Podcast – Episode 40 – What Your Financial Planner Thinks Of You

Podcast Transcript

Giddy up Option Nation! Welcome to another episode. Today we’re going to be talking about financial planners. And really the title is, What Your Financial Planner Really Thinks of You. Because although you might know it, he doesn’t think as much of you as you think.

A couple weeks ago I was in Austin for a digital marketing seminar event type thing. Now before I started Option Genius, I was a marketing manager for a small publishing company and I mean I geek out on marketing stuff. Especially online marketing stuff. I can’t get enough of it.

Now at Option Genius, we get most of our clients online. Now a large portion do come from referrals and I do have a book coming out that I’m working that we’re gonna get people from there as well. But most of our customers find us online. Either through ads that we run on Google or Facebook. We get people from our Facebook page and our Facebook group, the Option Traders Alliance. We get people from our YouTube channel, Twitter feed, all that stuff.

So I mean to me, all of that stuff is really, really interesting. How do you get more people to come to your website? How do you get them interacting with you? All that sort of thing. So I went there to meet with people and talk and learn what strategies are there. At the event they had us doing different workbooks and exercises to really figure out, who’s the person that we want to target? And where is the person hanging out and all this kind of stuff. And at the end, they wanted to show how to apply all the things that we had just learned to real businesses.

So they did what they call hot seats. So everybody, anybody that wanted to come on stage and be helped by the speakers, they could put their name in a hat. Everybody did and they picked three different people. One of those happened to be a financial planner, who’s on the hot seat. So I was like, okay this is going to be interesting because I might be able to use some of this stuff from him. I mean, he’s a similar market, right? And whatever they help him with, it could help me as well.

So they asked him, “Hey what’s your business? What do you do? What do you want? How can we help you?” He said that he wanted more clients. That’s what he want, more clients. And the normal way that financial planners get clients is by word of mouth or they do stuff like educational seminars and stuff like that. Hey, call us and we have a free booklet or something like that.

But this guy, he had a unique request, and that’s why he was at this online marketing event. He didn’t want to talk to anybody. He wanted the whole process to be automated, meaning from the time people see the ad, to they go to his website, to they sign up, to they get more information, to they send him a check. All of that he wanted all automated. He didn’t want to deal with anybody during that whole process. Because what he said was, he hated talking to people that were not going to become a client.

I mean, that’s literally … he’s up there on the stage. I think they even recorded this on video. This guy’s up there as a financial planner saying he hates talking to people about financial stuff that are not going to become a client. Okay, that’s kind of rude. I don’t know?

But then they asked him, “Okay, fine. What do you do right now?” I mean, they didn’t want to judge him, right? So they’re like, “Okay fine, what do you do now to get clients?” So he said that he and his partner, they held free informational seminars. So they have a lunch, they pay for lunch, and they invite people and people come and they talk about finances and this and that. And that they were getting a lot of people to come to the seminars, but none of those people were becoming clients.

So then you gotta ask, hey what type of clients does he want? To which he replied, and I’m going to quote him here, okay? This is his words. He wants clients that are, “Really rich ones. I don’t want to deal with low level people, I want clients with over a million dollars to invest.” That’s actually what he said. And he wasn’t even ashamed to say it in front of all these people. I was like, my God! So people who don’t have a million dollars are low level people? And they’re not worthy of getting financial advice? You can’t help them? Huh. With that kind of attitude, I mean, no wonder he wasn’t getting any clients. Geez!

And then somebody from the audience, they raised their hand and they asked him, so how much does he charge? And he said that he charges a percentage or a flat fee. He could do both. But mostly he charges … No actually, sorry, they asked him how he charged. Was he a percent guy or was he a flat fee guy? Because lately more and more people are going towards the flat fee brokers, the flat fee advisers, because it’s better for the customer. It’s better for the client, right?

So he said that he was a percentage guy. He charges a percentage of assets under management. Just guess how much that this fellow charges. Now knowing a little bit about his mentality you might already … you might get close. He charges 5% of assets every single year. So if you give him $100,000 he’s gonna take $5,000 out of that as his fee for just dealing with you, okay? And then the investments that he will put you in, the funds or whatever he puts you in, those are probably gonna charge you 1 to 2% or more every year as well. So just to break even, his clients have to get a 7% return, just to break even, right?

