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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.
Welcome to how to retire on time, a show that answers your retirement questions. Say goodbye to the oversimplified advice. This show is all about the nitty gritty so you can determine what is right for you. My name is Mike Decker. I'm a financial adviser and fiduciary alongside David Fransen here, my colleague.
Mike:As always, text your questions to (913) 363-1234, and we'll feature them on the show. Just remember, this is a show, not financial advice. David, what have we got today?
David:Hey, Mike. How can somebody know they are making the right decisions as they prepare for retirement without a financial adviser?
Mike:Yeah. This is a great question. I wrote an article a while ago, and it got on Yahoo Finance and Market Insider, which is like business insiders outlet.
David:Okay.
Mike:And it was titled something to the effect of how a comprehensive plan could replace your adviser and save you in fees.
David:Alright. But is that going against yourself there?
Mike:Yeah. A little bit? So let me tell you a story.
David:Alright.
Mike:When I got into the financial services space, this is over a decade ago, shortly after 02/2008. Okay. About February kinda when I got my first started, though I did some internships before that. I asked a couple of questions I don't think I was supposed to ask. I asked, first off, why are we charging these clients more and these clients less when we're really doing the same job for all of them.
Mike:It's the same income planning. It's the same meetings every week. It's the same job.
David:Okay.
Mike:But they're being charged, like, three, four, five times more just because they save more. Why is that? And I got the cliche answer. Oh, well, this is how it's always been done. Well, that's a stupid answer.
Mike:Mhmm. And then I said, well, why don't we just do, like, a one time planning fee and then have them do it? Mean, they and this is back in 02/2012. You know, e trade is becoming a thing. People can invest on their own.
Mike:Schwab, Vanguard, Fidelity, they're really making a push for people to open up their own accounts and to trade. There was a time where you really couldn't trade easily without a financial adviser. It was like we were the gatekeepers, and now you've got Robinhood. You've got all these apps you can trade on your phone. So I asked, why don't we just do a one time plan and send them on their way?
Mike:Yeah. Well, that's not how you make your money. It's about getting all of their assets, and it's about maintaining the relationship, and and you need them to guide them and help them. And just like, to me, that feels like a codependent relationship. In the world of psychology, what does a codependent relationship means?
Mike:It means the other person depends on the single person, and there is an imbalance of power, aka that's like soft bullying. It really upset me. Mhmm. And, yeah, I didn't own a practice at the time. I wasn't in charge, and so I I just kind of kept my job and did what I was supposed to do.
Mike:And, you know, maybe they know something more than I don't know, whatever it is. Okay? But it never sat right with me.
David:Okay. Itched at you. It just sort of
Mike:Yeah.
David:Was there the whole time.
Mike:So the reason why I kind of tell that story is a big reason why I I left these other practices and I created Kedric Wealth was to make it possible for a one time service to create a plan that someone could manage on their own. Okay? Some people have the grit to stick to the plan, and they know that at some point, the markets are gonna crash, and they can't sell. They have to stick to the system and not flinch. Other people, they can't handle it.
Mike:Some people in life need a coach. Some people just need a correction, and that's kind of it. I'm trying to think of a couple of examples. Here's an example. Do you need a dietitian to lose weight?
Mike:No. Do some people need a dietitian to help them figure out how to lose weight and live a healthier life?
David:Absolutely. Yes.
Mike:Can the carnivore diet work for people in losing weight and living a healthier life?
David:Yeah. At least initially, sure. Yes.
Mike:That's where you base basically just eat a bunch of steak.
David:Yeah.
Mike:No carbs. Is it right for everyone? No. Probably not. We're not dietitians.
Mike:But do you see the point here? Some people want ongoing guidance. Some people do not. Yeah. It all is gonna boil down to what responsibility are you willing to take on, and what do you need and what do you not need.
