We do a crypto debate podcast every year. Here’s this year’s joust which got a leeetle bit rowdy as these financial advisors hash it out. Enjoy!

For those of you who are new to my blog/podcast, my name is Sara. I am a CFA® charterholder and I used to be a financial advisor. I have a newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.” So please subscribe!

Did you enjoy the crypto debate?Thanks for listening to this crypto debate. If you are finding this newsletter valuable, please feel free to support its production by making a $20 contribution via this PayPal link or via Zelle to sara@saragrillo.com.

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Just letting ya know, in case you need me at some point.

-Sara G

BiographiesScott Salaske

Scott Salaske is the founder and CEO of Firstmetric, a flat fee financial advisor firm in Troy, Michigan. Ever since the beginning of his 20+ year long career, Scott has pursued his mission of delivering high quality financial advice in a low cost and unbiased way.

Early on in his entrepreneurial journey, Scott saw firsthand the inherent flaws and conflicts of interest in the traditional sales and product driven approach, as several family members had lost a significant portion of their hard-earned life savings to high-cost, commission-based investment products and inappropriate advice.

It was at that point Scott thought there had to be a better way for investors to obtain unbiased advice and low-cost access to the financial markets. That lead him to start Quest Asset Management, with the novel idea of putting investor interests first as a fiduciary, which was practically unheard of at the time. The idea centered on the concepts of simplicity, keeping total investment costs and taxes extremely low and developing a custom investment plan for each client using low-cost asset class and index funds.

A few years later Scott merged Quest with another local investment advisory firm, Portfolio Solutions, that shared the same investment principles at that time. Several years after the combined merger, Scott went on to grow the combined firm from advising approximately $60 million in client investment assets under management to more than $1.4 billion. In early 2015, Scott sold his ownership interest in the firm. He started Firstmetric a few years later.

At Firstmetric, Scott continues his mission of delivering low cost, unbiased advice to clients. Along his journey he has been quoted in the following publications: The Wall Street Journal, Investor’s Business Daily, Kiplinger’s Retirement Report, TheStreet.com, Cheddar.TV, Crain’s Detroit Business and MarketWatch.com; among others.

James Giles

James Giles works as a Product Manager specializing in the Fintech and Crypto space. Most recently James worked with several seed and pre-seed startups at Nerd United, a venture studio, specializing in working with Crypto Startups to identify their early product market fit and work to get them into a functioning BETA. His focus was to identify real-world applications and utility to the crypto space in areas such as payments, health care, eCommerce, charitable giving, and sales.

James completed both his Undergraduate and Master of Science Degrees at the University of Utah in Business Management and Information Systems specializing in Product Management. Prior to moving into Product Management James spent over 6 years with Fidelity Investments in various wealth management and technical roles where he held his FINRA Series 7 and 63 licenses and Utah Resident Life and Health Insurance License.

In addition to his professional endeavors, he volunteers his time mentoring those who want to break into the field of Product Management and works with a number of student blockchain organizations to educate as many as possible about the future crypto will have as a technology.

James is the father of three energetic boys and 1 Bernadoodle: Oliver, Henry, William, and Louie; and husband to Anya Giles since 2017. They love to travel, bake, and swim.

Robert Wright

Robert Wright, CFP® serves as a Financial Planning Professional at Advocacy Wealth Management with over 10 years of experience in the financial planning and services industry. Robert works families who are victims of wrongful death or personal injury to provide comprehensive settlement plans.

Robert completed His Undergraduate Degree at The University of Utah in Economics and his Master of Science in Advanced Personal Financial Planning and a graduate Certificate in Financial Therapy at Kansas State University.

In addition to his formal Education Robert Wright holds his FINRA Series 7 and 66 licenses, is a CERTIFIED FINANCIAL PLANNER Professional and holds Georgia Resident Life and Health Insurance License.

Robert is also an Instructor of CFP® Coursework for the College of Financial Planning Online and on Campus at Kennesaw State University.

Robert is the father of three amazing children: Macie, Liam, and Charlotte; and husband to Priscila Moraes-Wright since 2012. He and his family love to travel, play baseball, swim and play at the Georgia lakes and Beaches.

Dr. Steven Lee

Dr. Steven Lee is a lecturer in the Finance, Real Estate, and Law department at California State Polytechnic University, Pomona, Previously, he worked as an adjunct professor at California Lutheran University, and an instructor at the University of California Riverside Extension. Lee holds a Ph.D. in Financial and Retirement Income Planning from The American College of Financial Services, where he was named the Sievert-Sternberg Doctoral Research Fellow, and is currently pursuing a Doctor of Criminal Justice degree from Northcentral University. He has presented papers at conferences on topics such as investment fraud, risk management, and retirement planning. Additionally, Lee has received numerous awards, including the Outstanding Instructor Award and Excellence in Online Teaching Award from the University of California Riverside Extension, Best Paper Award in Risk Management & Insurance at the CFP Board Academic Research Colloquium, and is a member and fellow of the Sigma Beta Delta International Honor Society in Business. Dr. Lee’s current research agenda includes investigating the impact of insurance licensing on financial advisor misconduct, analyzing the effect of external vs. internal work commitments on college student performance in hybrid and online learning environments, and examining risk profiles of U.S. transgender male and female investors.

Podcast transcription and summary may differ from original recording and Grillo Investment Management, LLC may not be held liable for such differences.

The post This year’s Wild Crypto Debate appeared first on Sara Grillo.

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Wow, this was a powerful interview with Dave Welty, a financial advisor who founded and developed what I would consider a well-managed RIA firm. Avier Advisors, based out of Bellevue, Washington, has nearly $800MM in AUM and almost 20 employees. Here are five things they’ve done differently at Avier, and why it’s helped them kick the competition’s butt.

For those of you who are new to my blog, my name is Sara. I am a CFA® charterholder and financial advisor marketing consultant. I have a newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.”

I am an irreverent and fun marketing consultant for financial advisors. The high net worth wealth management firm model needs a CHANGE!When I say the words, “wealth management firm”, here’s what you probably picture, right?

A suffocating, top-heavy firm structure, in which the principal is in command of all goings-on at the company and is the primary contact for all client relationships.
Dry, boring blogs about unappealing financial advisor topics that offer little practical insight to the consumer
A vast control gap between the advisor and the rest of the staff
Lack of meaningful diversity
No identified successor or even potential for one
An overall feeling of stodginess and stuffiness
Little to no differentiation from one RIA firm to the next
Lack of inspiration and in fact an overall impression of boredom

Am I crazy or am I right? Now let’s look at a different picture.

A glimpse into a well-managed RIA firmAs you will hear in the podcast, Avier Advisors has been strategically formed by Dave Welty to be a totally different type of wealth management company.

Here are the five ways Dave has managed his RIA firm differently and it’s kicked butt.

1 Non-pyramid based company structureThe teams page says it all.

It says, “We are proud to have fostered a culture that values teamwork, collaboration, and integrity.” That is not just a tagline.

You don’t see Dave Welty’s picture and bio at the top as if he presides over all. In fact, he is positioned in the bottom of several rows. The bios are randomly placed on the page in a non-hierarchical way. This says it all – that everyone’s contribution is valued and like a true team everyone plays a part in the client’s success.

Wouldn’t you be excited about working somewhere like that? To be a client of a firm like that?

You can tell from their body language. People here look happy. Genuinely happy.

It shows a stark contrast to the top-heavy hierarchical way that most RIA firms are run, even the larger ones, where the founder or president is in control of everything. Nobody else seems to have any authority or say in anything meaningful that happens to the client. It squeezes the life out of the employees. This is not an ideal structure for employee satisfaction and the lack of motivation eventually will be known to clients.

2 Hired by talent and attitude based on real life interactions not by resumes and job boardsIt sounds counterintuitive but this has worked incredibly well for Avier.

Dave Welty met Lars Phillips, a partner and Lead Advisor, when he was selling t-shirts at a baseball game.
Nick Wright was shoveling mulch in Welty’s front yard when they two spoke and Dave decided to give him a shot at his RIA firm instead.

To quote Welty (12:53), “I guess my points is, you’ve got to keep an open mind. You’ve always got to be engaging with people, talking to people, networking with people.”

That’s right.

The job boards are a meat market where candidates are going to grind you down for salary and haggle you over the terms in the non-compete, then when they leave to start their own RIA firm, they’ll swipe half your clients anyways. The best way to attract wealth management talent in an intensely competitive job market?

(Frame 13:05)

“We created an environment at Avier where people want to be.”

Awesome.

Welty’ s suggestion? That other RIA firms should raise their game so that people want to be there. Word will get around.

3 Nurtured succession planIf you want employees to stick around, they have to feel like they belong to something, like they can take ownership of some aspect of their work. That is how you set employees up to stay committed to your clients.

Frame 6:24

“We’ve made a tremendous commitment to who we are and who we wanted to become. That’s on the marketing side. We’ve made that same commitment on the operational side of the business as well.”

Good for you, Avier.

This commitment has enabled the firm to grow, and it’s also allowed Welty to create an effective succession plan so that his firm can live on after one day were to decide to exit.

Succession is an epidemic problem for financial advisors. A lot of them wind up selling to awful RIA aggregator firms that are going to treat their clients badly. Welty knew he needed to be able to pass the torch. He treats his employees like owners. If they ask him a question about a client, he asks them back, “Well what would you do if you owned the firm?”

This way you get people to make decisions. Empower them, and then sit back and watch.

The result?

(Frame 10:01)

Welty is 63 with four young partners. He owns 50% of the RIA firm and they own the other 50%. They are transitioning over time. They are 31 to 37 years of age. He nurtured the succession process for about seven years.

BOOM there you go.

4 Effective niche marketingAny advisor can say they serve a particular niche. A lot of times this statement is made with no real substance or skill to back it up. The reality is that doing it right takes a ton of time and effort.

Avier Wealth focuses on tech employees – Microsoft, Intel, Amazon, etc. Check out their YouTube channel. There are in-depth videos going into granular levels of detail, and some has garnered tens of thousands of views. This has served them well, leading to a steady flow of new clients on a monthly basis.

Why the appeal?

Here is an example of the Microsoft page.

(4:48)

“It comes down to being an expert in people’s lives…I tell people all the time. I truly believe we know Microsoft benefits better than most any HR person at Microsoft. And that’s powerful to be able to say that.”

To get paid well you need to deliver well. Microsoft deferred compensation is complicated. Some people may downplay it, but it’s not simple when you dive down into the nuances and details of deferring and setting up the distribution strategy. They have done the work – they know the ins and outs and the nitty gritty. Unfortunately most advisors will not put in the effort to go this far, and that is why many financial advisors fail to market themselves effectively.

Many of you advisors complain about not being able to get clients from marketing and the reality is you deserve it. Look at what you have to say in terms of material, factual knowledge. Is it that valuable to the client or is what the next advisor saying even better? You have to compete and nobody is going to give you handouts. This is $10k a year. Stop whining and learn some things and be the best, know more about a particular topic than anyone else, and then you’ll see how people respond differently once you do that.

5 Multi-dimensional, energized company culture(Frame 13:20)

Avier’s team is described by Welty as:

Average age of 35
Highly credentialed staff
More women than men
All walks of life

That’s not by accident.

And here’s why it matters.

When people are looking around for a job at an RIA firm, they look at the Teams page and ask, can I see myself there? Create a team of people at your RIA firm that looks like how the world is. See employees as humans and as a part of the world around them – the world your clients live in. They aren’t just droids with a price tag attached. Actively make an effort to support diversity and a positive growth trajectory for the people at your company.

Sara’s upshotThanks for reading my blog about the RIA firm of the future. If you are finding this newsletter valuable, please feel free to support its production by making a $20 contribution via this PayPal link or via Zelle to sara@saragrillo.com.

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Just letting ya know, in case you need me at some point.

-Sara G

DisclaimerGrillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use, or the success of any program.

Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. There is no guarantee that the information contained herein is accurate. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor.

Rates may vary as a function of geographic location due to exchange rate differences, fees, surcharges, and other factors. These offers are limited to the services advertised in the promotions contained on this page. Additional services may be provided at an additional cost at rates that are subject to negotiation.

Avier Wealth Advisors is not currently a client of Sara Grillo in any way at the time of publishing of this material. However, the past, the firm and some of its members have been clients of Sara Grillo.

The post 5 reasons this RIA firm is kicking your butt appeared first on Sara Grillo.

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Question from a subscriber: “I want to start writing articles as a guest blogger to attract new clients. How do I get started?”

Guest blogging is when you write a blog on a one-time or periodic basis for a publication as a way to get known as an expert in a particular subject. You do this as a non-staff writer, or guest writer.

Although you usually are not paid for guest blogging, you get exposure to the periodical’s audience – often in the tens of thousands.

Periodicals accept guest submissions because 1) they get content for free 2) industry practitioners offer different views, often more insightful than reporters.

Take these actions TODAY:

Find the right publication. If you want to attract new leads who are likely to be qualified, go to your best clients and ask them what magazines or journals they read.
Follow the publication for a while to get a sense of what types of articles they publish. Follow them on social media to get a sense of what engages best with their following. Then contact the editor-in-chief and pitch an article. If they take guest articles, usually they will state this on the website.
Start small until you build up your reputation as a writer. Word travels quickly. You won’t be blogging for the Wall Street Journal day one. And I would argue, that wouldn’t be ideal anyways. Usually a small trade publication with a loyal following or a local daily news is a much better target audience for an advisor.
Before you write the blog, get the editorial guidelines in writing. You need to know what they allow and do not allow before submitting the draft.
Make sure you clarify to the publication that you will need additional time for your compliance to approve the copy before it is published. Usually you submit your draft, the publication’s editors propose changes, and then you submit your final draft. Compliance will have to review the proposed changes before you send the final draft.
Make sure you can include a byline. Most publications won’t allow you to overtly pitch your services, but you should be able to state your name, your company, your role, and how to reach you (offer up your website or LinkedIn page).

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

If you are finding this newsletter valuable, please feel free to support its production by making a $20 contribution via this PayPal link or via Zelle to sara@saragrillo.com.

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Just letting ya know, in case you need me at some point.

-Sara G

The post How to start guest blogging appeared first on Sara Grillo.

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Question from a subscriber: “What is the best way to tell a prospect that they are not a good fit?“

Keep it brief.

Make it about the opportunity – not the rejection. Put all the emphasis on the type of advisor who is correct and how they should find them, not why they aren’t right for you.

Take these actions TODAY:

When rejecting the prospect, don’t ramble. Just give them one good reason, and use my Two Sentence Rule.

Example:

(Smile)

“From our conversations I observed that you seem more of a Do-It-Yourself type of investor. We wouldn’t be the best fit, given that everyone we work with must be a client of both our planning and our TAMP.”

(See, two sentences)

(Smile, and wait for their response)

Then you say:

“Would you be open to my recommendations for a few advisor friends of mine whose businesses are specifically designed to accommodate do-it-yourself investors?”

They nod yes.

Then you say, “Great! Here is a list of three advisors you should contact.” (make sure you have this list, don’t just tell them to go look on the internet)

Sara’s Upshot

Sometimes people come to us because we are called to serve them, and other times we are simply called to deliver them a message.

And so when you are called to be the messenger, know this.

Even if it’s disappointing, people will consider it progress if you can point them in the right direction and save them time in their search.

It’s not to say that you won’t benefit directly – if you do a good job, they may send you someone who is the right fit one day.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Just letting ya know, in case you need me at some point.

-Sara G

The post “What is the best way to tell a prospect that they are not a good fit?” appeared first on Sara Grillo.

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A “short” is a video, usually on social media platforms, under two minutes that is designed to “pop.” It’s kind of like a highlight reel. They are created to garner high emotional impact and lots of energy delivered in a condensed period of time. These videos are usually edited down from a longer video. So […]

To access this post, you must purchase Membership Prime Portal. The post Vid 104: How to make a “short” video appeared first on Sara Grillo.

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The math behind Universal Life Insurance Interest Rates is a twisted web and most consumers are deceived. Know how the math works so you can see the potential risks that may exist with your policy.

But before we get into it…

Look, there are alot of schmucks out there hawking crap products disguised as financial advice.

Don’t be fooled!

Please subscribe to my newsletter to receive updates that raise awareness of consumer financial issues. It will teach you how to avoid shenanigans, crap products, and other scummy practices that are unfortunately common in financial advice.

I wrote a bunch of consumer advocacy blogs here to protect people from all the BS.

Blunt, unfiltered truth about Universal Life

Get an in-force illustration when you buy UL

Hidden costs in an insurance illustration – how to crack the code

The math around Universal Life Insurance interest rates is not that straightforwardAccording to our podcast guest Elan Moas, the investment assumption of the three primary cash value universal life insurance policies (UL, VUL, IUL) displays a hypothetical illustration of what MIGHT occur with the policy. It is based on zero ($0.00) cash value guarantees.

Here’s the danger of relying on illustrations based upon unrealistic Universal Life Insurance interest rate assumptions.

Universal life (UL=money market investment) policies from the late 1980s to the early 2000s were illustrated using 8%+ CD-like rates of return forever. Money market rates crashed to zero (0%) in 2022 due to Covid-19.
Variable universal life (VUL=mutual funds) were/are illustrated using an 8%-12% CD-like ROR eternally. That is a mathematical impossibility.
Indexed universal life (IUL=something like the SP500 index) but WITHOUT dividends and their reinvestment. There is no securities license required to sell it.

The interest rate assumptions for Indexed Universal Life require extra explanation. Actuarial Guideline 49 of 2015, via the National Association of Insurance Commissioners (NAIC) sought to cap, or limit the highly unlikely, aggressive illustrations used in the sales software prior to 2015. This correction was updated in 2020 with AG 49A and again in May 2023 with AG49B. This means the policyholder was likely shown an illustrated rate of return regulators have now deemed to be wrong and/or incorrect.

All three policies likely heavily underperformed the original illustration. Lower future cash value means your internal costs are higher and the policy is more likely to “lapse” or cease to exist while you the policyholder is still alive. This defeats the notion that these are permanent policies.

What to do if you own a policy?Order yourself an “in force illustration” which is the current policy projection and one that your insurer is not required to send you, unless you request it. Most policyholders have no idea this report exists.

If it still looks ok, congrats, you are one of the lucky ones. But this might be less than 5% of policyholders. Being on the wrong side of compound interest rates in universal life policies is a problem for the policyholder.

On UL and IUL use current rates, VUL use a 5% & 6% rate of return.
Request an internal cost report that shows all the internal costs eroding your cash value.
Request an additional report paying only until age 70, since in retirement you are on a fixed budget and do not want outgoing payments.

Are you disturbed yet?Let me leave you with this:

1

If you have any questions, send me a note. I am sick of consumers getting a raw deal and would be happy to hear your questions.

2

I have a newsletter entirely devoted to advocacy for the consumer. The goal is to educate people so they can steer clear of the traps the financial services industry sets for them. Please subscribe to my newsletter to receive these updates so you can avoid being taken advantage of by shenanigans.

These are topics I’ve written about in the past:

Blunt, unfiltered truth about Indexed Universal Life

How to CRACK the secret costs in an insurance illustration

Direct indexing sucks

Top advisor lists are bullcrap

How to read an ADV

3

Be safe!

-Sara G

Elan Moas

Elan Moas, the owner of Moas Consulting, a firm specializing in life insurance strategies, is a 4X SEC whistleblower and author of the book, “Lapsed, The Universal Life Insurance Whistleblower.” This is an expose of the entire universal life insurance industry and his decade-long research project to save millions of consumers and their lapsing policies makes him one of our country’s most important and ethical whistleblowers.

Disclosures

Grillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use or mention in any of its content, or the success of any program it may mention in any of its content. Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor. I want to be clear that nothing in this podcast or blog can be interpreted as an investment recommendation of any type, or an endorsement of any particular person or their services. The opinions expressed herein do not necessarily represent the views of Sara Grillo or Grillo Investment Management, LLC. Also, nothing in this podcast or blog can be interpreted as legal or compliance advice. For advise on such matters, contact a legal or compliance advisor. Any similarities to persons deceased or alive are entirely coincidental.

The post Don’t be tricked by 8% eternal Universal Life Insurance Interest Rates! appeared first on Sara Grillo.

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Question from a subscriber: “I had a welcome video of me on my home page website for a year, but I just took it down. My prospects have slowed since I put it up last year. Tips on what to put in a video on a website?”

The sudden reduction in number of leads could be due to a number of factors beyond your control.

The Google algorithm is always changing, for example.

Yaesh?

However, there are certain things you can do to increase the chances of people watching the video and then clicking onto another page on the site.

Take these actions TODAY:

It should be a “welcome video.”
The thumbnail is the most important feature. It signals to the reader to click and watch the video. There should be a keyword in large, clear letters on the thumbnail, and a nice headshot. (Example below)
No more than 45 seconds for the video. Say hello, state your name and your firm’s name, what your mission is, and who you work with. Period.
Smile
Lots of positive energy
Caption the video (subtitles)
Interesting background
At the end of the video, direct the reader to a certain page on your site and explain why. “Next please visit the Teams page so you can meet those you’ll be working with.”

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

If you are finding this newsletter valuable, please feel free to support its production by making a $20 contribution via this PayPal link or via Zelle to sara@saragrillo.com.

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Just letting ya know, in case you need me at some point.

-Sara G

Too much email?

?You are reading Sara’s Daily newsletter. If you haven’t signed up yet, click here to receive one actionable, practical marketing tip a day.”

Is daily too much email? Sign up for monthly newsletter here.

The post “What to say in my welcome video?” appeared first on Sara Grillo.

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Keep it brief.

Make it about the opportunity – not the rejection. Put all the emphasis on the type of advisor who is correct and how they should find them, not why they aren’t right for you.

Take these actions TODAY:

When rejecting the prospect, don’t ramble. Just give them one good reason, and use my Two Sentence Rule.

Example:

(Smile)

(See, two sentences)

(Smile, and wait for their response)

Then you say:

“Would you be open to my recommendations for a few advisor friends of mine whose businesses are specifically designed to accommodate do-it-yourself investors?”

They nod yes.

Then you say, “Great! Here is a list of three advisors you should contact.” (make sure you have this list, don’t just tell them to go look on the internet)

Sara’s Upshot

Sometimes people come to us because we are called to serve them, and other times we are simply called to deliver them a message.

And so when you are called to be the messenger, know this.

Even if it’s disappointing, people will consider it progress if you can point them in the right direction and save them time in their search.

It’s not to say that you won’t benefit directly – if you do a good job, they may send you someone who is the right fit one day.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

If you are finding this newsletter valuable, please feel free to support its production by making a $20 contribution via this PayPal link or via Zelle to sara@saragrillo.com.

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Just letting ya know, in case you need me at some point.

-Sara G

Too much email?

?You are reading Sara’s Daily newsletter. If you haven’t signed up yet, click here to receive one actionable, practical marketing tip a day.”

Is daily too much email? Sign up for monthly newsletter here.

The post “How to tell prospect they’re not a fit?” appeared first on Sara Grillo.

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The regulators don’t force insurance companies to provide in-force illustrations to their Universal Life policy holders and it allows them to deceive consumers who aren’t prepared to do the math required to know the truth.

Insurance companies make Bernie Madoff look like a petty thief. Don’t fall for it!

But before we get into it…

Look, there are alot of schmucks out there hawking crap products disguised as financial advice.

Don’t be fooled!

I wrote a bunch of consumer advocacy blogs here to protect people from all the BS.

What’s a policy lapse?Higher future costs liquidate the cash value until zero and the policy ceases to exist. All your Premiums, Cash Value and Death benefit are kept by the insurer, despite making all your payments. That’s financial devastation.

Why is it so urgent for the universal life policyholder to order an in-force illustration? Why is there a problem?It’s simple. The original investment ROR shown to the consumer was higher than a rational and/or ethical advisor would use. This high hypothetical ROR makes the policy looks good at the point of sale, lower actual investment returns could show a future lapse. There won’t be enough actual cash value to pay for massive rising internal costs.

The urgency is to know if your policy will lapse or crash in the future. You want to know about this ASAP, so you can address this problem immediately. This is your money and your problem is not going away.

Is that what the in-force illustration tells you?Yes. The in-force illustration is the current forecast The annual statement only shows the current policy values on that day, not the forecast.

What’s wrong with relying on investment hypotheticals in a Universal Life insurance policy illustration?For instance, take Universal Life policies (ULs) invested in money markets in 1980s. The early 2000s shows 8%+ROR, interest rates went to 0% in 2022. Underperformed the illustration by 4%. That’s trouble. IUL/VUL have the same investment hypothetical problem.

So, there is no In Force Illustration law?No. The insurer isn’t required to send one to you on annual basis, only if you ask for it. I think > 99% of policyholders don’t know this report exists. The regulators have failed the consumer. We need a law mandating each policyholder receive this report on an annual basis.

Let me leave you with this:

1

If you have any questions, send me a note. I am sick of consumers getting a raw deal and would be happy to hear your questions.

2

These are topics I’ve written about in the past:

Blunt, unfiltered truth about Indexed Universal Life

How to CRACK the secret costs in an insurance illustration

Direct indexing sucks

Top advisor lists are bullcrap

How to read an ADV

3

Be safe!

-Sara G

Disclosures

The post Get an in-force illustration whenever you buy a Universal Life insurance policy! appeared first on Sara Grillo.

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“I want to upgrade my client base and work with ultra high net worth individuals and Family Office clients. How do I meet them?”

Whoa, let’s press pause for a second.

These are some of the richest families in the world. Are you ready to present yourself to them?

I studied several of the wealth managers who work with Family Offices. It depends on how high you go, but in some cases these types of clients function more as institutions than an as individuals – and their needs reflect that.

Take these actions TODAY:

Write articles and be ready to discuss, at length, topics like these:

Estate planning for complex family situations (divorce/remarriage/blended family)
Family communication in a family business
1031 Exchanges
Family Foundations
Creating a Board of Directors for your business
Direct lending for your business
Managing cross border assets
Valuing and appraising Fine Art
Managing loans between family members
Inflation’s impact on luxury goods and services
Executive compensation/stock options
Best luxury resorts across the world
Rare coins as an investment
How to buy a private jet
Have high quality, professional photography and videos on your website and social media. Wear a suit and present yourself conservatively.
Respond to the expectation for specialized, high touch services. Several of the wealth managers had specialists in-house such as: Chief Philanthropic Advisor, Head of Tax Planning, Family Legal Counselor, Trust Officer
If you can’t hire these specialists, work out an arrangement with a close third-party with this expertise. It has to be air-tight and you will be the client liaison, not them.

Sara’s Upshot

It’s not just a case of how things look. You have to prepare to actually have the resources that a client with “ultrawealth” would need. That is the first step.

In future Dailys, I will talk about how to find and connect with ultrawealthy clients.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor. Nothing on this website shall be construed as compliance or legal advice of any sort; for such advice, consult with your compliance officer or attorney.

The post How financial advisors can get family offices and high net worth individuals as clients appeared first on Sara Grillo.

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Question from a subscriber: “Should I spend some time asking my clients for Google Reviews? There is one ‘advisor’ I know who has 30 FINRA disclosures and yet a 4.9 Google rating.”

Google reviews offer two marketing super wows:

Social credibility
Improvement of your Google rank

And…facts…

There are crooks out there getting attention online just because they are willing to put effort into this.

(sigh)

Take these actions TODAY:

There are very specific rules about how to actively solicit a Google review, from a compliance perspective. Ask your compliance officer or lawyer.
The Google review is just one part of what you need to do to rank. Can you please read this blogso I can teach you about the other things you should be doing?
While you can hope that they’ll all be Peter Cetera 80s love ballads, the reality is that if you are going to get reviews, be ready to deal with bad ones. See what your lawyer suggests, but usually it is best to apologize but not to get into a beef on the specifics then and there.
If there is a review posted that goes against Google’s policies, (if they said a cuss word or something), you can try to get it removed. But it’s just a plain old bad review, you’ll have to close your eyes and lend them your hand because that burning may be an eternal flame.

Sara’s upshot

Reviews are a form of social credibility but it’s part of a total online package.

Here are some blogs that can help you be the Beyonce of financial advisor internet marketing, lol:

Google tips for financial advisors
Financial advisor Google website tips
Sample advisor website template

Yeah?

Yaaaaah.

And by the way, remember to consult with your compliance officer or lawyer before taking any actions regarding Google reviews. What I’ve said here can’t be interpreted as compliance advice specific to any one particular individual.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor. Nothing on this website shall be construed as compliance or legal advice of any sort; for such advice, consult with your compliance officer or attorney.

The post Should financial advisors ask their clients for Google Reviews? appeared first on Sara Grillo.

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Question from a follower: “Should I use a website pop up to get people to sign up for my newsletter?”

There is no clearer way I can say this: HECK NO.

You want a visit to your website to be a peaceful experience, not a haunted house.

Chaos = unpleasant

If you want to compel people to sign up for your newsletter, there are better ways.

Take these actions TODAY:

Name the newsletter and give it an exciting theme, “The recycle bin – each month I’ll publish a way to save for retirement using things you already know, but probably forgot about.”
Put buttons on the top of your home page, and at the top and bottom of every blog, where people can input their email to sign up
Include a visual snapshot of a highly compelling passage in a past newsletter and make sure it’s a wow, wow, super wow.
Get testimonials from people who have read it and post them under the sign up button.”

?Sara’s upshot

Someone signing up for a newsletter is a sale. They are exchanging something of value – their time and email – for your knowledge.

Start it off right – not by pushing, but rather by giving.

Give them a reason to not be able to resist what you have to say, and they’ll eagerly hunt down the subscribe button.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post “Should I use a website pop up to get people to sign up for my newsletter?” appeared first on Sara Grillo.

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Question from a follower: “Should I use Microsoft Copilot? Should I use Perplexity AI to create meeting agendas and checklist?”

There is no clearer way to say this: HECK NO.

Here is the reason:

There is already 0.000000001% perceived difference from one financial advisor to the next. Don’t create just some ho-hum briefing memo, make it a 1980s Peter Cetera love ballad.

To heck with scaling and efficiency when it comes to client-specific communications. It’ll ruin your ?brand.

Secret revealed: People can tell when it’s reeeeeeaaallly you and when you didn’t care enough.

Advisors have been running wealth management businesses for decades just fine without these robots. Stick to the old-fashioned way of doing things – high personalization, low volume.

Take this action TODAY:

Remember that somebody has to proofread all the AI output. AI is not a slam dunk. Do not add clutter and volume to operations using automated tools. It will just make things worse and it’ll be awful like the Carolina Panthers in 2023.
If you feel like you don’t have enough time to treat your clients with the high degree of personalization they deserve, reduce and streamline operations.
If you are that pressed for time, hire a ghostwriter. If you are short on dough, it could even be a college intern (talk to your local college career services department) and train the person to write personalized client communications on your behalf for $25 an hour. You will have to proofread them though.

Forget about AI, forget about using Microsoft Copilot, and make it a 1980’s hit single.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post Should financial advisors use Copilot? appeared first on Sara Grillo.

