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Welcome to Personal Finance for long-term investors, where we believe Benjamin Franklin's advice that an
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investment in knowledge pays the best interest both in finances and in your life. Every episode teaches you personal
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finance and long-term investing in simple terms. Now, here's your host, Jesse Kramer. Hello, and welcome to
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episode 107 of Personal Finance for Long-Term Investors. My name is Jesse Kramer. Later in today's episode, Don
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McDonald is going to join us. Don is a longtime financial radio host of a show called Talking Real Money. He's an
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author, an educator known for his non-nonsense approach to investing in personal finance. I feel a bit of a
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kindred spirit to Don because Don and his business partner, they use their uh radio show to springboard into providing
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fee only evidence-based fiduciary financial planning work. And although my path is a little different, I've ended
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up in a similar spot using my blog in this podcast to end up working at a fee only evidence-based fiduciary financial
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planning firm here in in Rochester, New York. Now, Don hates annuities. I feel pretty similarly, and that's a lot of
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what we talk about today. But before Don, let's do a review of the week. The
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doctor's orders wrote in and said, "The right prescription. I'm a semi-retired,
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almost 70-year-old physician who listens to a lot of retirement, investment, and
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economics podcasts. I actually don't recall how I stumbled on your podcast a
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few months ago. However, you are amongst the top few in terms of clear and efficient communication, giving both
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broad concepts and applicable practical points. You are able to distill complicated topics without making it
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unrealistically simple. Keep up the good work. Well, thank you the doctor's orders. I appreciate the kind words and
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the five-star review. Feel free to shoot me an email to jesse at bestinterinterest.blog and we will get
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you a really nice, super soft bestinest t-shirt. But before we get to Don McDonald today, since we're talking
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about annuities and insurance sales people who call themselves financial adviserss, really what we're talking
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about is this this spectrum of good adviserss and bad adviserss and the messy spaghetti ball of different types
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of adviserss out there. And so in honor of that conversation, I want to do something fun. I want to go through an
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article from the Wall Street Journal that I absolutely love. It's called the
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19 questions to ask your financial adviser. the burden of finding an adviser who will act in your best
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interest is on you. It's written by Jason Zwag. Perhaps the best modern financial journalist simply respected as
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as among the best. And the reason I'm reading this particular article and not
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a different list that maybe I put my finger on is because I want to share a neutral outside expert's opinion on
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these questions, not my own opinion. And I'm sure my own opinion has some bias to
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it. So I want to go through Jason's list as he wrote it. At the end though, I do
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think there are a couple extra, you know, non-controversial questions that I believe also makes uh sense for you to
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ask to add onto this list. So, I'll sprinkle those in at the end without too
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much extra comment and then you can make up your own mind if you think it's worth
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it. And if you want a copy of this article for your own records, please shoot me an email to jessebinest.blog
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and I will email a PDF to you. So, for the article, I'm going to skip the the
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intro to the article and I'm going to go straight to the list to the 19 questions
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because I think that's the place where most readers go to and and that's really
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just what I want to share with you today. The way that Jason Zwag wrote this article is he poses the question
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that you ought to ask your financial adviser or any financial adviser who you might be interviewing. And then Jason
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proposes his ideal answer, the way that the adviser should be answering this question. And I'll give that to you as
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well. And then in some cases I'll I'll mention why I agree, why I disagree and
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just why potential advisor's answers might be different. Again, just to add some color to your understanding. So the
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first question, are you always a fiduciary and will you state that in writing? Jason Zwag says the answer
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should be yes. I also say the answer should be yes. I do want to caveat that though with something I brought up in
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episode 90, an AMA episode that unfortunately the fiduiary filter alone isn't as good as it used to be. It's
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still very important. But what I mean by that is some people will tell you that they are a fiduciary. And the reason why
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is because they probably have an ethical fiduciary obligation. That's different
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than a legal fiduciary obligation. And it's too bad that there's that confusion
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out there. But essentially, if someone has a legal fiduciary obligation, it means that if they don't act in your
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best interest, you ought to take them to court. That's the level of fiduciary
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obligation that I have. It's it's legal. If someone only has an ethical fiduciary
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obligation, well, then we get into a bit of a gray area because now there's almost a little bit of he said, she said
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where they could defend themselves and saying, "I I believe I was acting in
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your best interest even if maybe they they weren't." So again, that's where I
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think the the legal fiduciary obligation really is the important one there. The second question, does anybody else ever
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pay you to advise me? And if so, do you earn more to recommend certain products or services? The answer there should be
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no. Totally agree. Right. All else equal someone who's earning a commission to
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sell you a particular insurance product or to make certain trades in your portfolio. That's a conflict of interest
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with what's in your best interest. And so we don't want commissions all else
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being equal. The third question, do you participate in any sales contests or award programs creating incentives to
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favor particular vendors? The answer there should be no and I agree with that. All else being equal, right, the
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investment advice that an adviser provides to you should be conflict free. It should be what's in your best
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interest. And if they're participating in a sales contest or an award program,
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if they're getting an incentive to favor a particular vendor, well, all of a
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sudden, that's not in your best interest anymore. The fourth question, will you
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itemize all your fees and expenses in writing? The answer there should be yes. I agree. The answer there should be yes.
