Subscribe
Share
Share
Embed
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to how to retire on time, a show that answers your questions about all things retirement, including income taxes, Social Security health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com. My name is Mike Decker. I'm the author of the book, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to finance, we can pretty much talk about it all. Now that said, please remember this is just a show.
Mike:Everything you hear should be considered informational as in not financial advice. If you want financial advice, personalized financial advice, then go to www.yourwealthanalysis.com. You can request your wealth analysis from my team and me today. With me in the show today is mister David Fransen. David, thanks for being here.
David:Well, I'm glad to be here.
Mike:Yeah. Yeah. David's job is gonna be reading your questions that you submitted, and I'm gonna do my best to answer them. You can submit your questions right now by texting us at (913) 363-1234. Again, that number is (913) 363-1234, or you can email them to us at heymike@howtoretireontime.com.
Mike:Let's begin.
David:Hey, Mike. What's your opinion on the flat fee advisers versus advisers who charge a percentage for a fee.
Mike:K. So let's clarify what we're talking about here just so we don't miss any jargon.
David:Yeah.
Mike:A flat fee adviser would say something like, hey. We are $5,000 a year regardless of your assets or investments or needs. It's just kind of this is the membership subscription level. Kinda like you pay so much money every month for Netflix Mhmm. Regardless of how many movies you watch.
Mike:Alright. It's the idea. And then a asset under management or a percentage fee, it's typically, like, 1% on whatever is being managed. So and there's some nuance in that too. So when you pick a bunch of mutual funds out regardless of the adviser you're working with, there is the expense ratio, which is something to be aware of.
Mike:Yeah. We've never really talked about this.
David:No. We haven't. And, you know, I think when I've been in, like, employer sponsored plans, you get the prospectus. Right? And you're, like, expense ratio?
David:But, I mean, I've read the term, but, I mean, what does that really mean?
Mike:Yeah. So, I mean, the the idea behind their expense ratio is how much does it cost for the fund manager to really do their job? That's the simplest explanation I've got. You know? You you go and you buy a mutual fund or an ETF.
Mike:There are people behind the scenes that are actually managing those trades. They're placing the trades. They're managing the fund. They're making decisions. They gotta get paid.
Mike:Yeah. So there are different layers or levels of fees, and this is a topic that's very polarizing. People love to have a strong opinion about it. And anytime you have a strong opinion about something, there's a good chance you may not understand the other side. So the way I look at financial advisement or a financial professional, in my mind, I kind of think of it as like a CPA.
Mike:Okay? When you're young, you don't really need much tax advice. It's just how to prepare and file your taxes. That's kind of it. Right?
Mike:Your needs are really low because your job is to increase your income, increase your your skill set, your income potential, and so on Right. So that you can make money. That way you then can invest in, you know, have tax problems. If you have tax problems, hopefully, it's because you made too much money. You're trying to figure out how to minimize your taxes.
David:Right. Right.
Mike:Or in your retirement. And then along the way, your taxes might get more complicated. Maybe you've got some real estate on the side. Maybe you invested in something that now you're getting k ones or whatever it might be in, and your relationship with the CPA evolves. And then in retirement, your taxes probably are the most complicated, all things considered, at least from a comparative standpoint to your younger self.
Mike:So there's different layers, and you're charging you're charged by your CPA based on the complexity of your needs. Is that that an easy way to explain? I mean
David:Yeah. I think so. When you're young, all you have is, like, a single w two and, like, that's it. Right?
Mike:Yeah. Half an hour of his time to file the taxes. You enter the information. You're good to go. Maybe it's ten minutes.
David:Yeah. But,
Mike:I mean, it's simple. So when I see the different ways you could have a relationship with a professional, first off, I do believe the professional can give people an advantage. You might say, oh, Mike, well, you're biased. Well, no. Every industry, if you work with a professional, you have a competitive advantage.
Mike:Heck. Before we record this show, we have our audio engineer on the phone telling us how to adjust our own show. And he's telling us things like, hey. Is the door open here? Hey.
Mike:Put up a curtain over here. It it's insane. He can hear all sorts of things like that. So we wanna, you know, tip our hat to a professional for doing their job. The professional is going to see things you may not see.
Mike:That's why we hire professionals. It's that they can do things we can't do on our own. That doesn't mean you can't buy SPY. Anyone can go on, you know, Acorns or Robinhood or Schwab, Vanguard, but I'm what I'm saying is working with a professional, you might have a competitive advantage. So you've got the younger person.
Mike:Most financial professionals probably don't wanna work with someone with $10,000 to invest. K? So you might not get personalized financial advice, but maybe you can get access to a fund or something on an institutional level, something you can't get on your own because you developed a simple relationship with a financial professional who maybe gave you a little bit of a competitive advantage. And you maybe are paying for that. But at the end of the day, if you're making more money through whatever advantage they were able to give you than on your own, it might be worth the fee.
Mike:But it's probably not worth $5,000 to invest your $10,000 in one way. Do do you see how it's it's a ratio difference?
David:Right.