I mean, listening to this guy made me want to throw up. I was nauseous. I was like, this guy, he can’t even get 8, 9%. The stock market averages 8%, this guy is nothing special. This guys another bumpkin off the boat or whatever and he wants to make … he wants to charge 7% in fees so that his clients get like 1 to 2% a year. The sad part is, that nobody else in the room was nauseous. Nobody else was offended. Nobody else was upset. They were looking at him like that was normal, because it is normal.

I mean, 5% is really high, but the sad fact is that there are idiots all over the world right now claiming to be financial experts who do nothing but take money and put it into different funds and they charge this much. I mean, heck you could do that for yourself. The majority of individual investors do not need a financial planner. ‘Cause when broken down into the basics, investing in options are not that difficult.

That’s why it’s awesome that you have decided to learn this stuff for yourself. And I applaud you for that and I want you to keep going and save the money that you’re paying these rip off artists, okay? Now, in the building where we have our office, right next door, is a financial planner. Really nice guy. Really smart too. I mean, it’s just him and an assistant. So he’s not really, really big. He doesn’t have 100 people working under him, but he’s been at this for a long time, okay? And actually, mainly, it’s just the assistant because he’s in the office maybe a couple of days a week. And maybe like around five hours a week, on a busy week.

Whenever we see him, he’s either coming from his workout or going to his workout, so he’s always in a t-shirt and shorts. Unless, on the odd occasion when he has to meet a client, that’s when he’ll actually have like a suit and tie on. But that’s very, very rare. And the assistant, she’s just there to answer the phone if it rings. Which we hardly ever hear it ringing. Most of the time she’s just on her phone playing games or on Facebook, or even napping.

Now to this gal’s credit, he’s been doing this for a long time. So he has built up his book of business. He has his customers, people who like him and trust him. They’ve given him money to invest and he also does 401 programs for some small companies. So he does very, very well for himself. And in fact, he’s going to be retiring soon. The only thing he’s waiting on is for his daughter to graduate so she can take over the firm for him. He was going to sell it, but now she wants to get in, so he’s gonna wait for her to graduate, train her a little bit, and then he’s gonna back out and let her handle it.

He’s gonna be actually the first financial planner that I know that is going to be retiring before age 65. Can you imagine that, right? Financial planners are supposed to be really, really good at investing. They’re supposed to know how to make money in their investments, so they’d be the ones that you would find being retired. It should be hard to find a financial planner, but it’s not. There are thousands, millions of them all over the place. It’s easy to find. And unfortunately for my friend, it’s not that he’s being able to retire because of his investing prowess, okay? It’s not the investments that he puts people in that are helping him retire. It’s the fees that he charges his customers.

Now when I first moved in the office I sat down with him a few times and we would talk. I told him what we do and he told me he knows a little bit about options, but he said that his compensation wouldn’t allow him to get his clients involved in options. And I was like, “What does that mean? What do you mean, you can’t put them in options?” And he was like, “No, I can’t. I’m not allowed by the fund companies,” this is what he said, he’s “not allowed by the fund companies that he represents to tell his clients about options or other investments that are alternatives.” So he could get in trouble by the company’s that he represents if he started advertising other funds. Investment funds, like real estate funds, or options funds or what not.

He couldn’t really do that because the company’s that he works with, that’s he obligated … contractually obligated to, they don’t have those type of investments. I mean, I was like, well to me, the whole point of a financial planner, of anybody going to a financial planner, is for them to tell the investor what are the best, best, best alternatives out there for that person? And if you are limited because of a contract, or because of who’s paying you money, then you’re not actually working in the best interest of the investor.

Even though that’s the case, this whole Wall Street business model, has worked really, really well for him. I mean he’s about to retire. He’s doing good, he only works a few hours a week. People give him money, he puts the money into different funds, some of which give him a commission, and then he charges his clients a percentage of his assets. Of their assets.

So if the markets do good, they that’s awesome! We’re gonna charge you even more. If the markets go down, well we’ll blame it on the market, but we still get our fees. And that’s the whole module, the whole business model of Wall Street, right? It’s a great business for my friend the planner. And the way it works … Because it works, Wall Street makes it seem that investing is too complicated and that you need help figuring it out.

