say, "Hey, I want you to take me public." And one of their selling points for why you should hire them to be the IPO provider was that they have a retail broker force, right?

Ben:                 And they'll push your stock.

Mike:               So they say, "Hey, we'll take you public, we'll have the force that will go push your stock." Whether it was a good stock or not. I mean it's kind of irrelevant in that it's still a conflict of interest. It could be the best investment in the whole entire world. There wasn't a lot of transparency, wasn't a lot of disclosure and you're exactly right. There was order taking, but there was a lot of selling as well.

Ben:                 And that's where to kind of parallel to your story there is me getting into the industry in the early 2000s that's one thing that, watching some of the movies that were out at that time, like Boiler Room and of course people would watch Wall Street and, and those sorts of things. And you go, I know that those are celebrated cultures still. And I just looked at that and go, man, that feels like the antithesis of what I'm about as a person. Trying to help people and trying to really think about them. And in this whole we're celebrating making money off of our clients and getting all this.

Ben:                 So hearing your Christmas party story, that you talked about, that was something that I, I think going into it after school for me was something like, that's exactly where I do not want to be. And I knew it and that's what led me to the bank trust world was for that. It's the only place I could go, I felt that we're not selling those sorts of situations.

Mike:               Yeah, no, that's exactly right. And then kind of what we saw after the tech bubble was then it turned into, "Well it's really hard to buy and sell individual securities on your own. Not everyone can just quit their teaching job for example." Or people have these fabulous jobs that they were just quitting from and going and becoming professional day traders online. And it's hard not to make money when everything was just going up seemingly without end. But then it kind of all came crashing down.

Mike:               And in my mind, that led to the advent of what I'll kind of term the star manager era. So would go to the big mutual fund companies, the big investment managers, the asset managers, and they would hire the Peter Lynch's of the world say, "Hey, this guy's a genius, he's going to pick the stocks for you. And, Oh my goodness for the low price of 1% or 2% per year, you'll get the access to the greatest stock picker ever. And you get to partake in those gains."

Mike:               And then similarly, that was a lot of what the financial industry as far as advice was doing. And again, I'm generalizing, right? There were people that were out there doing planning all along. It just, there wasn't a lot of holistic planners that were doing the investments and the other stuff like we see today. And so the firm that I was working for was still in that model, right? I mean, we're picking, doing due diligence. A lot of my first job was doing due diligence on investment managers and they're good. I mean, they were good.

Mike:               There are plenty of really talented investment managers out there that are delivering performance. But the reality is it's only one small part of what clients need. And so when you see the celebration of, "Hey, we're making a ton of money for our team by selling our client's products," whether we're doing good for them or not. And largely we were doing good for them because the products were pretty good. But they're not really thinking through, hey if it was in my mind looking back on it today, I think what I would have needed to have seen to say, "Hey, I'm in the right place now. It would be probably your party looks like your clients are probably there. Right? If not, I guess you're going to have to invite them now that I said that.

Mike:               But, they'd be saying, "Hey I helped client X, Y, Z meet three goals. Three of their five goals we wanted to meet this year. We were on track for and I made my client this amount of money, not I made this amount of money from my client." I think that's really how the industry has evolved though. Especially you kind of look at the tech bubble as a big inflection point. I think the financial crisis was another really big inflection point where people largely lost trust in the industry and kind of lost trust in the expertise of these managers who they'd put so much faith in somewhat doc, pardon the pun into during that time and kind of all came crumbling down.

Mike:               And you started to see people see, Hey I need something else here. I need to plan for, if this happens again. You see an aging population, the baby boomers are retiring and it's not enough to just figure out what funds do I put my money in. It's, "Okay, well how do I spend it? How do I minimize my taxes? How do I prevent spectacular losses during a financial crisis. If that were to happen again? How do I even prepare for those things?" That's just one small part of it.

Ben:                 Nice. So Mike, could you go through kind of one little thing and I want to make sure that, because I think with the public out there and a lot of the clients we have is Vanguard is a pretty household name in terms of brand awareness. I think if you ask people, have you heard of Vanguard before? It's one of those fun companies that people have heard of and they see a lot in there the 401K plans or they may own it, different strategies or ways throughout their investment footprint.

Ben:                 But for me in the industry, I think this is something where how Vanguard is formed and you, you referenced it a little bit about being client owned. Can you talk about being client owned, what that means and how is that different than maybe what you would see with, with other fund companies out there in the world today?

Mike:               Sure. And saying that it's a household name that's music to my family's ears. Because my wife actually works in marketing here at Vanguard and advertising, so she will love to hear that. But I'll start with this because I don't want anything I say to be misconstrued as our way better or somebody else is doing something wrong because they're not structured like us. But I mean, you can structure a company a number of ways. There can be public companies and there can be private companies.

Mike:               Or in Vanguard's case we are client owned. And there's some nuances here, so at the highest level, effectively our funds at Vanguard, more or less individual companies on their own and then they hire the Vanguard group to manage them at cost, right? So Vanguard group, we'll manage, we'll administrative, we'll do the client services, the real estate, we'll build the technology, all of that and whatever it costs us to do that that's what we charge the funds.

Mike:               And so to the extent that there's anything left over, we give it back to the funds and then it gets returned to the shareholders as a dividend in the form of lower expenses. And so there's kind of this misnomer I've heard out there that people say, "Well, Vanguard's a not for profit or we're certainly not a charitable organization and we're not a not for profit either. We're a fiercely for profit company. It's just the biggest distinction between our structure and those of a lot of other companies in most industries, frankly, not just our company is where the profits go.

Mike:               So in our case they go back to our client owners back to our funds so far, say expense ratio is 10 basis points in a fund. So one 10th of 1% and it turns out that it only took us eight basis points to run the fund that year. We actually give the two basis points back and that's how we've been able to lower our fund expenses throughout literally the entire history of our company.

Mike:               And then comparatively you have another company, so if you're a public company, you take those profits and then you have to distribute them to your shareholders of the public company. Meaning those folks who own the stock of your company, whether it's in the form of dividends, buybacks, or returned earnings that you then grow into the business to make it more profitable. Or thirdly, a private company, whether it's a family, a private equity, whatever it may be, those profits go back to whoever that owner is, whether it's public or not. And we just don't have to do that.

Mike:               And so the thing is, everything we do is fiercely focused on delivering that profit and delivering the service to our client. We don't have another master to serve, right? It's not if we lower our expenses and that's less money for our shareholders and they'll only let us do that to the extent that it doesn't hurt their equity value. For us, we can keep on doing it and everyone's happy because everyone's interests are perfectly aligned.

Ben:                 Right. And I think that's what we've experienced with other companies. And sometimes you see things in terms of prices that could be too good to be true, right? Some things are, and I don't want to use the free word because free is a very bad word in the industry as well. But sometimes you see things that are at a cost that maybe is way below what you think it should be or it's very notable. And sometimes with certain companies they can have loss leaders in one area to make profit in another.