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A fee schedule should be really simple, right? Fees should be really simple to understand. It should be a certain
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percentage, an hourly rate, a number per year, or a number per month. Very straightforward. Very straightforward.
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Number five, are your fees negotiable. Jason Swag says the answer should be yes. I actually have mixed feelings on
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this one. The reason why, I mean, I've been now doing this for three and a half
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years, and sure, plenty of people have asked me if they can negotiate our fees. The problem that we run into, though, is
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if I have two different clients, right, the Smiths and the Joneses. And if the Smiths are paying our normal fee, but
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then the Joneses have negotiated down to say 20% off our normal fee. Now, in my head, it's like, do I have an incentive
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to serve one of them more than the other because one is actually paying us more?
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I don't want to enter that brain space if I can help it. And then the second
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problem or the other side of that same coin is if I am serving them totally equally, is that really fair to both
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clients? Or really, I kind of forget my example which one's paying more. But
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let's say the Smiths are paying more. Is it fair to the Smiths that I'm giving
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the Joneses the same exact level of service, the same exact benefits, I'm providing everything the same to them
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except they're paying 20% less? Those are some of the maybe ethical conundrums
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that we face with fee negotiations. And that's why all being equal, we try extremely hard to not negotiate fees. We
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don't want to negotiate fees. If there ever is a time when when someone is leaning on us hard, maybe we'll consider
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giving someone a a break for a quarter or two to get their foot in the door, but then we quickly say, "Hey, we know
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what we're worth. We know the value we bring, and we are going to make you return to our standard fee schedule
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going forward." So, there's one where I break with Zwag. I'm interested to hear
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uh any of your listeners thoughts out there. The sixth question, will you consider charging by the hour or
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retainer instead of an annual fee based on my assets? Jason Zwag says the answer
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should be yes. And I think it's so important that there are different fee models out there for different types of
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investors. At one time, my firm, Cobblestone, we offered hourly consultations. Ultimately though, as a
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business, we were finding more success and more clients via our annual fee schedule. And as a business, I think
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sometimes you have to come to a crossroads, right? Do you spread yourself thin over different services or
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do you double down on what's working well? And we as a business, we doubled down on what's working well. We're glad
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we did. And so now our fee model is an annual fee. We don't do hourly consultations anymore. But some people,
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including some of you listening, maybe all you want or maybe all you need is an hourly consultation. And I think it's
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great that there are some planners out there who have built that business to meet that demand. Number seven, can you
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tell me about your conflicts of interest both orally and in writing? Zwag says the answer should be yes. He also says
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that no adviser should deny having any conflicts. And I totally agree. Every adviser out there has conflicts of
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interest. Just like every barber or every landscaper out there has conflicts of interest, every barber has a conflict
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because if they tell you that you need a haircut, well, that's their revenue. And
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every landscaper out there says, "Of course, you should put in a sidewalk here because that's their revenue."