Mike:And so the question is, what are you paying the financial adviser for? I mean, really. Yeah. If you're paying them to manage money in the market and to keep an eye on the investments and to make strategic moves because you don't want to, then the fee might make sense. Yep.
Mike:I would question this percentage of assets fee because, like, how much does it cost to do the job? And why don't you just, you know, pay for that instead of, well, you know, this is how the industry is done, and a lot of people hide behind that. They're not building custom portfolios for people. I guess some are. But a lot of people, it's like you're in the model with everyone else.
Mike:Kinda like how a mutual fund you're in or an ETF, you're in a model Yeah. When there's an expense ratio, but the expense ratios are far less. Okay. So I think the fee structures today are just kind of wrong. But if you are going to do it yourself, the question is, are you okay with that responsibility?
Mike:Now I've met several people who that is their purpose is to get up and to trade. For those people, they should probably keep doing that until they lose their cognitive abilities and then transfer the responsibility to someone else who can do it for them. Many times the person, if they're married, that does the trade, their spouse doesn't want it. So you kind of have to have some sort of relationship with that financial professional at some point, so that the surviving spouse, if it's the person that doesn't like this responsibility, to just have a backup plan. I see that.
Mike:I'll use an example because things can change. You don't buy and hold. You have to maintain this. It is a responsibility to maintain a portfolio. FICO was a soft monopoly.
Mike:It was a great stock for years and years and years until Fannie Mae, Freddie Mac says we're gonna accept other crediting agencies, and they've never recovered since. Buying stocks doesn't mean they're always gonna recover. Creative destruction can make it so stocks fall and never fully recover, and you have to be aware of that. Are you okay with that? Now the other part to this question, what's the risk of of doing this is Yes.
Mike:I don't know many people that buy tax software to do their financial planning. So when you think about the DIY approach Mhmm. When you inherit the responsibilities and all that, like, makes sense to me. Now it's good for some people, it's not good for others, and maybe you do it for a little bit, maybe you transfer it over, maybe you have a professional manage your assets, and then you take it over. Like, there's a bit of a training wheels transition from how to grow your assets to the retirement assets.
Mike:But the part that I think is most important, one of the most important parts of it is really gonna be in the the tax planning. Many times, I've seen people in the DIY section of of this group Mhmm. Say, well, here's kind of how I'm gonna do my tax planning. And this kind of like back of napkin, this is how I'm gonna approach it. It should be well.
Mike:But they don't have either the technology, the know how, or the understanding of how it might affect other parts of their plan. So usually they're close, but just hiring a professional who has the software, who is experienced in this, may help them save, I don't know, tens, hundreds of thousands of dollars. Woah. It's a lot. That's not necessarily in taxes.
Mike:It could be efficiencies that allow them to have more money.
David:Okay.
Mike:You see the difference there? Yeah. It's all based on the Dunning Kruger effect. We talk about that often in the show. We've mentioned it before.
Mike:For all those who don't know, the Dunning Kruger effect basically says, when you don't have sufficient experience, you overestimate your abilities. And so you might think, well, it's good enough. I'm fine. Maybe an opinion or a second opinion or someone that you can hire for an hourly rate, like to do a one time plan Mhmm. Is what you need to cross that threshold of DIY okay plan to a plan that you can DIY, but had the professional guidance to get you in the right direction.
Mike:Does that make sense, the difference there? It's curbing the lack of experience. I think most people know, like, well, I'm not a professional. I'm I'm really smart, and they are. But it's the fear of I don't know what I don't know.
Mike:And highly intelligent people, at least moderately intelligent people, can recognize pretty quickly that there are things they don't know, and they know that they don't know. And they're willing to go in, and usually what happens, and this is kind of the I'm just envisioning people in their car right now going, yeah, that's kinda mean, is they'll go to the dinner seminars, everyone that they're invited to.
David:Okay.