Ben:                 And what I've appreciated about Vanguard and our relationship over time is the products are competitively priced. Also when there's excess profit that's also leading to a cheaper product for the client over time. So kind of, it has this Robin hood type effect where everybody is profiting from those products doing well, which again, I applaud. I want to rotate you over Mike, in terms of the Advisor's Alpha research and I would love for you to just to define, explain what the Advisor's Alpha project is. And obviously people know what a financial advisor is and they're kind of tuning into us as well as advisors.

Ben:                 But I'd love for you to explain the concept of Alpha as well. I know that's maybe some industry jargon and what does that mean and what was your research about and what did you find within the Advisor's Alpha project?

Mike:               All right. I love it. I can talk about this stuff. All day long. Part of my DNA, I mean, it's really driven everything, it's driven my purpose in my career and it's just been an absolute privilege to work on this stuff and to meet folks like yourselves over the years. But so the Advisor's Alpha topic, you want me to define Alpha, right?

Ben:                 Yeah, please.

Mike:               So how do we kind of coined that phrase? So alpha, as it's traditionally defined in the investment industry, is out performance over a benchmark. So what does that mean? Well, you can buy an index fund, meaning by the S&P500 and you'll get all 500 stocks in the index, in the weight that the index says that you should own them and you will receive the market return, right? If that's what you define the market as the S&P500 you get exactly the market return.

Mike:               The second you deviate whether it's in a different number of stocks, it's more or less than or a different 500 or different weighting of those 500 names. You are taking what's called an active bet verse that a first step benchmark and you're going to get a different return than the S&P500 once you do that. Whether you do it by a little or do it by a lot, you'll get a little different return or potentially a lot different return to the extent that you get a better return than that market than that index.

Mike:               So if you say buy your favorite 100 names after the S&P500 and create your own little active portfolio, if you do better than the S&P500 that difference is called alpha. So it's effectively the value that you've created, an investment returns over and above the benchmark that you've chosen.

Ben:                 Got it. Great.

Mike:               That's how we talk about alpha. It's very much focused on investments. hard to do, hard to pick people who can find it, especially after taxes, whatever.

Ben:                 And Michael, I'll pause you there for one second too. Because in terms of my history is I was getting into the industry, it sounds like when you were starting to really the whole premise about, "Hey, you're hiring us as a firm to go do what you just said and that we're going to provide you out performance." And again, another term of that is alpha. So it seems like a lot of the industry has just focused in on the benefit to the client at the end of the day is we're going to achieve this out performance.

Mike:               Absolutely. And I'll say it's still extremely important. Vanguard is I think most people think of us as an indexing shop, but a huge portion of our assets are actively managed as well. We certainly believe in the value of active management and we believe that there's skill out there in the market. So nothing that we talk about today in terms of Advisors Alpha is saying this stuff's not important because it's extremely important.

Mike:               What Advisor's Alpha is, is saying that there's another form of alpha that's more controllable. It's just as if not more important. And that's the Advisor's Alpha. And so the way that we could define that, so qualitatively, we'll say it's the value that an advisor adds to the outcomes of the client. That's not necessarily investments, although it can include that. Right? So when you talk about quantifying it, and I know we'll get into that a little bit more later.

Mike:               But we kind of think about it as if you could just take the average experience out there in the industry, whether it's a client without an advisor or even a client with what's an advisor what's their experience look like? What kind of planning did they have? What's their tax situation? How are they drawing down assets and retirement potentially? How are they invested? What kind of traditional alpha are they getting? And then we say, "Hey, if you did things kind of by this set of principles, we call Advisor's Alpha what would you get then? And what's the difference?" And that's the Advisor's Alpha.

Ben:                 And what I loved about kind of what you, what you kind of went through with the research project and again well kind of dig in a little bit more deeply here in terms of the seven items that you identified. But can you talk about, well obviously you had that career background in the financial services industry and thinking about that first job and that year there driving you to this point, can you talk about that root kind of kernel in terms of the idea at Vanguard of how do we go about even identifying an advisor who's working with a client and that benefit that they provide to them? Is actually put a try to put a quantifying result on that. How does that come up as an idea?

Mike:               We listen to our clients. Right? So the Advisor's Alpha concept we talked a little bit about how the industry started to shift after the tech bubble and certainly after the financial crisis. Vanguard made a strategic decision sometime during that period as well that we should really be working closer and actually partnering with intermediaries. So the advice industry themselves. I mean Vanguard has offered financial advice.

Mike:               You can come to Vanguard. I think people hear a lot about our kind of robo advisor and the hybrid advisor we have now. But we've actually been doing advice for 25 years almost here. And we realized there are a ton of really good advisors out there that we think that we could help in a way that's other than just providing them high quality, low cost products.

Mike:               And that was this Advisor's Alpha. So we started talking about it with them and saying, "Hey as the value proposition of being an advisor is shifting from stockbroker to fund picker to holistic wealth manager, we actually have some thoughts on it because we've made that shift ourselves." So we've always been really transparent about what we're doing and kind of what our methodology is, how we tell our story and what our value proposition is. And this is exactly where Advisor's Alpha came from.

Mike:               But what we heard is that I get it. I'm an advisor, I know that I need to evolve my practice. I need to evolve the way I'm telling my story, evolve my service offer. Specifically what, how do I talk about it and how do I justify charging for it when it's something that's not easy to measure?" And so that's really where the idea came about. It's from folks like yourselves and said, "Can you help us measure this so that we can understand it and we can tell that story."

Ben:                 I know he led the show with this, I do want to kind of go back and just tell my personal story with that. I came from my previous career stop and we were a large cap value picking stock strategy. So a lot of my kind of experience and where I was in my career and again I got this Chartered Financial Analyst designation, which I know you have as well, Mike. Was around, "Hey I really think my place is in this career is around picking stocks."

Ben:                 And what I looked internally when I asked the question of am I doing a good job? How much is it? Did I actually perform what I came in here to do? And ask really honestly asking yourself that. Which is really tough thing to take stock and really reflect. Kelly presented me, Kelly who I referenced earlier from Vanguard, our relationship manager rep, she presented me with your research. And she's like, "Hey, here's the things that if you're focusing on these things, here's what also we can actually show helps your clients the most."

Ben:                 And that was kind of a really fundable moment for me of, "Hey, here's what you're starting down a path of is this the best use of your time to make the most and maximized impact to your clients?" And I started reading that paper and I shared it with the team and we all went through it and we discussed it probably for years. And we started to organize our firm around these tenets. Which is why, so I want to give that feedback back to you of, and even doing it on this forum of, hey, this is really important leadership of here's some things to be thinking about.

Ben:                 And it allowed us to ask really hard questions about auditing our own time. And what client impact are you having with that time? How many people can you serve? What life changing things are you helping them with? All of those things. And that's where I want to just kind of give you that plug all the way through. Because it's, I think in your research I think there's things that you were highlighting that people should be doing but also things that they shouldn't be doing.

Ben:                 So could you maybe go through those, there's seven items that you talk about in the, that advisors should be focusing on that you think provide that alpha, that extra impact to clients. But also maybe some things that are common in the industry that people are doing or advisors are doing that maybe don't provide that value. Because again, the show we're trying to build today is, "Hey, if I'm a retiree and I'm thinking about using a financial advisor and I'm interviewing one that might be a match for me, how should I be asking? What sort of things are they doing for me that gives me the most benefit?"