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Question from a follower: “I’m sick of working with small accounts. I want to get bigger clients but I don’t know how.”

Before I answer this, I want to be clear with you on something.

If you want to up the size of your client relationships, you are probably way better off trying to deepen relationships with existing clients. It is way easier to get incremental business instead of doing what I’m about to say.

But I’ll continue on anyways.

Shall we?

Take this action TODAY:

Identify the specific traits of the “upmarket” client you are seeking. Example: “I want to work with families in Voorhees, NJ, having $2 to 5 MM in assets and a need for advanced estate planning.”
Create a bulletproof wow, wow, super wow offering that goes beyond what the competition is doing. Example: A free course that talks about how to set up a family foundation.
Find out the names of the people who influence the Voorhees, NJ upmarket clients you want to reach.
- Voorhees NJ estate planning attorneys
- Voorhees NJ life coaches
- Voorhees NJ CPAs
- Voorhees NJ bloggers
- Voorhees NJ business council members
Figure out why those influencers are able to get those Voorhees, NJ people to listen to them. Use similar tactics to get the Voorhees NJ people to listen to you.
Adopt the right attitude. You are the new kid on the block and you have to earn the trust. It may take 6-9 months. You will have to work hard and overcome rejection and being pshawed.
Pursue a marketing strategy that allows you to reach your target base. This blog discusses what the basic components may be.

Understand that this may take time. People with something of value have alot to protect and the circles can be closed to outsiders.

So, adopt the right attitude. You are the new kid on the block in a closed circle, and you have to earn the trust. It may take 6-9 months. You will have to work hard and overcome rejection and being pshawed.

These blogs may help:

Financial advisor marketing plan

How to find wealthy clients

Financial advisor marketing blogs

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post Tips for financial advisors who want to get bigger clients! appeared first on Sara Grillo.

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Today’s daily tip: Financial advisors should avoid any and all wardrobe mistakes that compromise purity.

Real talk: People will never ever say it, but they absolutely are judging you based on how you dress and present yourself.

I used to pay very little attention to the conservativism of my wardrobe and it cost me alot of business. Once I started to dress with more purity and modesty, I noticed a big change.
Once you make certain wardrobe mistakes, you can never erase the image from people’s minds.
Social media platforms will penalize your posting for display of certain body areas.
Revealing clothing distracts the people you are trying to influence.

Take these actions TODAY:

No low cut tops. Women, do not display your cleavage line – in person, or in any print or digital media. I am appalled when I see cleavage on financial advisor websites as if we are all expected to ignore that it is purposefully on full display. We are worthy of dignity, of getting attention on our merits alone, and should hold ourselves to the highest standards, command the highest respect for our values, our skills, and what we can offer to our clients, not what we were physically endowed with. It’s up to us to set those standards.
No short skirts. Test it by sitting down. The hemline should not go more than one inch above the knee even when you are sitting.
Never be photographed when drinking alcohol. I’m astounded when I see conference group photos where financial advisors are holding a beer in their hands.
Keep a sewing kit in your bag or laptop case in the event an article of clothing were to rip in a visible place.
No tight suits. Be humble. It’s not a chance to show off your pecs, lats, quads, or other aspects of your physique. Get a tailor and custom fit a bigger suit down instead of squeezing into a smaller suit.
No liking or sharing unsavory content on social media. Your employees should be held to these conduct guidelines on social media as well.
Cover tattoos. It’s not about your artwork, it’s about the client’s needs. If your clients are of a certain level of conservatism they may make a value judgement, right or wrong.
Employees should be briefed on how to dress for professional photos. Wardrobe guidelines should be articulated in writing, and employees should have to sign that they agree to those guidelines if they are to be photographed and featured in company media.
If you don’t have clothing that will allow for conservative presentation, borrow from friends or consult the Buy Nothing group in your area on Facebook. You can get suitable clothing for free if you try hard enough.

Sara’s Upshot on financial advisor wardrobes

Impurity is distracting; stay pure and keep the emphasis on the client’s needs. The focus should never be on you, your looks, or how cool or attractive you are – it’s all about the client and solving their problems.

Financial professionals are expected to convey discretion, conservatism, self control, and security. Modesty, purity, humility, and boundaries – up those standards when you present yourself, and your brand will be stronger.

No judgements here, but I see alot of people falling into these financial advisor wardrobe traps all the time. I know I’m gonna get a ton of hate mail on this one; but you know something, this is about human dignity and to me that’s worth dying for.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post Stop committing these financial advisor wardrobe mistakes! appeared first on Sara Grillo.

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If you are calling on corporate executives on LinkedIn: Pick 2-3 large companies within a 30 minute drive of your house. Learn the benefits at these companies. You may have to volunteer to do a couple of free 401k plan reviews. Create one posting a month about the most intriguing aspect of these benefit plans, […]

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Everybody talks about getting referrals from clients, but nobody really talks about what to do when they go south. What if the client doesn’t actually make the referral? What if the referral doesn’t call you back? I’ve got Bill Cates here and he’s going to discuss all of this and more as covered in his book, “The Language of Referrals.”

I am an irreverent and fun marketing consultant for financial advisorsClient referral tipsThere were some great takeaways here. We covered the main points from Bill’s book and there were some powerful takeaways about:

The words to say when asking for a referral without begging or being pushy
How to be more “referable”
How to plant seeds and trigger introductions
The value discussion – how to have it

Enjoy the show!

Sara’s upshotAre you ready to go leave the AUM fee model for hourly, flat, or advice only planning?

Learn what to say to prospects on social media messenger apps without sounding like a washing machine salesperson. This e-book contains 47 financial advisor LinkedIn messages, sequences, and scripts, and they are all two sentences or less.

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. If you are a financial advisor reading this, I hope you’ll at least join my weekly newsletter about financial advisor lead generation.

See you in the next one!

-Sara G

About Bill CatesBill Cates is widely recognized as one of the foremost experts in the art and science of acquiring new clients
through referrals and personal introductions. Bill is president of Referral Coach International, founder of The Cates Academy for Relationship Marketing, and the host of the podcast TopAdvisorPodcast.com. Bill was recently rated as the #1 Financial Advisor Influencer by Indigo Marketing.
Bill is also a bestselling author. His books are, Get More Referrals Now, Don’t Keep Me a Secret, Beyond Referrals, Radical Relevance, and his latest book is The Language of Referrals.

Disclosures

Grillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use, or the success of any program. Nothing in these materials may be construed as an investment, insurance, or financial recommendation. For such a recommendation, consult with a financial advisor.

Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor. Opinions stated by third parties may not be correct and do not reflect the views of Grillo Investment Management, LLC. Grillo Investment Management, LLC may not be held accountable for any statements made by third parties.

The post Do this to avoid messing up a client referral appeared first on Sara Grillo.

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Question from a subscriber: “How do I convert a casual friend to a prospect without burning the relationship?”

The easiest thing – ask them if they want to receive your email newsletter.

Make sure there is a logical reason why, other than so you can show them you are a financial advisor.
The email newsletter had better be a wow, wow, super wow. See these tips.

Take this action TODAY:

Send your friend this email, once:

“I have a newsletter where I discuss retirement tips for miliary vets. Given your line of work, I thought I would ask if I can put you on the list?”

If they have no interest in ever doing business with you, they will simply ignore the email and you’ll know not to push it further.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post How to avoid burning a bridge when you want to do business with a friend appeared first on Sara Grillo.

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Question from a subscriber: “How do I create a unified message about the extraordinarily wide spectrum of things I do well?” Here is how to communicate what you do, when talking to a prospect or lead.

I can not state it any more clearly than this:

If you communicate more than three points, it comes off as a mish mosh, and there is no point to saying anything at all.

Take this action TODAY:

Pick not the things you do well, but the thing you are best at as a financial advisor.
Remember that the quality of being the best is, by definition, singular. There’s no “two best” of something.
What is the thing you would die by your ability to do well? For real. Know it.
Then craft a one line sentence expressing the skill you would die by. “High net worth individuals hire me for various reasons, but the thing I’m best at as a financial advisor is helping my clients structure a financial plan after an unexpected transition such as divorce.”

Sara’s Upshot

People remember the best and they forget everyone else.

Know what you debt, and clearly express how this can help the world – in one sentence.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

More blogs I wrote for you about elevator pitches:

9 pitch examples

More pitch examples

One sentence elevator pitch

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post “How do I communicate everything I do?” appeared first on Sara Grillo.

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Question from a subscriber: “How do I create a marketing calendar for each segment of your client base (ie, boomer and gen x business owners, near retirees, recent retirees)?“

The most effective content you could create for someone comes from what is most relevant to them.

Relevance comes from analyzing real world interactions that you have with your clients, and what you taught them.

Period.

Take this action TODAY:

Open your email inbox.
Open “sent” folder.
Enter a search on the name of your best client, the person you have the best relationship with out of all the people you do business with
Look at the emails you sent them each month. What was the most important thing they learned from that activity? Example: in January you sent them an email about when the expect their tax documents from their brokerage firm.
WHAM. Write an entry on your marketing calendar for that month, in the form of a question. So January’s blog would be entered on the marketing calendar as: “When should I expect my tax documents from my brokerage?”

Sara’s Upshot

If you are straining to come up with something to fill the marketing calendar, you’ve strayed too far.

Don’t imagine up some dreamy far-fetched stuff, just stick to what the people who trust you the most learn from you, because that’s probably the most valuable knowledge you could impart to the world.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post “How do I create a marketing calendar?” appeared first on Sara Grillo.

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Timing a sales pitch is a work of art.

Question from a follower: “I never know when to actually tell the prospect what I do, during the sales meeting. What’s the best time?”

Don’t just mutter it in a ho-hum way.

Steer the conversation into an emotional high and then WHAM drop the pitch.

Take this action TODAY:

(listening part) The beginning of the meeting should be where you let the prospect talk, asking guiding questions that probe deeper into what they need, their psychology and attitudes, etc. (silence, low energy, they lead)

Once you have gotten enough of a sense of what they want/need, say this, “Do you have any questions for me?” Then be quiet.

They’ll probably say something like, “So what can you do for me and what’ll it cost?”

(lead them through recapitulation) Then you go like this: “From what I gather, you need someone to help guide you through the next five years, over which time period you intend to retire from GM, cash in your stock options, downsize your house, and take Social Security, all the while hoping that your diabetes stays in check. Did I miss anything?”

They nod their heads no.

(lead them to emotional high point) Then you say, “But it’s not just that. You want someone who’ll do right by you, who’ll prompt you to make the right decisions, who’ll help you steer clear of the emotional traps that you may fall into if you were to navigate this on your own, who isn’t just a number cruncher but a true advocate for you and your family, present and future, and who wants to get you all to where you want to be remaining objective in the hard times and temperate in the good ones. Yeah?”

They nod excitedly. “Right!” (see, now here’s the emotional high point)

Then say these words, “That’ll be our full wealth management suite of services and it’ll cost you 1% of your assets, which is about $10,000 a year. That’s how I’d get you there.”

Sara’s upshot

Listen
Recap the key data and get them revved up
Drop the pitch hard once they reach the emotional high point

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post How do I time my sales pitch to get it right? appeared first on Sara Grillo.

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Financial advisor fees can be reduced – here are some ways. Don’t get suckered out of your hard-earned money!

But before we get to the blog…

Look, there are alot of schmucks out there hawking crap products disguised as financial advice.

Don’t be fooled!

Please subscribe to my newsletter to receive updates that raise awareness of consumer financial issues. It will teach you how to avoid shenanigans, crap products, and other scummy practices that are unfortunately common in financial advice.
I wrote a bunch of consumer advocacy blogs here to protect people from all the BS.
I’m writing a book about how to find a financial advisor who won’t ruin your life. Join this newsletter to be notified when it is out.

And now let’s get on with it!

How to reduce the fees you pay to a financial advisor#1

First thing: know what all the fees are. Ask the advisor for a written list of all charges you will be expected to pay, not just to them – but to every single entity involved in servicing you. For example, are there account opening or closing fees charged by the custodian? What types of securities does the advisor typically invest in? What are the expenses associated with those vehicles, and with the transactions made involving them?

You can find this information in the financial advisor’s ADV Part 2, Item 5 “Fees and Compensation”. Visit the IAPD website (https://adviserinfo.sec.gov/) and enter their name.

Get a total picture of all the fees involved, not just the advisor’s fee itself.

2

Ask yourself if you really need everything the advisor offers. Advisors work with clients different ways. For example, can you make the trades yourself? Can you manage the money yourself, if the advisor provides an initial investment allocation and rebalancing instructions? If so, an advice-only planner may be the right fit.

3

Try to chart out your needs over time. Many times, after the initial work is done (usually in the first year) there is only minimal maintenance work. You may be better off paying a higher amount in the beginning of the relationship, if the work required if likely to decrease after the initial “clean up” is done.

Some advisors charge on an hourly basis. It may make sense to hire an hourly or flat fee advisor who works on a one-time or project basis rather than paying a “retainer” that automatically renews each month. This way you aren’t overpaying if the work required is dramatically lower after the initial work is completed.

Are they just going to be “monitoring” after the first year? If so, it is worth what they are asking you to chalk up or could it be done in a less expensive way? The advisor is going to try to sell you a relationship in perpetuity – make sure if you are going to agree to that, it’s something you truly need.

4

Be aware that some payment methods obscure the true cost. Pay attention to how you are actually paying the fee. If your advisor is managing your assets, usually the fee is debited out of your account at the custodian without you having to manually perform the action of paying the bill. This is an ingenious way to obscure the amount you are actually paying.

Some advisors, such as hourly planner or advice only planners, will get paid via check or electronic transfer, instead of just having the money come out of your account (which you may or may not pay that much attention to). Don’t balk at it just because you have to write a check manually which forces you to embrace the full knowledge of the amount you are paying. Look at the actual amount you are paying; don’t overlook what it is actually costing you if your assets are being debited automatically (even though you never had to write the check because your portfolio paid the bill).

5 Look at minimum of 5 advisors to see what they charge and compare what you are getting for that. There are websites such as NAPFA, fee only network and XYPN that offer advisor search directories. If you don’t understand what each service entails, ask. Make a spreadsheet and compare each one. Don’t just take one referral from a friend at the golf club.

Resources to help youHere’s what you can do if you want to cut down the amount of fees you pay to a financial advisor.

1 Financial advisor lists

Here are some list of low cost and transparent advisors. If you have questions about anyone on this list, let me know. Also, please understand that this is not an endorsement of any particular company. Please conduct your own due diligence and come to your own decision. Also, I am under no obligation to update this list and the conditions of service offered by these firms may change over time without being reflected here. I have no formalized business relationship with any of the firms listed on these financial advisor lists.

Ethical actions

Low cost advisors

Flat fee advisors

Advisors for small accounts

Advice only planners

Hourly planners

I can’t say it enough – you have to do your own research. This is not an endorsement of anyone mentioned here, and situations could change and not be reflected here in this blog. Also, there is selection bias inherent in this list. I did not interview all the hundreds of thousands of advisors out there, I conducted research using Google, consulted with my network, and posted on social media. So this is limited to what I had access to given my resources. Again, conduct your own research; this is intended to be a starting point but by no means is it exhaustive or conclusive.

2 Learn their tricks

Consumer advocacy blogs – In these blogs I talk about the bad things that financial advisors do, so you can learn what to avoid.

3 Leverage Fiduciary resources and learn what a pure fiduciary is

Institute for the Fiduciary Standard houses a library of Advisor On My Side resources. Check it out.

Read about the six core fiduciary duties.

Protect yourself from the financial services industry!Let me leave you with this:

1

If you have any questions as you search for a financial advisors, send me a note. I am sick of consumers getting a raw deal and would be happy to hear your questions.

2

3

I’m writing a book about how to find a financial advisor who won’t ruin your life. Join this newsletter to be notified when it is out.

Be safe!

-Sara G

The post How to save on financial advisor fees? appeared first on Sara Grillo.

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What’s the best way for a financial advisor to network: virtually or in person?

Question from a subscriber: “Some of these in person networking groups cost $3,000. Am I better off just doing online networking?”

The advantage of in person networking is that it can cause you to make progress faster because the ability to interpret someone’s body language is a primal need we have in order to trust them. However, it takes more administrative time (travel time, getting dressed up, etc.) and you may have to pay more.

Virtual networking is usually cheaper (you can join most social platforms for free) and faster. However, it’s more difficult to build trust and differentiate yourself from other advisors in a highly competitive setting.

Take this action TODAY:

Think about your personal strengths and weaknesses as a networker.

Do you have family obligations or other disruptions (such as kids, lol) that make it hard to consistently show up in person?
Do you have social anxiety and fear interacting with people in real life?
Do you have the patience to filter through spam emails, spam postings, and other virtual networking garbage before you find the right community? Or to even build your own?
Do the targets you want to reach actually frequent online platforms? For example, if you want to network with 70 year olds, they are most likely not on LinkedIn as much, because many aren’t working anymore.
Are you good at thinking on the fly when you socialize, or do you prefer a slower, meditative interaction?
How important is a geographic focus? If you are looking to get clients across the country, you may be holding yourself back by focusing on a local group that meets in person and has no online presence.

Sara’s Upshot on financial advisor networking

The directive to “get out there and network” can be very frustrating for financial advisors. You have to match your personal strengths to the method of interaction before you invest time and money, because if not you can and will waste alot of both.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

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Question from a subscriber: “I am struggling to onboard new clients all at once. I want to set up a wait list but am worried it sends a negative message to new prospects.”

Straight talk:

Be careful with this.

The financial advisor onboarding waitlist: too much or a good idea?A well-explained waitlist of clear and reasonable length (no more than 2-3 weeks) is acceptable to most people. It is also a leeeeetle bit of a success signal, which doesn’t hurt.

However, I have seen advisors with four month (or longer) waitlists.

That’s too long.

And to be real, it’s more to placate the advisor’s ego than out of regard for other people, because if you really cared you would have referred the prospect to another advisor who could help them sooner.

Whoops? Did I say that? LoL.

I told this was real talk.

People come to you because they are having a crisis like divorce or retiring in a panic about the market crashing. And you tell them you can’t help until the problem has ballooned out of control?

Heck no.

Take this action TODAY:

If you do set up a waitlist, be clear upfront about how long it will be. Overestimate the wait time so you don’t have to tell them to wait longer.
Publish the waitlist terms on your website.
Establish regular check-ins so they don’t feel like you forgot them.
Make sure they are on your email newsletter and following you on social media to help you reinforce your value to them while they wait.
If your waitlist is longer than a week and they need urgent help, consider referring them to another advisor. Put their interests first and do the right thing for them, even if it means losing their business.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post “Should I get a waitlist?” appeared first on Sara Grillo.

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Question from a subscriber: “How long will it take to revise my website? The last time I did this it dragged on forever and I wasn’t even happy with the end result.”

This rocked.

I recently helped somebody redo a website in one week (not counting final approval from compliance.)

Here’s how we did it.

Take this action TODAY:

Limit the website to 2,000 words. Nobody is going to stick around longer than that anyways.
Organize the drafting process into three parts so you aren’t going back and forth forever:
First draft – map out the key concepts
Second draft – add details to enhance the concepts
Third draft – proofreading and layout
Maximize use of bullets, tables, and lists. If you need to use lengthy prose, save it for the bottom of the page. Remember that most people are going to scan the page from top to bottom, so you want the salient information presented in a terse format at the top.
You could get by with three pages: Home, About, and Services/Fees. If you do a good job with those three pages, they’ll hang on for the rest later and ask you for a meeting.
Limit paragraphs to two sentences. It looks less overwhelming than the big blocks of text.
Show the reader with examples rather than describing with words. Try this: have them download a sample financial plan instead of writing six paragraphs about it.

Sara’s upshot on redoing a website

When creating a website, simply ask yourself, “Of all the things I could say, what is the most important thing the reader needs to know?”

Count on them processing less than 10% of what you present. You’ll make them breathe a sigh of relief and save your own sanity at the same time.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

Thanks for reading. See you in the next one!

-Sara G

The post “How long will it take to redo my website?” appeared first on Sara Grillo.

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Question from a subscriber: “I’m stunned. One of my best clients who runs a business just hired another advisor to manage their 401k plan.”

I’ve heard iterations of this:

I’m a CPA and financial advisor, and my best tax return client just hired someone else to do their retirement planning.
I’m a CPA and financial advisor, and my best AUM client just hired someone else to do their tax return.
My client just referred their out-of-state best friend to an advisor in Alabama, even though I am also licensed in Alabama.
My client’s estate planning attorney said they should hire a fee-only advisor to manage their assets, and then they asked me if I charge fees or commissions.
The CPA that I send all my clients to recently interviewed my competitor for a podcast about Social Security tactics. I’m a Social Security expert.

Here’s one thing I’ve learned by having four kids under 10 years old:

Nobody else other than mom and dad knows your shoe size.

And so here’s the business lesson:

Do not expect the client, (even those who adore you) to track the nuances of your work:

1) All of the related services you provide outside of wealth management and financial planning

2) Who you work with

3) What you are licensed to do, and where

4) How you charge clients

5) Your specializations that do not pertain to them

You shouldn’t be in everybody’s face about what exactly it is that you do; but you should be one inch away from it.

They have to see it over and over again, not just once or twice.

Take this action TODAY:

In your email signature line underneath your email and phone, write a brief summary of all you do: “I provide financial plans, manage retirement portfolios, and prepare tax returns for clients. I am licensed to serve clients in Missouri, Indiana, and Texas. As a fiduciary, I charge 1% of your assets, and do not accept commissions.”
Do the same at the end of the newsletters and blogs you write. Make a list of 3-5 things and give it the title, “How I work with clients.” Make it visual by putting a picture of yourself with the 3-5 bullets next to it.
Clearly state, on your website home page, your home state and how you charge clients (flat fee, AUM, etc.)
Business owners can be clients for their personal wealth as well as the management of their company retirement plans. They also may refer their high-earning employees to you. Make sure that every single business owner client of yours knows all the ways you help, and even create some type of periodic publication where at the end you remind them of this.
Think about how to tactfully remind clients of this in your annual review meetings.

Sara’s upshot

It may seem over-the-top.

It’s not.

A tasteful and brief reminder of what you do, repeated incessantly in key places, can increase referrals and new leads in the circles you frequent.

If you want to convert the people in your circle into new clients, show them the same message over and over again.

That’s the only way they’ll know your shoe size.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

P.S.

Did you sign up for my daily newsletter?

Or if you want more…

I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
I am an hourly consultant for those who just need one-time or recurring guidance
People hire me as a ghostwriter to write content for a project fee
I have a social media training program
I have a book about what to say on LinkedIn messenger

The post “My client hired another advisor for their business 401(k).” appeared first on Sara Grillo.

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Losing a client is no fun for anyone. In this blog, I discuss ways to handle ex-clients so that you increase the chances of improving goodwill and possibly being hired back.

So…you lost a client…From a subscriber: “Am I wrong to remove ex-clients from all email newsletters, my social media following, etc.? They left me, after all – why should I care about them?”

Oh for heaven’s sake – don’t cut them off!

Yeah, it feels bad they left but don’t let that sour you.

Look at all you can gain from continuing to show you care about them:

An honest appraisal of how well you met/didn’t meet their expectations
Referrals to others who may be a better fit, if it was an amicable breakup
Insight about their corner of the world and how you can meet other people similar to them
A comparison to how you stack up with whoever they went to next
The opportunity to gain their business back at some point in the future
The chance to mend a damaged relationship that didn’t end well
The ability to be perceived as truly caring about other people, not just about getting their money
The chance to show you take the high road

Take this action TODAY Get the emails of all past clients – even the ones where it didn’t end well – and add them to your email newsletter. * Send past clients a survey asking them to evaluate their experience with you. * Connect with all past clients on Facebook and LinkedIn. * If you are on amicable terms, invite a few of your favorite past clients to webinars, live events, etc. that you are having. * Send them an article or a blog you wrote, just to show you still care about them. * Call – not your admin – you call the ones you held most dear, just to say hello and how are you, once a year. * The only exception is someone who either has pursued legal action*, or might do so. The risk of stirring the pot is too high in those instances.

Sara’s upshotThe end of a relationship should never mark the end of compassion.

Take the high road, nurture the heck out of every single person that you cross paths with on your journey – at every point – because IT FEELS AMAZING to treat other people this way!

The world is so empty without us loving each other. Noooooo – fill it up instead!

Put the past aside, just OPEN UP YOUR HEART AND LOVE OTHER PEOPLE!

Period.

Living this way puts you into a state of grace that comes with unbelievable power.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ‘ya!

Alright that’s all for now. I hope this blog about what to do about how to get a lost client back was helpful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

The post What to do after a client fires you if you want them back appeared first on Sara Grillo.

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In this blog, I am going to talk about what to do if your marketing results bomb and how to fix these failures. Stay tuned for some blunt and super actionable tips!

How long before you should see positive marketing results?Question from a subscriber: “I just started marketing. How long before I should see results?

Two months.

If you have no leads by then, you still “saw results” – the result was this:

It didn’t work.

Now, that doesn’t mean you throw in the towel. But it does mean you have to make a radical change.

If your marketing stinks, take this action TODAY:I call this the “Up or Out.“

Let’s say you are doing a podcast about NJ Retirement and it isn’t creating any meaning response – no growth in subscribers, no leads, nobody in your NJ following mentions they are listening, etc.

You write this “Up or Out statement” down on a piece of paper: “I am going to increase my subscribers by 200% within two months, or I am going to cancel this whole podcast.”

Say it, and resolve to do it.

Next, you write down every single thing you could possibly be doing wrong on the podcast.

Is the topic of NJ Retirement well-suited for the audience? Or is it a miss?
Is the audio quality up to snuff?
Is the length appropriate?
Are you publishing it at the right time of day/week?
Am I not presenting it to enough people in NJ?
Is the show being presented in venues where new NJ listeners could possibly find it?
Is there a clear indication of how the show is different/better and what the key learning outcomes are for a NJ retiree?
Is it clear that I am wealth manager who works with NJ retirees, or do they think I’m just a podcast host?

Write every possible reason for the failure down on the paper. In your mind, you must be in “do or die” mode. You have two months to fix it, or else you have to quit the podcast.

Then identify the top three reasons on the list, and fix those first.

Make drastic, radical modifications.

Maybe you cut the show length in half
Maybe you think of a cool tagline about being a NJ wealth manager and state it right away in the show’s intro
Maybe you give it a shocking twist, like talking about why retiring in NJ is a bad idea instead of a good one.

Assess results after two months and reread your “Up or Out statement.” Did you achieve what you said?

Sara’s upshot on how to do betterPeople get really discouraged when marketing doesn’t work, because they feel like it’s some “magic” that didn’t mysteriously happen.

It’s not magic. There is a science and math to it.

Approach problems with logic and speed using the “Up or Out” method, and if the results don’t improve, move on to another area of marketing where you stand a better shot at success.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ‘ya!

Alright that’s all for now. I hope this blog about what to do about bad marketing performance was helpful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

The post Why your marketing results stink appeared first on Sara Grillo.

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Negative response and criticism are a reason that many people shy away from taking to the platforms. They shouldn’t be! In this blog I’m going to cover how to handle social media haters attacking you.

Social media haters are a big fear for many peopleFrom a subscriber: “I want to post on social media, but what if one of my past coworkers or ex-friends comments and makes me look bad or stupid?”

As someone who gets attacked by haters almost every single day on social media, I have a ton of advice here.

Realize this:

Most people won’t wage an “ad-hominem” attack on you as a person (“Oh well, that’s just like an insurance agent to say that, Jim”) because it makes them look bad.
A touch of conflict is exciting to the audience and will cause the posting to gain views.
People have a very short memory and nobody will remember in two weeks unless you really cross the line with something you say (example: Ken Fisher).

Take this action TODAY: Use disagreements on social media as a professional exercise in clarity and logic, a Socratic debate that leads to the truth. You should welcome opposing views, because they expose the truth if you argue with logic. Show respect for anyone who disagrees, even if they don’t do it nicely, and they’ll probably do the same back. * Even if someone is not going to be professional, take the high road* and don’t get nasty back. It will make you look like the better person. * If they wage a vicious attack you on a personal level, just say this, “I appreciate your comments but I think we can debate without ad-hominem attacks. Let’s stay focused on the topic and be constructive.”

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Sara’s upshot on handling hate from trollsAlright that’s all for now. I hope this blog about how to handle social media haters was helpful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

The post A quick guide to dealing with haters on social media appeared first on Sara Grillo.

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Love is a battlefield, and so is marketing compliance. In this blog, we talk about how to stop living in fear of SEC marketing rules and to reduce the chances of getting zinged.

SEC marketing rules are no jokeQuestion from a subscriber: “With the regulators breathing down my neck I don’t want to say the wrong thing when I market myself and pay fines.”

Nobody wants to get audited and have to pay fines. There are no set formulas for avoiding this, and I’m not a lawyer so don’t take this as legal or compliance advise. But there are some basic ways to drastically reduce the risk of triggeringthe watch dogs.

Take this action TODAY: Don’t use superlative language such as: best, always, unique, guarantee, first, “I’m the only”, most effective, etc. * Hire a professional compliance officer. Seems obvious, but alot of you are making this stuff up as you go along. * Think to yourself, “If an SEC examiner were standing right here as I talk, would he or she be triggered by what I am about to say?” * Any time you present an award or testimonial, be prepared for it to be scrutinized heavily. Follow compliance’s guidance verbatim on how to present these. * Don’t overstate your credentials or exaggerate their benefits. * Don’t exaggerate the benefits of being a fiduciary. “As a fiduciary, I operate in a totally conflict-of-interest free way.” Can anyone actually operate this way? Not so sure. * Review your website* every three months and make sure all the information about your processes, employees, fees, etc., is accurate.

Sara’s upshotNow, I’m not a lawyer or compliance officer, so don’t take this as legal or compliance advice. These are general tips based on my experience as a marketing consultant to many financial advisors who have to follow SEC marketing rules. As the good ole disclaimer goes, for recommendations specific to your situation, consult a legal or compliance professional.

Yeah?

Yaaaaah.

Alright that’s all for now. I hope this blog about how to avoid getting tripped up by SEC marketing rules was helpful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

The post There is no reason to live in fear of SEC marketing rules! appeared first on Sara Grillo.

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Question from a subscriber: “I’ve spoken at a few events but never at big conferences. How do I get more/better speaking gigs when every time I try I get ignored?”

Conference organizers and event planners can be super icy.

Why is it so hard to get professional speaking engagements?Look at it from the conference organizer’s point of view – they take a chance on a speaker, and the person bombs (they get stage fright, say something inappropriate, or just plain stink), and you lose your job.

Real talk: picking an unverified speaker is a huge risk.

It’s for this reason that the speakers who get picked for one big event, usually get picked for all of them. That’s because they are verified. It’s less risk borne by the conference organizers.

Here’s how to bring the walls down – social proof.

