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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
What's the role of a financial planner? The answer people are probably wanting me to say or expecting me to say is to get better returns. That is just not true. Welcome to the Retire On Time podcast. I'm Mike Decker with Kedric Wealth, and alongside me is David Fransen.
Mike:He's gonna be reading your questions. We're gonna do our best to answer them. As always, text your questions to (913) 363-1234. And remember, this is just a show. This is not financial advice.
Mike:David, what do we got?
David:Hey, Mike. What's the purpose of a financial planner?
Mike:Everything in me is saying don't just say to put a financial plan together. So the it questions the validity of our profession. And that might come off as aggressive and or offensive. It's not. K?
Mike:So, you know, take your per take any profession. What's the purpose of that profession? Usually, it's you get give the money in exchange for a service.
David:Mhmm.
Mike:The answer people are probably wanting me to say or expecting me to say is to get better returns. That is just not true.
David:Okay. Yeah. Well, let's I wanna hear why.
Mike:Oh my gosh. That yeah. The amount of people are like, oh, this is good. K. So let's let's break it down here real quick.
Mike:Okay?
David:Okay.
Mike:So all things being equal, many retail investors, which Wall Street calls dumb money Yeah. That's what they what's called, will oftentimes make more or do better on their returns during the good years. They're they may be ignorant of the risk they're taking, but who cares? They're winning. They're beating out the professionals.
Mike:K? These these are the people they're gonna read about on on X or Facebook or Instagram or YouTube, and they're all in on companies like Rocket Lab and Nvidia and Palantir and, you know, all these these high growth companies are seeing incredible things. Maybe they're all in on silver.
David:These are just regular people. Yeah.
Mike:And they over concentrate on a very few amount of positions. They're going to beat most financial advisers, at least over the last few years, because there was high risk, it happened to go well, and they just took off. Now the uninitiated, the person that hasn't had to navigate through a real market crash, and 2020 wasn't a real market crash. 2022 wasn't a real market downturn. Yes.
Mike:The markets went down. It wasn't that bad. It wasn't like a 2008 or a 2020 or a 1987 or even the scare that happened in 1990 when Iraq invaded Kuwait. This isn't like the nineteen sixties and nineteen seventies of stagflation. This isn't about like 1929 when there was a huge depression.
Mike:This isn't like a flat market cycle. Okay? These are very specific situations, and it was really easy to make money. You might say, well, Mike, why don't you do it for your clients? That is the question.
Mike:Mhmm. Okay? So we could take high risk, put everything in there, and it will work until it doesn't. I don't do this, but we we could do it. Yeah.
Mike:Right? And try and look really really good and beat the market. Try to beat the S and P 500, and it works until it doesn't, and when it doesn't, it'll get ugly. It'll get really ugly. And what do I mean by that?
Mike:Well, people don't understand that risk doesn't mean reward. It means potential reward. And there's an equal inverse risk or downside that could happen. So as it go it goes up, goes up, it goes up, and then if it were to crash, this is retirement savings. Yeah.
Mike:Do you really wanna take that risk? Well, we want all the upside, but we don't want that kind of risk. Well, you can't have it that way. Many financial professionals have the wisdom, not all of them, but have the wisdom of diversifying between the growth and then you've got some protection or some way to hedge against it to try and create stability. See, if I were to ask the question, what's the purpose of a financial planner?
Mike:There's two parts to it. One is to put together a plan that navigates the investment and tax and health care, Social Security, and so on, the landscapes, which is funny because when a financial planner doesn't ask for your tax return, how can they really put together a financial plan? When your financial planner isn't aware of your modified adjusted gross income, how can they plan around health care and IRMA, which is the surcharge? When a financial planner does there's a there's a huge gap in, in my opinion, on professionalism or the scope of services offered in the financial planning space because it's isolated by putting together a portfolio and planning on basically growth potential and dividends if I were to distill it all down. And that's that's a problem.
Mike:K? And then the other part of it is the asset management, which really isn't a planner. That's more of an investment adviser role, but let's lump it in here together.
David:Okay.
Mike:The reason why you'd hire an investment adviser or a financial adviser is because you don't want to do the work.
David:Uh-huh. Outsource that.
Mike:Yeah. It's you just you want someone else to keep tabs of it for you, someone that you trust, someone that you respect, and they're going to manage things for you. Now, the problem with financial services space is that brokers, insurance agents, and investment advisers are among the most distrusted professions according to Gallup Report. They're next to politicians and used car sales.
David:Oh, no.
Mike:So here we are, and people are saying, well, I I you know, I'll try you out. That's the wrong thing. I'll try you out for growth potential? Yeah. That's a very manipulative way of saying, I want you to take higher risk, but tell me it's lower risk than what I'm already doing right here.
Mike:And if you can't manipulate the very fabric of how finance works, I'm just gonna fire you. Mhmm. That that very relationship is built to fail. Mhmm. And people will compare advisors and say, well, who's got the most growth?