Mike:               Yep. Well, I'll start with, thank you for the kind feedback. Like I said, there are a lot of people here in this organization, they have a lot of their heart and soul in this work and we so believe in what you all do as advisors and what we do as advisors and just the evidence is so overwhelming of the fact that advice is valuable. And when you actually take a step back, which again like not to harp on it but to kind of Vanguard's structure allows us to do this where we can actually think through, "Hey we only have one person that we are accountable to and that's that end investor."

Mike:               And you start thinking about hey, by helping advisors understand how to be better advisors and understand what's important and what's valuable. We're affecting the lives of actual individuals like ourselves, like our own families and it, and it's really rewarding. My former boss until a month or two ago, a friend, who was actually the one who coined the term Advisor's Alpha here at Vanguard roughly 20 years ago now.

Mike:               He frequently, like every month he would send around this video from Simon Sinek, start with your why. And he would always say, "Remember why you're doing it today? Not what you're doing. You're not coming in and writing a research paper and plugging numbers into an Excel sheet. You are affecting an industry so that the outcomes of millions of individual investors might be marginally better." And it's really powerful stuff that informs it. So it's a long winded way of saying thank you for the feedback.

Ben:                 And to that point of, well again, what's our why? I'm sitting down with a group of people in Maine and new England and other places. And you sit down with them and you think about them and you go, why are they hiring you? And their why is something that you need to take personally and go, "I owe it to them. They're entrusting all of their wealth to you." There's probably a few other high responsibilities, but it's one of the biggest, highest responsibilities that you could probably find out there of, "Here's all my financial resources in the world and I'm trying and I want to make this money last for the entirety of my life and my spouse's. And there's all these goals that I have." And your job is to help them the best way you possibly can.

Ben:                 So that's where, again, the, this study that you have here is really impactful. So thank you for, I know we're saying thank you back and forth. That's really helpful for us. So Mike, can you really go through, in terms of just kind of kind of covering the seven items? Like what sort of things should advisors do that in your research impacts clients the most?

Mike:               Sure. Yeah. So I'll cover them. But before I cover them, a couple of disclaimers.

Ben:                 Please.

Mike:               Hey that research has evolved quite a bit since we first put it out. So much so that we actually had to put out a whole entire version of advisers off afterwards, which I think we'll get to the portfolios to people. But the original seven and another caveat here and be like, we approached this very much as more of an art than a science. So we knew that we couldn't precisely quantify these things.

Mike:               So it was kind of over a long period of time what are the things that an advisor would do that are important to most advisors that are applicable to most clients over some period of that client advisor relationship. But that was things like asset allocation. So selecting the right investments for the clients.

Mike:               So again, we talk about Advisor's Alpha verses regular alpha the investment stuff is important. And this doesn't mean asset allocation does not mean, am I beating the market? Am I not being the market? That's certainly part of how you implement it. But what it's really about is understanding kind of the way that the portfolio needs to be allocated in order to give your clients the best chance of reaching their own goals, taking into account a number of things.

Mike:               So we've written about this concept called required versus desired returns in the past and it's really this thought of if you just ask the average client, "Hey, what return do you want?" If they're probably just going to say the highest. If you give them do you want two, four, six, eight or 10. They'll say, "Well, we want 10 of course." A good advisor can go through and actually figure out, "Hey, what return is required to give us some margin of safety that they'll actually meet their goals?"

Mike:               Maybe they want 10 but, but they only need four and you end up targeting six. That's part of it. And the other part on there, a big part of it is risk tolerance. And so we look at it a little differently than most. I think traditionally what you'll see is you fill out a couple of questions. Maybe if you go even deeper, maybe you're talking to a client and you say, "Well how would you feel if you have 20% less financial assets than you do today or 30% less financial assets?"

Mike:               And you kind of get to that point where they seem to feel uncomfortable and then you say, "Well that's your risk tolerance." And we'll back into a kind of the equity allocation that would correlate in the past with what that draw down would potentially be in the future. We think that that's really not as robust of an approach as what a really good advisor is able to provide.

Mike:               And so I think when you guys talk to your clients, it's probably more along the lines of, "Okay, here's your situation today. Here's the returns that you may need to reach your goals. Again, with a margin of safety. How would you feel if instead of us saying you have a 90% chance of reaching that goal, how would you feel if that went down to 60% or 65%? More so, how would you feel if you lost 30% of your portfolio?" Because what we know from behavioral finance is that people will actually picture themselves today, all else equal with 30% less assets. So say, "Okay, well a million dollar investor, I now have $700,000 that's pretty bad. I wouldn't feel great about it. But okay, I think I would be able to handle it."

Mike:               But the reality is the path that the world would have to take to end up for them having a 30% draw down, especially as an older investor, that's probably not a hundred percent equities that conversation needs to be around. "How would you feel if you had 30% less assets and you were worried about losing your job? Maybe one of your adult children got laid off and has to move back home. Maybe you have a surprise, God forbid you have a surprise health scare or anything along those lines." I think it's just that deeper level and then understanding what that is and how to allocate your client's portfolio accordingly. So you get into the active passive alpha or not alpha, it's only one small part of asset allocation.

Ben:                 Sure. Because it's getting context to their personal situation, right? It's translating their personal things that they're worried about personal. Maybe there's things going on in life, but also then how that translate to how they should invest. What I like is again, from this framework that you've build is leading with the client first and kind of hearing about what drives them, what makes them tick, what's important in their life, what are their goals? And having that drive the investment strategy versus, "Hey, by the way, the investment strategy is this, this is what we're going to do. And if it doesn't work out, you adjust your life to us. If it really works out, you can adjust your life even better. Isn't that great?"

Ben:                 So I like the whole, it's a flip of what I think what we've already talked about in the financial advice industry is that "Hey, we're going to invest our way and you're lucky that you're working with us because we're really good at it. And if it doesn't work out, I'm sorry, you got to adjust your life." So the opposite way of, "Hey here's what you want to do in your life. And we're translating that to make it work on an investment side." I like so much better that the end client's in control. They're in the center of it, not on the peripheral reacting to it.

Mike:               Yeah. And all of this stuff falls under the purview of financial planning. So it's having a plan. And the reality is if if you have an allocation in the market draws down and the portfolio draws down 30% I mean that should have been part of the plan.

Ben:                 That's right. Yeah.

Mike:               And it's done this, there's no magic wand. No matter what you do. I mean you you can't just create new assets. You can't create new savings that the client can't afford, but you can certainly do the best with what you're given and ideally put together a plan that's durable through ups and downs. That's what we mean about the value of asset allocation is so specific to the individual client. It's impossible to say what the specific value is.

Mike:               You asked earlier, what is one of the difficulties I think we had with doing this and kind of where did the idea come from? This is really hard because unlike a lot of other areas in life, there's no data effectively on what could have been. So what an economist would call a counterfactual. So if we say, well, we invested you in a 60/40 portfolio and 20 years later the advisor client looks back and says, "Here's what your result is." There's no way really keep track or calculate what the result could have been if you had made other decisions.