Take this action TODAY: Be the best. Record yourself giving your talk until you become the John Bonham of financial advisor speeches. * Present a video of yourself speaking everywhere you can: website, social media, in your email signature. Not just some ho-hum reel. Your energy should strike them through the screen. It should be completely inspiring to the point that you want the conference organizer to jump up out of their chair and say, “THAT’S THE ONE!!!” * Get 20 of the people who attended the same event last year to send the video reel to the conference organizer with a recommendation to pick you. * Figure out what the best talk you ever gave was, and then email the conference organizer who picked you for that talk. Ask them to call the person picking speakers for the event you want to speak at, and vouch for you. * Connect with all everyone who spoke at the event last year, and ask them what they feel the decisive factor was that led them to be selected. Build a mutually beneficial support relationship with them and if it ever gets to the point where you two trust each other as peers, ask if they will recommend you* to the conference organizer.

Sara’s upshot on getting speaking gigsGetting picked for speaking engagements is a little bit like trying to get signed by a record label.

?Very few will be tough enough to persist and make it, but the ones who do will reap bountiful rewards.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

-Sara G

Sara’s upshotAlright that’s all for now. I hope this blog about how to get more speaking engagements was helpful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

The post How to get speaking engagements appeared first on Sara Grillo.

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Why don’t clients listen? Make them hang on every word you say by following these steps.

Clients can be so stubborn!From a subscriber: “I have this one stubborn client who never does anything I say. I’m ready to throw in the towel.”

I have four children under 10 years old (= chaos, btw). I find myself saying things like this:

“If all four of you jump on Daddy’s back at the same time like that, he is going to wind up in the emergency room.”

But nobody ever listens.

One day I blurted out:

“You can all have a turn, but only one of you can jump on Daddy’s back at a time.”

Here’s why it worked.

When you want to persuade someone to do something, show them the positive opposite of what they are doing.

Take these actions TODAY

Instead of arguing or throwing confusion at them, help the person visualize a more positive scenario that is the result of behaving differently.

Examples of the “positive opposite”:

They say: “I’m not sure when I can meet about doing that financial plan. Maybe next month.”

You say: “I only suggest creating a financial plan when I see an action that needs to happen soon. Let’s meet next week and avoid the risk of committing an oversight that may not be possible to fix.”

Or…

They say: “I have $2MM, but I’d like to start by giving you $50k.”

You say: “We only work with your entire portfolio because it is the only way we can manage your wealth properly and deliver the maximum possible value of our services.”

Or…

They say: “Why didn’t I get 25% return this year? I could have invested in the stocks Cramer mentioned on his show and done better than you did for me.”

You say: “I would only be comfortable with you getting double digit returns if you had a risk tolerance that equated to a standard deviation of 10% or higher.”

Sara’s upshot

Show clients the positive opposite using the word “only” because it:

Avoids having them feel judged;
Displays thoughtfulness;
Implies exclusivity;
Creates urgency;
Shows that you are focused on them – you are observant of them and have selected them because they fit the “only;” and
Inspires action by demonstrating cause and effect.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ya!

Sara’s upshotAlright that’s all for now. I hope this blog about how to make clients listen was helpful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

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In this blog I provide a quick take on whether or not it makes sense to try to get a job at a big investment firm after you graduate from college, or if it’s better to work at a smaller firm.

Working at a big investment firm – what to considerThere are certain advantages to working at a big firm right after college.

CredibilityIt will probably provide you with a more reputable name on your resume, and that’s a great asset in terms of providing credibility right away. Smaller firms generally don’t seem as reputable – it’s a bias in our thinking, but it’s how the world works.

TrainingThe other thing is that there may be more training resources. I remember I used to get free training on technology and many other aspects of financial services because I worked for JPMorgan right out of school. It was great; I was so voracious for knowledge at that point in my career, and they were very forthcoming with it.

NetworkingAlso, big firms do tend to have more opportunity in terms of networking in-house. There was a huge cafeteria and I used to eat lunch frequently with people that I met from other areas of the bank. It’s not to say that working at a small investment firm would preclude you from doing that, but there may not be as many people to meet that easily. You’d have to make a conscious effort to meet people at conference and through venues outside of the job.

Role structureIt varies, but many times the bigger firms have more structure to the role. It’s great, when you are right out of college, to be given a set of responsibilities that you can learn and master, and then move on to the next skill. At a smaller firm, your role may not be as well-defined, and it may make it harder to learn in a systematic way. As you get older, you may appreciate the freedom that a more fluid job role provides, but when you are looking to acquire skills, a more formulaic and rigid role may be better.

A small firm allows you to jump in with both feet and get exposure to a wide range of responsibilities. You can probably get a better vision of the overall business and you probably will be closer to client contact at a smaller firm. You also may have more training directly from upper management as smaller firms tend to be not as bureaucratic and hierarchical.

There you go – was that helpful?

Are you looking for a portfolio management or equity research job?I have been a CFA® charterholder for a while and I have several resources that can help people who want to crack into portfolio management or equity research or who have done so and have questions.

First…

If you want my help on a one-on-one basis, let’s set up some time for a consultation!

CONTACT ME

If you haven’t read the Interview Kit yet, check it out below. I’m also available for consulting on a hourly basis if you need additional support.

You could also sign up for my equity research newsletter.

READ IT

It’s not a long e-book, but there’s alot you can learn and it’s based on my real experiences back when I worked in equity analysis at Lehman etc..

This kit will teach you:

What to do before the interview – what information to gather, what research you should be doing, and what speaking points to prepare
How to rebut back when you get stuck in an interview
Why the people matter and how to increase your chances of success with the decision makers
How to display maximum value as a candidate by how you respond to their questions
What your social media should look like while you are interviewing
How to ask the right questions during an interview
What to do if the interview doesn’t go the way you want it to
How to open an interview correctly
Interview closing techniques – how to get control and operate from a position of strength throughout the interview and especially at the end when it counts
What to do after the interview to increase your chances of success

READ IT

Thanks for reading!

-Sara

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One of the biggest fears that people have, when they are looking for a financial advisor, is this: “Is it truly impossible for an advisor to say wire themselves a few million dollars from a client’s account?” I’m going to answer that question in this blog about financial advisors stealing money and how to protect yourself.

But before we get into it…

Look, there are alot of schmucks out there hawking crap products disguised as financial advice.

Don’t be fooled!

I’m not a lawyer – so please don’t interpret anything I say here as legal advice. Do your own diligence when you are seeking financial advice. But here are some resources you may want to grab before you read the blog.

Please subscribe to my newsletter to receive updates that raise awareness of consumer financial issues. It will teach you how to avoid shenanigans, crap products, and other scummy practices that are unfortunately common in financial advice.
I wrote a bunch of consumer advocacy blogs here to protect people from all the BS.
I was recently featured in a MarketWatch article about how to find a good financial advisor. Read it here.

And now let’s get on with it!

How can I stop a financial advisor from stealing my money?#1 Understand the terms in the Investment Advisory Agreement

Check out FINRA’s explanation of discretionary authority.

When you first hire a financial advisor, in the Investment Advisory Agreement, as well as the advisor’s ADV, it will outline how the advisor works with clients. Some advisors want full discretionary authority which allows them way more liberties than limited discretionary authority. Another option is “non-discretionary authority” whereby you have final say on everything, all trades and transactions. Learn what all these terms mean.

Ask your lawyer if you need to, but make this decision wisely. It affects how much control and freedom they have with your money and the level to which they can do things without your consent. Definitions on the internet are one thing, and what it actually says in the agreement is another.

If you are worried about a financial advisor stealing your money, consider spelling out any restrictions in your agreement with them. You could say something like, I don’t want you being able to enact any wire transfers or to transfer any money out, and the custodian will enforce this restriction. You could say something like that and see if they go for it.

Here’s how it usually goes in terms of advisors moving money between accounts. Clients, as a matter of course, normally have to authorize connections between their own accounts for their advisors to move money.

The advisor can not authorize a client’s account to be linked to another account. The client must make this designation.
An advisor can not redirect funds from a client’s account to an account that the client did not authorize funds to be directed to.
The custodian, who holds the client’s accounts, notifies the client when any transfers of money happen.

You should always pick an advisor who has a third-party custodian. Most advisors work with well-known custodians such as Charles Schwab, Fidelity, or Altruist. If the advisor “self-custodies” and does not use a third-party custodian, it may open up the opportunity for shenanigans to occur. The latter is not the preferred scenario.

#2 Consider Advice-Only Planning

The other thing you could do would be to hire an advisor to give you advice but not manage the portfolio. They produce a set of recommendations and email them to you, but they never take action – you do.

There are many advisors who work with clients this way. It is called advice-only planning.

As a side note, please understand that nothing in this blog is an endorsement of any particular company. Please conduct your own due diligence and come to your own decision. Also, I am under no obligation to update any financial advisor lists, and the conditions of service offered by these firms may change over time without being reflected here. I have no formalized business relationship with any of the firms listed on this low fee financial advisor list.

#3 Find a good, honest financial advisor

Get a good, honest financial advisor and avoid the grifters. Know how to read an advisor’s ADV and view their history of any past shenanigans. A friend of ours, WE family offices, wrote a paper on how to tell one financial advisor from the next. We hope you’ll read it and learn how to cut through the clutter!

Also, here are some tips about how to check out a financial advisor’s Form ADV – which you should do! You need to understand an advisor’s business model and regulatory history to avoid doing business with a scoundrel.

Some general tips for finding a financial advisor you can trust:

Clear, transparent pricing that you can understand
Clean regulatory history – no history of disclosures. Check their ADV (as we explain in video above)
Minimal use of complex, high fee products such as direct indexing, ESG funds, etc.
Asks insightful questions that indicate a genuine care for you and regard for your needs instead of sales pitching
Is obligated to act in your best interests 100% of the time – not just sometimes
Can clearly describe a thorough process for servicing you that does not solely involve products
Provides an overall plan for your entire financial life, not just your money
Thinks long term strategically and short term tactically
States fees and services clearly on website and other marketing materials where needed
Responsive to your questions / does not refuse to answer any of your questions for any reason
Demonstrates fairness, logic, transparency, clarity, and advocacy for the consumer in their demeanor
Does not make promissory statements that seem too good to be true or groundless
Does not brag about placement on top advisor lists (which are all BS) or other accolades

You can potentially find high quality advisors through resources such as the following:

NAPFA

Institute for the Fiduciary Standard

Flat fee advisor list

Advice only advisor list

Hourly planner list

Again, do your own research as nothing in these lists is a recommendation or endorsement of any one advisor.

#4 Understand the “make whole” language

Here is the Charles Schwab security guarantee, just as an example. I am assuming most advisor firms had something similar. I believe it wouldn’t cover what happens if an advisor wires money to themselves, because the advisor would be an authorized party on the account. But like I said, I’m not a lawyer.

Whatever firm you go with, review all their “make whole” language and find out – and ask a lawyer if you need guidance on deciphering all this.

Protect yourself from the financial services industryThere are alot of scumbag financial advisors out there. Let me leave you with these final resources to help you find an honest financial advisor who won’t steal your money:

1

If you have any questions as you search for a financial advisors, send me a note. I am sick of consumers getting a raw deal and would be happy to hear your questions.

2

Be safe!

-Sara G

Disclosures

The post How can I be sure my financial advisor isn’t going to steal my money? appeared first on Sara Grillo.

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Finding someone to take over your practice is a huge challenge across the entire industry. Don’t give up! This blog provides practical tips for financial advisor succession planning.

It’s a huge problemFrom a subscriber: “I am in my mid 60s and have no immediate plans to retire. How do I best answer the question if prospects (or clients) ask about my plans to retire? How best to give them reassurance that our team has a deep bench?”

I’m not even going to try to beat around the bush. This is the blunt truth about financial advisor succession planning (or lack thereof): until you have a living, breathing person that you can present as your successor, there is no true assurance that they’ll be taken care of.

Period.

You can talk all about “colleagues” or “the firm’s team” or “resources.” It’ll sound like the tooth fairy.

Real talk.

They won’t feel completely confident about the continuity of your practice until you can introduce them to a living, breathing person and say: “Here’s my associate, Raymond. He’ll be taking over my practice whenever I retire, which I have no concrete plans to do anytime soon.”

Take these actions TODAYSo how do you get a successor and/or succession plan if you’re a financial advisor? Here’s what’s worked for other advisors I know.

Volunteer as a mentor with the local FPA, CFP society, CFA society, etc.
Try to meet junior associates or up-and-coming talent who work at big RIA firms who have a branch in your closest metropolitan area. Alot of them are unhappy, believe me. You can find them on LinkedIn.
Look for career changers who have client service and sales experience in a different industry. They can learn the financial skills. Look for good character and work ethic.
At the very least, find a colleague that you can point to as your “death put” who will step in if you suddenly become unavailable.
Ask the community relations person at CFP Board, NAPFA, etc., if they know anyone in your area who is looking to acquire/build into a practice.

Yeah?

Yaaaaah.

BOOM – there you go, today’s marketing tip for ‘ya!

Sara’s upshot on how financial advisors can find a successorAlright that’s all for now. I hope this blog about financial advisor succession planning was helpful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

The post How does a financial advisor find a successor? appeared first on Sara Grillo.

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Yes, there is life after AUM fees! In this podcast I interview Sarah Charles, an hourly financial planner who used to work under the AUM fee model. She talks about why she made the jump and what life is like now as an hourly financial planner.

I am an irreverent and fun marketing consultant for financial advisors.The AUM fee model has its drawbacks when it comes to financial planningLook, let’s face it.

AUM fees are probably not the most logical way to charge when the focus on your services is financial planning.

WHAT how dare you, Sara?

Well logically it just doesn’t make sense. AUM is correlated with someone’s assets and that may or may not have anything to do with the person’s financial goals and the depths you need to go to create planning for them.

I feel like I am on the quest for the Holy Grail trying to talk to people about hourly planning.

Everybody gets an attitude problem when I talk to them about hourly planning. People give crazy responses and launch into a whole Shakespearean sonnet about how it doesn’t as well as the AUM fee model. Well, guess what. Sarah Charles is an hourly financial planner and she loves operating this way. So let’s talk about how she makes it work for her.

In this podcast you’ll learn:

How she charges as an hourly planner
What her service offering looks like
How she started her practice
The benefits of hourly planning vs. AUM fee models
What the challenges are if you are not charging AUM fees

Enjoy the show!

Sara’s upshotAre you ready to go leave the AUM fee model for hourly, flat, or advice only planning?

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. If you are a financial advisor reading this, I hope you’ll at least join my weekly newsletter about financial advisor lead generation.

See you in the next one!

-Sara G

Disclosures

Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor. Opinions stated by third parties may not be correct and do not reflect the views of Grillo Investment Management, LLC. Grillo Investment Management, LLC may not be held accountable for any statements made by third parties.

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Question from a subscriber: “I’d like to be funny but being a financial advisor is a serious job. I’m scared to lose credibility.” Agree. I wouldn’t want my heart surgeon trying to make me crack up, either. But there are certain stages in the process of earning a client’s trust where a leeeetle financial advisor humor can be a huge asset.

Where to use itTwo specific places – your website and your social media.

Let me show you.

Actions you can take TODAY

1

Say something funny on the home page of your website. It’s the part that gets the most attention and most are totally ho-hum.

Example: Boerum Hill Financial Advisors and their “financial planning for the yacht-less.”

Clever!

Now that’s a website I would remember.

Yeah?

Yaaaaaah.

2

Use humor on social media to stop the scroll

Check out Mando Sallavanti‘s posting on LinkedIn.

He gets their attention using a funny image, and then directs them to a posting with a serious educational lesson.

You can see the positive response – over 200 comments.

Sara’s upshotSprinkle some humor into your marketing in a few places – just a touch. It’ll go a long way in:

Presenting you as real,
Making you memorable, and in
Helping your reader breathe a sigh of relief that you aren’t going to bore them to death.

BOOM – and there’s today’s marketing tip for ‘ya!

Ready to evoke some financial advisor humor?Alright that’s all for now. I hope this blog about how to be funny as a financial advisor, without losing credibility, was helpful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

Sources

Mando Sallavanti III, CFP, CEPA. (March 29th, 2024). You can run but you can’t hide. Thumbnail with attached text. [Post] LinkedIn. https://www.linkedin.com/posts/sallavanti_you-can-run-but-you-cant-hide-yeah-you-activity-7179447206855233536-xpLI?utm_source=share&utm_medium=member_desktop

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Question from a member, “I have less than 500 followers on LinkedIn. Should I get 500 just so my profile page says “500+ followers?“ While it’s important to grow your network on LinkedIn, “growth for growth’s sake” doesn’t make any sense. I’d rather see you have 30 connections if they are on the same mission […]

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If you are frustrated by marketing failures, or feel like you are throwing away money on marketing that doesn’t work, here are the reasons why.

Stop throwing money away!Question from a subscriber: “I spent $1k on marketing and got zero leads. Should I stop marketing?”

Nah.

You should not necessarily stop marketing, but you should press the “pause” button until you figure out why it failed.

Reasons why marketing fails – 3 possible examplesHere are three possible reasons, ranking from most to least likely:

#1 Did not listen to the buyer

Lack of relevance to the buyer is the #1 reason you fail at marketing. If you guessed what your prospect wanted to hear about, you did not listen well enough.

Tactics for increasing relevance are described in this blog.

#2 Too unfocused

The scope of work was probably too broad.

For the reason described in #1, you’re way better off forgetting about trying to be all things to everyone. But usually marketing people won’t tell you that (because they want to sell you more “stuff.)

#3 Failure to articulate how you can help, in a meaningful way

Most people in the world do not understand what a financial plan is. They think it is just a boring printout or a set of graphs.

Make a video, send them a survey, send them a PDF sample plan – make it come to life. When it is time to present your solution, make it so clear that there is no way they could possibly fail to grasp it.

Yeah?

Yaaaaaah.

BOOM – and there’s today’s marketing tip for ‘ya!

Did this help?Alright that’s all for now. I hope this blog about marketing failures was helpful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

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Use your out-of-office response as a way to make people laugh; it conveys positive energy.

Why does your out-of-office message matter?Every touch you have with a client or prospect is branding. It does not matter how small an element it is. Your brand should convey energy and better if it is positive energy.

Why?

Positive people are rare. Try being so positive in your business, that people think you are on crack.

Take this action TODAYDon’t just state the obvious, “I’m out of the office today, contact Carolyn in my absence.”

Soooo boring.

Try this:

“I’m unable to be reached today as I’m busy reconquering the Austro-Hungarian empire. I’ll be back tomorrow but if you need help in the meantime, reach out to Carolyn and she’ll text me while I’m on the battlefield.”

Give ’em a wow, wow, super wow.

Yeah?

Yaaaaaah.

Be funny every chance you get!Well-timed, intelligent humor is a killer marketing strategy. Most people are on the verge of a nervous breakdown and so when you make them laugh it’s memorable and they enjoy it. Put it forth every single chance you get – even the little ways matter.

BOOM – and there’s today’s marketing tip for ‘ya!

Did this help?Alright that’s all for now. I hope this out of office message example was useful.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

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Here’s how to handle a financial planning fee objection. Don’t get talked down – follow these steps!

Financial planning fees can be hard to justifyQuestion from a subscriber: “Prospects all say my financial planning fee is too high, and try to negotiate down.”

The issue here is most likely they have no idea what they are actually getting for the financial planning fee they are about to pay.

So you have to think out loud for them.

I can not be any clearer when I draw this distinction:

Not sell, but think, out loud.

Actions to take TODAYSay this:

“So it’s going to cost you $5k a year. That means you have to get $5k of value out of me for it to be worth it. Right?”

Heads nodding, they agree.

“I can tell you that last year, one of my clients was unsure of the estate tax treatment of her IRA account. If she hadn’t had us, it would have cost her way more than $5K over her lifetime.”

Heads are still nodding.

“Another client lacked knowledge of what counts as income for the IRMAA. If he hadn’t had us, the mistake would have cost him about $2k that year in IRMAA surcharges.”

Heads still nodding.

“Now I don’t know all your specifics, but you mentioned there is an IRA basis transfer. Just helping you with the Form 8606 alone would amount to more than $1k of value.”

“?And, from our talk I got the feeling that you’ll need clarity on what should be included in your living trust, specifically your cremation expense, which is another 2-3 hours. There’s $3k right there.”

“So we’re getting close to the $5k a year fee, no?“

Seeee?

Do the calculation for them.

To make this work, you have to do a good job at getting information from them during the meeting about what their specific problems are – not just “goals.”

When you think through it with them, you show them:

That you thought about it for them, just like they would do.
You are willing to confront if the deal actually makes sense for them financially.
You’ve thought about it deeper than they ever could.

Are you ready to go close a ton of sales?Alright that’s all for now.

Did you sign up for my daily newsletter?

Or if you want more…

You could also consider this LinkedIn training program which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. See you in the next one!

-Sara G

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The IRMAA, or Medicare income-related monthly adjustment amount, is a bit of a missed opportunity for many financial advisors. We’ve got special guests Dan McGrath and Paul Morrison of IRMAA Certified Planner with us today to talk about what you may be overlooking about IRMAA planning. For those of you who are new to my …

What everyone is missing about IRMAA planning [dramatic reveal] Read More »

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I created this list of financial advisors for small accounts (less than $300,000 in assets) because there are alot of schmucks out there hawking crap products to people with portfolio of this size, and I don’t think it’s fair. Before we get into it, here are some resources that may help you. Please subscribe to my …

List of Financial Advisors for small accounts Read More »

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It seems like there ain’t nothing more tread upon and abused than the fiduciary standard. So we’ve got a lively crew here today to debate, does it really matter if someone is a fiduciary financial advisor, or not? Is it, “meh, who cares”, or does it make a true difference? Let’s debate it! For those …

Does being a fiduciary financial advisor REALLY matter – or is it “meh?” Read More »

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Pull up your LinkedIn page for a minute. Do you see the entry for your current company? What about your past ones? Look at the logo, specifically. If it is grayed out, that means you have not set up your company page – and you should. The company page is a LinkedIn url that displays …

Vid 98: Your LinkedIn company page Read More »

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Financial advisors are skeptical that you can actually get leads from social media. Well today I have a planner who has blown up his lead pipeline, in less than nine months. Today we’ll be talking to Thomas Kopelman, co-founder of AllStreet Wealth and you want to pay attention here because he makes getting leads from …

This financial advisor makes getting leads from social media look like a piece of cake! Read More »

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Not the premium – but the actual costs of the insurance policy. That’s what people think they grasp. When you pull back the curtain you see that insurance costs are often excessive – but the illustration will never tell you that! I’ve got some guests here who are ripping the veneer off the facade. Listen …

How to CRACK the secret costs in an insurance illustration Read More »

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Indexed universal life (IUL) is often sold using smoke-and-mirrors sales shams, but in this podcast we’ll expose the truth! Listen to this if you are a financial advisors or consumer who wants to see through the crap and make better decisions about whether IUL is good for you (or your client) or NOT.

I am an irreverent and fun marketing consultant for financial advisors. IUL is NOT what it’s (usually) cracked up to be!A few months ago I posted to LinkedIn something like, “How come IUL is just as complex as a derivative with floors, caps, call options, and participation rates, yet it’s not regulated by FINRA”. Like many of my posts it sparked quite an outrage. Indexed Universal Life (IUL) insurance is all too commonly sold by smoke-and-mirrors. If you see the IUL grifters on TikTok claiming an IUL policy is better than a 401k, or that is has upside potential with downside protection, a “can’t lost money asset”, or “privatized banking” you’ll know why the outrage is well deserved.

Today I have one of the insurance “good guys”, one of the more knowledgeable people in the field, Bobby Samuelson, to shed some light on IUL. Bobby is the President of Life Innovators and the Executive Editor of The Life Product Review.

So much to dig into here, where do we begin?

Let’s start by defining what Universal Life Insurance (not Indexed Universal Life – but plain old Universal Life Insurance) is.

The policyholder pays a premium. These premiums are flexible – you can pay whatever you want between a minimum and maximum level.
Policy charges come out every month.
Whatever is left over earns an interest credit.
That’s your liquid cash value available inside the product
Every month this repeats

A life insurance illustration, which is what insurance agents use to sell the product, is just a mathematical depiction of this monthly cycle repeating over and over.

Okay…but what is Indexed Universal Life insurance?Now…indexed universal life insurance is where a carrier takes a universal life product (as described above) and instead of paying a crediting rate to the policyholder (as they would in a fixed universal life policy), they take those earnings out of their general account and go out and buy call options.

Quick tutorial:

A call option gives you the option, but not the obligation, to buy an asset at a particular price specified in advance, within a certain time period. If the underlying asset that increased in price, the call option holder would likely exercise the call and realize a profit of the difference between the strike price you paid for the asset and the market value of the asset.

Now, back to our regularly scheduled programming:

In the Indexed Universal Life case described above, the call option gives exposure to a general index. The insurance company gives those index-linked credits to the policyholder, instead of the crediting rate if it were a universal life policy.

Wait!

What’s this now – call options??

There was a great article in ThinkAdvisor in 2015 that provided an example of how the options written on IUL work. Here’s my take on it, based off the progression described in the article.

How do call options work in a IUL policy?IUL call options tutorial:

Suppose you have 100k cash value in your account on January 1st.
The insurance company makes 5% on their general account. So, they invest $95,238 in their general account, which will give them the 100k they need to give back to you in a year (they earn 5% on the $95,238, $95,2381.05 = $99,999). Let’s assume simple interest crediting, not monthly compounding, for the sake of argument.
So what do they do with the other ($100,000 – $95,238), or $4,762?
The invest it in call options to see if they can catch some market upside. See, because if the market goes up, then the insurance company is going to have to give you more than the $100,000 you have in there. There may be a cap, let’s say 10%, and a floor, let’s say 0%. If the market goes down, they don’t care – that’s on you. But if the market goes up, they are the ones liable to pay you.
So, they buy an “at the money” call option, that way if the market goes up, they will exercise it and recognize the difference between the strike price and the price of the market index. They will profit the difference between the strike price and the price of the market index, minus the cost of the option; and then credit that gain to the policy.
If the market goes down, they let the call expire worthless and all they have lost is the money they spent to buy the option.
They also sell an out of the money call and pocket the premium, so they offset some of the cost of the call option they just bought. However, consider that out of the money option are considerably less expensive than in the money ones. So they aren’t quite breaking even in terms of option cost; the closer to the money options they are buying are more expensive than the ones they are selling.
Anyways, the net cost of the two options (the one you bought and the one you sold), net of their premium costs, provides you with an amount that you divide into the $5,000 to determine how many sets of options, or spreads, you can buy. Let’s say the net cost is $20. You can buy 250 spreads.
Now, let’s say the index that you bought the call option on, the S&P 500 index, did 20% that year. Well now the insurance company owes the policyholder $100,000(1.20), or $120,000, which is $20,000 of earnings credited from the index exposure.
Let’s say the S&P Index that they wrote the option on stood at $100 on January 1st. Now it’s at $120. The insurance company makes $20 for each spread, assuming the second call did not get exercised (the out of the money call). They bough 250 spreads, so they make $5,000 from their option position, falling short of the amount needed by $15,000.

-Source: Sara’s Grillo’s interpretation of knowledge imparted by ThinkAdvisor 2015 article, “How (and why) indexed universal life really works.”

All of this is to show that IUL isn’t a simple instrument. Agents and consumers have to understand the complexities of the derivates market (see tutorial above) to really grasp what is going on.

In addition to the call options, there is a cap and a floor set by the carrier for the crediting rate in an IUL policy. And THAT is where it starts to get even weirder and insurance agents go off the deep end.

Can you lose money in an IUL? Is it risky?The fact that IUL provides exposures to an index, rather than a crediting rate, allows insurance agents to lose their minds.

They go crazy and paint it with BS statements like:

Tax-free guaranteed income
Can’t lose money asset
Upside potential with downside protection
Privatized banking
Be your own bank

Remember that there is a floor to the crediting rate, but that doesn’t mean you can’t lose money. Remember the insurance policy has costs. If the rate credited does not exceed the policy costs, you will lose money. Or if the market index has a negative year, the call option is not exercised, and the policy just earns whatever minimum floor rate the insurance company specifies, the policy still loses money due to policy costs. You don’t earn a negative crediting rate, because of the floor, but the policy overall still loses money.

That’s a huge risk, right?

Then how come it’s sold as “can’t lose money asset” and other BS claims?

Here’s the truth about IUL.

It’s not structurally a dangerous product; insurance agents sell it irresponsibly.

-Bobby Samuelson

How so?

The illustrations are where it gets WACKO.

IUL illustrations and false performance expectations: a grande problemoIUL is marketed with very high illustrated rates and high expected performance rates, and that is where things get dangerous. People will take out loans again their house or take money out of 401(k) with the expectation that the performance will be there, and many times it is not. We have seen scenarios where clients go into it expecting to earn 6-8% and the policy earns 3-4%.

As with any cash value life insurance product, there is the potential for the policy to lapse if the policyholder can not pay the premiums out of pocket. Or the cash value could decline from policy charges increasing by more than the policy earned that year, or market could perform badly, making it so the policyholder can’t pay the premium from cash value.

Here’s why that stinks.

Policy lapse results in phantom income tax on the entire amount of the capital gain in the policy, plus there is the disappointment of having an asset you counted on (maybe to retire) go to zero.

The issues lie in how IUL policies are shown to clients, in the illustrations. Aggressive illustrations depict aggressive performance expectations, and then the policy doesn’t perform well enough to overcome the policy charges.

Add in some leverage and POOF it’s a powder keg waiting to explode!It gets even worse in the case of using leverage. Remember that policyholders can take a:

Fixed rate policy loan
Variable rate, floats with Moody’s Composite Bond Index
Carrier declares the rate

In most IULs, the illustration shows the client taking a policy loan. This effectively collateralizes the cash value of the policy. The illustration assumes that if you take a loan out, and the carrier charges you let’s say 5% to take that loan out, they show that the illustrated performance on that loan you have taken out is actually 6-7%. It’s shown to be higher than the 5% loan.

Here’s the kicker: you have to beat the loan rate in order to keep it working. The illustration looks like it is always going to outperform the loan.

If you have a bad performance year and you have a policy loan, (and Bobby has seen situations where 95% of the value of the policy has been loaned out), the loan value goes higher than the account value. The policy can lapse leaving the client with a phantom income tax bill.

But the grifters on TikTok are illustrating scenarios like this and it’s super scary like a haunted house on Halloween.

How to help clients know if an IUL policy is for them or notIf your clients are considering IUL, follow this process to help them determine if Indexed Universal Life is for them or not.

1 Focus on the product not the illustration

Help them understand what IUL is. Most people don’t really understand how the policy works because, as mentioned above, agents sell it as “magic.” You should also help them understand the benefits, not the illustrated performance, but the benefits of owning the product.

A tax advantaged asset
Death benefit
Tax planning needs
Cash value growth
Cash value liquidity benefits

2 Use a realistic (low) crediting rate in the illustration

The assumed interest rate in an illustration is what is driving the long term performance. Hone in on that assumption. There is a rate called the Maximum AG 49 rate. It’s not what the carrier is actually crediting; it’s just a way to convert the options strategy into an illustrated rate.

AG49 is a big problem when it comes to IUL marketing. So let’s pause here and talk about it.