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Their revenue to some extent is your loss. It's what you're paying. And that
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is a natural conflict of interest. Therefore, it's really important to understand how someone gets paid. In
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general, from what I've seen, the AUM fee only model, the retainer model, and
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the hourly model are the most beneficial for clients. Those advisers are incentivized to do good work over the
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long run on your behalf. You win together. They're incentivized to retain you as clients, to be fair to you as
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clients, and to make this a long-term long-term win-win relationship. Now, the commissionbased fee models that I've
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seen are generally not ideal since their incentives are not aligned with the typical long timelines of their clients.
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In general, those are more salesoriented incentives where the main incentive is just to get to say yes today to make a
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sale. And even if the advice isn't always in the client's best interest,
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that is a conflict with what the adviser wants in those situations. So anyway, the answer there, just to get back to
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Zwag's question, every adviser has some level of conflict of interest. And the
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important thing is that both you as a client and your adviser that you both know that and that you understand what
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that is. Number eight, do you earn fees as an adviser to a private fund or other
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investments that you may recommend to clients? The answer there should be no, and I agree. Number nine, do you pay
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referral fees to generate new clients? The answer there should be no. And I agree that one and I think there's
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another one. We'll go with we'll get to it to number 11 and I'll skip ahead to
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number 11 and then I'll kind of tackle them all at once. Number 11 is do you
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earn fees for referring clients to specialists like estate attorneys or insurance agents? No. So 9 and 11 to me
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are kind of two sides of the same coin, which is basically, you know, if a local
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accountant refers a client to me, do I pay that accountant for that referral? Or similarly, if I'm going to refer a
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client out to an accountant to do their tax work, am I expecting that accountant
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to pay me for it? And the answer should be no in both directions. Right? The whole fiduciary conflict of interest
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conversation is you need to avoid as many conflicts as you can. the one that naturally exists is the one that says,
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"Well, hey, you've got to pay me for the work I do." That's the natural conflict
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of interest. But outside of that, there really shouldn't be any conflicts of
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interest. And so, right, when it comes to referrals, I want an accountant to refer business to me because he thinks
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that I and my firm Cobblestone are simply a a terrific fit for this particular client. and I want to refer
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clients out to a trust and estate attorney or an insurance agent or an accountant because I believe that
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specific other professional can provide the solution that my client needs at a fair price. That's it. So again, there
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should not be any referral fees in either direction in in my opinion and Jason Wag's opinion too, I should say.
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Number 10 on the list. So we did 9 and 11, now we're going back to number 10.
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Do you focus solely on investment management or do you also advise on taxes, estates, retirement and
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budgeting, debt management and insurance? And Zwig says here the best answer depends on your needs as a
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client. And I think that's fair. Every adviser probably has a slightly different focus or or just there there
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is a spectrum of what different adviserss do. Some will say all they do is investment management. Others will do
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no investment management at all and all they do is planning work like retirement
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planning or tax planning. here my my colleagues and I we provide what we believe is holistic comprehensive wealth
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management. So it is it's inclusive of investment management, tax advice, estate planning, retirement planning,
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simple budgeting, debt management. We do things like we will help a client understand their insurance need. We
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don't sell insurance though, right? That would be a conflict. We will help a
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client do tax planning, but we don't file taxes because again that's a conflict. We don't write legal documents
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cuz that's a conflict. But we advise on all this stuff and we have in-house experts when it comes to this stuff. We
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will come back to those in-house experts when it comes to question 17. But again,
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I think it's fair what Jason Zw says is you as a client, you need to understand
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what your advisor's focus is. Are they investing only? Are they planning only?
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Do they do a whole bunch of stuff? And if they do do a whole bunch of stuff, do they really have the expertise to do it?
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You should ask that question. But the best answer for you will depend on your needs as a client. We already did number
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11, so let's go to number 12. What is your investment philosophy? And this is
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an interesting one because Zwag doesn't have a proposed best answer here. Again,
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I think that's fair because I've had clients come to me before and their
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personal investment philosophy is say they want no risk. All they ever want to do is hold bonds. So, build me a bond
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portfolio. Now, I don't really think that's the best way to go about the
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investing problem, especially if someone is say younger. I've had other clients
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come to me and they say maybe um hey, what is Cobblestone's thoughts on crypto? Well, we don't invest in crypto.