Ben:                 Right. Yeah.

Mike:               So I think that's one of the reasons our industry has such a hard time articulating value. Whereas if you're a CPA, you could say, "Here's what your taxes were before he came to me and here's what they are now." X minus Y is the accountant's alpha. I think I just coined a term.

Ben:                 It'll be our secret! We won't let it out. So Mike, can you keep on going on here? So we've covered asset allocation. What would be the next one, so the advisors should be focusing on?

Mike:               Yep. And I'll speed them up a little bit, but it's cost effective implementation. And that one's really simple. We just take the average expense that the average dollar invested in the industry pays. And compare it to what if you just moved through a lower cost cohort of investments. And that's again, something that's core to our DNA. And again, all of this advisor's outfits about keeping more of what you're already earning. It's not about how do we help you earn more traditional alpha?

Mike:               It's how do you keep what you're earning in through not paying too much not being poorly allocated in the first place, not paying too much taxes, et cetera. And so lowering the costs is really important. It's something that compounds over time. It doesn't involve taking a lot of risk. And it's not an active passive story. We're not saying go passive. This is just after doing active, lower your active costs. If you're doing passive, then use the highest quality, lowest cost product that you can.

Mike:               So there's that. And then we get into a series of topics around kind of retirement draw down and taxes. And this is really that financial planning that I know that you do. And that's around how do you ask, how do you locate your asset instead of how the allocate your assets? Where do you put them? What types of accounts do you put them in? Most people have a taxable registration, a 401k certainly. If not they maybe have an IRA, potentially you have spouses, you have two IRAs, maybe two both IRAs, a 401k thrown in there. A couple of taxable accounts, a trust, a joint account et cetera.

Mike:               And it's kind of figuring out, "Okay, well we decided you're a 60/40 investor. Where the heck do we put the assets? Did we put the bond in a way that minimizes the taxes? And to quantify that you really just look at the tax efficiency of the asset classes themselves. So something like taxable bonds for example, will generally get taxed at the marginal tax rate. And so whatever you're paying on your income tax, that is usually going to be higher than the capital gains rate.

Mike:               Most of the time it will be higher than the long-term capital gains rate in particular. And so if you have equity funds that pay dividends that are taxed at long-term capital gains and you have fixed income that pays interest and we know most of the return to fixed income over a long period of time, at least to me maybe not the last decade, but it'll generally be attributable to interest payments that gets taxed at a much higher rate. So maybe we 'shelter' that in the tax advantage type accounts.

Mike:               So thinking through how you're doing that and then that stuff is really complicated. It's something that the average investor probably doesn't know exists. Nonetheless can do on their own and it's something that can add a tremendous amount of value, especially for folks who have all different types of accounts and someone who maybe has a balanced allocation where they have the different types of investments as well.

Ben:                 And I'll kind of add to it too. One of the items which was interesting to me is you had a total return versus income investing part, there, was a theme. And what always struck me about that is that there's this whole thinking that is a client will walk in and they have this proclivity to dividend paying things, right? So they get the income and that it's all about the income spinning off. And they don't understand the total return side of that, of looking at both sides of it. So I know that that was a piece in there, but that one kind of really hit home on me was how it's a very traditional way on thinking and I know that's been ingrained in this society for a long time, but that's something that I thought was pretty notable.

Mike:               Well Ben, it's been ingrained in society because for most of our history you've been able to just have a simple balance portfolio that kicked off enough income to live off of in retirement.

Ben:                 That's right.

Mike:               I mean if you look before say the mid 2000s you could have a, again, a simple 60/40 stock, bond portfolio that was probably kicking off four or 5% a year in dividends and interest. And so what happened with lowering interest rates from central banks and lower inflation and whatever those reasons are over the past decade and a half dividend yields have come down. Interest rates on bonds has certainly come down. And we've just kind of stuck with this rule of thumb.

Mike:               While if my portfolio is only getting 2% then I need to change the portfolio. So I'm getting four or five. We've done a lot of work here and we actually found out that regardless of the dividend yield or the interest payment of the funds, if you look at them, if you kind of bucket say like by quartile, so the top 20 versus bottom, 20% dividend yield on a mutual fund, the total return. So the return that you actually get from holding onto the investments pretty close regardless.

Mike:               And the reason why he tied it to asset location, as a perfect segue is because selling a portion of an appreciated mutual fund for example, is often more tax efficient than paying the taxes on the interest payments and dividends. And so it's almost psychological. People get attached to their capital, right? Get attached to their principal. I don't want to sell any shares. I have a number of shares, I don't want to sell them, but if the dividend it's not already invested, so I'll just take the dividend out.

Mike:               And we certainly say you should probably spend the dividends first instead of reinvesting them and then getting them double taxed on the return there. But instead of changing the portfolio, because the irony is you may be scared to touch your capital, but the things that it takes to actually raise the interest rate usually require taking on significant extra risk. Oftentimes unexpected risks and kind of hidden risks. The irony is that your capital may be more risk from trying not to touch it then if you just spend it in the first place.

Ben:                 I do want to fast forward to the last piece of the advisors Alpha piece. Because the biggest component which I've seen and again which impacted us was the behavioral coaching. And it's something where having, I think a lot of our podcasts here is around the behavioral coaching part is the emotional and what are the fears and the concerns and the goal setting and the visualization that people maybe struggle with.

Ben:                 And advisors that are coming in and organizing people and really factoring in all of those emotional pieces and helping coach them either through them or acknowledging them and working around them. Can you talk about that a little bit in terms of the role of an advisor and what is behavioral coaching that you were finding was impactful to people?

Mike:               On behavioral coaching? We, we believe that it's the biggest value that an advisor can add to a client. And we might get into a little bit about how the industry evolved and I would make the case that it's even more important today as technology has started to come in and kind of automated away some of the things that may be an advisor had done in the past. We think that's a good thing and frees up more time for this.

Mike:               And so there's two ways to think about it. There's probably more, and there's two that I generally talk about. And one is kind of the day to day, year after year, not chasing performance and trying to time the market as kind of an investment strategy. So we can actually look at the returns of funds versus the returns of the average dollar invested in the fund.

Mike:               And if you, I guess the example would be, let's say one of the best funds last year, let's just call it, was up 20% and had tremendous cash flow throughout the year. So on paper it looks like, "Okay, this fund had 20% return." When you actually dig a little deeper into it, what you'll see is, and this is just totally hypothetical. Let's say that 15 of that 20% return occurred in the first six months of the year.

Mike:               What we often see, we see it all across the world. It's a human thing. We see it in retail investors, we see an advisors and we see it in institutions. We often see is that a bulk of the cash flow from last year probably came in the second six months of the year. So while fund says 20% return, the reality is that the average person or average dollar that invested in that fund in that year probably didn't get anything remotely close to the 20 and the reason is it's hard not to, right? It's hard to hold onto things when there's always something doing better.