What is AG49?in 2015, the NAIC created AG49 (Actuarial Guideline 49) which allowed for the creation of a Benchmark Index Account (BIA).

According to Premier Brokerage Services:

“The BIA is a one-year point-to-point S&P 500 index account with an annual return cap, a 100% participation rate, and a 0% annual floor, using the S&P 500 price level only (no dividends on the underlying stocks). AG49 then defines a maximum illustrated annual index credited rate based upon an average 25-year lookback calculation.”

-Premier Brokerage Services

Why is AG49 a problem for insurance illustrations?Remember that the carrier sets a cap, or the maximum credit you can earn.

Let’s supposed for a minute the cap is 10%. The cap is likely to vary over the time period of the forecast, then how do you illustrate it?
The fair market value of the cap is what the carrier paid the investment bank to buy the 10% cap. It would be logical to look at the fair market value of what the carrier spends for the cap. However, the industry needs a way to make IUL look better than traditional UL.
So they apply the 10% cap to historical equity data. They then project out the performance for the next 50 years.

In other words, the illustrated rates are subjective. There is no long term history for these products. There is no actual backtest.

KEY POINT For advisors:

When you look at the illustration and you see an illustrated rate that is 5, 6, 7% based on the maximum AG 49 rate, which is the cap applied to the historical data, as an advisor you should ask for a much lower number, such as 2-4%.

This is such a key point, let me repeat it again:

When you look at the illustration and you see an illustrated rate that is 5, 6, 7% based on the maximum AG 49 rate, which is the cap applied to the historical data, as an advisor you should ask for a much lower number, such as 2-4%.

-Undisclosed

3 Try to ignore the illustration

The illustrations are a distraction. In general, the less you can rely on the illustration the better it will be (for all the reasons mentioned above).

Recommended reading for insurance agentsWhoaaaaa so that was alot. This stuff can get very technical and that is where the opacity/confusion comes in and makes the marketing very deceptive to the average person who isn’t familiar with all this stuff.

Here are some reading materials that Bobby recommends, whether you want to learn more about insurance, selling insurance, or specifically about Indexed Universal Life.

The Story of Life Insurance by Burton Hendrick

The Life Product Review – Bobby Samuelson

Society of Actuaries

LIFE180 – Chris Kirkpatrick

The IUL Experiment – Andy Panko

Sara’s upshotDid we get you jacked up over exposing the truth about Indexed Universal Life?

If yes…

Join the Transparency Advisor Movement.

The Transparent Advisor Movement’s mission is to promote ideals of clarity, modesty, integrity, dignity, and client advocacy in all aspects of financial advice, with a special focus on Advice Only, Flat Fee, and Hourly service models. There is a special emphasis on clear disclosure of services and their related fees.

The Transparency Movement is the future of the industry – we welcome anyone who believes in our values to join us.

Join our next Transparent Advisor virtual meetup.

These meetups are free and the goal is to learn from each other about how to grow and manage a transparent practice for the benefit of clients.

Even if you can not make the meetup, or even attend in its entirety, please register for the replay and to be notified of the next one.

For marketing tips in the transparency age…

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Thanks for reading. I hope you’ll at least join my weekly newsletter about financial advisor lead generation.

See you in the next one!

-Sara G

About Bobby SamuelsonBobby co-founded Life Innovators in 2018 and has been President and CEO since its inception. Bobby was formerly Senior Vice President and Head of Life Insurance and Annuity Product Development and Pricing at Brighthouse Financial and Vice President of Life Product Development at MetLife. Prior to joining MetLife in 2013, Bobby was a consultant to life insurers, distributors and high-end agents. He is the third generation of his family to work in life insurance. He is also the Executive Editor of The Life Product Review since 2012. Bobby is a regular keynote speaker at corporate and industry events.

Transcript0:00:00.6 SARA GRILLO: As ago, I post it to LinkedIn, something like, How come I… L is just as complex as a derivative with floors caps, call options and Participation Rates, yet it’s not regulated by FINRA, like many of my post, it sparked quite an outrage, and if you see some of these drifters on tiktok claiming that IU is better than a 401, that has upside potential. Downside protection, a can’t lose money, asset privatized banking, infinite banking, all of the crap that people are saying about it, you know why the outrage is well-deserved, but the good news is that we’re gonna bring some transparency to it. And today, I have one of the good insurance guys, one of the most knowledgeable people in the field, Bobby Samuelson, here with me. To shed some light on IL body is the President of Life innovators and the executive editor of the Life Product Review. Hey, Bobby, thanks for being here.

0:00:58.6 BOBBY SAMUELSON: Thanks for having me on. I’m excited to talk about index tools should be good, and this topic needs transparency, so I’m sure I have a great conversation about it.

0:01:07.6 SARA GRILLO: Awesome, so be… Let’s just start with a real quick definition, what is IUL?

0:01:12.8 BOBBY SAMUELSON: Yeah, so let’s actually take one step back and say What is universal life, because I think a lot of times we kind of get wrapped up in the different variations of universal life, and I think it’s good to start at the beginning and say, Okay, what actually is this product, and then then I’ll make the different variations make more sense, so universal it is a very simple product, I think if you’re a financial advisor and you’ve seen it out in the marketplace, it probably doesn’t look simple, but the actual math is very simple, and the way it works is you put a premium on, and the premiums are totally flexible, client can pay and really whatever they wanna pay down to some sort of a minimum or all the way up to the tax maximums, policy charges come out every month, whatever is left over, earns an interest credit, and then that creates your cash value, and every month the cycle repeats, you can pay premiums or not, policy charges are still coming out, whatever’s love over earns interest, and then you have this liquid cash value available inside the product and all a illustration is the…

0:02:05.5 BOBBY SAMUELSON: Which is what the financial advisors typically see is just a forward projection of this monthly cycle recurring over and over and over, over again. So the way the universal life policies are typically differentiated is by how that interest is being credited on the cash value, and so you have sort of traditional fixed Universal Life, which basically the carrier declares a crediting rate on that policy, then you have variable universal life, where you take the money and you actually invest it into insurance, dedicated mutual funds, and you get whatever investment returns you get, policy charges are still deducted, but the returns are kinda controlled by the funds themselves… The investments that you’re making, and then the last piece, which is the one we’re talking about today, is index, where the carrier effectively takes the universal life product, fixed you out, and instead of paying a crediting rate, they take that earnings, those earnings off their general account. They go out and they buy call options, and the call options provide index linked exposure to a one

0:03:02.5 SARA GRILLO: Second… I’m sorry, let’s just go back over what a call option is just because I… I, I’m so sorry for this baby. Okay, so let’s go back to the part where you said, and I… Well, is like a fixed UL and then let’s go back. Yeah.

0:03:17.5 BOBBY SAMUELSON: Well, so I’m gonna explain it later, and that was where I was gonna go, so I was gonna say, you may not know what a call option is, here’s kind of what it does, here’s the index credit, that’s how it does it. But yeah, I can go back to that. No, that’s no problem.

0:03:28.1 SARA GRILLO: Okay, you start with that point.

0:03:31.0 BOBBY SAMUELSON: Yeah, yeah, so where the fixed universal life product, you get a crediting rate declared by the insurance company and they’re supporting that with their general account assets with a variable universal life policy, the carrier takes the money, they invest it in the carrier with a variable universal life policy, you invest directly into funds, mutual funds, insurance, dedicated mutual funds that are held in a separate account, and so that’s the investment eternity is whatever it is, with index will, the carrier basically says, Alright, instead of paying the crediting rate to the policy holder, like we do in a fixed universal life policy, we’re actually gonna take that crediting rate, we’re gonna go out and we’re gonna buy call options, and all the call option is is expose exposure to the performance of an external index, and so by buying these call options, we now can give these index linked credits to the policy holder instead of the crediting rate in the universal life policy. So one of the key things to know right off of that is that universal life in IL are essentially the same product, the only difference is that with Universal Life, the carrier gives you the crediting rate, an index universal life, the carrier takes the credit in rate, goes to an investment bank, buys call options, and then that gives the client index linked exposure, so the fundamental math of fundamental mechanics, all the underlying financials are identical except for that last step where the carrier takes the credit rate, gives it to the Investment Bank, buys options and the options provide the index linked exposure, now, that’s also the part where it gets really complicated because I think when you look at all the stories about all what this thing does, how it work mentioned a downside protection, upside potential equity-like returns better than a 401…

0:05:15.0 BOBBY SAMUELSON: Nobody would say all that about just a regular old universal life policy, but the only difference been universal life and index to is that Options piece, that very last step, and what that does is create this kind of illusion and this veneer that IL is something fundamentally different that it’s an equity product, that it does all these magical things, and the reality is, all it is is really just a universal life policy or carrier, again, it takes a credit rate instead of giving it to the policy holder, gives it to an investment bank to provide Index link exposure. And that’s it. So fundamentally, that’s what index I is now, there’s lots of different discussions about how it’s illustrated and how it’s used and how it’s marketed, but in terms of the mechanical structural construct of the product, that is what that product is…

0:06:02.1 SARA GRILLO: Why is it dangerous? From a market perspective.

0:06:09.4 BOBBY SAMUELSON: It isn’t structurally, it isn’t dangerous, it is just the same as a fixed life insurance policy.

0:06:17.6 SARA GRILLO: Okay, let’s just go over that actually, what is the danger with any investments insurance products and so value insurance product… What is the danger there?

0:06:29.2 BOBBY SAMUELSON: Yeah, the dangerous policy labs, and the power of a whole life policy is it is a guaranteed premium with a guaranteed death, but if they guaranteed cash as it can’t ever lap, so there is really kind of no danger in a typical whole life product in terms of policy labs with the universal life, because the premiums are flexible, you can have a policy labs, you can have a situation where the policy charges increase or the credits aren’t good enough, and the cash how starts to decline and you end up kind of undulating the policy, not getting what you thought you were to get that first.

0:06:59.0 SARA GRILLO: If you can’t pay the premiums yourself…

0:07:02.6 BOBBY SAMUELSON: Correct, yeah, then you don’t have enough cash to cover their policy charges, and again, that monthly cycle repeats every month, there’s always a charge to be paid, and if there’s not enough account by the policy lapses.

0:07:14.0 SARA GRILLO: When what you do in that case… Let’s say that that happens. Let’s say that the S and P has it, like last year I had a bad year, and it’s not crediting enough to the cash account, and I have these flexible premiums, but my premium had gone up because the class from insurance had gone up. And so the company raised the premium rate on me… Yeah. What do I do?

0:07:36.5 BOBBY SAMUELSON: They actually wouldn’t raise the premium, I think this is one of the misconceptions here, is they would say, Hey, would you would not as a policy holder necessarily know that you need to pay more premiums, you would need to go through an annual review process with the agent to have them tell you, Hey, you’ve got a problem because the carrier just says, Oh, you planned to pay X, Y, Z premium, that’s all we’re gonna bill you for, unless you tell us to Billy something different. And so to your point, last year when the market goes down, you get a 0% credit in an ill… Let’s say policy charges still come out, the cash is gonna decline that year, so you mentioned earlier that one of the marketing pitches for ALS, you can’t lose money. That is absolutely not the case. You are guaranteed to lose money every time the market goes to… Every time the market goes down, you get a 0% credit, policy charges still come out of the account value, they can value will decline, you will lose money that year, and the amount of money you lose is gonna be exactly equal to the amount of policy charges coming out of the contract.

0:08:32.7 SARA GRILLO: Or it could not even be, it might not even be when the market declines, but just if the market has a year where my crediting rate does not overcome the policy charges than you think

0:08:46.1 BOBBY SAMUELSON: You… That is correct. I say you’re guaranteed to lose money when you have a 0% because you know that it can’t overcome it, but to your point, there’s this grey area where you might actually get a flat year or a negative year in terms of cash, your performance. If the credit isn’t big enough, if it’s a 1% credit or a 2% credit and your policy charges are greater than that, so that kinda leads to the other risk, which is so that’s potential policy labs, but the question of sort of disappointment is a different question, so when you look at how whole life in a lot of ways, and I, especially our marketed, they’re marketed with very high illustrated rates, very high performance expectations. And that’s where things get dangerous. It’s not that policy lapse is the biggest risk, the problem is that clients go in and you and I have seen crazy stuff, people borrowing money against their house, taking money out of 401Ks to buy IL, under the idea that this long-term performance will be there for them, their worst case scenario is probably not a policy lapse because they’re over-funding the contracts, and the idea that the charges will need Upolu…

0:09:47.1 BOBBY SAMUELSON: It’s pretty remote. The problem for them is that they went into this deal thinking they were gonna hurt and ET 788%, and they actually end up earning 3 E45%, and that… Is that now their whole financial plans… Erectus Earl. Yeah, you have a short fall. And so this kinda leads to the real issue, which is the danger back to your question with IL is not a policy structure, the policy structure is sound, the policy structure works, the policy structure will work anyway you want it to, like a universal life policy would… The problem, if a danger is on the illustrations and the way that these things are being illustrated in the performance being shown to clients, that is where the issues are. And that’s, again, if you think about all the ways that these products are being marketed on talk and whatever else, it all relates back ultimately to this aggressive illustrated performance being shown to clients, which creates aggressive expectations of future performance that they may not get, and if they don’t get it to your point, they’ll have a shortfall, they won’t get what they thought they were gonna get if they’ve applied leverage, they won’t be the leverage, that’s what

0:10:51.7 SARA GRILLO: The tool… Can you just talk about that? ’cause I think that’s not well understood by finding…

0:10:55.9 BOBBY SAMUELSON: Yeah, so there’s really two types of leverage that people typically illustrate applying to these contracts, the simplest one is simply policy loans, and so in every… All out there, the primary illustration that you see is when the client takes a policy loan, they are effectively collateralized the cash pay, so think about taking out a home equity line on your house, it’s the same concept. With a home equity line to collateralized your house. And then the house, hopefully appreciates irrespective of the fact that it… As collateral against it, same deal with Anil, you’re collateralized your cash value, you’re taking that loan. And what the illustration assumes is that if you take a loan out and that carrier charges you, let’s say 5% to take that loan out, they show that the illustrated performance on that loan that you’ve taken out is actually sector 7%. It’s something higher than the 5% that you’ve taken out, and so you have this concept, again, to use the helo example, if you take a home equity line, Imagine forever taking home equity lines off of your house that works as long as the house appreciates faster than the interest rate on the helo increases, same problem, or saying the issue shows up in an L where you take the loans out, you apply leverage, ’cause now you’re borrowing money, you have to beat the loan rate in order to keep this working, and so the illustration looks like it’s gonna always outperform a loan, you can take money out forever, the policy equity grows even though you’re taking money out of it, it’s this magical phenomenon where if you look, for example, like take the 4% rule.

0:12:28.4 BOBBY SAMUELSON: If you apply the 4% rule, that logic of, Okay, I’ve got a million dollars, I can take 4% every year. If you look at that, look at Il illustrations through the lens of that, most live illustrations show eight to 12% withdrawal rates on a balance because of this arbitrage being illustrated in the contract, and it’s a ton of leverage. So back to your question, What happens if you get a bad year… Well, if you don’t have any policy loans and you get a bad year to your point, 00% credit policy charges come out your account by… You will get by a little bit, but if you have a policy loan, and I see a lot of situations where 95% of the value in the policy has been loaned out through income streams, you have one bad year and that policy lapses because the loan value goes higher than the account by you, so come, you get a policy lab, and at that moment, the client gets stuck with a phantom income tax bill for all of the gains in the contract that they have pulled out, and all they really need is just one, maybe two years of Zero Percent credits, and that’s the leverage I’m talking about is if it’s an unlevered contract, 0% the year, just causes your account late dip, but if You’ve levered up, you’ve taken all these policy loans, now you are incredibly sensitive to any variation in performance.

0:13:41.1 BOBBY SAMUELSON: And that will cause the policy to potentially laps, and again, you get stuck with the fan of income tax bill, so that’s the main type of leverage that I see on index to illustrations and all the tiktok stuff. All the used IL for retirement income, all uses this strategy, that’s the core of that strategy is this loan and this arbitrage in this long-term illustrated performance

0:14:01.0 SARA GRILLO: Is the long… Typically, fixed or variable.

0:14:04.5 BOBBY SAMUELSON: It depends. So they’re basically three types alone, you can take it, you can have a fixed rate, which is what I described, simplicity 5% rate, you can have a variable rate where the rate floats with the Moody’s composite Bond Index, and so that’ll move up and down a bit last year, we’ve seen obviously a huge increase in those rates being charged as interest rates have come up, and then the third way is that carriers can declare the rate that they charge on the loan, and so they don’t directly link it to the Moody’s composite. They don’t guarantee it at a certain rate, they just simply set the rate however they wanna set it, and they’ve gotta manage their own internal dynamics on what rate they wanna use, but they might declare a new loan rate every year, every six months or every two years, however they wanna do it. It just depends on the company. And by the way, there’s no right or wrong answer, all these loan structures have different times where you’d rather be in one versus the other, personally, I think the declared rate loans are actually the best way to manage a policy in the long run, but there are advantages and disadvantages to all the structures.

0:15:02.4 SARA GRILLO: Okay, Bobby. So let’s just suppose that I’m Mr. And Mrs. Financial advisor, and let’s just even suppose I’m a fee-only advisor just for the purpose of simplicity, I do not sell insurance, I don’t get compensated for insurance, I can accept commissions if someone needs term life, I refer them to the insurance agent down the street. So one of my clients comes in and says, I was in my country club and there was Mr. Mrs. Insurance agent that was putting this in turn solely in front of me, so excited. We could go to Bermuda, okay. So like, What do I do with that plan? I’m sitting here looking at the illustration body, what do I do? How do I know? How do I see through the illustration… And dispel this myth.

0:15:51.7 BOBBY SAMUELSON: So again, I think it all starts with helping the client understand what the product is, and I’ve talked to… I don’t sell insurance, I’ve never sold insurance, but a lot of people find me on the internet and they call me clients, end users finding the internet and they say, Hey, I bought this IL or I’m considering this UL or any type of policy. What is it? And I always, always start with the same explanation, every permanent life insurance policy works the same way, premiums come in, charges come out, whatever’s left over earns interest, that’s your cash value, if clients don’t understand that and if advisors don’t understand that, the rest of the conversation is extremely difficult, because what that allows you to do then to say, Okay, I’m looking at a bunch of numbers on a page, I see that the client puts in 100, 000 in the first year, and they only have 80000 of account by you. What do I know right off the bat that there were 20000 worth of policy charges that came out, because we know the formula premium in charges out interest earned is actually probably more than 20000, 22000 or so, ’cause they’ve gotta earn interest on whatever is left over, so you have to know, that’s what’s going on.

0:16:53.1 BOBBY SAMUELSON: That’s number one, and then the second thing I’d say is, Alright, so knowing that that’s how the policy actually works, then we know that there’s no magic going on, I’m here. The only thing happening on this illustration is the Assumed interest rate is what’s driving the long-term performance, and so we need to hone right in on that a student interest rate assumption, and so on an illustration, you should be able to see exactly what the Assumed interest rate is for the future long-term projections that’s being used, and that’d be the thing

0:17:19.3 SARA GRILLO: In what you call the credit in grades.

0:17:21.6 BOBBY SAMUELSON: Correct, correct. Yeah, so crediting rate is a universal life, Assumed interest rate is probably a better term for IL because the carrier, there’s discretion when the UL… The carrier sets the crediting rate, and that’s what you’ll straight, You’ll trade less if you want to, but with IL, there’s this maximum age 49 rate, and you can kind of take a rate anywhere in between, and maximum 8249 is meant to be a guard rail, so it’s not what the carrier is actually crediting, it’s just a way to convert the option strategy essentially into an illustrated rate. It’s wildly subject.

0:17:53.4 SARA GRILLO: No. Okay, hold on a second. Yeah. Does this age 40? It was nine implied rates. Yes, that is not necessarily equal to what he gets illustrated a… What is it based on?

0:18:17.0 BOBBY SAMUELSON: Okay. So here’s what it’s based on. So again, you think back to the logic, this is a universal life and I all or the say the only difference is that with a UL, you get the crediting rate, you illustrate the credit rate with IL, the credit Oregon about the options, and the options give you exposure to the indicate

0:18:36.0 SARA GRILLO: Index. So this is not… By the way, everybody, this is not a direct investment into the index, this is correct. Exposure to the index, say, by the way, is it a total return or price only index is…

0:18:50.3 BOBBY SAMUELSON: These are almost all price…

0:18:52.1 SARA GRILLO: Okay, so the S and P price on the index. And let’s say that the S and P does 9% that year, EP is the implied crediting rate. 9%.

0:19:10.5 BOBBY SAMUELSON: Yes. If the cap on the cap is what the carrier set, so they set the credit in rate for UL, they set the cap for IL, and the way that they determine the cat, which is the maximum credit you can earn, the way that they set the cap-based on index performance, where this or the cat is by taking that credit rate and buying options, so if options become expensive, the cat

0:19:33.5 SARA GRILLO: Must do and options become expensive when it’s a volatile market… Correct. To more expensive options, which would mean the cap is lower probably right, ’cause the insurer’s gonna take their share and the AG 49 rate is gonna be lower.

0:19:50.8 BOBBY SAMUELSON: Correct, correct. So that’s the dynamic. So the cap, you would expect the cat to change regularly because option prices change all the time, so the carriers earnings are pretty stable, but the option price… They’re always changing. So you expect this cap to move around quite a bit. So the way that these things are illustrated is a problem is that how do you illustrate the value of the cat… The carrier sets a 10% capital, say, What’s the value of the 10% cap that you should show on the illustration for the next 50 years?

0:20:18.0 SARA GRILLO: Well, they put 10%… No.

0:20:19.9 BOBBY SAMUELSON: Well, you would… Now they don’t. So they say, Okay, because you’re not gonna hit the 10% every year in the S and P, so that would be too high, but the guaranteed minimum is zero, that would be too low. So you basically have two options for how to illustrate it, one option, the logical option, the way that I think every financial advisor who’s listening to this would say, Oh, this is how they should be illustrated. As you say, Well, the fair market value of the 10% cap is what the carrier paid the investment bank to buy the 10% cap. So how much did that option strategy cost to provide the 10% cap, and that is equal to the crediting rate that you would earn on universal life policy, because remember, it’s the exact same thing or just instead of paying the policy holder there, paying the investment bank, so the logical way to illustrate, and IL is to look back to what the carrier spins, the fair market value that’s in percent cap. That is not how 04ers because that would make I and L illustrate the same. And all the sexy ways to use IL in a lot of ways wouldn’t work, if you land IL illustrated the same, you have to…

0:21:25.6 BOBBY SAMUELSON: The industry has built a way to illustrate a you better than you all, and so the simple way they do it is I say, Okay, let’s say the carrier has declared a 10% cap, let’s go and apply that to historical equity data. So let’s say it’s a temperate cap on the S and P. We’re gonna look back to the 1950s to see what the S and P performance was. We’re gonna apply the 10% cap to historical S and P data, and that is where the illustrated rate comes from, so they are taking historical S and P returns into the calculation to value the 10% cap, and then they project that for the next 50 years, does that make sense? Yeah, and so that’s where it… So again, back to your question, the only advisor is looking at an illustration… Again, in my mind, two things. This is how the policy works. This is the illustrated rate being used for the ledger, and what I’d say is, if the illustrated rate is at the maximum age, 49 rates are 5 and a half, 6, 6%, whatever it is. You wanna see much lower returns to get a feel for what is more realistic…

0:22:29.7 SARA GRILLO: Okay, by… Hold on a second, I have to go over this point again, can you just say that differently because this is very important…

0:22:38.2 BOBBY SAMUELSON: Yeah, yeah, so the illustrated rates are totally subjective, there is no long-term history for these products, there is no actual back test, it’s just a hypothetical back test, and so when you look at that illustration and you see an old traded rate, that’s five and a half 6-65% based on the Ag, 49 maximum rate, which like we just talked about, is the cap applied to the historical data, as in an advisor, what you should ask for is to see much lower numbers because they are a…

0:23:05.4 SARA GRILLO: Other than five and a half, six. Excuse exactly.

0:23:09.0 BOBBY SAMUELSON: Because you wanna see a more realistic picture of long-term performance live for a different way, this fee-only advisor that we’re theorizing here probably has a good view of what they think long-term bond yields are gonna be in long-term stock-held are gonna be and the client certainly, as a part of their planning conversation, we probably have a planning conversation and say, Hey, what should we assume for your portfolio about long-term future stocks and bonds… Right, I would assume that that’s part of the planning conversation, so if you illustrate an IU with a 10% cat at the maximum age 49 rate, and you are assuming the past equity returns are gonna be identical to future equity turns and the past S and P total returns, which is a driver of the price returns, the total returns are about 12-15% since the mid-1950s.

0:23:54.2 SARA GRILLO: But that is a total return… Not a price return.

0:23:57.5 BOBBY SAMUELSON: Correct, but if you think about it from a planning standpoint, you have a client who’s saying, I’m buying a Vanguard mutual fund, the mutual fund, it is a Total Return Fund, so if I’m an advisor and I’ve had a planning conversation with a client about long… Their long-term equity assumption, I’m not talking about price returns, I’m talking about total returns, right, even though the index product is only on price returns, right. So here’s the question, if you’re a financial advisor and you’re looking to that 6% illustrated rate in the IU with a 10% cap to your point on a price index, and you’re also assuming as a financial advisor long-term equity returns of 6%. If you hold the S and P straight up and total returns, those two assumptions are not the same, the assumption that goes into the 60% rate, you see in the IL illustration is only past equity returns, which are 125% total returns. So here’s the simple thing, if you’re an advisor and you’re illustrating out 12-15% for your client’s equity portfolio, then you can feel good about the 6% illustrated rate in UL, but if you have a lower equity return assumption, 8, 6, 7%, whatever it is, then you cannot illustrate 6% in IL, you need to illustrate four or three and a half or two, because fundamentally I is a much less risky, much less higher attorney asset then holding the equities directly.

0:25:13.7 BOBBY SAMUELSON: And so that’s the big thing is in Fred advisor is basically just being able to have a conversation with the client and say, Look, there’s no magic here. And this illustrated rate is what’s driving all this future performance, we advisor and client, we decided we were gonna use a long-term inhale percent equity return assumption for your planning purposes. This is illustrating it six, that’s based on a 125% historical ether return, we need to lower that illustrated right down to four or three and a half, or four and a half, and then if you still think this policy makes sense, then maybe we should do it maybe you can talk to your advisor about it, but if the deal doesn’t work at 4%, then this does not fit with your financial plan. Does that make sense? And so that’s the conversation advisors need to have is not, Oh wow, look at the illustration, look out Great, this looks… It’s, let’s talk about your expectations of the future, let’s talk about what this product actually does, and it may be a fit, but it probably… But if it isn’t a fit, a 4% illustrated rate, then it’s not a fetter, it has to at for three and a half or four and a half, it can’t just work at six…

0:26:19.9 BOBBY SAMUELSON: To your point earlier, a lot of what I see being marketed out there is very aggressively illustrated products, and that’s the whole appeal is the IL trader performance, and that’s where the advisor first thing they gotta do is tone that back to…

0:26:32.6 SARA GRILLO: That’s how the agent sell the product, they sell it off the illustration.

0:26:37.2 BOBBY SAMUELSON: Yeah, that’s right, that’s right. And if you’re a family advisor, you’ve gotta tone that down and make sure the product is a fit regardless of the old treated performance.

0:26:46.7 SARA GRILLO: No, we also might have some insurance agents that are listening to this, what would you say to them, what if they’re saying, Well, Bobby, I have to earn a living here and I’m competing against financial advisors who can go… Say the S and P does 15% year on year. How can I compete? Bobby, I’m gonna be illustrating IL at 35%. I have a wife and a mortgage and kids, and how can they survive and you doing this with honesty and integrity.

0:27:22.6 BOBBY SAMUELSON: If the industry is gonna sell 3 billion of AUL, and if tomorrow all the maximum militant rates on these products went down to 4% and sales went down to 300 million, then we would know that people were buying IL primarily for the illustration, not for the product itself. And that would be a huge problem. I don’t think that would happen. I think IL properly sold is a compelling value proposition. You’re talking about a tax preferred assets, you’re talking because of its death benefit protection, so there’s clearly death benefit planning needs, there are tax planning considerations, you can do it in a life insurance policy, the death benefit tax, meaning the… Then there’s the cash value, growth and the stability of the growth and the sort of downside protection, upside potential story, none of these things have anything to do with the long-term performance of the product, the reality is, every agent knows… Literally have Hagen knows that illustrations are not projections of future performance, everybody knows that, but they all sell as a… Illustrations are projections in the future performance, and that is where we have a problem, so what I’d say to guys, and I talk to people selling on you all the time, and what I say is this, the less you can sell off of the illustration and the more you can sell off of the death benefit, the tax benefits, and the cash by you liquidity benefits and return profile benefits, the more sustainable, the more resilient your sales practices will be, and I think the more the product you’re gonna sell…

0:28:51.7 BOBBY SAMUELSON: Illustrations are a distraction. We gotta sell what the product actually does and how it works, and that’s the best way to say I will and look, there’s nothing to hide. The product is a good product, it does what it’s supposed to do. The easiest, properly… Yeah, when it’s properly illustrated, it does what it’s supposed to do. The problem is a lot of the sales are not being properly illustrated because regulators gave agents, they let them illustrate the rates too high, and that drives the narrative too much, and so even if those rates are achievable, even a client to actually get those rates… That shouldn’t be the reason for the purchase, and I think unfortunately, too often that is the reason for the purchase.

0:29:32.2 SARA GRILLO: Do you think the agents who are selling it actually understand a lot of the technicalities that you just went over.

0:29:40.0 BOBBY SAMUELSON: It depends on what age you’re talking about, there’s definitely a crew of sophisticated agents who have sold this for years, and I think understand with a pretty high level of depth how this thing works, and they’ve bought into it, that’s maybe 3% of the agents to sell this product. I think the other 97% of agents to sell this product are doing it because they see the old traded performance, they see people making a lot of money selling it, they understand the basic positioning, which is none of these things that I’m about to say are true but what they say is, you can’t lose money, you’re gonna perform better than equities, you’re this this, this the super safe insurance company, long-term history of performance, none of these things are actually… Maybe the insurance company of pies, but the rest of it is not true. And so tax free guaranteed in, and I’ve heard that story for that… Ulta, incorrect. And so I think a lot of times when you look at Il and why it’s being sold, there’s a narrative, and that narrative doesn’t really match up to reality, but there is in a lot of cases, but there is a real narrative that really does do the product justice, and that really can benefit clients, it just isn’t nearly as sexy of some of this other stuff that we see on tithes, the gap between the real benefits of the product and what’s being shown out of the marketplace.

0:30:59.1 BOBBY SAMUELSON: And again, I think the vast majority of that comes back to illustrated performance and aggressively illustrated scenarios for clients that they get attracted to.