You, Mr. Individual Investor, you should go do whatever you do for a living. Focus on that, because you’re too stupid to figure it out. You don’t understand PE ratios and revenue models and accounting principals. You don’t understand. Don’t bother your pretty little head with all that stuff. We are the mutual fund investors, or we run Wall Street! We can do this. We do it on a full time basis. We’ve gone to Ivy League schools and gotten an education and all this stuff, so we are much better at it. So we are worth the fees that we’re charging you and you should give us that money because otherwise, you’re going to lose all your money!

And most of the time, it’s not even about beating the market averages or doing as good as you can. Their whole pitch is, you should give your money to us so that you don’t just lose all of it. Which is a totally wrong way to look at it, right? ‘Cause I mean the alternative, it’s not … The alternative is not, okay I’m going to give my money to a mutual fund or I’m going to lose all of it. That’s not … Those are not the only objectives out there. Those are not the only alternatives.

You can just keep your money in cash and you won’t lose any of it. And you’ll still do better than the mutual fund if you do that, right? So I mean, these guys on Wall Street, they take your money, they charge you a fee for the privilege of taking your money, and then they get to play with it. And if they make money, cool! They’ll take more from you. If they lose money, oh well, it’s the markets fault. It’s not our fault, we did a good job.

And I mean, if you look at it, it’s gonna be super, super hard for you to go to Wall Street and find anybody that actually loses sleep because your money is at risk. You know? I mean, you put your money at risk, you will lose sleep if you’re investing in a way that is too risky or you’re not comfortable with it, you’re gong to lose sleep. But these folks on Wall Street, they don’t lose sleep because your money’s at risk. The only thing they’re concerned about is to keep their assets under management and their fees high so they can continue what they do. That’s the truth of it.

And recently, I mean, Jack Bogle the founder of the index fund, passed away. And my hat’s off to this guy. He was responsible for saving people millions and millions of dollars that they would’ve just lost in terms of fees. And you can go read all the stuff that he wrote. He wrote … There were several books written about him. He’s the founder of Vanguard. There’s a reason why they have such low fees.

If you have to go to a mutual fund, then you should be in a Vanguard or a T. Rowe Price. ‘Cause those two are the ones with the lowest, lowest fees out there. Vanguard, in fact, they are corporate structure is different. So they’re … The way that the company is structured, they don’t have … They’re not a public company. They don’t have to keep making money for their investors. They’re privately owned and all that stuff, so they’re able to keep their fees lower. And that’s the whole reason for that company.

Now even though there’s oodles and oodles of research out there that says that mutual funds do not beat the averages, that hedge funds do not beat the averages, there are still guys out there, these stock pickers, that claim that they can beat the markets. I mean, they’re on CNBC, they’re on Fox Business, they’re on Bloomberg and Reuters every single day telling you what to do and what not to do and all that stuff. And you look at most of them and they all have losing records. Or they will be able to beat the averages that they compare themselves to, which is really sad.

I mean, there are a few people that can beat the markets. But those guys are doing so well that you already have to be mega, mega rich for them to manage your money. And most of us are not in that boat. We don’t have millions of dollars to give them.

So that’s why we sell options. And it’s pretty hard to beat the averages just by picking stocks. It is. Mutual funds can’t beat the averages and neither can most hedge funds. No other investment class has done as well as the stock market over time. So, why do I think that I can beat the averages? Why do I keep saying that selling options is the better way to go? Because when you take the averages, you take the stock market returns, and you add options into the mix, you get more bang for your buck. You get appreciation and time decay working for you in tandem together, right? They work together, so you get appreciation and the time decay.

That’s exactly what I’m going to be covering in my upcoming book. How to use stocks and options together to not only beat the averages, but achieve your financial goals in a way that you can do so in your spare time? But I’m getting ahead of myself, I don’t want to talk about that right now. We’ll cover that more in detail later on.

But for now, if you use a financial planner, maybe you’ve used with them … maybe you’ve used that guy for years. Maybe you’ve been with him, maybe you trust him, maybe you like him, maybe he’s a family member, I don’t know. But dig a little deeper. Look into the fees that you’re paying. Look at the returns. Compare the returns to the overall markets, to the index funds, would you be doing better? Ask questions.

And if you don’t like the answers you get, well then my friend, it’s time for you to put the odds in your favor and join us as an option seller. Take care.

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