Mike:               And in our industry, and especially today, there is always something doing better. the millennials call it FOMO. You can turn on CNBC and you're saying this company and that company and this IPO is last year was Bitcoin, right? Or whatever it is. There's always something that's doing better than what you have. And there's always that temptation to chase it and say, "Oh man, well Bitcoin looks like it's going to, whatever, I better jump in now." And you're going to sell something, you're probably going to sell the thing that hasn't done as well, that's out of favor. Generally, I wouldn't say we believe in this as a rule, but it's kind of a rule of thumb there. There's quite a bit of mean reversion in investments, meaning if something does poorly today, it'll probably do better in the future and it'll kind of end at it's average.

Mike:               And so a really good advisor is someone who can step in there and kind of mitigate those emotional decision making moment to say, "Hey, we planned for this ahead of time. We sat down, we understood your goals. We're not trying to get the highest return, we're just trying to get a return that'll help you meet your goal." [crosstalk 00:44:26] All right. And bailing out of your diversified portfolio to invest in Bitcoin may make you reach your goals in six months instead of 20 years. It also may make you go broke and you have 0% chance of reaching your goals ever. And it's just that discipline, we kind of call it the emotional circuit breaker of being an advisor.

Ben:                 It's kind of this systematizing the emotional part, right? It's kind of taking something emotional out of it. Some people get really excited about, there's one time in their life, they may get lucky in some of these things. And that will really color their lens on, "Hey, I'm good at this." And they have a false sense of confidence in regards to their own abilities to do it. We had a client or prospect that we're interviewing and they're interviewing our process and thinking about it and they go, "Geez, I can do this on my own. I'm just as able to do it. I've retired and now I have all the time in the world and this seems like fun and anybody can do this, right? So I'll just go ahead and do it."

Ben:                 In six months later, he's like, "Yeah, I made really bad bets. I over concentrated in things I in the market did all the things that we had talked about and all of the things that we had talked about as a strategy to meet my goals as safely as I thought I could. Those things actually looking backwards, would have worked out. And the things I did that I thought were very easy and common sense didn't work out."

Ben:                 So it was these behavioral parts of looking at persistence, right? Is what things can we do really well and we can focus in on those and do them repeatedly over time for all clients. And what sort of things are our actual skill that we can do well versus minimizing the luck stuff. And again, we can't control externalities in the market and all that. But that that was one of the things we took away from that segment of your piece.

Mike:               That's fine. That actually reminds me of a story and I promise we did not discuss this beforehand. I do want to kind of do want to come back to the second bigger piece of behavioral coaching, which is the more sporadic type stuff. But I actually heard a story from an advisor one time who had a very similar experience. He was the advisor. The client was saying, "I don't need what you do. I could do this myself. I'm retired. I could figure out how to do the taxes and if I really devote to it."

Mike:               I think he was probably an engineer or doctor, one of the people that probably could figure out a lot of that stuff frankly. And the adviser brings up the conversation about behavioral coaching and it's like, "Hey, this stuff's hard. Even for the professionals, it's so hard to do if you don't have a good process and experience and understanding." He said, "Nope, I could do it." So the advisor actually made the client a bet and said, "I'll tell you what, why don't we slice off," whatever it was, "five, 10 20% of your portfolio.

Mike:               And we'll give you 12 months and I'll manage the rest of the portfolio. The way that we set out in our policy, in investment policy statement. You go out and actively manage the rest of it. And then at the end of this 12 months, if you're able to beat me with your splice of the portfolio, I'll refund your fees for the year and you're free to go on your own." Kind of joking, "I'll hire you as my advisor."

Mike:               I think we can all imagine exactly how that played out very similarly. And then talking to the advisor too. It was kind of funny because the reality is like even if the client did outperform, I think the reason that they needed the behavioral coaching in the first place probably would have subsided at the end of that period anyway.

Ben:                 Right. In that example too, Mike, is what I also find is they might be right, right now. That might be correct that right now they can figure all those things out. Everything we talked about and all the services. There might be a day when they're not inclined to do this anymore. And they might not be able to, they might not be willing to, they might lose capacity or get sick. And what provides continuity over the entirety of their retirement that all these things are taken care of as they have more dependency on their money or more physical needs or they slow down a little bit more.

Ben:                 There's more chance for them to make a mistake because that they're at a different stage of their retirement. And we had a geriatric psychologist that came on, Dr. Cliffs Singer that came on before and he was saying, "Look, there's young, old and there's old." He goes, "When you start getting to your mid-seventies is when the old old kicks in and you start really losing mental capacity." And that's something that from a financial advisory perspective of, Hey behavioral coaching, there's a need for all across whether you're 18 years old, I have a six year old, could be six year old, whatever. I mean your whole life there's different needs that are happening.

Ben:                 And that's one of the things we've reacted to that situation you just said. Right now you might be not needing it, but there might be a time over that we're working together on it and you’re co-piloting it. You might be able to fly your own plane to Atlanta, but if you're going over Valley Forge, Pennsylvania and all of a sudden something happens, and you're solo piloting and you're not able to do it that's a pretty scary place to be. Versus you have a copilot that's already there and working with you. So again from that end, that's what we've kind of said to it. And again, which is the tenets of your framework there.

Mike:               Yeah. Really well put. And I'll just kind of close out the behavioral coaching conversation with that. There's the other aspect of it too. And I actually, I was up in Boston a month or two ago talking at an FPA event about behavioral coaching. We have this whole presentation we get on how to be a behavioral coach, why you needed et cetera. And they asked me to put together a two minute teaser video to get people to come to the conference with a compelling statement.

Mike:               And I made the statement that I said that I believe that as an advisor could actually pay for the full lifetime of fees between the client and advisor with a 15 minute phone call. And we have evidence of it. And I know we don't want to talk about pricing in the industry and costs and things like that, but this story is kind of like this and we actually saw it play out. We did a study at Vanguard where we saw this.

Mike:               So let's say you're, we'll put numbers on it. Let's say you're a million dollar portfolio investor in 2007 at the pre-crisis peak. At some point during that crisis, the vast majority of people were certainly tempted. A whole lot of them did unfortunately bail out of that market or de-risk or reallocate. And so we did this thought exercise and said, "Well, what if it was at the end of 2008 before the market even bottomed out. What if it was in March of 2009 when it looked like," I mean we were all in the industry at the time. It literally looked like the whole entire system was going to collapse and the industry was just going to be gone.

Ben:                 Absolutely.

Mike:               I mean it felt that way every single day. There's no other way to put it. So we say, okay, if you're an advisor and your client calls at any point in that stretch and says, "I want to bail out of the market. Even if you're say a 60/40, 70/30, 50/50 portfolio investor at 700 million dollar portfolio is probably somewhere in like the 60, $100,000 range, right? You have that phone call. It could be 15 minutes of behavioral coaching allows you to keep them invested, whether it's referring back to the plan or ideally you had been proactive about it ahead of time, et cetera. Whatever those things may be. But getting them to keep invested in the market. Again, also knowing that when people bail out of the market, you have to understand it's not enough to just call the buyer. It's not enough to just know when to get out. You have to know when to get back in.

Ben:                 That's right. You got to be right twice.