0:31:07.3 SARA GRILLO: Clients don’t understand it, some advisors don’t understand it, some agents don’t, it… This is where the industry gets a bad name, and I say that in the hopes that myself included, all of us that are listening to this, can strive for more transparency, more clarity, and a much stronger understanding of this and all other complex products, because this is where people lose faith in us.

0:31:33.3 BOBBY SAMUELSON: Yeah, well, and… Look, we’ve seen this movie before. So when you kind of stretch back and look over history, UL was popular in the 80s because it illustrated very aggressively, people thought they were buying a cheap product, what they didn’t realize was if interest rates go down, their premiums must go up, that’s not what the agents told them that’s not what the expectation was, but that is how the product actually works, so again, even with UL in the 80s, there’s a difference between the marketing story and the illustration story and how the product actually works. Then we had L in the 90s, what was happening with that company agents were illustrating ultra high rates, very cheap premiums, clients that understand that if their equities didn’t perform, the policy could be imperiled, and yet that’s what happened. So those are two big black eyes for the industry, an advantage in premium whole life, even before universal, a similar phenomenon. So we’ve always… In life insurance had this problem of people talking about insurance as an investment, which they are legally not supposed to do, and positioning it as an investment and talking about it in ways that are completely inappropriate based really on illustrated performance and the fact of what the product actually does, and actually, there’s a great book about this, it’s called the story of life insurance by Burton Hendrick, and he talks about the insurance industry in the US in the 1800s, and guess what? Same phenomenon was going on, there was this concept of a canteen whole life that illustrated the best returns, everybody got into them, it turned into a huge scandal, and so we have had this constant issue in life insurance forever, and I is just the latest flavor of it, of a product that’s being positioned and sold as an investment and being touted as having X, Y, Z performance…

0:33:17.0 BOBBY SAMUELSON: Well, it still was a fundamentally sound product, it’s just different than what’s being positioned to market, and that gap is what causes black eyes for the industry, and like you said, we’re setting ourselves up for this with UL, and we’ve done it plenty of times in the past, to… This is not the first time.

0:33:31.2 SARA GRILLO: Okay, what resources have you availed yourself of, they can provide us with more knowledge and transparency as a fee-only advisors or the advisors that are listening to this.

0:33:43.1 BOBBY SAMUELSON: Yeah, yeah, well, I’m not an agent, just again, just to be clear, and so in a lot of ways, my resources are not the resources that an agent would use, I build insurance products with insurance companies, I write about all the issues we’re talking about. And so

0:33:56.9 SARA GRILLO: We… Hold on a sec, I’m sorry. You write about these issues. Oh yeah. Is this blog able to be consumed by the public…

0:34:06.9 BOBBY SAMUELSON: No, I charge for it, and it’s a technical weekly newsletter on anything and everything going on in the life insurance space, and so it’s written for high-end insurance professionals, high-end financial advisors who really wanna understand what their clients are being sold. So I do have a lot, I do have RAs that sign up, it’s written for insurance company executives as they’re thinking about developing products, it’s written for brokerages, and so it really is… It’s a technical deep dive. And look, I wish I could say there are a lot of other great resources out there to learn about all these issues, and the reality is nobody wants to write about life insurance, it seems except for me, and so in terms of product issues, and so I’d say my newsletter to the Lieber IE is the best known and best subscribed technical product industry resource covering what’s actually happening in the marketplace. And outside of what I do, charms, a great life insurance, especially on the annuity side, the Society of actuaries has stuff on their website you can read, but again, very technical and geared towards the actuarial side. There are some other folks who I think there are some other bloggers, Chris Patrick, I think it’s done a good job of talking about um…

0:35:17.4 BOBBY SAMUELSON: There’s some pro-IL folks who I think I actually do a good job there, but there are some that do it the right way, and I think do a good job of trying to get rid of the misinformation, so I say Look around, but if you want real technical product-oriented stuff, that’s what my newsletter does, and again, it’s the only off… That’s the only thing out there that covers it the way that I do.

0:35:36.6 SARA GRILLO: If you talk to a real high-end advisor who works with families that have a ton of wealth, like 50 million and above family offices, etcetera, they’re having their clients in 40000 a year, premium products.

0:35:51.8 BOBBY SAMUELSON: If not way more than that. Yeah.

0:35:53.3 SARA GRILLO: They have to grasp the high details that you’re talking about, they have to be experts or they have to work with somebody who is an Asian. And trust that that person is gonna give them a fair deal, which is scary as

0:36:08.8 BOBBY SAMUELSON: Back… And that’s what I see most of the time. I meet very, very few people. So my background is I started… My dad’s an agent, my granddad is an agent, and I started at a brokerage firm working exclusively with ultra high end… We had very ultra-hi. And agents and their clients, we had a unit that I worked in at this firm that only dealt with premiums above 250000 a year, and we were slam… I’ve seen cases with 5 million year premiums, 3 million year premium seem on a pretty regular basis too, but here’s the thing that I think is really important, Sarada, lot of people don’t get… The higher up you go in the market, the more trust matters, and what I see is a lot of family offices, a lot of RAs, a lot of estate planning attorneys, referring a trusted insurance advisor in and the client saying, Hey, I trust the use advisors. These advisors certify this guy, I’m gonna trust him too, and I’m gonna do whatever he tells me, so there’s an inverse relationship between the number of questions you typically get about a deal and the client’s network, the lower…

0:37:18.6 BOBBY SAMUELSON: The client’s not worth… That’s where I’ve found some very sophisticated buyers who really took their time to understand the product and content, there’s a canal who subscribes my newsletter, who bought a life insurance policy, went on a two-year quest to understand it and ended up becoming an agent and subscribing to my newsletter, as a result of that, he went, but he’s a lower net worth guy, on the flip side, I’ve seen billionaires just sign the dotted line and do the deal, and they don’t even ask any questions. And so what I’d say to your point, it’s like, these advisors who are at the top and working with larger clients, you must do your due diligence, you have to do not assume that even if this agent comes with great referrals, even if this agent has a long track record, even playing off of the guy for years, do not assume that the insurance proposal he’s putting in front of your client is the one that best fits that client, do not make that as there are great agents out there, and they are… Our agents out there who do stuff that I don’t think is that great, and it is really hard to tell the difference, and so you actually look at what they’re putting in front of clients, and that is where the rubber hits the road, and so yeah, I completely agree with you, folks in a position to advise high it with clients, you don’t need to become an expert, but you need to be conversant in life insurance, and you need to say a truism here, and it looks so good to be true.

0:38:37.4 BOBBY SAMUELSON: Not it probably is. It definitely is, and you have to look at that on Indira proposals being shown to clients and screen, because if you don’t… What we’re seeing right now is a lot of class actual lawsuits, a lot of very nasty situations, class actions on one side to a lot of individual lawsuits that are very nasty situations with very high net worth people who bought stuff they didn’t understand and got hosed and now they’re looking for blood

0:39:01.5 SARA GRILLO: Test for them too, it’s just a sad situation all around.

0:39:08.3 BOBBY SAMUELSON: Yeah, it is, it’s sad all around, but it’s becoming increasingly common, there were certain types of deals that worked for the last 10 years and are not working right now, and those deals… That’s where the problem comes in. And that’s happening more often that people think…

0:39:24.8 SARA GRILLO: Well, I also… Everyone listening, I also want to mention the Andy panos doing, it’s called the ill experiment. Well, you’ve seen the website and… Yeah, the Andy actually bought an IU policy and he’s taking us with him on his journey, he has a whole website that goes over all the documents that he got when he bought it and… It’s absolutely phenomenal.

0:39:50.2 BOBBY SAMUELSON: I love it. I think Andy is doing a great service to everyone by going through this himself, and my prediction is in the long run that… Ali’s gonna look a lot like it. If he bought a U-L, I think I’ll be happy with it. But it’s not gonna be the stock market in

0:40:07.4 SARA GRILLO: Yellow, what I just mentioned it, and Andy’s been on my podcast before, and we’re colleagues, but I’m mentioning this because it’s inspiring in the sense that he’s really doing the work, and I just would encourage everybody to follow that, example.

0:40:37.6 BOBBY SAMUELSON: Yeah, I agree. And look, that’s what I do with my newsletter, I do the work, I read the filings are the illustrations, I talked to insurance company executives, I talk… Agents call me all the time. You gotta do the work. And I don’t have a real job. My job is just products, and so if you’re an agent or you’re an advisor, it’s really hard for you to stay on top of all these issues, and so I think Andy is doing a good job of putting some stuff out there, but again… And that’s my goal with like Pieter IE is my job is to look into all this stuff and then communicate it in the way that people can understand it, that’s what

0:41:09.3 SARA GRILLO: I do. They find that publication.

0:41:12.0 BOBBY SAMUELSON: Yeah, it’s called, it’s called the Life Product Review. You just go to www, lifetou, 350 articles on there. And so if you sign up, you get access to all of them, they’re all about 3000 words of pot, so carve out a couple of weeks and have at it, boy.

0:41:28.5 SARA GRILLO: Okay, awesome. Well, Bobby, thank you for all that you’re doing. And like I said, I think we should all be honest, transparency journey for the good of the clients through the industry, and to just have integrity with what we do, all of us advisors, agents, marketing vendors like me, everybody really, that is involved with this in any way, so thank you so much for being here. And Bobby, how would you like people to contact you if they

0:41:53.3 BOBBY SAMUELSON: Go to my website, like I said, life product review dot com. That’s the best way to find me. Thank you and thank you for what you’re doing to… We need more transparency and I appreciate what you’re doing. 0:42:03.8 SARA GRILLO: Well, you’re very welcome and I need to do a lot more, so I would love to just believe that we’re just getting started with this. I agree. Thank sir. Alright, everybody, so Thanks, Bobby again, and everybody, please subscribe and review this show, just a reminder that nothing in this podcast can be interpreted as a product, insurance or investment recommendation of any sort, nothing in this podcast can be interpreted as legal or compliance advice, or any recommendations specific to your or your client’s personal situations, please consult a consultant, advisor or attorney.

Disclosures

Grillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use, or the success of any program.

Transcript may differ from original recording

SourcesAllstate. What is Universal Life Insurance? https://www.allstate.com/resources/life-insurance/universal-life-insurance

Fernando, Jason. (31 March, 2023) What is a Call Option and How to ouse it with example. Investopedia. https://www.investopedia.com/terms/c/calloption.asp

Martin, Tom. (2015, April 6th). ThinkAdvisor. How (and why) indexed universal life really works. https://www.thinkadvisor.com/2015/04/06/how-and-why-indexed-universal-life-really-works/

Pfeifer, Timothy C. (2015, September 11th) Actuarial Guideline 49: What You Need to Know. Premier Brokerage Services. https://premierbrokerage.com/actuarial-guideline-49-what-you-need-to-know/

The post Blunt, unfiltered truth about Indexed Universal Life appeared first on Sara Grillo.

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The Transparent Advisor Movement is taking St. Louis! Will you join us?

When: Wednesday, March 13th – Thursday, March 14th, 2024

Where: DoubleTree by Hilton St. Louis Airport, 4505 Woodson Road, St. Louis, Missouri, 63134

Transparency is the single most powerful force that exists in realm of human communication. Join the Immersion.

Sounds cool – but what’s an “Immersion”???This is not a conference – it’s an “Immersion”.

And so you ask: What’s an “Immersion”?

It’s going to be a radically different experience.

Expect LOTS of this:

Peer to peer conversations
Opportunities for personal growth
Strengthening of group unity
Strengthening of values
A group volunteering event
Purity of thought and humility
Small group interactions such as role playing and tech demos from other advisors not vendors
“Ask me anything” sessions with practical insights from actual practitioners
Information about “how to do stuff” from people who are actually doing it!
25 minute presentations – short and to the point before you fall asleep!
Clean, safe accommodations that won’t cost a fortune

And NONE of this nonsense:

Sponsorships
Sales pitches
Hidden agendas and conflicts of interest
Boring, long presentations
High level lectures from “thought leaders”
Monogrammed water bottles and other junk
Showing off, posturing, and the usual virtue signaling crap

You’ll be assigned a “Pod” prior to the eventIMPORTANT to note: This is not going to be a huge event. We are planning for 40 people at most. We are limiting the number of spots intentionally to allow for more peer-to-peer interaction and practical, hands-on learning.

Upon registration, you will be interviewed and assigned a “pod” group that will meet virtually 3-4 times before the conference. You will be grouped according to your intentions. At the conference this will be your base and you will work together on small group activities that develop you personally and professionally.

Deeper, different – and better!

Here is how to get your ticketThis ticket cost is $250.00 plus the cost of sales tax.

Please reserve your ticket through the Eventbrite link below. Tickets go on sale on May 10th, 2023. Early bird pricing ends on June 10th, 2023.

Please note, there are no refunds. If you wish to transfer your ticket to another party, you may do so before March 1, 2024, and you agree to notify Sara Grillo immediately of any changes in ownership.

Also, by purchasing this ticket you are agreeing to follow the Terms and Conditions, Code of Conduct and Safety Policy articulated on this page (see below).

BUY TICKETTicket cost – transparent breakoutIn the spirit of transparency, here is the breakout calculation of the ticket price. If you would like further receipts, I’m happy to provide you with the contract I signed, etc.

My goal was to identify the best venue for the lowest possible price. To achieve this, I researched and got proposals from a number of different hotels in different parts of the country. Missouri is centrally located and the amenities were much less expensive than in a larger city. This is a professional event, not a camping trip, and for that reason I chose the hotel that offered the highest professional quality of experience for the price charged.

Despite my efforts to minimize costs, there are contractual and statutory obligations that must be met (Missouri state sales tax, service and taxes on event items such as food, beverage, and AV, ticket processing fees, etc.) I also had to build in a buffer in case incidental expenses were to arise, which I am anticipating is likely.

Even with me absorbing as much of the cost as I am able to, I had to pass on some of these costs to the attendees. I apologize if this cost is prohibitively expensive for anyone and if it is for you, please let me know and we’ll see if there is some way to work around it.

Immersion AgendaTuesday, March 12, 2024

5 PM: Informal greeting/dinner

Wednesday, March 13, 2024

8 AM – 9 AM Breakfast, Networking and introductions

9 AM Statement of Mission: Sara Grillo

9:30 AM Ask Me Anything about Flat Fees: Andy Panko

10:30 AM Small group activity – Leader TBD

11 AM Ask Me Anything about Advice Only: Cody Garrett

12 PM Lunch

1 PM Ask Me Anything about Flat Fees: Carrie Catlin

1:30 PM Tech demonstration – Leader TBD

2 PM Networking

2:30 PM Group volunteering

5 PM Group Dinner (optional)

Thursday, March 14, 2024

8 AM Breakfast, Statement of Mission: Eric Simonson

8:30 AM Ask Me Anything: Speaker TBD

9 AM Small group activity – Leader TBD

9:30 AM Tech Demonstration – Leader TBD

10 AM Networking

10:30 AM Final Statement of Intention: All Participants to present to the group. How will you use these learnings to influence your practice and the world at large?

12 PM Lunch

1 PM Go home!

About the SpeakersAndy Panko, CFP

A flat fee advisor who grew from $0 in revenue to closing his practice to new clients in under two years, he did it through the power of logic and service to the client. Founder of Tenon Financial and the Retirement Planning Education Facebook group, which has over 40,000 members.

Carrie Catlin, CFP

Flat fee financial advisor and principal of a successful 15 year + flat fee firm, Carrie will speak about has first hand, proven knowledge about how to scale a flat fee practice, price your offering, and improve efficiency, technology, and workflows for a flat fee practice.

Cody Garrett, CFP

Advice-only planner and financial planning enthusiast, Cody pioneered the concept of delivering planning on a project basis. Founder of Measure Twice Financial and Measure Twice Planners.

Eric Simonson, CFP

Founder of Abundo Wealth, he is on a valiant and inspiring quest to deliver “financial planning for everyone” and thereby change the world!

Sara Grillo, CFA

Financial advisor marketing badass and transparency advocate, she never backs down from a LinkedIn fight with insurance agents, lol.

Instructions for booking your flightThe airport to fly into is : St. Louis Lambert International Airport.

The airport code is: STL

It is recommended that you book your flight so that you arrive on Tuesday, May 12th. Please note, check in time at the hotel is 3 PM.

You should book your flight to depart on Thursday, May 14th after 1 PM. Please note, check out time is 11 AM.

Please note that there are two airports serving St. Louis: Lambert and MidAmerica. Please do not fly into MidAmerica Airport unless there is no other way to get to St. Louis from where you are coming from. It is further away and there is no free shuttle to the hotel. There is a free shuttle from Lambert Airport to the Double by Hilton St Louis Airport, where the event is taking place.

Instructions for booking your hotel roomThe hotel where the conference is happening is DoubleTree by Hilton St. Louis Airport, 4505 Woodson Road, St. Louis, Missouri, 63134. Please book a hotel room at this hotel.

Guests will book their rooms individually. The cost of a hotel room is $145.00 per day, and a 17.33% tax applies.

Please use the link below to book your room.

If you would prefer to call and make your reservation, call 800-774-1500 and please use Group Code 908.

BOOK A ROOMTerms and Conditions* You are responsible for your own hotel/transportation arrangements and costs. * There are no ticket refunds. If you wish to transfer your ticket to another party, you may do so before March 1, 2024, and you agree to notify Sara Grillo by March 2, 2024 in writing of any changes in ownership. * We will be filming and photographing at this event. Sara Grillo retains the rights to these images. By purchasing a ticket, you are consenting to be filmed and photographed. You are also consenting to permit Sara Grillo to use these images for professional use. * The conference schedule is subject to change. If it changes, Sara Grillo will notify participants of these changes. * Airfare may be subject to delays and cancellations due to weather and other extreme emergencies. You agree to accept all risks related to flight cancellation and delay, and you agree that Sara Grillo bears no responsibility for flight delays or cancellations or the negative consequences associated with them. * By purchasing a ticket, you agree to follow our Code of Conduct and Safety Policy (see below)

Code of Conduct and Safety PolicyTo ensure an inclusive environment, discrimination or harassment in any form is prohibited at this event, including but not limited to:

Sexual harassment
Racism
Sexism
Ageism
Homophobia
Transphobia
Ableism
Physical aggression or harm

If you experience any of the aforementioned instances of misconduct, or any others not included on this list, please report it to me, Sara Grillo, in person and via email at sara@saragrillo.com.

The Code of Conduct applies to all participants, including but not limit to: speakers and attendees, and is without exception. Choosing to join the event evidences your cooperation and agreement with the policy.

DisclaimersRates may vary as a function of geographic location due to exchange rate differences, fees, surcharges, and other factors. These offers are limited to the services advertised in the promotions contained on this page. Additional services may be provided at an additional cost at rates that are subject to negotiation.

Grillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use, or the success of any program.

The post Transparent Advisor Movement: Immersion 2024 appeared first on Sara Grillo.

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Here are some Excel models financial advisors can use to create your Chart of Accounts. Download this Excel sheet below for free to get a template for a financial advisor income statement and financial advisor balance sheet.

But first..

For those of you who are new to my blog/podcast, hi! My name is Sara. I am a CFA® charterholder and I used to be a financial advisor. I have a newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.” So please subscribe!

I am an irreverent and fun marketing consultant for financial advisors. Financial Advisor Income StatementBefore you download this financial advisor income statement template below, here are a few things to keep in mind.

I created this financial advisor income statement for the flat fee advisors and advice only planners that are involved with the Transparent Advisor Movement. However, no matter how you charge, this template may be useful to you. Simply adjust the Revenue tab, cells C2 and C3.
I tried to map out (see expenses tab) what the typical cost would be for an advisor starting out in the first 1-3 years. I assumed minimal travel and entertainment expenses, and a useful life of three years for hardware which is depreciated on a straight line basis.
You’ll need to run the Pivot Tab (see pivot tab) and then paste the values manually from cells B4-8 to cells E4 to E8. Which stinks, but there is no way, that I am aware of anyways, to take the input from a pivot table and have it flow through automatically to the rest of the sheet. However once you copy those values over to cells E4 to E8 the flow of data through the sheet should be restored.
Keep in mind this is just a model template and in no way may it be interpreted to accurately reflect your personal situations. Figures shown are estimates only. Please customize this to your specific situation to get an accurate picture. I have no idea what your specific tech stack for your practice may look like. I tried to map out some of the popular tools that comprise a financial advisor tech stack, but I have no idea what your preferences are. It could be total crap in your eyes. Please customize it to represent your reality.

Financial Advisor Balance SheetAgain, here I tried to map out what the typical assets and liabilities of a financial advisor practice are. No way this could accurately represent what your practice looks like in reality, so please feel free to go ahead and fill it in.

Statement of Cash Flows I did not create a financial advisor cash flow statement because I ran out of time. However, I may do so in the future. It was Easter Weekend last weekend and I had relatives visiting and tons of food invading my refrigerator which I am trying to resist eating.

Download these templates!If you are a flat fee financial advisor download this chart of accounts template.

Note, this assumes that the advisor is providing both financial planning and investment management services.

DOWNLOAD FF TEMPLATEIf you are an advice only planner, download this chart of accounts template.

Note, this assumes the advisor is providing only financial planning services. There are no expenses for investment management.

DOWNLOAD AO TEMPLATEWhat if you are not a flat fee advisor or an advice only planner?

If you are charging fees for investment management or other services, you probably could use the flat fee chart of accounts. Like I said, just customize the revenues tab to represent your practice.

Voila! There you go!

Was this financial advisor income statement stuff helpful?The reason I put all this together is I see a ton of financial advisors out there who struggle to get a grasp of what the math behind a financial advisor practice looks like. It’s important if you want to grow/manage your practice the right way (for the sake of your clients) that you grasp this.

Hope these financial advisor chart of account templates were useful. If you are interested in flat fee or advice only financial advisor stuff, I have a ton of free resources for you.

Join our next Transparent Advisor virtual meetup.

These meetups are free and the goal is to learn from each other about how to grow and manage a transparent practice for the benefit of clients.

Even if you can not make the meetup, or even attend in its entirety, please register for the replay and to be notified of the next one.

Our scheduled meetups are here:

April 12th, 2023

May 10th, 2023

June 14th, 2023

July 12th, 2023

August 9th, 2023

September 13th, 2023

October 11th, 2023

November 8th, 2023

December 12th, 2023

If you are a financial advisor looking to grow your business, check this stuff out.

You could also consider my financial advisor social media membership which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. I hope you’ll at least join my newsletter about financial advisor lead generation.

See you in the next one!

-Sara G

DisclaimersGrillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use, or the success of any program. The figures presented herein are for illustrative purposes only. Future performance may vary and projections are no guarantee of future results.

By utilizing this template, you agree to indemnify Sara Grillo and Grillo Investment Management, LLC from any liability associated with the use of these materials. Values entered into this spreadsheet are hypothetical in nature and are not specific to any one individual or practice. Keep in mind this is just a model template and in no way may it be interpreted to accurately reflect your personal situations. Figures shown are estimates only. Please customize this to your specific situation to get an accurate picture.

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It seems like everyone from the Senate Banking Committee to Reddit forums, everyone is buzzing about crypto this and crypto that. Today we’re gonna WAKA WAKA BREAK IT DOWN to the question, “Is crypto a good investment or is it as valueless as a rock?” and you can bet that this is going to be a live one!

For those of you who are new to my blog/podcast, my name is Sara. I am a CFA® charterholder and I used to be a financial advisor. I have a weekly newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.” So please subscribe!

I am an irreverent and fun marketing conWe’ve got a great party crew here today.

On the “For” crypto side:

Robert Wright, Financial Planning Professional at Advocacy Wealth

James Giles , crypto product manager at Nerd United, a venture studio that works with seed and pre-seed crypto start ups

Dr. Steven Lee, Lecturer at California State Polytechnic University-Pomona

Against crypto:

Josh Gonzalez, financial advisor with Modern Wealth Strategies

Scott Salaske, my ride or die homeboy,

And me, I’ll try to stay neutral but I’ll tell you that I’m not crypto fan.

And let’s get on with it!

Is cryptocurrency a currency or a commodity?Opinions were:

Lee: You can actually be a vendor of any kind accepting cryptocurrency, as long as you go through the formalities. As long as that is true he has a hard time accepting that it could be a security, and he sees it as a medium of exchange.

Gonzalez – When people buy cryptocurrency, they are buying it hoping to get out of it and realize a gain. People are buying it as a unit of speculation. Most people never buy it as a unit of exchange.

Salaske: It’s not a security or a currency either. There is no underlying asset that drives the value. It’s not a currency because it’s not pegged to an underlying currency and if it were, you would just buy the underlying currency. It’s just the enthusiasts who are enthusiastic about it, not the average person.

“It’s just basically nothing.”

-Scott Salaske

Giles: There are different factions within crypto. With Bitcoin, some people buy it for speculative reasons. It may be better to look at it like precious metals almost like a commodity. We’d have to discuss on a case by case basis.

Giles asks, what do you say about the US dollar if you think crypto is “nothing” – (to quote Salaske).

At which point Gonzalez jumped in and said that the libertarians used to make the same arguments that crypto enthusiasts make now – that fiat currency is a fraud, there is no underlying value, and they print it out of thin air but there’s a finite amount of bitcoin. According to Gonzalez, the US dollar works because (despite that the Fed can print whatever amount it wants), you don’t have to acculturate them to an app and some digital platform. It is a social construct and there is no underlying value, but it works because everybody believes that it works.

Is crypto a good investment, or does it suck?Salaske: It sucks

What’s the point of it? It’s not an asset so why would you hold it? It’s not a currency but why would anybody want to transact in it on a day to day basis. Maybe Stablecoins will develop. But to own crypto…

Wright: Is gold an asset?

Salaske: No, I don’t buy gold. It’s a rock.

“Any metals or anything else. It’s a rock. Use them as a doorstep. They keep up with inflation over time. That’s it.”

-Scott Salaske

Salaske says that it would be have to have a growth driver or utility, or else it would be like picking up a rock and putting it into your portfolio.

Gonzalez shoots back that metals have industrial applications and telecom lines wouldn’t work without them.

Wright: So if gold is something a client could be invested in and potentially suitably recommended by an advisor, what is the argument against Bitcoin?

Wright argues that we could diminish any asset that way, even stock certificates. Gold has transaction value. All value is relative. It is what one person determines with another person engaging in a market. Now we have a version of gold that doesn’t have the problems that gold does. It won’t cost alot of fuel to transact and settle transactions. Bitcoin can act in that matter. How can you say it doesn’t have utility value?

Lee: Would you be saying the same thing about gold if we rewound the clocks and went back to the Gold Standard?

Salaske rebuts back that gold had a value at that time and it could be used for something. There is a lack of substance backing crypto.

How should crypto be regulated?Wright: There is a common misconception that crypto isn’t regulated. That’s false. Gary Gensler has stated that there is nothing different about crypto under the Securities Act. If it’s not regulated then why are people being prosecuted? Kardashian, etc.

I’d say they prefer ambiguity. The reason is that it allows them to prosecute people based on that ambiguity. Because if they came out and just said, “Hey, it’s exactly the same. There’s no difference. We have to follow the Securities Act [of 1933]. But they benefit from the ambiguity.

They prefer to be able to put the gun in the ribs vs. having some clear way that people can operate around these [cryptocurrencies.]

-Robert Wright, CFP

Lee: The list of things Gary Gensler doesn’t own is probably very short.

Wright: I would prefer they didn’t regulate, and how would they even regulate it other than love notes in the air?

Grillo: So how do we stop the massive collapses like FTX?

Giles: If the SEC could get its act together, it would prevent crypto from being driven offshore.

Wright: We should separate custody from the ability to provide investment advice on those assets. This would decrease the potential for conflicts of interest. FTX custodied everyone’s assets. That is how they were able to pull that off. They said, you have to exchange your dollars for our tokens to be able to trade on our exchange.

Lee: That’s the first thing the fraud examiners say. If you don’t want fraud to go on, you have to separate out all the responsibilities.

Is crypto a real innovation?Gonzalez: We have Visa, Mastercard, ACH – is this really an innovation? Or is it a solution in search of a problem?

Our payment structure has not been innovated in nearly 50 years.

-James Giles

Gonzalez: We should focus on the rank and file average person. Because they are the people coming to advisors. Bitcoin can not reconcile transactions in the way that Visa and Mastercard Can.

Giles: Yes and no. As a Layer 1 protocol, no. Visa and Mastercard and starting to admit how slow and clunky it is for merchants. The technology is being built to move to crypto rails.

Lee: I would be a fan of separating out blockchain technology from cryptocurrency. I don’t want to trash Central Banking, but now that we have blockchain technology we could replace it. When you look at the individual person, it’s not helpful when Visa or Mastercard says we sent you the money, it’s going to be 2-3 business days before you receive it. Blockchain would make it quicker. That is a huge area of potential. I would like to see us move off of Central Banking. Having 12 districts is not decentralized. It’s not decentralized. With blockchain we could do that. We could do that with Fiat currencies and not necessarily crypto. I’m fine with jettisoning the coins.

We need to do something with this Central Banking nonsense. It’s outlived its usefulness.

– Dr. Steven Lee

Wright: Dr. Lee is arguing that we need sovereign money. If you have the wrong political views, access to your bank account could be at risk. That’s crazy. I would argue that bitcoin is a huge part of that blockchain technology because you do need to have something you could exchange in value.

“Saying that one person can control bitcoin is like saying that one person can control the sun. It’s a completely decentralized project.”

– Robert Wright, CFP

For someone to be able to send payments overseas, bitcoin and cryptocurrencies help with that.

Grillo: But isn’t cryptocurrency the currency of choice for ransomware?

Wright: So is cash.

Grillo: But banks can’t custody dollars without following anti-money laundering standards.

Wright: It’s still illegal to launder money it’s that the regulators don’t have the capability to intercept.

Giles: Banks do have to follow rules and regulations. What we’ve seen in 2022 is that there were a number of hacks. Hackers take funds but they can’t offload it and exchange for fiat. It’s started to incentivize white hat hacking, where they return most of the funds back and keep the fee, because they can’t do anything with it.

How do we prevent the spread of misinformation about crypto?Grillo: What do we do about all the malfeasances and endorsements that make crypto frauds worse?

It’s speaks to how deeply the entire enterprise is fraught with corruption and scam. What good is going to come of this? You talk about theoretical applications but in the real world crypto has done more harm than good so far.

– Josh Gonzalez, CFP

Wright: This happens in pharma as well. I don’t know there is ever a capacity where you can eliminate that entirely. This is where advisors would do better if we are held to a clinical standard. We can assess the risk tolerance and help keep people out and hopefully people will listen to use instead of the celebrities.

In order to make this work, we have to figure out regulation and fraud. Those are the two main hurdles. –

Dr. Steven Lee

Lee: What are we going to do about Reddit? It’s a problem and it seems like the SEC is just picking and choosing who to go after. The problem exists with traditional assets. It comes down to financial literacy and investor education.

So is crypto a good investment or just a rock?Did our debate inspire your thought to change?

I hope you’ll subscribe to my newsletter.

Join our next Transparent Advisor virtual meetup.

These meetups are free and the goal is to learn from each other about how to grow and manage a transparent practice for the benefit of clients.