Mike:They'll go to all the free workshops, everyone they're invited to. At this point, they're sick and tired of the annuity pitch. Some of them have purchased the annuity because they've been talked into it. I'm not saying it's right or wrong, I'm just saying like that's kind of what many of these workshops and dinner seminars are, it's to sell people a lifetime income stream for an annuity. It's not right or wrong.
Mike:It's a tool, but they'll go to these events saying, we're not gonna buy the annuity, or maybe we've already bought enough. They're just trying to learn because the financial services space doesn't really offer many people this, hey. We don't need the ongoing codependent relationship. Come in, do a one time plan. We'll teach you how to fish, and then you're on your way.
Mike:And we can, by the way, help you with the funding of the other things that you can't get as a DIY investor. So in the world of finance, it's retail investors versus institutional investors. A retail investor is what you can buy on Robinhood.
David:Okay.
Mike:Institutional is what you need to buy through a licensed financial professional.
David:Can't get it without that guy.
Mike:Think of private equity and private credit or debt. Okay. Think of Delaware statutory trust. If you're a real estate investor, you're not gonna get down your own. Qualified opportunity zones, oil and gas partnerships, certain mutual funds or ETFs, can't get on your own.
Mike:You have to go through someone that's licensed. The question is, is someone willing to put a plan together, get you access to it, and then say you're good? And we take an unconventional approach for this, but you have to understand the responsibility that you're inheriting. Just because you can have a plan put together that says, hey. Based on today's information, this is what you should do.
Mike:In this situation, do x y z. In that situation, do a b c, but you're still responsible at that point to maintain it. So we talked about FICO earlier on. You would have to be the one responsible saying, hey. This stock's changed its fundamental analysis.
Mike:I need to get rid of it. And then you could go to other companies like CEG, Constellation Energy Corporation, where it's like, oh, yeah. It's down a lot today, but the fundamentals haven't changed. I'm gonna hold on to it. Yeah.
Mike:You've got to be able to have that kind of know how so that you're not buying high and selling low and creating all sorts of losses. You've got to not be emotional.
David:Yeah. How can you get that know how though? Does it just require a lot of time and study, or do you need to subscribe to some service? Or how can you get
Mike:that if you don't have it already? Education. Learning. Uh-huh. I mean, we have people that will do our membership model, so it's a flat monthly rate for our services.
Mike:And they do it for a couple of years, and then they'll manage it on their own, knowing that they can come back at any time. And then when their, you know, thoughts, their their mental capacity declines Yeah. Yeah. That they then come back. You don't have to be all in one or the other.
David:Okay.
Mike:But what I don't wanna do is say, yeah, you can get a one time plan, and it's all sunshine and roses. Doesn't work that way. You have to know what the benefits are and what the detriments are. So the benefits, I mean, you could get a one time plan, and you're not paying ongoing fees. There's just the expense ratio if you use ETFs.
Mike:Right? That's very small typically for those those funds, and you're good to go. Just maintain it, and you could pay an hourly rate to get a checkup every now and then. Like, that's that is an option. So you're paying less in fees, but you are inheriting more responsibility.
Mike:Or you could do a fee structure, so ongoing, what we believe flat monthly fees, not a percentage of your assets, but this is so much a cost to do the job. And now you have delegated the responsibility to a professional to take care of it, but you know what you're signing up for. So the benefits are, you know, someone else is watching it for you, someone else is doing the tax planning for you. There's a convenience there. You're paying for a convenience, but also that someone's taking care of it for you.
Mike:It's what is it right for you? That's the big question here. And I just don't want people to assume that, well, I can just buy the S and P on here, and and it's good to go. There there's a lot of other strategies and things that could be done that you may not know, but the point is what is right for you, and can you find the few shops that are willing to do a one time plan and send you on your way, or are willing to do all full service management at a flat fee instead of these arbitrary kind of structures. Hopefully, that's a good takeaway.
Mike:Hopefully, that makes sense to everyone. 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 podcasts. 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.
Mike:Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. 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.