Mike:               You have to be right twice. And usually the moments when the capitulation happens, when things feel the worst and people tend to bail, that's usually when the moment would have been to get in. And oftentimes, but not always because there's tons of false positives and false negatives in this industry, but oftentimes when it feels the best, that was the time to get out. Then you never know it until retrospect.

Mike:               But we say, okay, well let's do this thought exercise. If that investor had bailed out of the market even marginally, and let's just say they are probably barely broken even today, if they were invested in bonds or cash. Very likely, still never broke even from their pre-crisis peak not counting new savings and whatnot. Versus the investor who actually stayed invested. You're looking at probably a two or $3 million portfolio today when accounting for market appreciation and reinvestments. And so when you're talking about the value of behavioral coaching you can make the case that 15 minute conversation is the difference between a multiple of wealth a matter of percents and basis points here and there.

Ben:                 That's right.

Mike:               I went on to make the case that, that 15 minute phone call likely requires an enormous amount of upfront investment in building the relationship and building the trust between a client and an advisor so that you're actually able to deliver that value and that the client's actually willing to accept that coaching. It's just like an athlete. I mean if you see these star athletes go to the teams and they have a new coach there, there was an example, a very relevant example for you and the Celtics last year.

Ben:                 That's right.

Mike:               You have a new athlete, goes to the team an incredibly well respected by all accounts, just tremendous human being. You have a coach up there and it pains me to say that, but it's true. And he just doesn't want to accept the coaching, because they don't have that background. They haven't been through the trenches. They maybe haven't built the trust and whatever else it may be. Versus you have some of the players who've been on that team for five or six or seven years. The Marcus Smarts of the world, right? Where they've built that relationship. They've been through the bad times, the good times, and when it comes time for coaching opportunities, they're much more likely to actually accept it.

Ben:                 Yeah. That's where I think when you look at, again, one of the lessons I learned during that financial crisis is look, having that relationship allowed for all those conversations to go really well. Were people happy about losing money during that timeframe? No. But they knew going into it what a plan would be, what their plan already was, what the plan was if things went bad the way they did, how we are positioning ourselves to get out of it and what data we were using that were supporting what we were saying to them.

Ben:                 And those made for obviously the, when they're coming into the meetings, they were very anxious and worried and upset, but going out to those meetings you would hear things like, I feel so much better. I understand why we did what we did, why we are where we are and what we're going to do going forward. And they wanted that continuity. I think from a financial advice perspective in the industry as we've kind of already laid out, is if you have somebody that is really, their relationship with our client is just been stock-picking.

Ben:                 It's like, well when everything is down by 50% or something there's not a magic stock that's going to come out of nowhere and just save you. So that relationship is not going to be helpful to those situations where I feel like if we're doing our job really well, we really get some really great relationships with our clients in various levels of personal relationships there too. But it's a level of trust.

Ben:                 Because you've talked about all the things in their life, what it means, how their money relates to it and they understand strategy and going to it. Where if it's like our only relationship is pitching you a stock or here's our portfolio and here's why we did well in this and not there. It's not translated and they really have a tough time kind of understanding it. So I want to ask you that question there, Mike.

Ben:                 In regards to if someone's shopping for a financial advisor based on the tenets that you said, here's the things that financial advisor should be focusing on. Then translating that to I'm part of the public and I'm raising my hand right now, I'm looking for a financial advisor. How would you guide them in terms of finding that advisor that is focusing on those sorts of things that you've laid out in your research?

Mike:               Yeah, I'll give you a personal story that will be an analogy. So two years ago now, I guess, I was engaged to my now wife. And we were doing this research though I had kind of briefly mentioned the portfolios to people and we actually tried to quantify trust and like the aspects of trust. And it was functional and ethical and emotional was actually more than 50% it was more than functional and ethical combined. We were doing this deep dive into it and we had thousands and thousands of survey results and we had this from kind of aggregate these responses into, "Hey, how can we find the tenants that drive high trust?"

Mike:               Not just trust, but like what were the things that drove a high level of trust between a client and advisor? The kind of relationship that would allow, like you said, the advisor to be the coach when they're needed and the kind of relationship where even when the market does go down, they're probably not going to fire their advisor because they didn't hire their advisor to beat the market anyway. The story is, so to get to that point, I actually had to read through those survey results.

Mike:               So I'm reading through these survey results during the day and I'm seeing these things. And then my wife and I were in premarital counseling through our church at the time. So at night we're going to visit our premarital counselors and they're talking and I'm sitting there, I'm looking at her and I'm shaking my head. I'm really into it. And the wheels were obviously spinning and I think my now wife, hopefully my wife still after she hears this, it kind of was looking over like, "Oh man, he's really into this. He's going to be great. I chose a winner here. He's really engaged in this whole process."

Mike:               But what's really going through my mind is that my goodness, things that I'm hearing right now are exactly the things I'm reading during the day. And so it sounds, it might sound a little hokey, but the things that lead to a good relationship between an advisor client are very similar in a lot of ways to the things that actually lead to a healthy marriage. And it's really, it all falls on the emotional side and it's things like active listening probably more than anything else.

Mike:               I think too often, and that's certainly been my experience having been around literally thousands of advisors. I can honestly I could probably tell you in a 20 minute conversation with an advisor kind of what kind of relationship they have with their clients and what kind of services they offer because it's the ones that just want to talk and talk and talk and talk about themselves and talk about their service offer and their successes and their goals versus the very best advisors.

Mike:               And so the explicit advice to an end investor that I would give when choosing an advisor is to find an advisor who is listening to you, who is asking really good thought provoking, provocative questions and who's doing it in a way that is trying to understand your why, not just your, what. We talked about it from our perspective at a personal level during our careers, but I think the standard kind of response would be, "While you're coming to me to accumulate wealth, save money, I'm going to make you money and whatever."

Mike:               Whereas I think the reality is the very best advisors are the ones figuring out like what does wealth mean to you? Why do you want to accumulate wealth? Right? Like why are you, why are you even saving today instead of just spending all your money? Like what does it mean to you? What do you want to do in retirement? Is it business, is it family, is it legacy? Whatever those things are. So when you're interviewing an advisor, if they're not asking you why you're doing what you're doing, if they're just asking you what assets you have, what accounts do you have how much do you want to make, etc. I'd say run.

Ben:                 Yeah, because it's at that point is the advisors interviewing you about your assets? The client is actually to the advisor is what I've kind of framed it as or think about it as is the advisors caring more about your money than about you?

Mike:               So the Christmas party story, right? I mean they're thinking, am I going to get a vacation out of this because I'm going to get a big portfolio and they're doing the math in their head. And it's not fair to generalize to all, but yeah, I mean if the advisor is sitting there asking, "What do you want to do with the money? Like what does wealth mean to you?" What they're probably thinking through is man, "Like how am I going to plan for this? Like what kind of strategies are we going to put in place? How am I going to communicate about these goals?" And really like to take it another step further, I would say, look for an advisor who's excited to help you reach those goals.

Ben:                 Exactly.