Even if you can not make the meetup, or even attend in its entirety, please register for the replay and to be notified of the next one.

Our scheduled meetups are here:

April 12th, 2023

May 10th, 2023

June 14th, 2023

July 12th, 2023

August 9th, 2023

September 13th, 2023

October 11th, 2023

November 8th, 2023

December 12th, 2023

You could also consider my financial advisor social media membership which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. I hope you’ll at least join my weekly newsletter about financial advisor lead generation.

See you in the next one!

-Sara G

BiographiesScott Salaske

James Giles

James is the father of three energetic boys and 1 Bernadoodle: Oliver, Henry, William, and Louie; and husband to Anya Giles since 2017. They love to travel, bake, and swim.

Joshua Gonzalez

As a Financial Adviser, Josh provides a wide range of personalized, comprehensive financial planning services to his clients, including retirement planning, investment advice, and estate planning.

Josh has over a decade of experience crafting, implementing, and monitoring financial plans for affluent households and small- to medium-sized businesses. He graduated from the George Washington University cum laude. In addition to the CFP® mark, he also earned the Chartered Financial Consultant (ChFC®) and Chartered Life Underwriter (CLU®) designations from the American College of Financial Services.

Throughout his career, Josh has been recognized for his outstanding talents and expertise. In 2019, the American College of Financial Services named Josh as one of five NextGen Financial Services Professionals of the Year. He has earned a place in New York Life’s President’s Council twice in his career and has been invited to Executive Council in all other years.

In addition to his service on the American College Alumni Council, Josh has volunteered on the GW Alumni Association Board and has been recognized for his financial contributions to the GW student body and alumni communities.

Robert Wright

In addition to his formal Education Robert Wright holds his FINRA Series 7 and 66 licenses, is a CERTIFIED FINANCIAL PLANNER Professional and holds Georgia Resident Life and Health Insurance License.

Robert is also an Instructor of CFP® Coursework for the College of Financial Planning Online and on Campus at Kennesaw State University.

Dr. Steven Lee

Podcast transcription and summary may differ from original recording and Grillo Investment Management, LLC may not be held liable for such differences.

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The Transparent Advisor Movement takes Chicago! Will you join us?

When: Wednesday, March 13th – Thursday, March 14th, 2024

Where: Chicago, Illinois

More details to follow…

Join newsletter to be notified.

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As a business owner, you need to be able to anticipate issues and develop plans in advance. Fortunately, you can use resources to create financial projections that forecast your future revenue and expenses. Although the future is uncertain, financial projections can give you valuable insight that helps you predict the path of your business. Here, Ed Carter of AbleFutures explains how financial projections can help your business succeed.

Benefits of Financial ProjectionsMaking realistic financial projections enables you to anticipate future opportunities and difficulties. For example, you can use your projections to calculate your annual taxes in advance. This helps you anticipate tax expenses. In most states, your business must pay taxes and file reports each year to avoid penalties and remain in good standing. You could even lose the ability to conduct business in your state if you neglect to file taxes.

In addition, financial projections should be part of your business plan. Research shows that simple, easily updated business plans can help companies grow faster. Furthermore, your plan allows you to communicate your financial status and goals to potential investors and partners. Accurate projections are important if you are looking for funding. Furthermore, including financial projections in your business plan helps you strategize and make important decisions.

How to Create Accurate ProjectionsWhen developing financial projections for your business, you should aim for accuracy. You can improve the quality of your projections by conducting research. For example, studying pricing and gross margins in your industry can give you perspective when creating projections. It’s also crucial to understand the size of your current market to keep your projections realistic.

You should also gather the appropriate information when creating your projections. Using a template or checklist can help you keep track of everything. You can use statements describing your income, operating expenses, and cash flow to start. You can also use balance sheets and break-even analysis when making financial projections.

Applying this data allows you to develop sales forecasts and predict future costs. You can also calculate your break-even point and anticipate when your revenue and your expenses will be equivalent. The timeline of your projections depends on your company’s needs, but many businesses project between one and five years into the future.

Use Software to Make Accurate ProjectionsThere are many tools that can aid you in making realistic financial projections. Many businesses already own accounting software that can generate the reports used in creating predictions, such as cash flow statements. However, you can also invest in financial projection software to upgrade your forecasting abilities.

When choosing software for financial projections, look for programs that enable you to generate and save reports in various formats. In addition, businesses can benefit from software that is accessible and user-friendly. Furthermore, you should ensure the core function of the program matches your needs. Finally, don’t forget to consider security and customer service when selecting a software vendor.

Specialized software can make it easier to create projections, including where marketing is involved. You can use a customer data platform (CDP) to collect customer data in real time to give you the most accurate profile based on their online footprint. Give this a try to gather information to make customized marketing plans and financial projections for future campaigns.

Get the Help You Need to SucceedThere are a variety of tools and approaches you can use when creating financial projections. By making reliable and accurate financial projections, you can communicate with investors, navigate periods of growth, create your state mandated annual reports, and develop strategies for tackling problems before they grow in scope.If you’re a financial advisor who is tired of the BS around marketing and lead generation, then visit Sara Grillo online. You can read my blog and listen to my podcasts, or you can become a member to get customized information from me to help your business move forward.

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So where’s the spot bitcoin ETF and what’s up with these crypto ETFs in general? Will the SPY lose its crown this year? Are semi-transparent ETFs are raw deal? This episode we’re going to be talking about 2023 ETF trends and I thrilled to have some of industry’s most knowledgeable people here to rap about it all: Nate Geraci, host of ETF Prime podcast and President of the ETF Store, and Phil Bak, founder of Armada ETFs.

I wanted to have this talk because a lot of advisors just look at ETFs as well, kinda just there. There’s a lot under the surface though and that is what we are going to talk about today so let’s get onto the show!

We’ll discuss:

Will the SPY become dethroned?
What exactly is a spot bitcoin ETF and how is it different from a futures bitcoin ETF?
Do ESG funds suck? (YES!!!)
What’s up with these semi-transparent ETFs?
Small ETFs – worth it or too much of a risk?

I am an irreverent and fun marketing consultant for financial advisors. Are we in a market regime shift?ETFS can be thought of as a wrapper around an investment strategy. There are so many that when you talk about ETFs you are really talking about what is happening with the economy on a macro level. But in 2022, stocks and bonds went down together and displayed high correlation, suggesting a failure of modern portfolio theory.

In 2023, we are coming out of a market regime we have been in since the recession. You could put your money in to US equities, large cap market cap weighted, and that is where the bulk of market flows have gone. Investors may have to think harder about how they are allocated. Alternative asset classes, physical gold, different realms of fixed income, ETFs that use options strategies for downside protection, and other innovative ETFs may become more popular.

It may be time to rethink fundamental portfolio construction…

Semi-transparent ETFsGeraci is not bullish at all on semi-transparent ETFs. He feels the daily, full transparency of the ETF wrapper is a huge benefit to investors. Active managers though are worried about having their “secret sauce” made public. Geraci feels those concerns are overstated. Active managers have been evidenced to generate outperformance in an ETF wrapper. There is absolutely the opportunity for front running and slippage but Geraci doesn’t think it matters.

Bak says that before Cathie Wood, there was the belief that you couldn’t really succeed as an active manager using ETFs because of front running; but she disproved all of that.

Quick take: what is a bid-ask spread for an ETF?The way an ETF trades, there is a value based intrinsically on the underlying assets. If we believe it is worth $25, there may be a bid (amount the buyer is willing to pay) of $24.98, and an offer(ask price) of $25.03 from the seller. There is a spread that is the hedging cost of the market maker. Investors can play the spread any number of ways, but that is basically what keeps the ETF in line with its value.

Transparency for the industry has been a good thing because it has kept ETFs trading in line.

Low-cost ETFs steal the show!SPY turned 30 this year. It may be overtaken by IVV which trails it by about $70BB in AUM. If you look at flows over the last few years, money is coming out of SPY and into VOO and IVV and Geraci believes it is due to the expense ratios being lower.

SPY, at the time of recording this podcast, was at $369 billion. VOO is at $271, VTI is at $274, and IVV is at $300. Bak believes that if the market is down and there is an opportunity to tax loss harvest, there may be an exodus from SPY.

But if there is a Fed pivot leading to market rally, Bak says, the greatest beneficiary will be small caps. SPY’s crown may be taken by VTI in that case.

Will 2023 be the year for physical gold ETFs?Geraci is puzzled by the fact that in 2022, every single asset class other than commodities went down, and gold was only down by 2% yet there were not major inflows. There were a laundry list of crypto scams in 2022. Bitcoin was referred to as “digital gold”. Geraci posits that some investors may go for actual gold instead of digital gold in search of an uncorrelated asset if a weaker dollar and inflationary concerns persist.

Iran and Russia are working together to create a Stablecoin backed by physical gold. According to Bak, assets don’t care about the ethics of their investors. If they are going to be transacting oil on a gold-backed derivative, that may have an impact.

The spot Bitcoin ETF – come out, come out wherever you are!Multiple issuers have attempted to bring a spot bitcoin ETF to market, and the SEC has shot them down. In October of 2021, ProShares was successful in bringing the first futures-based ETFs to market. These ETFs have tracked the spot price of bitcoin pretty well.

The SEC won’t allow a spot bitcoin ETF to come to market, but it has allowed bitcoin future ETFS to. The problem is that if you look at where the CME-traded bitcoin futures get their references prices from, they get it from the exact same exchanges that a spot bitcoin ETF would.

They are taking pricing cues from the same place!

The SEC is scared of fraud and manipulation from these exchanges, but it doesn’t seem to make sense which is why Grayscale sued them.

But as of today, a spot bitcoin ETF doesn’t exist, and for this reason people have resorted to other sources to get bitcoin exposure, such as the Grayscale Bitcoin Trust, a private trust that trades over the counter. This traded at one point at a premium and now trades at a large discount. It has not done a good job of tracking the spot price of bitcoin. Or they invest in bitcoin on their own using self-storage (at the risk of losing their keys).

It looks like the SEC wants full oversight of the crypto exchanges and until that happens it’s unlikely we’ll see a spot bitcoin ETF.

Quick take: how does a bitcoin futures contract work?A bitcoin futures contract gives you the right to purchase bitcoin at some point in the future at a certain price. You may buy it in January with the right to purchase bitcoin at the price that prevails for the asset in February or March, for example. When you hold a bitcoin futures, you are essentially speculating on what the price of the asset will be at that point in time.

As the futures get closer to the maturity date, the futures price essentially converges to what the spot price is at that time.

Quick take: How do you roll a bitcoin futures contract?Bitcoin futures ETFs will roll the futures contracts month to month. When the futures curve is in contango, in which the far away months are higher than the near months, you have what is called a negative roll.

You are essentially selling low and buying high (remember you are buying bitcoin at the spot price that persist when the contract matures). This can be a huge headwind for returns in a bitcoin futures ETF.

The point is that long term a bitcoin futures ETF is probably going to trail the spot price of bitcoin, which is what Geraci says he’s seen with other futures-based ETFs.

Morgan Stanley disappointingly issuing ETFsMorgan Stanley has started rolling out their own ETFs and the first wave is ESG funds. The worst part is that their wealth management clients’ portfolios will be stuffed with this crap. The core ETFs will likely follow this initial crap-based offering.

ESG sucks for the following reasons:

The ratings agencies don’t even agree on whether or not a stock is an ESG stock or not.
ESG is not a primary market transaction which would have influence over a company. It is a second market transaction which is conducted between shareholders and has little if any impact. The shares are already issued and the company doesn’t care unless the stock price goes so low that it gets delisted.
If a good company goes down the hedge funds who don’t care about ESG will buy it back up.
It puts the investment manager in charge as the arbiter of morality for virtue points, which is hard to do at a top-down level as opposed to an issue-specific level.
The markets are a natural ESG screener anyways. If you have an issue with something a publicly traded company does, stop using their products and then their earnings will go down.
Investment managers are smart and pay attention to ESG risks such as litigation. They just don’t call them ESG risks.

Is the bias against smaller ETF issuers flawed?The liquidity of a small ETF is fine as long as the underlying liquidity of whatever it holds is fine. Many people have a $100MM threshold when it comes to investing in ETFs.

The idea that we can only invest in large funds by the largest issuers is suppressing innovation. It also creates a systemic risk because everyone is in the same funds or another. There is always more liquidity on the way in than the way out.

People say that ETFs are the Silicon Valley of asset management. There are no better entrepreneurs in the industry. The problem is that if a smaller ETF has some success, the larger issuers will come in and offer it at a lower price due to the scale that they have.

Sara’s upshot on crypto ETFs and other trendsWhat’d ya think of my show on crypto ETFs and other 2023 trends? Was this helpful?

If yes…

Join the Transparency Advisor Movement.

The Transparency Movement is the future of the industry – we welcome anyone who believes in our values to join us.

Join our next Transparent Advisor virtual meetup.

These meetups are free and the goal is to learn from each other about how to grow and manage a transparent practice for the benefit of clients.

Even if you can not make the meetup, or even attend in its entirety, please register for the replay and to be notified of the next one.

For marketing tips in the transparency age…

You could also consider my financial advisor social media membership which teaches financial advisors how to get new clients and leads from LinkedIn.

Thanks for reading. I hope you’ll at least join my weekly newsletter about financial advisor lead generation.

See you in the next one!

-Sara G

BiographiesAbout Phil Bak

Phil is the Founder/CEO of atNav, an early stage capital markets technology company. Phil has previously served as the Founder/CEO of Exponential ETFs (acquired by Toroso Investments), Chief Investment Officer of Signal Advisors, and Managing Director at NYSE.

Phil is the author of two patents on innovative ETF structures, has led market structure enhancements that have become industry standard, and pioneered new investment strategies into the market. Phil has been featured in top-tier media outlets such as the Wall Street Journal, Bloomberg, CNBC, Financial Times and Reuters.

Phil holds the Chartered Alternative Investment Analyst (CAIA) designation and is the host of The ETF Experience and the Phil Bak Podcast. Read him on Substack at: https://philbak.substack.com/

About Nate Geraci

Nate helped launch The ETF Store, Inc., nationally recognized as the first investment advisor to offer only Exchange Traded Funds. He is also creator and host of the weekly podcast “ETF Prime”, which Bloomberg has called one of the “most helpful plain-English resources for investors who want to demystify exchange-traded funds”. Nate is Co-Founder of The ETF Institute, the first and only independent organization providing ETF industry professionals and financial advisors with certification, education, and training pertaining to ETFs.

Nate is regularly quoted in various national publications including Bloomberg, Business Insider, The Wall Street Journal, Financial Times, and CNBC, has appeared on Bloomberg Radio & TV, and was named one of Ingram’s 2013 “40 Under Forty” in Kansas City. Nate also serves as a board member for the Kansas Council for Economic Education.

He earned both his undergraduate degree in Business Administration and his MBA from the University of Kansas. He holds Series 7 and 65 Securities Licenses in addition to a Life & Health Insurance License.

DisclosuresGrillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use or mention in any of its content, or the success of any program it may mention in any of its content. Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor. I want to be clear that nothing in this podcast or blog can be interpreted as an investment recommendation of any type. The opinions expressed herein do not necessarily represent the views of Sara Grillo or Grillo Investment Management, LLC. Also, nothing in this podcast or blog can be interpreted as legal or compliance advice. For advise on such matters, contact a legal or compliance advisor. Any similarities to persons deceased or alive are entirely coincidental.

Sara Grillo owns shares of Tesla, (ticker: TSLA) and iShares Core S&P 500 ETF (ticker: IVV) , in her personal account at the time of this blog being published.

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ESG sucks. In this podcast we’re going to talk about why ESG is a rip-off and nothing more than a way for Wall Street to earn higher fees off unsuspecting people who mean well. Don’t let your clients get taken! Listen to this show.

In this podcast we are going to expose the truth about ESG investing. I am joined by Eric Balchunas who is a Senior ETF Analyst at Bloomberg and the author of “The Bogle Effect.” And also Dr. Ellen Quigley, Special Adviser to the Chief Financial Officer (Responsible Investment), University of Cambridge and Senior Research Associate (Climate Risk & Sustainable Finance), Centre for the Study of Existential Risk, University of Cambridge.

I am an irreverent and fun marketing consultant for financial advisors. ESG vocabBefore we get into it, let’s start with some basic definitions:

ESG: ESG stands for “Environmental, Social, and Governance” and it’s a style of investing that purports (but does not, in reality) save the world from its evils. Governance is an unhelpful tack on, according to Dr. Quigley, usually viewed as unrelated to the first two related to things like board composition etc.
SRI: Socially Responsible Investing. This is a restrictive type of investing that aims to avoid directing funds into sin investments such as tobacco, etc., through use of screens.
Impact investing: A private investment in a company, made in the spirit of saving the world.
Brown stocks (also called “dirty” or “fossil”) vs. Green stocks. A pure play fossil fuel company would be brown whereas a pure play wind turbine company would be viewed as green.

Reasons why ESG sucksThe following are reasons why we believe that ESG is a bad investment strategy.

1. It’s active investing done badly.

By excluding certain types of stocks, you make it more likely you’ll underperform.

According to an article by Larry Swedroe from 2016, controversial investments yield post abnormal returns, generally, and screening them out causes performance to suffer. Swedroe cites a study by Greg Richey from the Summer 2016 issue of The Journal of Investing. Richey’s research found that found a “Vice Fund” produced a greater risk-adjusted return over the market portfolio (Richey, 2016, as per Swedroe, 2016).

With all the moral propaganda and pulling on the heart strings, it’s easy to overlook that ESG, at its core, is an active management strategy that comes, generally, with higher fees (we’ll get to that later) with performance that doesn’t justify them.

It’s the concept of “slactivism”, according to Balchunas: you want to do something good, but you don’t want to exert too much of an effort.

Dr. Quigley says that it’s like rearranging deck chairs on the Titanic, because if you look at the effect that climate change will have on your portfolio overall in the long term, it dwarfs the impact of higher fees anyways, whether or not ESG investing actually works.

2. Secondary market trading doesn’t really impact the company.

The idea that market participants can voluntarily change overarching global problems by the force of their market behavior is a flawed premise that sounds good but doesn’t hold up.

These are key points that many financial advisors do not understand.

First of all, Secondary market trading doesn’t really impact the company. It’s just exchange of shares. Your money goes to a different shareholder. It does not go to Apple’s checking account.

Secondly, The ”bad companies” who are the offenders already have enough capital. They aren’t issuing shares to fund their operations. In fact, they are probably net buyers of shares. The giant companies are sitting on massive cash piles; Apple is sitting on 202bb in cash. According to Yardeni Research, there was $200B of buybacks in Q2 2022 for S&P stocks (which boosts the price).

Source: Standard & Poors, YardeniAnd guess what else!

The massive cash pile held by just 13 companies accounts for nearly 40% of the $2.7 trillion held by all of the companies in the S&P 500. S&P 500 companies now have enough cash to give $8,131 to every man, woman and child in the U.S.

-Investor’s Business Daily, February 3, 2022

Ehem.

Third, share prices dropping doesn’t tick off the executives who hold large amounts of company stock because often their compensation is determined by the number, not price, of shares. If the company were to become delisted from an exchange, or if they are voted out by proxy, the directors may become embarrassed, fear of which may be a bigger motivator of good behavior.

Lastly, markets are competitive and there are certain types of investors who will look at a company with good cash flow selling at a depressed price and buy shares on fundamentals, even if it is a moral offender. The price will rebound. It takes an unrealistic amount of divestment to have a real effect on a company.

According to Dr. Quigley, 90% of capital raising happens through the bond market. That is where the money flowing into fossil fuels comes from. If you are going to have exclusions, the bond side is much more likely to have an effect. Bond issuances, not secondary market trading in public equities, would have an effect. Public traded equity is not new money, unlike bond issuances.

3. ESG signaling and wokeness are destroying corporate America.

Here’s why I hate ESG ratings.

It’s unclear who the good and bad stocks are because ESG scores are just meaningless signaling. There’s no universal meaning. The ratings are assigned by different companies in a way that is too different. It’s not like in the corporate bond market where we have Fitch, Moody’s, and S&P ratings agencies. There is a huge disparity from one to the next in ESG scores. Two examples of companies who assign ESG scores are SASB and Refinitiv.

Also, ESG scoring is nothing more than a funding tool. Companies have to signal that they are “woke” and consistent with progressive values in order to get funding. It’s more an indication of what your CEO tweets about than the actual virtue or vice of the company’s behavior.

This lack of fairness, transparency, objectivity and the ideology the enshrines the offering up of stock market competitiveness as a sacrificial cow of wokeness is yet another reason why ESG sucks.

4. ESG fees are Wall Street ripping off the consumer

Yet another reason why ESG investing is a bad idea – the fees!

Plain old index funds suck for Wall Street because they decimate the fees they get. But by sneaking in active management in the form of ESG, Wall Street gets another crack at shaving off a higher level of fees from the unsuspecting consumer.

Research shows that ESG comes with higher fees, so much so that it may be better to take fee savings and donate it to a charity that has impact than actually invest in an ESG fund and pay the higher fees.

From a Wall Street Journal Article:

The environmental, social, and governance funds’ average fee was 0.2% at the end of 2020, while standard ETFs that invest in U.S. large-cap stocks had a 0.14% fee on average.

-Wursthorn, 2021, as per Sullivan, 2021

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SourcesKrantz, Matt. (9 February, 2022) Investor’s Business Daily. 13 Firms Hoard $1 Trillion In Cash (We’re Looking At You Big Tech). https://www.investors.com/etfs-and-funds/sectors/sp500-companies-stockpile-1-trillion-cash-investors-want-it/

Richey, Greg. (2016, May). Sin Is In: An Alternative to Socially Responsible Investing.? Journal of Investing, 25(2):136-143. DOI:10.3905/joi.2016.25.2.136. https://www.researchgate.net/publication/303634950_Sin_Is_In_An_Alternative_to_Socially_Responsible_Investing

Sullivan, John. (2021, March 16). 401k Specialist. Sustainable Scam: Is ESG About Responsibility or Higher Fees. https://401kspecialistmag.com/sustainable-scam-is-esg-about-responsibility-or-higher-fees/

Swedroe, Larry. (2016, July 25). ETF.com. Swedroe: Costs Of Socially Responsible Investing. https://www.etf.com/sections/index-investor-corner/swedroe-costs-socially-responsible-investing

Wursthorn, Michael, (2021). Wall Street Journal. Tidal Wave of ESG Funds Brings Profit to Wall Street https://www.wsj.com/articles/tidal-wave-of-esg-funds-brings-profit-to-wall-street-11615887004

Yardeni, Dr. Edward, Abbott, Joe, Quintana, Mali. (9 December, 2022). Yardeni Research. Corporate Finance Briefing: S&P 500 Buybacks & Dividends. Figure 3: Buybacks & Dividends. https://www.yardeni.com/pub/buybackdiv.pdf

Podcast transcript0:00:01.0 : ESG, get the beeeeep out of here. ESG sucks. In this podcast, I am joined by Erik Balchunas, who is a senior ETF analyst at Bloomberg and the author of The Boggle Effect. Dr. Ellen Quigley is a special advisor to the Chief Financial Officer of Responsible Investment at University of Cambridge. She is also a senior research associate in climate risk and sustainable finance at the Center for the Study of Existential Risk at the University of Cambridge. We’re going to talk about why ESG is nothing more than a way for Wall Street to earn higher fees off of unsuspecting people who mean well. Don’t get taken, folks. Listen to this show. Welcome, Erik and Ellen. Thanks so much, Sarah. Great to be here. Great to be here. So what we’re going to do is I’ll list out the reasons I think ESG sucks and then after each one you tell me if you agree or disagree. If I’m tripping or whatever. Sound good, folks? All right. So before we get into it, let’s just start with some basic definitions because one of the things, first of all, that really annoys me about ESG is how some people, even people who are supposed to be the credible authorities, misuse the terminology in this field.

0:01:15.9 : So first of all, ESG, what does each letter stand for? Who wants to take it? Environmental, social, and governance. Okay. And so I think people understand the E and the S a lot, but what is the G part actually? It’s an unhelpful tack on. Usually viewed as unrelated to the first two, but it’s meant to address things like board composition and so on and so forth. Okay. I can tell you’re not a big fan of this. This is going to be good. I’m going to get into it. Okay. Another term that people often blend with ESG is SRI. Now this is way back. I remember, it must have been over a decade ago, Amy Domini with Domini Investments was one of the first kind of socially responsible investors. So SRI stands for socially responsible investing. Is it ESG? It’s useless in many of the same ways, but probably with much more sincere intentions behind it. Well, socially responsible investing aims to eliminate the sinners. So, you know, gun stocks, nukes, whatever. So it’s a restrictive form of investing and it is a part of ESG, but people kind of use it interchangeably and it’s not. Okay.

0:02:34.8 : ESG is not all involving restricting from the bad investments. ESG also aims to promote supposedly the goal of ESG is to promote the growth of companies that are supportive of beneficial practices, which is debatable and we’re going to get to that. Impact investing. Okay. So impact investing is, well, in some cases it refers to making private investments or investments in private companies, but it’s the idea of promoting companies that aim to do good in the world or have an impact. Brown versus green stocks. Could we say dirty or fossil instead of brown? Sure. Yes, exactly. This is something that people just throw around. So what’s the distinction there, Ellen? I mean, it’s going to sound a bit artificial, but yeah, so like a pure play fossil fuel company would probably count as a dirty or fossil fuel stock, whereas a pure play wind turbine company would be viewed as green.

0:03:36.1 : Okay. And right there, I think, you know, the idea of, okay, well, first of all, my take on impact is I’m probably the most optimistic there. I don’t know how Ellen feels, but impact is, okay, let me buy wind turbine companies or solar energy companies. And in the ETF side, those ETFs would be like tan, which is like 20 solar stocks. It’s a pretty clean situation or communication. Hey, I want to put my money into some things that where people get up every day and try to like get something done on this thing. That’s just the E by the way, it’s not the S and the G, but that kind of makes sense to me. I’m going to put my money towards this and try to have an impact. So when you talk about those companies, that kind of play also typically fits in a portfolio where you might have like a couple of cheap index funds or your 401k account. You could just tack that on. You know, 7, 8% or even less. And now you are sort of long these stocks or companies that are doing this thing that is good for the environment or what have you.

0:04:48.1 : I’m sure we’re going to get to the ESG and SRI where you exclude companies, but I kind of get impact investing. To me, that makes sense. I think people sometimes confuse that when Tesla was kicked out of the S&P 500 ESG index, people were like, what? It’s a clearly, it’s literally an EV company, but people, again, they confuse what the company does with their ESG scores. Whereas impact, I think is a little clearer. What this company does is part of the impact. And I just seems like it’s the communication there at least is pretty clear. I don’t know if you guys disagree, but impact to me makes the most sense.

0:05:28.2 : I think we do disagree on a couple of things, Eric, which is good because it’ll keep Sarah’s podcast interesting, but I would not consider a renewables ETF an impact investing and would, it’s pretty much useless to select that versus something else because it’s secondary marketing. Okay. But let’s go through that. Like, so if you buy 20 solar stocks, why is that useless?

0:05:52.0 : Because there’s no additionality base, not, not, no, there is such a tiny, tiny amount of additionality that it’s basically, it’s, it’s basically no additionality. So it’s secondary market. It doesn’t affect the company. You’re buying and selling between and among investors. The money doesn’t go back to the company. I’ve reviewed all of the studies on this. Basically, it’s hard to find any real impact from that.

0:06:14.3 : What about if you just think that’s a, an industry that will, will grow?

0:06:21.8 : Sure. But then you’re not having an impact.

0:06:23.8 : Okay. All right. All right. Fair enough. Maybe I’m confusing the fact that impact has to be private. Does it have to be in the private markets?

0:06:33.3 : Sarah, feel free to, I know I have to say the whole thing about it. I think it has to be in debt or, or private markets because that it has to be a primary market transaction.

0:06:45.6 : Yeah. Right. Okay. I mean, let’s face it though. I mean, enough public market interest could push the envelope on some of these things, but if, if my little account buys tan, I, yeah, it’s not going to really move the envelope. Even at high. Yeah. No, like honestly, it’s, it’s secondary market is not where we want to have impact even at fairly high levels of involvement on the part of very large investors. So, okay.

0:07:12.0 : Let’s just say we, okay. I still get impact investing if it’s private, right? I’m not saying I don’t, I think what I will then switch my terminology, I’ll call tan a thematic ETF that happens to be in the sort of environmental realm. And I, I like those. I mean, I, I, again, I’m kind of with you. How much good does it do? How much good does it do? But for me, I’m looking at portfolios all day and I, to me, there is a, you could see the practical purpose. I mean, let’s just say, is there any purpose at all to owning a solar company?

0:07:48.7 : I mean, yes, but I mean, yeah, we could, this is a whole conversation. It’s just that like owning a listed solar company, owning the shares of it doesn’t help or hurt that solar company on average.

0:08:02.8 : Right. And I think this is where we get into the ESG and which is a bigger that, you know, ESG wants to sort of be your core, right? Wants to be, hey, sell all your index funds and buy this ESG strategy. And then the question is how much does that actually impact these companies? I would assume you’re of the no, because now we’re talking the same deal. It’s all secondary market. It’s all publicly traded companies. I’m going to value this one and take this one out, tweak this, do that. And I’ve got my ESG. I’m going to sleep at night. And that’s, that’s largely BS.

0:08:39.6 : Yeah. It’s rearranging deck chairs on the Titanic.

0:08:43.4 : Yeah. This is what the BlackRock X sustainability person came out and basically said, not only is it not doing anything, it’s actually bad because it’s giving people a false sense of I’m doing something.

0:08:55.8 : I really agree with Tariq on this. He’s technically right. So what I have about five reasons that ESG sucks. And one of the reasons is, and folks tell me if you agree or not with this, is that it’s active investing done badly. And the reason is that by excluding stocks, you’ll make it more likely that you’ll underperform. According to Larry Swedro, quote, controversial investments generally yield positive abnormal or risk adjusted returns using the Carhartt, Carhartt four factor model, which is beta size value and momentum. Screening them out produces suboptimal financial performance. Practically all controversial cluster portfolios significantly outperform the market and do so with statistical significance at the 5% level. And in most cases at the 1% level. Gray Ritchie summer in the 2016 issue of the Journal of Investing, Ritchie examined the risk adjusted returns of a portfolio constructed of firms from SIN or vice related industries using data from the Center for Research in Securities prices covering the period May 1995 to May 2015. He analyzed the performance of a vice portfolio made up of 41 corporations against the market portfolio. The firms in his vice portfolio came out, sorry, came from the alcohol, tobacco and gambling industries listed on the nice NASDAQ or NASDAQ OTC.

0:10:27.5 : He then added firms in the defense industry to complete the portfolio of vice stocks. Ritchie found that the vice fund produced a greater risk adjusted return compared to the results of the Carhartt four factor model over the market portfolio throughout the same period. The results were statistically significant at the 5% confidence level. What do you think?