Mike:And I'll use this as an example. We've got clients who have kids and grandkids as most humans do.
David:Yeah.
Mike:They love our models. Our models are a system that's pretty much infinitely scalable, and so they will have their grandkids open accounts with us and invest their Roth IRA or their, four zero one k that they just rolled over because they changed employers. We're not charging them thousands of dollars or whatever it is for complex retirement planning. K? We're saying, hey.
Mike:It's gonna cost you 1%. It's really it's in this model. It's in a system, and it needs to grow. Yeah. That's it.
David:Right.
Mike:And so the 1% in that situation, I think, makes more sense than a subscription model of paying thousands of dollars for things you don't need access to. At some point, though, and this is my opinion, maybe your your needs are pretty much under the umbrella of a lot of other people's needs, and a subscription model might make more sense. So let's say you're 30, 40, 50 years old. You've got $500,000 to your name, and you find a flat fee adviser, someone that's gonna charge you $34,000 a year regardless of how much you have, but they don't just invest your money. They're doing tax planning with you.
Mike:They're helping you shop insurance so you have the right coverage, but you weren't sold some crazy policy that you probably didn't need. A membership flat fee model is, in my mind, more for the holistic adviser. You're not getting a custom plan, but you're exploring the options for your situation and then kind of going into a scalable system. Am I explaining the difference between the two?
David:Yeah. I think so. I I think I'm following along. Yes.
Mike:More services. Yeah. More comprehensive, more holistic, but it's still kind of within a a system that's scalable for the company because the company has to sustain itself too. So that that's my opinion on these two things. It's if you're young, maybe 1% makes more sense because it gives you a fighting chance to get into something.
Mike:At some point, a flat model might make more sense, but then you get to those who have $10.20, $30,000,000.
David:Mhmm.
Mike:K? Maybe you don't want this kind of prepackage. Okay. We have this system over here, so some of your money is in this model, and some of your might maybe you want everything totally customizable. Then you're starting to go back into this maybe 1% or 1.5% makes more sense because there's inherent complexities to your unique situation, and you're willing to pay for more time from a financial professional Mhmm.
Mike:For your needs. So it's it's a bit of a spectrum of needs and what you want. It's a bit of a conversation of these are the services I'm looking for, who can satisfy those conditions.
David:Alright. One quick little clarification too. So when we say 1%, it's like you're getting charged 1% of however many assets are invested. Is that, like Yeah.
Mike:That are managed in the market.
David:And then do you pay that, annually, monthly? How
Mike:does that usually Well, it's either quarterly or monthly. I think most people are doing monthly now
David:Okay.
Mike:These days. But the point being is and this is my controversial opinion.
David:Okay.
Mike:Because I personally believe that there's a very low standard in attention to detail in the financial services space. My opinion, I'm not trying to disparage anyone
David:Sure.
Mike:But it is very disheartening from someone in this service to know there are a lot of people out there that filled out a questionnaire, and that questionnaire then gave them a portfolio that just said, okay. Here are your stocks, your equities. So you have your large cap, small cap, mid cap, and both people don't even understand what these expressions mean. You've got your emerging markets here. We've got your bond funds here.
Mike:We've diversified it between, you know, short term treasuries and and maybe we've got some higher yield corporate. So some risk over there, but not over here. Most people have no idea why they have these things. Yeah. It's just some fancy survey spat out some portfolio, and the person you're working with, and this is again my interpretation of how I've seen things, they're there to manage the relationship, answer your questions, but it's kind of a cookie cutter approach because it's scalable for their their system, and they charge you 1% on that.
Mike:Well, if you have a a questionnaire this is just kinda coming to me on the spot here. This is kinda fun. If you have a questionnaire that puts out a portfolio that then gives you what's recommended to them buy and hold for a while, would it make sense just to charge, I guess, maybe there's a the next business Uh-huh. Idea in finance. You charge x amount of money for an assessment.
Mike:They spend a recommended portfolio, and you just hold that for the year. You don't you don't charge them 1%. I mean, I think there's an idea here Interesting. That could be explored.
David:You heard it here first.
Mike:Yeah. It's just kinda coming to me in real time. But my point being is if someone's working with a professional who's just got some generic portfolio and you're buying and holding, I don't think that rationalize that that 1% fee associated with that makes any sense.
David:Alright.
Mike:You could do that on your own. Yeah. Like, we charge 1% on things we actively manage, not passively manage.
David:Yeah. So
Mike:our clients that want a passive portfolio, we give them that subscription rate, a flat fee, because we're not actively managing it. We're doing more on planning. We're doing more on tax planning, on income planning, on risk mitigation, on, I mean, it's it's a different conversation. Yeah. So, again, it comes back to what is it that you want, what relationship are you looking for, what services do you want.
Mike:If you can define those things, then I think you can find more clarity on does the relationship that's based on a 1% model make sense? It's an active relationship and all of that, or does it make more sense to do more of a planning holistic relationship at a subscription level? We offer both so that it helps this conversation be more neutral, fine with both. Mhmm. But the real question is what is right for you?
Mike:That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility.
Mike:This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.