Mike:               You want an advocate. You want a partner. And that's when I talked to advisors about this presentation, that I've mentioned. That's literally what I say. I say the number one thing that drives success from a business perspective of an advisor is having high trust clients. And the number one thing that drives high trust clients put it bluntly, is that the client feels like the advisor actually cares about them and it's almost co-invested in a sense of like their success. And then obviously all the ethical and functional alignment of interests and just sheer competence to actually get the job done are kind of table stakes at this point in the industry.

Ben:                 Yeah. Mike, I want to kind of switch streams in terms of it's a bigger question. But I want to combine two that I was thinking about here is one is in the country, we're an aging country. Right? You're seeing the, the boomer generation aging and retiring and from an advisor perspective or people that are needing advice? I think there's more and more anecdotally, I'll say is I'm seeing more and more people wanting to use a financial advisor and thinking about that.

Ben:                 But from a looking for a practitioner, and you see this during, through lots of trade publications that there's a lot of financial advisors exiting the marketplace, right? They're, they're retiring and there's nobody, or there's a lack of people like maybe Curtis here who's next to me is people that are younger getting into this industry and learning and being mentored and working to kind of replace those retirees.

Ben:                 And in the state of Maine itself, I think the second oldest state by median age. The second or first, so we were way past Florida. And we have this issue because we're so rural, right? Is we have a population center at the bottom of the state and Portland, which is an hour and a half away from Boston. And the rest of the state is very rural and it's really tough to get access to resources because of the geographic distance.

Ben:                 So if you're kind of thinking about the future here, what are you seeing now for the next 30 years of, first of all, are people adopting today the things that you're, you're saying within your framework of doing more behavioral coaching, getting away from the evolution of stock picking or our stocks suggesting and doing more of the coaching work. And then what do you think 30 years going forward as you mentioned this word, robo advice, which is basically computer algorithms doing some of this work. What do you think is going to happen? And I'm using the main lens because of how real it is to us and how it's even more exasperated, I think, than the national trend. So what would be your response there?

Mike:               Certainly. So it sounds like you're saying an increased demand, which we would absolutely agree with. I think people are just place complicated. The modern world is really complicated. The financial systems complicated, planning, taxes, you name it. Everything seems to be getting more and more complicated so there's more and more demand for it. The counter, the other side of that equation I certainly agree with that.

Mike:               There's a very particular demographic and financial advice and they're probably not going to be in the business in 10 years. You can Google it. I mean, you see it in trade publications. I mean a material percentage of our entire industry is retiring or exiting the industry every year. That said, I'll address the kind of geographic part of it secondarily. But that's said. On the education side, there are tons of universities really investing in financial planning curriculum. The CFP board has done a really good job of kind of integrating into some of those programs and really kind of producing a certified financial planners at an earlier rate.

Mike:               Actually this conference that I was at earlier this week from the CFA society of Philadelphia, the new CEO of the CFA Institute for the global CEO Institute was the keynote speaker and the whole conference theme was, Challenges Facing Advisors and The Future of Wealth Management. And even she said like they know that where I was in the past, the glamor jobs of finance I wouldn't say necessarily where the money is per se, but kind of where people wanted to be. Where the meaningful fulfilling work was.

Mike:               It was kind of on the institutional side, was in the hedge fund side. We had talked earlier about there's still kind of that cultural attraction for a certain type to Wall Street and investment banking and hedge funds and things. But I think when you look at the younger generations coming up, the millennials, the gen Zs certainly they're not willing to necessarily work just for a big paycheck. I think people are looking for really meaningful work. And I think that financial advice is about as meaningful as it gets.

Mike:               It's also an incredibly I'm not just patting you on the back there, but it's an incredibly demanding job in that you have to be really good people, people. And you have to understand that psychology and understanding how to interact with others and have a high level of emotional intelligence, but you have to be hyper competent on taxes and investments and all this numerical data and things. So in my mind, I think that while right now the numbers may look like, "Hey, there's a ton of advisors retiring, there's going to be more demand for it and not enough supply." Actually the biggest cohort of American demographics is actually gen Z.

Ben:                 Yeah, it's coming.

Mike:               If you think the baby boomers are a big generation, I mean most of them had two or three kids? And there's just this tsunami of people who are looking for meaningful work, that's diverse work, that's flexible. And it's importantly immune to automation. I think a lot of people, and I'm sure coming from a rural area, it's probably hit your area probably even harder than most. People are looking for something that's immune to automation and I believe financial advice is one of those things. I'm incredibly bullish on the future. If I had children that were looking to get into the industry, I would tell them to go into financial advice over probably any other part of the industry.

Ben:                 And I think really to sum up a lot of the research you just had and the answer to that question is, I think if advisors are focusing in on and the things that you have outlined here with your team, then well, you can kind of see where the industry starts changing the viewpoint on them. The public, I think starts looking at them as a high trust industry instead of a low trust industry. Because if you're there to pick stocks in there, you're less emotionally connected to your clients and while you're, you're driving your high end luxury sedan and dressing in a certain way, you can see where they're getting skeptical about that relationship.

Ben:                 And where you go, hey a few start focusing on the right things, making material and impactful work with those people and you're doing life changing things with them and it's all thing they can talk about and they have high trust, and if more people are doing it then all of a sudden then more and more people are going to go. "That's the work I want to do, not the stuff that just enriches me and it doesn't really matter what else happens to my clients."

Ben:                 So yeah, I think that from my end is kind of what I was thinking too. But Mike, I want to I want to do a wrap up question here and because we're really appreciate you coming on the show and this is just a fantastic conversation to have. Because again, to hear your perspective in the national realm, especially at such a firm like Vanguard who we hold in really high esteem and regard. But I want to ask from your side, obviously you're a ways from retirement. But as you are researching and thinking you and your spouse as you're approaching this yourself, what sort of things would you be thinking about would be retirement success for you? Because of course you're hearing stories, you're hearing us, so you're hearing kind of how things are going. Stretch goals, things that you always wanted to do, what would a successful retirement look like for you?

Mike:               Yeah, it's interesting. I'll give actually couple of personal examples because myself and my spouse have both seen this happen with our own parents. And so my father retired about six years ago or so now. And he was a New Jersey state trooper for 25 years. And I mean he went into the police Academy at a pretty young age. So he retired fairly early with a pension and I think the average person would say, "Yeah, I would love to retire in my late forties early fifties and get a paycheck for life and not have to do anything." But with like six months before he even retired, I think he was bored even thinking about it. He started his own business and he's a private investigator now.

Ben:                 Oh, nice. Yeah.

Mike:               You know what, he works probably, although it's more episodic, I bet you he probably works harder, maybe even more hours than he ever did before. And he's never been happier. Being his own boss and I think I have a lot of that DNA in me too. I can't even take more than two days off of work if I don't have something to do or I'll just sit there and drive myself and my wife crazy.

Mike:               With my wife, her father was a minister in South Carolina and he retired partially. He still does a little bit he's pretty involved in the community, but similarly, and especially for something like him, he's incredibly extroverted. Just like loves talking, loves meeting people, loves making connections. And so my wife and I actually helped him launch a business and so he's in Greenville, South Carolina.