Mike:Are you okay taking more risk? No. I don't want to take more risk. I want more growth. You're basically saying, either want an adviser to lie to me, or I want an adviser that's so ignorant they don't know the difference.
David:Mhmm.
Mike:So what is it that you want?
David:Right.
Mike:It's many people will outperform the adviser out of their ignorance for the risk that they're taking, and they don't know. So the what what's the role of a financial planner? Is to put together plan, in my opinion, or a more comprehensive plan, what you currently have, to better navigate strategically the financial landscape of investment, taxes, Social Security, health care, and maybe they dip into the estate planning side. They're not attorneys, but they're helping you just understand you've got the documents, then things are are labeled correctly, things are funded correctly, whatever it might be for your plan. That's that's really the purpose of it.
David:Yeah. It sounds like you you find someone who knows more about all that stuff than you do to to help you out. Yeah. And that's a that's probably a smart move, I guess. I mean, there's a lot of stuff online.
David:Right? You can get a lot of this information online. Maybe you could enter some AI prompts and ask about this.
Mike:You gotta ask the right questions. Yeah. And something I've noticed is people who use AI a lot are increasing their levels of anxiety, especially in retirement.
David:Yeah. How so?
Mike:AI is a positive feedback loop that confirms your bias. Oh, no. But it's gonna give you other questions. So if you give it a prompt and then end up with three more questions, now you gotta answer those three questions. Well, then those three questions have three more questions.
Mike:Now you've got nine questions that need to be answered. Nine new questions. Anxiety is the inability to solve a question, so you just get more questions than answers. It's insatiable. At some point, you have to have an opinion.
Mike:You have to have a baseline. You need to know a principle or a framework of what you're gonna work within to figure out what you're comfortable with. How many people go to the doctor when they don't really need to go to the doctor, but they want that sense of confidence? This cut's not gonna lead to an infection. Or my finger's broken, but is it really worse than that?
Mike:Or can I just, you know, rip it out? Not rip it out, but like, you know, self correct. Yeah. Mean, if your shoulder pops out I don't know. I'm I'm not a chiropractor.
Mike:Can't you like reset stuff? Sometimes I've seen fighters like they have something happen. They're like, reset it and keep going. Yeah. Or you can go to a doctor and you have that kind of confidence.
David:Right.
Mike:So the reason why you hire someone like a financial professional, a planner, or a manager is because you you don't want to do it. If they say, well, I can get better returns than you, and I've been guilty of this, what you're saying is I'm just either gonna convince you to take more calculated risk and and convince you it's the same or something else. I don't know. But that's you can't, in my opinion, separate risk versus growth potential. It's just are you are you aware?
Mike:And here let me go back to the investor's journey. Everyone I shouldn't say everyone. Almost everyone's gonna go through this. It was discovered by doctor Kelly and Connor. So two different doctors.
David:Okay.
Mike:Or psychologists. I don't know if they have PhDs, but they're psychologists, so there you Whatever that means. Someone enters retirement, the first thing that they have is uninformed optimism. They've got their Excel sheet open, and they're saying, well, if I average 6% I've been averaging 10%, but if I average just 6% returns, I should be fine. I'll take out 4% or 5%.
Mike:That still advances the portfolio. I I should be fine. All these things are great. And the markets are great for the first year and the second year, and they're happy. And then the markets crash the third year.
Mike:And they go, no, it's okay because, you know, the projections are here and there was the original plan. But then they rerun their plan, and they realize from that point on, they're kind of screwed. And then they rationalize, they play the number game, we'll we'll recover in the next two years. And if I just hold back this lifestyle, they're they're becoming aware of risks that they did not know exist, or they didn't understand the magnitude of the risk. And I think it's more that.
Mike:Think people inherently know the risks in retirement, but they may not understand the magnitude of the risks that they're taking unless they're faced with it. It's really easy to say, yeah. I could fight someone until you're there in the fight, and then you're going, this is a bad idea.
David:Yeah.
Mike:Okay? So Right. So that's when you move from informed optimism or not informed, uninformed optimism to informed pessimism.
David:And these are all the findings from the who was it?
Mike:Kelly Kelly and Conner. Cycle of emotional change.
David:Okay.
Mike:Yeah. So then you go to informed pessimism. You're like, oh, this was a bad idea. And this is classic investment mindset, even during the good years. Classic investment mindset.
Mike:This is the typical investor that says, hey, ChatGPT, make me an algorithm that allows me to cheat the market. And it says, well, you know, if you based off of this and this and this, you should be okay, then you do it, and then it doesn't work. Uh-huh. And you lose a ton of money. Go on X or Reddit, and find out these horror stories of people that tried this and it failed.
Mike:Uninformed or no, informed pessimism. What's worse is now your emotions, you're in a flooded state, fight, flight, freeze, or fate, so you've lost your critical analytical thought, and now you're emotionally reacting to whatever your subcortical behavior is gonna be, and then you'll typically go to the valley of despair. It'll probably get worse before it gets better. And then, either by virtue of you finding a professional or you get lucky or you finally learned your lesson or whatever it is, there's a tipping point. And if you keep going, then you might be able to move into informed optimism.