0:10:50.3 : So I completely agree. Larry Swedro is really smart and he’s really good at factors and the whole like trying to discern where returns come from. I think also just you’d have to use the sniff test. I’m a big sniff test guy. If you have the ability to buy a sort of Vanguard total market index fund at three basis points fee, that’s a frictionless exposure to everything. And we know sometimes sectors have good runs, then they go down, they go up, they go down. Growth is in play, value is in play. We just saw it this year. Many ESG ETFs are underperforming because they tend to have a little bit of a tilt towards tech, which has high ESG scores and a little bit tilt towards growth. Those two are out of favor. The dirty oil stocks are having a great run and that’s been tough on them. So this year I think has reminded people that you’re right, it’s an active strategy. In a book I just wrote, I talk about how active is evolving. And one of the new ways is ESG. I find that’s like, active has a lot of faces and this is a new face of active.

0:11:53.1 : But they try to pull at your heart strings and your morals. And that’s what I find a little dangerous because it’s sort of pitched as you’re going to sleep at night and outperform and do good. And maybe you’ll sleep at night and maybe you’ll sleep at night, but the other two, we don’t know. You might outperform during a couple of years, then you’ll underperform. But over time it’s going to be higher fees. So I would argue if you took a Vanguard three basis point, classic index fund and you compared it versus an ESG fund that maybe costs, let’s say, we’ll be generous, 20 basis points only. Over 10, 20 years, I’d be very confident that the Vanguard one wins. The question some people are now asking is, well, is the underperformance worth it? And that’s where I don’t even think it’s worth it. So I’m not really sure. In my opinion, a lot of this is A, active and B, preying on slacktivism, which is the idea that I want to do good, but I don’t really want to make a lot of effort. I just want to feel like I’m doing something good and then I can go on my way and not, I don’t actually really care to look into whether it is actually doing good.

0:13:03.9 : I just want the feeling, thank you, and maybe a little superiority and I’m good. And I’ll pay an extra 10 basis points for that. So I worry there’s a lot of that. So I always tell the ESG people, I’m not totally anti ESG. I’m just anti nasty surprise. And I feel like over 10, 20 years, it’s possible somebody wakes up and goes, wow, I didn’t think I would underperform in this thing. Now I’m sad. I sold out my whole core index fund and replaced it with this ESG thing. I shouldn’t have done that.

0:13:32.8 : So some people say that ESG has saved active management because you can charge fees for it. I mean, you’d be very lucky to get away with just a 10 basis point increase to your fee levels from ESG. It’s often a lot more expensive than that. Honestly, the studies are all over the place about SynStock’s ESG outperformance. I think there are methodological issues with many of the studies and there are many different things going on. So one thing is if you look at fossil fuels, for example, they’re a very volatile sector. And so I’ve reviewed 118 years worth of data in all the studies that I looked at. And basically, it doesn’t matter whether you own fossil fuels or not, but it really matters when you divest or buy because the timing is hugely significant. I think actually somewhat the same thing is true. I think tobacco and alcohol, if you look at more recent years, the younger generation is not getting into those habits at the same level as others have. And so the most recent studies on tobacco, for example, don’t find the same outperformance. But again, all of that is beside the point. It doesn’t matter.

0:14:50.7 : It’s all, again, rearranging deck chairs on the Titanic because if you look at climate change, for example, the effect that climate change will have on your whole portfolio definitely dwarfs whatever fee levels or stock picking variation you’ll have from the index. So that’s why we have to actually try to address climate change. That would have a much better effect on your performance in the medium and long term than anything else. We can get into what I would suggest to help make that happen through investments, but basically it’s not through stock picking and you will just pay more as Eric was saying. All right. So the second point that we’ve kind of tossed around, and I want to just go back over this so that it’s really ingrained, all right. But it’s the idea of secondary market trading as having impact or being hurtful to the company. All right. And this is what I feel isn’t made clear when you see ESG marketed to investors and even to financial advisors. And I feel like a lot of financial advisors don’t even understand why not. Okay. So the idea that market participants can voluntarily change overarching global problems by the force of their market behavior is a flawed premise for the reasons that we’re going to describe.

0:16:12.5 : Okay. Secondary market trading doesn’t really impact the company. It’s an exchange of shares. The bad companies who are the offenders already have enough capital. All right. And they aren’t issuing shares. In the case of the S&P, a lot of times they aren’t issuing shares to fund their operations. In fact, they’re probably net buyers of shares. Okay. So according to Yardini Research, there was $200 billion of buybacks in quarter two, 2002 for S&P stocks. Okay. And Apple is sitting on over $200 billion in cash. Okay. There’s just a massive cash pile held by these companies. And if they need to boost their price back up, they can buy back stock. Basically, the stock market, you can think of it as like when someone lists, when a company lists on the stock market in the first place, it gets money. That helps because that’s a primary market transaction. But after that point, it’s just a bunch of swirling or it’s trading slash arguably gambling. And there’s no kind of… The publicly listed companies are actually usually returning money to shareholders. Yeah. Well, dividends or…

0:17:23.2 : Well, I would say that returning of the money is why you invest. I mean, that is… Well, yeah. That’s… I mean, forget ESG. That’s like why you want to be in stocks versus a commodity. There is that cash flow that you get a part of. So I agree. That’s a good thing for most people though. But in the case of ESG, that doesn’t matter.

0:17:46.6 : Yeah. But those same companies and many private companies and nationally owned oil companies and so on and so forth will be raising new money on the bond market. And that’s where 90% approximately of new capital flowing into fossil fuels comes from, for example. So if you’re going to have exclusions, the bond side is much more likely to have an effect. And indeed, there is evidence to suggest that that is the case. It has already affected cost of capital on the debt side. And if you have less demand on the debt side, you can raise less money and less of a good price. Whereas it’s just not like that with public equity because that’s not new money when you invest.

0:18:31.3 : Yeah. I like to sometimes imagine the stock market is a circle. It’s just a circle of people trading back and forth. And I think sometimes people need a visual, but that’s all it is. It’s just people going back and forth trading, which is why investment returns, the cash flow and the earnings growth is great. You get that over time. But the trading creates these little bubbles and it comes down. And I think that’s where sometimes in the past five years, the ESG strategy has done well simply because people value tech and growth wasn’t necessarily because of ESG. But again, that’s just speculative return that is very volatile and goes up and down. But it is gambling, although within the stock market, those people trading back and forth in a circle, there are plenty of people who are just in the market and not trading. Those would be investors. But the people who determine the prices are the people speculating.

0:19:32.0 : Totally agree. But if the shares get dumped, if all the ESG investors said, okay, let’s dump all shares of Exxon and the price plummeted, that would have the effect, though, of ticking off the executives who own that company’s stock on a personal level. So even there, it might not, because actually a majority of, especially in the US, the majority of the remuneration packages for executives are actually negotiated on the basis of the number of shares. So if the share price is actually artificially depressed, arguably, the executives are actually better off because they have under priced shares they can sell for. Anyway, so it’s actually, even there, I wouldn’t necessarily argue that you’re going to have a direct impact. And actually, yeah. Well, I would say, like, if there’s a lot of factor investors like Larry Swedroe and a bunch of them who really don’t care about any of this, and they’d love to buy up these cheap shares of an energy company based on their cash flow and their fundamentals being pretty sound.

0:20:43.4 : So you get to get a good amount of cash flow for a cheap price. Somebody is going to buy that. So it’ll probably just come right back up to where there’s an equilibrium. I agree. And even if like the, there’ve been some models that look at just really, really high levels of public equity divestment, and it takes an awful lot of that. I would say probably an unrealistic amount of that to really have an effect on a company anyway. But I agree, people come back in because it’s, and also Exxon’s huge. They’re so huge. There is one thing I heard. I was going to say, I was on a panel with the guy who runs the S&P 500 ESG index. And we were talking about this idea when, you know, they kicked Tesla off. It was a whole controversy. Even, you know, Elon weighed in, called ESG a scam. He was all, and then the companies that were in the index were like Pepsi and Exxon and everybody’s confused and it’s a whole mess. Anyway, on the panel, I was like, what good does this really even do? He did, here’s one case he did make there.

0:21:41.8 : He goes, we’re S&P. These companies want to be in our index and privately they will, they will, we do indirectly or indirectly put pressure on them to fix some of these metrics, simply because they don’t want the embarrassment of getting kicked out of such a, first of all, the ESG index. And that potentially, if they were to get sold off more, they get kicked out of the regular S&P. So there is some like, I want to be in the S&P membership club thing. I don’t know if you, I’m curious to get Ellen’s take on that.

0:22:15.8 : There are a couple of studies that support you actually. I think it does have more to do with kind of social discourse and the index effect. But yeah, that’s, there is some, some evidence to suggest that companies that are threatened with exclusion from an index are more likely to comply with the S&P. Exclusion from an index are more likely to comply with the standard of the index, comma, however, if you look at the data providers in the space, I mean, there’ve been lots of studies about how they disagree. They all measure different things. It’s a mess. But also like most of the stuff that they’re asking these companies to do well at have to do with disclosure only, or other kind of what I call means-based indicators. And if you look at the evidence around disclosure, it’s, there are more studies finding a negative correlation between improved environmental disclosure and actual environmental performance. Then there are studies suggesting that there’s a positive correlation, meaning much of the time it doesn’t actually help the company become any better when they disclose more. But often it’s the companies that want to distract from their really bad emissions by disclosing that are the ones doing the better disclosure.

0:23:25.6 : And again, none of this changes the actual emissions. The planet doesn’t care whether your disclosure is good.

0:23:31.1 : Right. And this is the greenwashing that happens, right? With that. And then there was an article on Bloomberg, which got into this a little bit, which I’m just curious to get your reaction is like, they were saying that even the companies that are the polluters that you want to see do better, a lot of them are just buying credits or somehow they’re not actually not, they’re not actually changing their behavior. They’re just financing their way around it. But the, that does have a downstream impact because it, those credits or that money goes to a solar company or somebody who is doing that kind of a thing. So there is a downstream positive impact, but the company got its ESG score up without really doing anything.

0:24:20.5 : So it’s actually even worse than what you say because offsets, for example, there’s a study that suggests that about 95% of offsets do not sequester the carbon promised. And in general, I’m very skeptical of that field. So having companies meet these commitments through offsetting or credits, I don’t think that’s credible. Also, I mean, as, you know, Oliver Hart and Luigi Vingales have written, there’s a comparative advantage for companies in preventing externalities from costing society in the first place. Like to try to clean this stuff up afterwards doesn’t make any sense if you can prevent it from happening in the first place. The prevention, you know, pound of cure, all that, all of the sayings on this ring true. It’s going to be just a point for the audience. What is an offset? So it’s basically like a religious indulgence, effectively. So if you emit a ton of carbon, you can pay somebody else to hypothetically sequester or reduce the equivalent in their own emissions. And the problem is, is that, I mean, a lot of these are, yeah, anyway, this could be a whole other episode, Sarah, actually. But basically, it’s a way of not having to actually decrease your own emissions, but instead getting someone else to do it, supposedly, which is kind of the problem.

0:25:44.7 : There are, you know, carbon credit schemes that are, like there’s one in the EU and so on and so forth. Like it depends on who does it and what it is. But in general, the whole idea of offsets in particular, quite problematic. And yeah, probably better to actually be emissions at source. But to me, this adds only another layer of confusion and ineffectiveness. Because even if you got the right ESG ETF that you just can live with and sleep at night and all that jazz, some of the companies that make it in probably do this number. So the greenwashing underneath the fund is a whole nother layer that most regular people cannot go that deep into due diligence and figure this out. I mean, I guess if you follow like certain like green publications, maybe they’re going to talk about this a little bit. But again, the vast majority of people that ESG is being pitched to are regular people and advisors who are just have that feeling like I want to be that person who has the green portfolio and I can, you know, not be investing in the bad people and the bad things.

0:26:57.6 : And it’s pitched so simply. But again, you unpack this and it’s layer upon layer of like inconsistencies, confusion, lack of transparency. Also, the ESG industry also does itself no favor because we talked about the E, the S and the G. And the things that make up the E and the S and the G, there’s maybe, I don’t know, 15 metrics under each give or take. They never get explained to normal people. The ESG people don’t really do a good job. And so a regular person has an image of a company like Tesla and thinks this has to be an ESG company. It’s out there making cars. But the scores are much more detailed and wide ranging than just what the company does. Right. So right. There’s so many levels. That’s what I wanted to get into next. That was my third reason. This is this is another thing is that ESG ratings are just a form of signaling. And a lot of times they’re quite insubstantial. So it’s unclear who the good and the bad stocks are because ESG scores are just signaling. There’s no universal meaning that has anything true behind it. OK, the ratings are assigned by different rating companies.

0:28:14.5 : It’s not regulated. And they’re all different from one to the next and how they evaluate these companies. It’s not like in the corporate bond market where we have Fitch and Moody’s and S&P. Right. There’s this huge disparity between how one rating agency is doing it and the next one. So, I mean, none of it matters is the problem. Right. Like, we’re spending a lot of time on these disagreeing ratings. Yes, they disagree. Yes, they measure irrelevant things, in my view, for the most part. Again, it tends to be like indicators of indicators, reporting and disclosure instead of actual impact. But none of that matters because the ratings are typically applied only to public equity holdings anyway. So it’s all like it’s rearranging of deck chairs on the deck of another deck of another deck. Like it’s just it’s uselessness piled on top of more uselessness. Oh, man, I honestly I thought I was the most like the biggest skeptic. I’ve met my hero. I think this takes the whole conversation and just makes it almost an exercise in futility. This public compass, you know, if you’re on the secondary market, you might as well just not bother.

0:29:30.8 : I mean, there are other things to do.

0:29:33.3 : There are other things you can do. I do have some hope. But yeah, you’re right. I am usually the most skeptical person in the room.

0:29:39.7 : I mean, it’s funny where you talked about impact and going to primary market. I’d love to get your take on this one thing that this against I’m more sniff test. I’m not an ESG person, but I have to cover it because I cover ETF. So I don’t know four to 3% of my world is ESG, right? But when I go to ESG, it’s be taken up a little more of my time because it’s such a debatable issue. And there’s so much hype and I have to push back against it. So I’ve heard about it a lot. But one thing I’ve come to some conclusion of is naturally is what you did, which is I don’t know how much you can actually do good with your portfolio. It seems like the way to do this is through the government like voting and regulation. And as a consumer, it seems like you have way more power as a voter and a consumer than you do as an investor. But the investing seems to be a place where it can be expedited. You could get more fees there. So they’ve really grabbed onto this lane as a way to change.

0:30:40.2 : But it just seems like the weakest lane of the other choices. What do you think of that?

0:30:45.8 : I think that it can ease ahead of consumer behavior pretty easily actually for reasons we can get into if that’s helpful, but not the way it’s currently being done at all. So there are other things that can be done as an investor because there are… So actually, I mean, I agree with you about voting and regulation, huge, comma, however. All of that whole process… So I’m Canadian, right? And we’ve got intense fossil fuel capture of policymaking in my country. And that is actually something that is within the control of large institutional investors because it’s these companies that are doing that lobbying directly or through trade associations. So that’s one aspect. That’s something that could very concretely be done to help improve the political process and the outcomes associated with it. So that’s huge. But also, I’m more of a subscriber to the view of universal owners. So basically everybody now these days, other than the speculators we were talking about before, own a more or less representative slice of the whole economy. And therefore, you have to think about externalities. You have to think about things that some companies are doing in your portfolio that are hurting everything else.

0:32:06.7 : And part of the problem is that many of the companies that have the greatest externalities, the greatest that impose the greatest costs on everything else in your portfolio, are domiciled in a country that may not want to regulate that because it’s pretty profitable. But if you own, if you’ve got investors from around the world who can force behavior change, that’s a way of kind of leveling the playing field across jurisdictions and therefore supporting the kind of regulation that we would want to see too. Because if you can get enough behavior change from the company in the reluctant country, then that company might actually want its smaller competitors to actually be regulated to meet the same standard that they’ve been forced to achieve through investor pressure. So that’s part of the theory. It’s all an assemblage though. You do need the, I mean, there’s probably nothing more important than government regulation and your influence over that by voting. And then the other thing about consumption, I’ve had ESG people before say that’s just not really that big of a deal.

0:33:09.7 : But I think to normal people who look at ESG and then they, or they see somebody talking about climate change, you may even believe in climate change, but you’re just unable to change anything about your lifestyle that’s inconvenient. And even like very wealthy climate change advocates just fly on private jets and there doesn’t seem to be any inconvenient choices being made. And it seems like inconvenient choices are absolutely necessary and would get more followers than just talking. But maybe I’m wrong. Maybe the talking and there’s just one or two switches that can be flipped all of a sudden. But I’ve always thought that if you want to make Exxon ESG just demand green energy, like the demand will, supply will react to demand. And sometimes I feel like ESG is trying to force supply to change demand, but demand is clearly, if you can’t change demand, what’s the point of messing with supply?

0:34:11.5 : So I think that’s a very logical train of thought, but there’s a reason that the fossil fuel companies actually funded the whole carbon footprinting exercise. And it’s because they know that actually without system change, individual behavior change is really, really hard. So there’s actually no credible way to demand green energy in your home, because usually that’s difficult to do, maybe even impossible, and especially to get kind of additional demand from consumers. And the fossil fuel companies understood that very well, right? Like if I want to take only public transport, I need there to be good public transport. Like it doesn’t actually, the connection between even quite a few people deciding to take more public transport, that’s not going to make the difference. What does make the difference there is governments actually supporting investment in public transport. I do think if you’re Al Gore and you’re flying around in your private jet, yeah, you should make a different choice and it is going to probably be more inconvenient because that’s an outsize effect on overall emissions. And again, the rich are actually very disproportionately contributing to emissions anyway. But for the average person, what’s going to be much more effective is to work on voting and then to pressure pension funds and banks with whom you have a direct relationship, because those are the big blocks of capital that can actually push companies.

0:35:35.5 : But how much does the whole economy have to change? Because aren’t the rich really the ones rich now, rich because of globalization and like everybody moving all over all the time and stuff being shipped and everything just flying all over the place. Whereas, like remember during the pandemic where people like just stayed home and walked down the street and everything just came to a standstill. And I had this feeling like this might be what has to happen. Like globalization will have to resort to localization because you can’t just send everything everywhere all the time, right? Or is the proposal to make everything you’re sending and moving and flying and this all somehow green and not having an impact on the atmosphere?

0:36:20.1 : I think that’s a really, really interesting question. I think one of the disturbing things about what we saw in the pandemic is that even with, I mean, it’s like the ultimate experiment in consumer choice, except for that people didn’t choose it, but no one knew basically for a while. And it only cut down emissions and demand for oil by a relatively modest amount, because it’s the system, right? Moving things around still accounts for a huge percentage of overall demand for oil. And gas is built into lots of our systems, heating homes and electricity. These things aren’t things that individuals can shift, even with the most extreme example of everybody staying home for quite a long time. So yeah, that just seems like… But the interesting thing actually is that as we move away from fossil fuels, we will de facto be localizing our economies more, because I mean, most oil and gas are exported and therefore imported, whereas with renewables, that’s really not the case. It’s something like 3% of renewables get exported across the border, whereas it’s like two thirds for oil and gas. So yeah, I think it’s an interesting thought exercise, but we will see de facto less movement of at least some goods, just as an automatic response to the penetration of renewables into the system.

0:37:53.3 : Then there’s also the idea of companies engaging in ESG just for the purposes of virtue signaling, so that they can get their ESG scores up. So in a sense, the companies that are the subject of ESG are trying to game the system, and they do. Completely agree. What’s the signal if most of the indicators are, are you reporting this, are you disclosing this? It actually gives a roadmap for anybody who wants to game the system to do so. They’re very happy to produce a report and not do anything else. If you go on Twitter and you just see the CEOs tweeting things like…

0:38:32.8 : The signaling thing you talked about, that’s where the CEO comes out for or against something. Again, that’s probably slacktivism. That’s just someone trying to say, I’m a good person. I’m into this issue. There’s actually ETF that came out here called Yall, the God Bless America ETF, which purposely, it invested in the market, but it takes those companies out if the CEO does anything that’s virtue signaling, which is… That’s how many ETFs there are. There’s an ETF that’s called God Bless America. That’s how many ETFs there are. There’s an ETF that does that.

0:39:03.3 : Yep. There’s starting to be some scrutiny of these types of claims though. That’s the good news. In the UK, HSBC has been pulled up because they’ve been advertising their green stuff, but of course, they’re one of the world’s largest financer of fossil fuels. Similarly, in Canada, RBC, also one of the world’s largest financer of fossil fuels has been pulled up for its green advertising. Because it is misleading, but finally, we’re starting to see that that signaling sometimes have some negative consequences if it doesn’t match reality, which it pretty much always doesn’t.

0:39:39.9 : The G. We’ve talked about the E a lot. The G is about this governance thing. I was exploring this for Warren Buffett, because they really value independent directors on a board, which makes sense. You want an independent… But he says, I have been on 20 public company corporate boards, and I’ve seen a lot of them operate, and the independent directors in many cases are the least independent. If the income you receive as a corporate director, which typically may be around 250,000 a year, that’s an important part of your income, and you hope to get on some other boards, and then the CEO calls and says, how so and so, and the current CEO, your CEO says, oh, he’s fine, he never raises any problems, then you’re likely to get on another board for another 250K. How in the world is that independent? Because Berkshire sucks in the G, and they are not in any ESG ETFs. People find that shocking too. They’re like, Warren Buffett, he’s a big philanthropist. He also sticks to the E, by the way. The E too. I get it. The E as well. But the G, he brings up again another point that makes you think.

0:40:50.7 : Look, this actually links to some of the positive stuff that comes out of the research in this area.

0:40:56.9 : So I’m not saying this is a silver bullet at all, but there is some evidence to suggest that voting against the re-election of directors, like retaining the shares of a company you disagree with, voting against the re-election of directors, it’s actually pretty embarrassing for somebody who’s got that dynamic going on behind the scenes. These are high status individuals, even if they get 90% of the vote, that’s a slap in the face often. So combining that with denying primary market capital to the same company, you can have that kind of personal embarrassment element plus potential effect on cost of capital, and together those could plausibly actually have an influence on a company. And again, the other thing that you kind of end up concluding in this space is that we need a diversity of different tactics, and it’s the kind of assemblage of them that’s most likely to produce a result. And that’s what you see if you look at examples like apartheid South Africa, and so on and so forth. It was like layering on of a bunch of tactics. And I think we have to use the strongest tactics that we’ve got, and those appear to be voting against the re-election of directors and denying primary market capital like bond money for a new bond issue.

0:42:06.6 : So you’re bringing up voting, and this is where there’s two dimensions to this argument. There’s an ESG fund that picks stocks based on these metrics, right? That’s a whole thing. That’s investing ESG. Then there’s, that’s the what? That’s the Titanic.

0:42:23.1 : Yeah, that’s the Titanic. That’s the Titanic.

0:42:25.7 : What about this, though? What about you’ve got Vanguard BlackRock, State Street, own about 20% of every American company, the way they vote their shares and how much impact does that actually have? Because there’s a company called Engine Number One, which says, here’s how we’re going to do it. We’re going to just serve you beta. So we’ll hold all the stocks, but we’re going to be activists and push for these things and try to get in the ear of these bigger investors. And they had some success with Exxon. And then that’s how they’re going to do it. And that’s more the proxy voting method. Would you find that to be less Titanic-ish? Yep. Yep. With a couple of caveats. So, I mean, one is like, I do, I would personally, if I had any money, I would probably personally invest in index funds, but I would be very careful about which company I went with. And I definitely wouldn’t go with any of the top three that you just mentioned because their voting records are poor and they are primary market purchasers of all sorts of things we wouldn’t want. But I think it’s much more credible to just track the market and then be much more aggressive.

0:43:31.8 : Shareholder resolutions, though, definitely don’t vote against them because I actually feel like that could hold back progress. But shareholder resolutions, I think, are more of like a longer-term social discourse thing, more so than directly immediately effective because most of them are disclosure-based only, as we’ve been discussing. Most still don’t pass. And then even if they pass, the implementation rate is actually quite poor. And again, if you’re just implementing write a report, that’s not very useful anyway. So I’m a little bit more skeptical of shareholder resolutions unless there’s a lot going on behind them, which I have seen good examples of that, but very few. Because it’s funny, just one thing on this. It’s crazy, BlackRock to me is probably the best example. Vanguard doesn’t say much, so nobody bothers them that much, even though they’re a bigger owner of most stocks. But BlackRock, like Larry Fink came out and said, oh, we’re serious about climate change. But then it kind of threw him into the middle of this. And what’s crazy, BlackRock will have protests outside of their office with climate activists on Monday. And then on Tuesday, it’s coal miners who are pissed off at them.

0:44:46.8 : Or it’s like Florida and Louisiana divesting their pension funds from anything BlackRock-related. And so they get hit from the left and the right. And they put themselves in that position by sort of going into this situation. But I do have some sympathy for how difficult it must be to be one of these companies. So what they started to do, and I think this is probably smart, maybe Ellen disagrees, at least from, if I was them, I’d probably do this. They’re going to turn over or give you an option as an investor in their index funds to either, I believe you could use a third party. And you can pick from, I guess, a couple third parties who might be consistent with your belief system. Because there’s no way they can vote on all these resolutions. They’re too complicated and time consuming. Nobody would do this. No, but no one votes proxies. Right. So Schwab is going to poll the investors and figure out where their head is on these issues and then vote accordingly. But at least giving the end investor a choice of like, OK, BlackRock, I trust you vote how you want or I’ll use this third party.

0:45:54.2 : I don’t know. They’re taking some initial early steps in that direction. I get why they do it. This would probably take a little heat off of them because they could say, well, I’m not doing the voting. It’s my 30 million investors. But then you’ve got all these different views who might actually just end up in the same spot BlackRock is, which is we’re going to be middle of the road and not try to piss off anybody.

0:46:16.4 : There’s a lot in there. So one thing is coal miners should not be mad at BlackRock because they’ve only excluded 18 coal companies out of hundreds and only from their active business when they’re much more a passive house. They’re not hurting coal miners. I find it quite funny that they’ve gotten this anti-ESG blowback for basically doing nothing. And basically the reason that they get picked on too is because they do have a kind of hypocritical approach to this. Sorry to put it that way. Talking a big game but not matching it with what they actually do. I am very skeptical of the voting choice move that they’ve made. I agree with you that it probably makes sense for them to do it, but I much prefer the polling of beneficiaries approach. The way that if you look at behavioral psychology, behavioral finance, people go with defaults to such a degree that you’re just not going to get a lot of opt-in preferences. And therefore what BlackRock does as a house will still account for the vast majority of votes, but there will be less pressure on them to actually vote appropriately with that market power.

0:47:37.9 : So I much prefer the option of polling beneficiaries and voting accordingly. Also, I think it’s more democratic generally.

0:47:46.2 : Yeah, I agree with you. I think polling is where I land. That’s the Schwab method. Vanguard and BlackRock, it’s not quite the same, but I think they’re experimenting. I think one of these will take root. Maybe the polling method will. But I think this is the direction it’s going. Right or wrong? I think the one thing that I think most people… I cover passive investing, and there’s all these passive attacks like it’s ruining fundamental, it’s doing this and that. And most of them are just like sour grapes from active managers. But the one that I thought had the biggest resonance is this, which most people can just understand is like the concentration of power with BlackRock and Vanguard in particular, they each own 15%. And at the rate the flows are going, they’re going to own 20, 30% of most of America’s companies in the next decade, because they take in about two thirds of all the new cash invested in America. And so they’re going to be hugely influenced unless they get regulated and the government just says, you cannot get any bigger, which is possible. But anyway, that point is, so there’s a corporate governance group that sits in New York that works for BlackRock.

0:48:58.1 : Let’s just say there’s 10 people. I don’t know exactly how many others. There’s 10 people. They don’t own that much of any company. It’s 30 million people who own 8% of Exxon. But those 10 people are able to make that vote. I get why that seems problematic. It just seems undemocratic to not to have those people which really don’t own those shares. It’s their investors not have them involved in the process at all. And I think that was one of the biggest legit worries about the rise of passive was the concentration of power in those two firms. But this is, I think one step to deal with that. I think there’s a bill in Congress about that. Senator Dan Sullivan of Alaska proposed that portfolio managers or portfolio management companies are not allowed, should not be allowed to vote proxies of index funds.

0:49:52.9 : Yeah, this is another thing that was brought up by the guy from Janice for the op-ed in the Wall Street Journal saying just they shouldn’t be allowed to vote. Part of me understands this. But I talked to my ESG friends and they think that passive at least take summit ESG into account. Whereas active just wants profits. They’re a little more cutthroat. Don’t care. And they may actually encourage pollution because they want more profits and they don’t want to those extra costs. I think the combo is healthy. Passive has a little more, much more long term viewpoint. They’re never going to sell the stock. They can. Active can sell tomorrow. So I think maybe both actually, you might get the best of both worlds. So I’m of that camp. But I can understand why they would put this bill in. But that you know, if you’re ESG, I think you would not like this bill. Am I wrong, Ellen? We’re just it’s only active managers.

0:50:49.6 : Well, I actually I think it’s really worth distinguishing between fund managers and asset owners. Right. Pension funds, endowments, etc. I this is controversial, but like I would much rather that pension funds vote than fund managers. Because fund managers are trying to get more business all the time. So they don’t want to piss off the sorry, I don’t know if you have language restrictions. OK, great. They don’t want to piss off the pension fund of a company they’re trying to get the business of. Right. So like Exxon’s got a pension fund associated with it. Right. All of its employees will pay into that that pension fund. BlackRock wants that business. So there you know, there’s a limit to how much they’re going to want to be bold, even when they’re really extreme externalities. That these companies are causing. Whereas a pension fund is going, how am I going to pay out my liabilities in 30 years with catastrophic climate change, depressing the value of my entire portfolio when I’ve got like fixed liabilities to pay back in some cases. For them, they’ve got much more of a long term view, first of all, but also the right incentives to actually protect the basis on which they are able to pay back the liabilities that they’re contractually obligated to pay out.

0:52:10.9 : So they’re the ones who are going to try to reduce those externalities in the first place and protect the whole portfolio because you can’t stock pick your way out of these risks anyway. There’s no point in doing that. You have to actually try to change company behavior to internalize externalities. All right. Last points about why ESG is so important. Why ESG sucks on my list here, ESG comes with higher fees. Exchange traded funds that explicitly focus on socially responsible investments have, according to one study, 43% higher fees than widely popular standard ETFs.

0:52:47.4 : Unquote. Yeah, this is this is where the new active, you know, or active management trying to just because the book I recently wrote is called the Bogle Effect about just the epic bomb that Bogle and Vanguard dropped on asset management. It’s changed everything. More and more people going passive that’s pushed active to get creative. The T. Rowe Price Blend Fund thing is just sort of dying. So what do you do? Right. So one of the new ways is ESG. We’re going to pick stocks based on these other metrics. They charge a little more. I will say some of them are pretty cheap. Like, in fact, ESG ETFs didn’t start getting assets until Vanguard came into the space and came out with a sub 20 basis point fund. 20 basis points is like the international demarcation low cost line. Anytime you go below 20, you tend to get bites from advisors. They love below 20. Anything in the teams or single digits, they’ll generally buy just because it’s cheap. Once that happens, BlackRock came in with ESG and Deutsche Bank and they all there’s now, I don’t know, a dozen of them under 20 basis points. And the biggest one is ESG.