Mike:               We helped him launch a business called Make Greenville Yours, where he actually does a relocation consulting effectively. So he works with realtors, he works with individuals who are looking to move to the city, which is just one of the fastest growing cities in the whole United States. Lots of big employers there. So he'll work with employers who will send their potential prospects to him and he'll take them around the town and show him the neighborhoods, connect them with the right people kind of serve as a relocation resource for them.

Mike:               And so when I think about myself, I think that both of us will probably be like that as well. And I don't think we'll be able to sit still. I think we're really fortunate to have seen it happen to our family and not get to that point where it's kind of like we just retire. And I've heard this from advisors before. Actually this is something that we could never quantify in a million years and I wouldn't even try.

Mike:               But a lot of advisors will say, part of their value is helping clients figure that out. Like understanding. "All right, we saved all this money, we did everything right. You made it to retirement. Why aren't you happier?"

Ben:                 That's right. You’ve forgone happiness.

Mike:               We need to find you. We need to find your purpose in retirement. So me personally, I'm a huge Motorhead. I grew up working on cars with my dad and our spare time and motorcycles and things like that. I still do it. I drive my wife nuts. You know, I'm always looking for a good deal on a car I can fix up and maybe sell or keep for a year or two and probably have some nicer things that I otherwise would've been able to if I didn't have the, the blood, sweat and tears into them.

Mike:               I would hope less than halfway through my career. I've already started thinking about what might that be. Would it be some kind of automotive business or that it's trading or own a shop or, I have no idea. Will probably look very different. Hopefully it's not all electric cars by then.

Ben:                 There'll always be something, Mike.

Mike:               I guess for the environment it would probably be good if it was, but I like them loud.

Ben:                 Well Mike, I really appreciate you coming on the show today. Thank you so much for lending your expertise and sharing some of your findings. Again, as we kind of expressed to you, it's been personally meaningful to us. You've helped shape our firm with things that you've come up with. So we really just can't thank you enough for just coming on and sharing the insight. Thanks.

Mike:               Oh, the pleasure is absolutely been all mine. This has been a fantastic conversation and just appreciative of just having me on and your relationship. I know Kelly speaks the world of you and your firm. And hopefully I'll get to get up there and meet you guys in person in the summer.

Ben:                 We will buy you the lobster roll or two or three whenever we see you. Happy to do it.

Mike:               Well, very good.

Ben:                 Right. Take care. So it was really great having Mike on the podcast today. In terms of Vanguard in again, hearing a little bit of about Vanguard, but personally I've been a very big Vanguard fan and I think the fanboy word out there as a Bogle head. So Jack Bogle was the founder of Vanguard and there's kind of this term of people that are endeared to Vanguard is being called Bogle heads. So kind of been there is this attraction to, again, low cost investing.

Ben:                 Keeping more of your own money so that it compounds more over time is a very important investment to have. And that's something where we're reading their research over the years and having a relationship with Vanguard in lots of different realms. It's always great to hear what they're saying, what they're seeing nationally so that we can then apply it to our own practice. But also in terms of what we see in the state of Maine.

Ben:                 Again, there's a lot of unique things that are happening in Maine and there's needs that are maybe a little more specific and we want to make sure that we can apply national research and bring it locally. But in terms of the podcast today, Curtis, what did you take away from today's show?

Curtis:              So I was really excited to have this conversation with Mike and specifically focus it around the Advisor's Alpha piece. As we've mentioned and you've mentioned Ben, that's kind of a piece of our firm here and how we try to do things. And that it goes back with me even to joining Guidance Point in March 2019. You and I had a lot of good conversations about that and how the goal, if you will, for the firm to or not only just the firm for us and how we interact with our clients. And that was something that is really important to me. And it clearly stuck out to me. And here I am working with Guidance Point. But no, it was great to talk with Mike and hear the statistics behind it and some of the methodology that they've found.

Ben:                 And really the concept of high trust. He mentioned that in a part of the conversation today. Is that not only that clients trust you, right, that they like you and they have a level of trust. But this concept of how do we get a level of high trust with our clients. And I think the only way to do that, and I know we talked about this with Charlie and we talked about this with core values and is a really, I think the more you can express that you care. And he made the point about asking really great questions.

Ben:                 If someone's asking really good questions and they're thinking about me in a way that I've never really thought about myself. That's what's going to be impactful to people and really drive change in their life to better what they're doing to better their relationships with their family to better their experiencing of life and to be able to change their lens on things.

Ben:                 And not trying to go too, too lofty of a life goal here, but why is that personally rewarding to me is when, first of all, it's personally haunting to me when I'm hearing people really struggling in life and they're talking about these things because I've asked questions about, again, like the level of satisfaction in life and what's bothering them and I'm thinking about them for quite a while. That's really haunting and bothering. When you're seeing somebody in a state of pain and you're able to help them.

Ben:                 But then also then you see them through it and to see that they were here and now they're there. That's really impactful. For me, I would say that, I really got a lot out of in terms of the national side of it, in terms of the where our, where our advisers, where were they, where have they been and where has that change of last 20 years to where is it going? And one thing that I don't want to take lightly here is there's a lot of functions that advisors do today that Mike talked about as Advisor's Alpha that might be replaced by algorithms and robots.

Ben:                 And we're seeing it, you go to McDonald's and you order your meal and it's through a kiosk, right? There's a lot of work that can be done by robots. But the part that can't be done is, is this one-on-one human interaction. The relationship that's never going to get replaced. So there might be technical things and operational things that we do that we can get more efficient with by using more technology. And that's what he's talking about. And that's what we've been doing. The Guidance Point is using more technology to spend more time with our clients.

Curtis:              Because the end game betters that relationship. More time to spend with our clients.

Ben:                 The only way to get to know people better is to spend time with them. So the more time you're spending with your clients, the better you are, better you know them, the better job you're going to do. And that is our stress point every day is efficiency so that we can spend more time with our clients having these conversations and impacting their lives. So I like that he kind of emphasize that back to us-

Curtis:              He did, yeah.

Ben:                 ... reverberate it. And then going forward, that's going to be even more of a theme. So again, it was a great conversation to hear. Hopefully you out there listening to this that you're able to kind of take away some of this. Maybe I don't have an advisor today and I'm looking for one of you, you might not pick us. And that's certainly okay. There's a lot of choices out there, but if you're going to interview somebody and really think through the impact that they're going to make on you, hopefully this research helps you with that.

Ben:                 And what we want to offer to you is, this is going to be on our blog, so be blog.guidancepointllc.com and it's going to be episode 12. So it's /12. And there you can see, so we highlighted this research, but you want to read it, we actually urge you to read it. This was, as you heard, very impactful to us, but read it. We're going to have more research that Mike and his team has put out and link it there so you can go and read it this on your own.

Ben:                 So as you're finding your advisor and that personal relationship with you, hopefully this helps you with interviewing. It helps you find that match. Again, this a little bit, match.com thing going on. You got to find that right person for you. And that's something we are really passionate about is we think you should go find that person for you. So thank you for listening, appreciate you tuning in and we'll catch you next time.

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