Mike:Okay. Maybe. But even then, informed optimism might be informed awareness, but you're limping along the way. You might have learned your lesson, doesn't mean you're fully recovered. And this is a classic example of people that don't it's like you turn a blind eye towards the risks.
Mike:It's not that bad. I can run the Excel thing. It's fine. It's not real until it's real. And then, when reality sets in it, it can be can be harrowing.
Mike:Panic ensues. So part of what you hire a financial professional to do is to be your coach to prevent you from doing stupid things.
David:Or like some kind of Sherpa. You don't just climb Everest without those Sherpas guiding you to the base camp. Right?
Mike:Yeah. Well, it's easier to climb Everest than it is to get down. No. You know, the mountain the classic mountaineering analogy, and this is used this is used to exhaustion in the retirement space.
David:Okay.
Mike:It was easy to climb the mountain. Most people die on the way down. Well, there's a lot of reasons why they climbed down, and it wasn't all just because they tripped. Uh-huh. Whatever.
Mike:But but, yeah, on the way down is when people most people die or get hurt or injured. That is a true fact. The deaccumulation phase is more difficult than the accumulation phase. That is a true statement because if the markets go down and you keep adding to your savings, it's actually better for you. If the markets go down and you're taking income out, it's actually worse for you.
Mike:Alright. The rules reverse. Taxes get more complicated because you have a lot more tax nuance in how you're doing things. So it it is yeah. The the hard part, I think, about the financial planning space or the investment advisory space is because it's so focused on products.
Mike:Hey. I I am a financial adviser that specializes in retirement planning, and I use the sixty forty stock bond fund split, and I'm gonna give you 4% out of your portfolio, and you're gonna be fine.
David:Mhmm.
Mike:Hey. I'm a financial adviser, and I specialize in retirement planning, and I'm gonna give you an annuity that's gonna be 60% of your assets are gonna be an annuity. It's gonna give you all the income that you want. The 40% of your assets are gonna be in the market. They're gonna grow for ten years, and then you're gonna be able to get we're gonna just rinse and repeat the system over and over again, ignoring, you know, inflation risk, ignoring, you know, reinvestment risk.
Mike:What are the rates gonna be in the future? Do you need that kind of system in the future? How is how is your income gonna be changed from 60 years old to your needs in 70 years old and so on? And is the market gonna cooperate on that tenth year when you really need it? You know, let's just forget about all of that for a second.
Mike:Hey. I'm a financial adviser. I specialize in retirement planning. I'm gonna help you put together a portfolio that includes stocks, bonds, and real estates, and you're gonna collect dividends for the rest of your life, and I'm gonna collect one percent fees. The problem with all of this, and I think why so many people hate the financial services space or they're skeptical about it, and I'm just calling it out as it is Mhmm.
Mike:Is because the financial services space wants to make the retiree their annuity. Their structured payout in a codependent relationship, trying to convince people that they can't do it on their own and they can.
David:Alright.
Mike:The very premise, as that conversation starts, is suggesting that they have a or the need of a codependent relationship, and that's just not true. If you wanna have a relationship built on trust and respect, you have to come from a different place. And, I mean, if I am this is my shameful plug for myself, but hear me out on this real quick. Yeah. For years, I asked the question, why are we charging someone a percentage of their assets when we're doing the same job for everyone?
Mike:Because that's how things are. Mhmm. Why? Why can't we change that? Doesn't it make sense to have a flat fee?
Mike:This is how much it costs, but the industry, which pushes people away, is gonna charge you more because you saved more. That doesn't make any sense to me. The industry is built with a lot of wholesalers telling advisors, sell our product, sell our product, and they just learn how to sell a product. How is that in people's best interests? So the commoditization of the financial services space that allows sales professionals who happen to have a securities license, who are well intended people that are generally trying to do the best for their client.
Mike:Mhmm. This is not a criticism to the financial professional. It is a criticism on how the industry has been set up. I think it could be better. Why do we have a financial planner to guide you?
Mike:I think it should be either a one time plan and a fixed flat rate where you put a plan together and that you can manage it on your own because we all know you can take your phone and manage a portfolio easily. Or it's an ongoing relationship where you've delegated the management or the responsibility of overseeing the investments and then so on to a financial professional at a flat fee because that's how much it costs to get the job done. Those are the only two ways that I believe a relationship can be built on trust and respect, and that a planner can help you actually organize the complexities of tax law, of investment risk, of the healthcare industry, and so on.
David:Else? No. I think we answered it. I think we've gotten a really good idea of why you may or may not want a financial planner.
Mike:Yeah. This is one of those tell me how you
David:really
Mike:feel moments. But Yeah. There it is. And if you enjoyed the show, don't forget to like and subscribe. A lot more of this coming up in future episodes.
Mike:As always, don't forget to go to retireontime.com for tools, resources, or join one of our workshops. As always, thank you for spending your time, your most precious asset with us today. We'll see you on the next show.