0:53:50.3 : You most of the assets in that one come from BlackRock’s own model. So I can’t say there’s a lot of organic interest. BlackRock put it in its own models, which are subscribed to by advisors. It’s probably got 100 billion dollars of subscribership in that model that has 20 billion. It’s 15 basis points. But here’s the thing that is the problem. The the the more the cheap ones, they’re 1512 basis points. They generally hold the S&P 500 minus a couple tweaks. And the reason for that is if you are an advisor and you practically and you’re going to put a big chunk of this in your core, it cannot have much tracking error. You cannot have to explain to the client why it underperformed the S&P. So what the advisors actually like is the ESG label, but with the S&P and they’ll actually pay up a little for that. The ones that do maybe more true ESG on the Titanic, those are going to have more tracking error. They tend to cost a little more, but they’re endorsed more by the purists and the people who really are into this stuff who would think ESG is just a complete waste.

0:54:55.9 : Why? It does nothing except make you feel like you’ve done something. But that’s the biggest ESG fund in America is ESG. But to its credit, it is 15 basis points. That said, you can get beta for three. So it’s five times more than what you can get in beta. But this is where the construction of a portfolio comes into play and why I tend to be somewhat more bullish on thematic ESG like solar, because then you don’t have to dislodge your wonderful cheap beta exposure. You keep giving the money to Vanguard or BlackRock or in Ellen’s case, somebody she likes. And then you can add on a solar ETF into what I call the hot sauce lane. So most portfolios are 85% cheap beta 6040. And then people in that 15%, they want to go a little crazy. They want to do things that are speculative, fun, narrative based to cure their FOMO. And that’s where I find a home for things like solar, wind, clean energy ETFs, which are much more volatile, and they’ll charge a little more, but those are more thematic ESG. So there’s a couple layers to what you just said, but the cheaper the ESG ETFs are, the more likely they’re just full of beta and they don’t really do much.

0:56:12.8 : Although to be fair, none of those strategies that you’ve described do much. We’re all talking about life on Titanic. Yeah. Yeah. Yeah.

0:56:23.5 : So this is all with that in mind that we’re just having a conversation on the Titanic about 10 minutes after it hits the iceberg.

0:56:32.8 : Yeah. Yeah. So I mean, let’s just walk through this from the perspective like of an average person who’s got a pension, right? So let’s say that they decide, yeah, I care about climate change or some of these other issues. I’m going to invest in an ESG fund. Like, first of all, it’s almost certainly going to be one of the ones that you just talked about, where it’s like basically just the index with a couple of tweaks anyway, but they’re going to pay more for it. And then as Tarek Fancy says, it’s a dangerous placebo because then you’re going to kind of go, all right, done. Like my money is invested for good and I can go home and sleep well at night. Meanwhile, your pension, which is for most people, your pension and your house are really, that’s most of your assets, right? And it would be better for you as a pension beneficiary to have a pension fund that underperformed a healthy market than for it to outperform an unhealthy one. And guess what? Climate change is going to have a really serious effect on overall returns over the next 30 years. Hold on a second.

0:57:42.8 : Hold on.

0:57:43.3 : Yeah. Go ahead. I think you’re going to say the same thing as I am.

0:57:46.7 : Because you’ve said this twice and I want to make sure I’m not thinking of reasons for what you said being true. Can you explain that? Why is an unhealthy market bad for the stock market? So really good question. I’m glad we’re really properly digging into this. So climate change, of course, has like a bunch of direct effects that we can probably think about. So like most of the world’s real estate is uncomfortably close to the oceans and so on and so forth. Not most, but most large urban areas are near to a body of water. At least some of that and especially some really expensive stuff is very vulnerable to sea level rise. You can think about the fires, the floods, the extreme weather events, all of that stuff. So that’s stuff I think we all imagine and that’s totally legit. But then you think about second order effects, right? So like Florida’s insurance market is collapsing because of all of that. But also you end up with multiple breadbasket failures and so on and so forth because of drought that drives up food prices. And like that contributes directly to conflict and forced migration, which then is going to cause all sorts of issues like geopolitically.

0:59:11.9 : So if you really map out all of the effects of climate change on a portfolio, like you really do conclude it’s better to prevent this. There’s pretty much nothing that ends up being unaffected. And there are even unexpected connections. Like for example, sometimes hydro plants are having trouble operating right now because of droughts associated with climate change. So you end up with like these massive power bases that can’t work anymore. Volcanoes are more frequent and more severe because of climate change. I mean, all these things, it’s a system, right? And climate change gets everything out of whack. So if you’re in a world in which you have a really good pension fund manager that manages to outperform, which that’s hard anyway to outperform the market, but let’s say they do. And you’re dealing with hundreds of millions of forced migrants due to climate change. Like how are you going to get your money back for your retirement in that kind of situation where it’s this catastrophic outcome? It’s just not going to happen. I know what you mean by that. You’re saying, yeah, I totally get that. That’s a bigger, that’s thinking big, right? Thinking beyond your portfolio.

1:00:33.4 : I get it. My question was more on the pensions. Like in the US, it’s not a lot of that. Maybe in Canada, maybe there’s more, but a lot of people would invest through their defined contribution plan, which makes you pick one of these funds, or you work with an advisor who has access to most of the public funds, mutual funds and ETFs. If you add up those numbers, they get way, they eclipse the defined benefit market in the US by a lot. Yeah.

1:01:05.6 : I mean, defined benefit is declining everywhere pretty much anyway. But I think the main point that applies to all of these types of funds is that most of your returns come from beta. Most of your, I can’t say this enough actually. Most of your returns come from overall market returns. Whether you under or over perform, it tends to be pretty marginal. So if the overall economy is messed up because we allow runaway climate change to take hold, that’s a way bigger factor than the ability of your fund managers to outperform or not.

1:01:39.6 : Well, no, but my question was in your example, you said, if you have a pensioner and you want your pension fund manager to XYZ, in the case of somebody who has defined contribution, why don’t you walk through that? Like, okay, so for the regular person sitting with the DC plan and now start from there.

1:01:58.7 : Right. So, I mean, basically it doesn’t matter how you invest. If you are a regular person and let’s say you buy an ETF or you go to your advisor and you open up a 401k in the US, either way, you are mainly exposed to market risk and market performance. That’s the key thing. It doesn’t really matter how you do it. You’re not going to do like 400 times better than the market. Right. So if we have extreme effects on the overall financial system, which is slated to happen unless we address this issue, it doesn’t matter how you invest. It’s whether or not you’ve protected the whole system in the way that you’re investing. And again, that is also going to come down to a lot of government regulatory action as well. It’s not really not going to come from just pension, pension funds. So at your job, are there people real into publicly traded ESG strategies? Like, do you, or does everybody, I’m just curious, I know where I work, there’s a lot of people into this stuff. Like, so I tend to be like a little bit of the bad guy. Is everybody on the same page as you in the university level, or are they more like coming from where I’m coming from, where they just can’t quite accept the Titanic theory, because it’s just too much of an existential, it’s existentially too difficult to accept that.

1:03:29.7 : So I work with the senior administration of the university, but also the bursars of each of the colleges, because they all have their own endowments, there are 31 colleges, so that’s a lot of endowments. The bursars used to work in the city in a lot of cases, and in general, they are hard-nosed, practical people. So actually, like when we talk about, they’ve actually influenced my thinking a lot over the last few years. And I think we have quite a lot of convergence and a lot of skepticism about this space. And that’s why we actually spend our time mainly on things like directly bothering banks and fund managers to change their behavior, using the evidence base to actually get them to do things that matter, as opposed to the things that are rearranging the deck chairs on the Titanic. And there’s a lot of buy-in for that. I’m actually really deeply impressed and grateful because it does feel like there’s this real sense of common purpose there.

1:04:32.3 : Wow. By the way, can I say one thing, Ellen? First of all, do you have a podcast yourself or no? No. No. Okay. A, I think you should start one on these topics. And B, I have the perfect name for you, Comma However.

1:04:53.1 : That’s it. I just-No, but the name of the podcast would be ESG, Comma However. However. Yeah, maybe. Comma However.

1:05:04.1 : I have to say, I’ll give them an idea. Comma However, a real talk ESG podcast. There you go.

1:05:13.4 : Okay. So let’s just kind of summarize it here for the financial advisors who are listening to this. I mean, for me, I mean, I was ready to kick ESG out the door in the first place, which is why I called you both here. But I mean, let’s say that you somehow do want to use your money to make an impact or that you’re investing, you can’t help but invest, but you’re not the government, right? You can only, you vote and you vote your proxies or whatever. I mean, should somebody just take the money that they would have spent on those expensive ESG funds and then go and donate it to a charity that saves the whales or like, what’s the bottom line here, folks? I have a definite answer, but it’s because I’m totally doing exactly this. And it’s always evolving. So I feel like I’m learning new things about what to do. So this could be very well wrong, or I’ll consider it to be wrong in a couple of years. But I think it’s most important to, A, switch banks. So again, if you look at where most fossil fuel financing comes from, it’s really a debt story.

1:06:21.1 : And a fairly small number of global banks are the ones kind of piling that primary market capital into fossil fuel expansion, including through like utilities that are building new power plants and stuff like that. So I would definitely start there. But the other thing is to put pressure on your pension fund and or your fund manager to get them to vote against the reelection of directors and not participate in primary market issues of capital to companies that are misaligned. And I think focusing on those high impact strategies kind of cuts through. And a lot of these actors don’t hear from very many people. Like a pension fund is going to hear from a handful of people per year. So you’d be surprised how effective it can be to few more write in and have really directive evidence based proposals to take forward. People who work in pension funds have usually taken a pay cut to work there. And they work there usually because they have other reasons for wanting to be there. So they’re not going to they’re going to be more receptive, would be my guess, to those sorts of respects, those sorts of concerns, because they probably share them.

1:07:38.7 : But those are great, novel pieces of advice, no doubt. The pension funds, though, sometimes I’ll hear this, where they’ll be like, oh, yeah, ESG ETFs aren’t taken off that much. It’s really more of an institutional story. But again, we’re still on the Titanic here. And pension funds want to have their portfolio look a certain way and they will exclude stock. So why are they doing that if they’re that clued into what you’re talking about? Is that just for show? I’m not necessarily saying that they’re clued in. And I don’t think that’s for nefarious reasons. I think it’s counterintuitive. If you think, you know, I’m investing in a company, you think you’re helping it, right? And if I’m not investing in a company, I’m somehow hurting it, or at least not helping it. And that’s something that I still run into a lot with ESG professionals, right? So it’s, I actually think it’s a matter of getting the word out about what works and what doesn’t. But I do agree with you, I think there is pressure to do some of the stock picky stuff anyway, because the average person isn’t going to know this, even if their pension fund really does get it.

1:08:51.0 : So I’m sympathetic. The university has done a bunch of things that have more to do with social discourse stuff, because it recognizes that, actually, part of the reason is that there’s a recognition that if you stigmatize certain things, they’re more likely to be legislated. That’s how we tend to legislate things in society. So if you have more fame than money, I would personally tell you to do different things. But most pension funds, no one’s ever heard of, so it’s probably best for them to do the most strategic, high impact things that also, by the way, probably have fewer return implications, because you’re not stock picking, paying higher fees, etc. Yeah, no, that’s that I would say of all the people I’ve met, and I’m in the industry, I think that’s where I get a lot of people who want this to succeed. That they like we’re all on the type panic, I guess, in a way, because I’m in the funds industry, it’s all after secondary market. There’s private equity, of course, that I, you know, we have a guy on the team who writes about that a little bit, but that markets pretty small relative to the public markets.

1:09:59.8 : And most of the debate is about the public markets and the secondary markets and Exxon. And it’s interesting, I’ve definitely, I mean, I was skeptical to begin with. Somehow, I’m like, even more skeptical. But your point is, is well is well made. And I think it’s I’m curious why I haven’t read or heard that more, though. I the only time I hear what you’re saying is from somebody who might not even believe in climate change is coming from the right. They’ll be like, Oh, it’s all it’s all bullshit. Bs. You’re saying it almost like as the same as the BlackRock person. You’re, you’re so into this goal. This is a distraction. It’s interesting how those two people can have the same view. Yet they one is like, doesn’t even think climate change the risk. The other one is hardcore into it, but they have the same actual view of the SDSS. I find that kind of interesting. Just saying.

1:10:57.3 : Well, what might be useful for you, Eric, is that, like the very same types of analyses and exclusions or tilts or whatever else would be much more useful on the bond side, because actually ETFs participate in primary markets as well, or they contribute to demand in primary markets. So actually just applying some of the very same tools and filters and so on so forth to the bond side itself would be, you know, genuinely useful. So shifting the conversation to the very same to the very same companies, but with a bond ETF instead. That’s in fact, my team is scoping a bond index for that reason, because there just isn’t enough out there. There’s so many, so many. There’s a couple of green bond ETFs, but honestly, you know, my mind has been changed there. I will, I will, if we’re going to, you know, take a positive approach, we’ll stick to the bond side. 90, you said 90% of capital comes from debt, the debt side.

1:12:02.7 : 90% of new capital.

1:12:04.9 : Yeah, that’s it. Okay. That’s a great stat. But most of the debate, action, energy is on the equity side and the products. There’s very few bond ETFs that are ESG, but there’s, I don’t know, maybe 10. But there’s 200 ESG ETFs that are equity.

1:12:23.6 : Exactly. And by the way, I’m also skeptical of green bonds, but we don’t have to get into that now. But I think just like applying some of the same exclusions that you might apply on the public to the bond side. I also would like to particularly emphasize companies that are building new fossil fuel infrastructure that lock in demand and dependence on Russia also. So power plants, pipelines and so on. That’s the stuff that is going to be the source of more lock in. So that’s a good focus. Real quick.

1:12:53.8 : So you want it’s green. It’s the ESG screens, not green bonds. Yes. Yeah. Okay. Yeah. Now, here’s a question for you. Just real quick. I know, I know we’ve been on this a long time, but what’s your take on nuclear power? And thus use uranium minor ETF. I actually thought this might be green investing for realists because doesn’t nuclear really have to be a huge part of how we’re going to get to net zero?

1:13:27.6 : Sarah, do you want me to open up this can of worms? Are you welcoming this? Okay. So there are so many different considerations here. One thing to say, like you’re going to get me in trouble with my family, by the way, in answering this question. I would say keep the German nuclear power plants open. Like any existing nuclear power plants. Like if the alternative is to shut them off and run coal plants, like don’t do that. Seriously, keep them running, comma, however. Nuclear is really expensive and it isn’t actually, it’s not as flexible as other things. What we really need now in the grid is flexibility to be able to balance out renewables. And again, the cost, like it is really expensive and we actually don’t have enough uranium for this to really solve a significant percentage of the problem anyway. And it takes a really long time to build. And electricity has to be decarbonized before anything else. Like we need to do that right now. And the pricing is already there for us. Like renewables can compete with coal in all major markets and is nearing that level with gas pretty much everywhere as well.

1:14:37.8 : So yeah, I don’t think building new nuclear power plants is going to help us very much. It’ll cost more and it’s not going to be as adjusted. Like you have to, it’s a blunt tool, a nuclear power plant, right? You can’t just turn it on and off and so on. That’s a big issue given the shift in electricity systems that we’re seeing.

1:15:00.1 : Yeah, but the idea is it’s 24-7-365. This is, again, this is Bill Gates quote. I think Elon’s comment on it, they both seem pretty, Bill Gates in particular, but Bill Gates, I shouldn’t listen to Bill Gates. Yeah, I agree. I disagree with Bill Gates on quite a few things. But like there isn’t enough uranium anyway to make much of a dent in the problem. And again, like we have to decarbonize electricity now. It’s going to take 10 years to get those plants online and we can build a lot of renewables in that time and then do things like, I mean, I think we should probably do fairly simple but expensive stuff like pumped storage, which doesn’t rely on batteries. But like we’re going to end up with really cheap renewables and some like much more expensive but adjustable stuff because we actually don’t need power 24 hours a day, seven days a week. That’s the thing. We have peak times. We have to manage that. If we have grid upgrades, which are, by the way, insanely important, we can end up in a situation in which people’s electric vehicles end up kind of balancing out renewables because cars sit most of the time actually.

1:16:14.6 : So there can be a store of energy for when it’s needed. Anyway, I just think, I don’t think nuclear is the solution that people think it is because of the timing, the cost, the lack of flexibility and again, just like the nature of demand for electricity in the first place. But keep the ones that are already open. We’ve been talking for over an hour here.

1:16:44.0 : Okay. Well, I mean, I learned a lot. The thing with this is there’s so much to unpack. That’s why we cover it. It only makes up 2% of the assets, but it’s probably 10% of our coverage. But obviously, it’s not something I’m an expert in per se, but I’ve had to get really read up on it. But my sniff test, a lot of my alarm bells went off, just early sniff tests. Wait a second, especially the way the media was really pushing it. And this fits a lot of what the media likes to write about. And so my big thing was just sort of, but I definitely, a couple of things changed my mind today. So appreciate that. 1:17:29.0 : Well, that speaks to your cognitive flexibility. So that’s amazing. All right, good. So listen, everybody, did we convince you that ESG sucks? Drop me a line on social media and let me know. You know, I love these kinds of debates on there. And by the way, tune in for the next one by subscribing to my show, and please rate and review as well. Thanks, everybody. See you next time.

Grill investment management LLC does not guarantee any specific level of performance. The success of any strategy, the Grill investment management LLC may discuss or the success of any program. Nothing within this content constitutes legal investment or compliance advice. For such advice, contact a legal compliance or investment advisor. Grill investment management LLC will strive to maintain current information, however, it may become out of date. Grill investment management LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature for specific advice applicable to your current situation. Please contact a consultant or advisor.

Podcast transcription may differ from original recording and Grillo Investment Management, LLC may not be held liable for such edifferences.

Sara Grillo holds shares of Tesla, TSLA, in her personal account at the time of this blog being published.

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As the move to transparency in financial planning takes hold, regulations are changing in Colorado and other states. Here’s the triumph of virtue that financial planning transparency will (FINALLY) bring to planners across the country and the benefits to clients that come along with it. Get ready for an exciting show, folks, whoo hoooo!!!!!!

We welcome Dwight Dettloff, CPA, CFP, and Knut Rostad to today’s discussion.

Let’s get into it, folks! We’ll cover:

What does it mean for financial planning to be transparent?
What are the changes in Colorado investment advisor regulations regarding financial planning?
What is happening in other states regarding reform of financial planning regulation, and why we expect these changes to become more widespread.
What should financial advisors do?

The move to financial planning transparency is aflame!The Transparent Advisor Movement’s mission is to promote ideals of:

Clarity,
Modesty,
Integrity,
Fairness,
Logic, and
Client advocacy

in all aspects of financial advice, with a special focus on Advice Only, Flat Fee, and Hourly service models. There is an emphasis on logical and clear disclosure of services and their related fees.

The goal of the Transparent Advisor Movement is to create the country’s best financial advisors – the most ethical, effective, and successful financial advisors that the industry has ever seen in its history. To do this, we are dismantling many of the norms and reconstructing them with a sheer focus on the experience of the end client, something that has never been done before.

Specific examples:

Educating financial advisors of all business models (AUM, fee only, commission, etc.) about how to run a business with higher transparency to the client
Executing outreach to college students to encourage them to avoid predatory wirehouse and insurance training programs and pursue fee-only paraplanning jobs instead
Working with advocacy groups to influence policy, law and governance
Mentoring younger advisors
Matching up advisors one on one to be accountability partners and support each others growth

Today I have a few influential members of the Transparency Movement here with me and we are going to talk about the changes occurring within state legislature as this movement unfolds.

Knut Rostad is the president of the Institute for the Fiduciary Standard and fiduciary defender.

Dwight Dettloff, CPA, CFP® is the founder of Winding Trail Financial Planning in Colorado.

Financial planning changes on the minds of state regulatorsWith the rise of alternative fee models such as flat fee and advice only, there is an important discussion among flat fee and some AUM advisors about the relative benefits of each model. Within this context, regulators have started to raise their concerns related to alternative fee models than AUM.

There is an organization at play called NASAA (North American Securities Administrators Association). Their concern is to unify the state administrators and address what concerns them. They often come out with model rules, recommendations, and advocate for the states in Congress and at regulatory agencies such as the SEC. The issue of financial planning transparency has become important to NASAA based upon what their state regulators are finding in their examinations.

Colorado financial planning regulations are in reformColorado is a good place to begin when discussing the reform to financial planning regulations that is currently underway. Colorado regulators came out with a seven-page memorandum in March 2022 expressing their experiences and concerns about what their examiners have found from flat, fixed, and hourly advisors in their jurisdiction. They revised this guide in November of 2022.

Advisers regularly have questions on how they can be appropriately compensated for the ongoing work that they complete throughout the year. At the same time, Division Examination Staff (“Staff”) has found that many ongoing financial planners are unprepared to respond to Staff inquiries about fees and work performed made during regulatory examinations. In these instances, Staff has found advisers unable to produce documentation demonstrating the financial planner-provided services to clients, the detailed accounting of fee to work deliverables, itemized invoices as well as clear and detailed fee schedules. The Staff would like to work with advisers to assist them in developing a business model that better meets clients’ needs and complies with existing regulations.

-Colorado Department of Regulatory Agencies. Division of Securities. November 2022

What the essentially expressed concerns about what the extent to which they found that many advisors could not answer questions about the nature of the services being offered and the fees in total that are being charged. Regulators are trying to make sense of what they are seeing in these individual cases. Since March 2022, the CFP Board, Michael Kitces, the Institute for the Fiduciary Standard and the FPA, among others, have provided commentary on the memo.

Reform and the advent of higher financial planning transparencyWhat flat fee advisors represent is something new to the regulators and is clearly apart from what they have traditionally seen from the advisors in their jurisdictions who are charging AUM. It’s possible there are good faith misunderstandings as this set of services is unrelated to the management of investments which is their core competence.

Regulators, not just in Colorado but across the country, are seeking ways that there could be greater clarity in the disclosure and communication in the fees that flat fee advisors charge and what they provide. The primary disclosure document cited is Form ADV as opposed to an engagement agreement.

Regulators’ worries are justifiedIt makes total sense for regulators to have concerns about flat fee models, based upon the financial planning transparency movement being in its nascency and a potential lack of clarity existing.

One of their pressing questions is, how do we know that the flat fee is reasonable?

Let’s look at an example.

If somebody has a $500k portfolio and we just use a standard 1%, they’d be charged $5k a fee.
If you charge them a flat fee of $5,000, all of a sudden Colorado regulators (for example) would be asking, well what are you doing for them?
If that $500k were a 401(k), not directly managed by the advisor (or let’s say that it were a business owner with no assets at all), the state would need to come in and ask if the fees the advisor is charging were appropriate.

It’s a lot easier for the state to find a 1% AUM fee reasonable because they can point back to the money the advisor is managing. There is a record of it. The assets are held at the custodian, the fee comes out, and the act of the assets being held at the custodian under your oversight implies that there was a deliverable (monitoring, rebalancing, etc.).

Some difficulty comes in here. With a flat fee, the fee may or may not come out of the assets held at the custodian. The services do not have the appearance of being directly linked to the fee, as they would be in the AUM case. The regulators don’t want an advisor charging $5k on a $100k portfolio because that is a 5% fee which is deemed unconscionable. They would never have approved a 5% AUM fee.

Given these types of scenarios, it’s understandable to see where the states, in the face of being confronted with flat fee advisors that they have jurisdiction over, would have a high need for transparency into what the advisor is charging, and what exactly they are delivering for that fee. It’s totally understandable to see where they are coming from.

How can advisors provide reporting that fulfills the transparency needWhereas an AUM advisor would have an easy enough time answering the question to regulators of “What did you do last quarter for your fee?”, there is an understandable lack of clarity as to what the answer to that question is likely to be from a financial planner.

When you look at the range of what a financial planner could deliver it is broad. Some define it as a document, others as a service. The State of Colorado, in their memo, objected to use of the term “comprehensive financial planning” with no further definition to it. What does that mean? The term is not well defined.

Further, not every month is going to be as equally busy. This is a service that is driven by needs and wants in the client’s life. Some months will be busier than others.

Lodestar Financial Planning does a great job providing clarity about what their financial planning offering entails. This level of transparency is a step in the right direction.

What is the nature of the reporting that would satisfy the regulator’s need to justify services rendered over a contract period.

Will advisors have to provide 200 page reports?

Or is it just a quarterly list of bulleted points, such as this example from Axis Capital Management?

What can advisors do?* Be as transparent as you can be in how you present your financial planning offering. Here are tips. * Get involved with your local regulators. Help educate and open their perspectives so they can create regulations that will allow them to serve their jurisdictions better. As a practitioner your experience is valid to this goal. * Some states have Town Hall style meetings where you can voice your views. Attend and voice your views!

Opportunity to take a big step forwardMaybe these new financial planning regulations could lead us to a place, a more elevated level of service that will make planners more effective in aligning with the needs of their clients. There’s too much relying on the client to have to make sure there is value provided. If it were forced upon the planner to clearly detail exactly what it is and what it costs, that could be the biggest step forward the industry has ever taken, engendering more trust from the public and dispelling much of the negative reputations that the industry has.

What do you think?

Sara’s upshot on financial planning transparencySo there you have it – hope this podcast about changes in financial planning transparency was useful! Guess what – we’ve got a leeeetle bit of a movement going on!

Join our next Transparent Advisor virtual meetup.

These meetups are free and the goal is to learn from each other about how to grow and manage a transparent wealth management practice for the benefit of clients.

Even if you can not make the meetup, or even attend in its entirety, please register for the replay and to be notified of the next one.

Our scheduled meetups are here:

January 11th, 2023

February 8th, 2023

March 8th, 2023

April 12th, 2023

May 10th, 2023

June 14th, 2023

July 12th, 2023

August 9th, 2023

September 13th, 2023

October 11th, 2023

November 8th, 2023

December 12th, 2023

SourcesColorado Department of Regulatory Agencies. Division of Securities. March 2022. Ongoing Financial Planning Guide. https://drive.google.com/file/d/1uoEh8yZUPr6LovQyMQhmeW1Ufp_lgUVW/view

Colorado Department of Regulatory Agencies. Division of Securities. November 2022. Ongoing Financial Planning Guide. https://drive.google.com/file/d/1uoEh8yZUPr6LovQyMQhmeW1Ufp_lgUVW/view

The post Financial planning transparency is FINALLY upon us (whoo hooo!!!!!!!!!!!!) appeared first on Sara Grillo.

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This debate went psycho at times. Watch as all h&#@ breaks loose discussing the question of broker vs. financial advisor, commissions, fees, value, and more! This discussion was not censored – but maybe it should have been.

We talked about:

What is the best, fairest fee model for the client?
Do conflicts of interest matter as long as they are disclosed?
Are low fees better than high fees?
Does the way you are paid dictate how you serve clients?
Does the AUM fee model represent a conflict of interest that needs to be disclosed?
Should advisors be required to disclose fees in dollars each year and/or each time a product is sold?
Are clients capable of determining when your fees are too high or should there be some other standard that fees are measured against (e.g. hourly rate, industry benchmarks, etc)?
What obligation do advisors have, if any, to explain to clients the different fee models available to them?
In the absence of a securities account, what value do you provide to your clients?

The debaters are:

Charles King

Scott Salaske

Doug Twiddy

Derek Robinett

Michael Pinkans

Chris Randall

Matt Pruitt

And me! For those of you who are new to my blog, my name is Sara. I am a CFA® charterholder and financial advisor marketing consultant. I have a newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.”

I am an irreverent and fun marketing consultant for financial advisors. Does it matter that clients know the fees they are paying?In this clip we debate whether or not it’s important that the client knows what fees they are paying. And, if so, what fees are included in the definition of “all the fees.” Is it just the fees that are directly debited out of an account, or is the cost of a product (such as an insurance product) relevant? Is that a fee? Should brokers disclose that cost even though it’s not technically classified as an outright “fee”?

What do you think? Is it important that the clients know all the fees or just some of them? If the fee isn’t coming out of the account directly (but rather embedded in a contract) is it still relevant to the cost discussion?

Do RIA firms give away the hard stuff for free?A critical question in the debate of financial advisor vs. broker is what is value? What is the value of the services provided, and how is this determined? This can get complicated when services are bundled and provided for one inclusive fee, which in certain cases (AUM advisors) is calculated off the amount of assets the advisor is managing.

It’s an important question because how you are compensated determines your motivation for what you do. If your fee isn’t tied directly to a particular aspect of service, you may be less inclined to do a great job because there is less of an incentive. Theoretically a financial advisor or broker should do the best work no matter how they are paid – but in reality time is a resource and how it’s allocated does tend to go in the direction of where you are earning.

Do you agree? Or are we being too tough here?

Should clients be the ones to judge if they got a good deal?In this clip, financial advisors debate against brokers about whether or not it matters that the client knows the fees they are paying, so that they are able to judge whether or not the service is worth it. Some may feel that the broker or advisor should be the one to make that decision. Others feel that is too subjective a decision and that the client should be given the full information that way they are informed enough to judge for themselves.

Does a service become more valuable just because the fee is disclosed? If not, then why is it necessary to do so? The advisors hashed it out vs. the brokers on that one.

Here it was also debated if the value of any service can be assessed when the outcome is not guaranteed. The advisor vs. broker repartee became very pronounced here as the advisors felt that value didn’t depend on outcome, whereas the brokers felt that the outcome must be guaranteed in order to claim you are providing value.

Other notable points in this debate:5:01

The agents made the point that it’s strange to see clients losing money to fees and also losing money to the market.

5:05

“Do you think it would be important that the client understand how much fees they are paying?” – Matt Pruitt

7:55

The advisors made the point that the cost of insurance can’t be separated from the “cost of service” or the commission the agent makes.

11:10 The point was made that even though AUM fees and flat fees are more transparent than commissions, it doesn’t mean that the advisor did a great job for the client.

Here’s where the debate hit on a critical topic, which is the question of value. The agents said that without knowing the outcome upfront, it’s impossible to know if the advisor provided value. The advisors said that is not true, and that many times even with an insurance product you don’t know what the outcome will be.

9:37

“Does the customer, before that paper is pushed over to them, accept that they got a good deal?” – Mike Pankans

At 11:51, Chris Randall had a great quote. He said, “The fairest fee model is one that clearly describes the price the client is going to pay and what services are included in that price. Insurance does not include the price that the client pays for the service. It is…jumbled up with all the other costs of the product.”

The agents then came back with the rebuttal that if the agent believes that the client got a good deal, then they got a good deal. The agents say that they shop the policy to make sure the client gets a good deal.