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So, if you want us to build you a crypto portfolio, sorry, we're we're not the
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right firm for you. I think our investment philosophy is very much in line with with all the things I I talk
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about here on the podcast, if you're curious, and that's one of the reasons
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why I it's one of the reasons why I feel good talking about the things I talk
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about here on the podcast. But yeah, it is important for you to ask your adviser
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what their investment philosophy is, and hopefully their investment philosophy matches up pretty well with your
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understanding of the world. Number 13. Do you believe in technical analysis or market timing? The answer there should
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be no. I agree. Technical analysis for those who don't know is where an analyst
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will look at charts almost like reading the tea leaves and saying, you know, because of the way that this particular
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stock or because of the way that this particular index has behaved over the last day or the last week or the last
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month, I can therefore predict how it will behave in the near-term future. Yeah, that's to me at least that's been
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debunked. seems to be a bit of an ongoing debate in the investing world whether there's any merit to it or not.
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I personally don't see the merit to that. And it's related to market timing.
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Again, it's the whole idea of do I believe I know enough to know when the market is about to move drastically in
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one direction or another and will I make kind of ad hoc decisions based on that?
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The answer there should be no. Number 14 is a similar but it is a nuance and important different question. Do you
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believe you can beat the market? Zig says the answer there should be no. And yeah, the short answer is no. But there
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is a longer answer that I think is worth covering here because I've talked about
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it here on the podcast before. And I'm gonna name two um specific famous Nobel
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academics, Eugene FMA and Ken French. Huge proponents of index investing and you know, huge proponents of this idea
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that you can't stock pick or market time your way to to beat the market. But they
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won their Nobel Prize for their work in what's called factor investing. And in
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short, they found that at least so far in history, one can outperform the market average over a long period of
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time by tilting your portfolio towards certain factors. Now, what are these factors? Well, perhaps the most
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well-known factor is that value stocks tend to outperform growth stocks. Another famous one is that small
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companies tend to outperform large ones. Cheap companies outperform expensive ones. That's like on a price to earnings
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ratio basis. profitable companies outperform the less profitable ones and that's sometimes called a quality
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factor. And then conservative companies tend to outperform aggressive ones. Now,
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these factors, they haven't always been true all the time. They're not going to
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lead you to be filthy rich if you follow them, but the academic research shows that if you tilt your portfolio in these
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directions over time, they can lead to outperformance. Now, there's an entire
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nerdy detailed podcast episode tied up in this topic, but the reason I mention it, it goes back to the idea of
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evidence-based investing. Now, F and French, like I said, they don't believe
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in stock picking, but they do believe in tilting a portfolio in favor of these evidencebased factors, and so do we, and
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and so do I. Question number 15, how often do you trade? Zwag says the answer should be as seldom as possible.
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Ideally, once or twice a year at most. Yeah, in large part, I agree with that. I'm assuming rebalancing a portfolio is
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different than trading in this case. I think trading to swag means, you know, how often do you make a decision about,
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you know, should you be 68% US and 32% international? Should you go slightly slightly underweight, slightly
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overweight? I assume that's what he means there. Rebalancing, I think, can occur more often than once or twice a
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year. You know, quarterly is is fine. If you have a rules-based system where you
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say if a portfolio gets more than 3% or more than 5% out of normal waiting then you rebalance that's fine and it's
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important that you have a rules-based rebalancing system. But right on the whole trading tends to lead to capital
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gains. Trading tends to lead to some drag on the portfolio and overtrading is by far a larger problem than than
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undertrading. Question number 16. How do you report investment performance? And then Zlag says you should report it
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after all expenses compared to an average of highly similar assets that includes dividends and includes interest
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income. And you should report it over the short term and the long term. And I totally agree. Investment performance
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should be shown net of all fees like what has the investor earned after they've paid their fees. It should be
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shown compared to a benchmark. And that's what Zwag was saying, an average of highly similar assets. Performance
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should include dividends and interest income. Absolutely. and so should the benchmarks. And that's a a really, as
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you'll hear with Don McDonald later, one of the oldest tricks in certain advisors
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books is to compare their uh products performance and they'll compare it to say the Dow Jones or the S&P 500, but
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they won't include dividends in the returns of the S&P 500. And that's such
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a fundamentally flawed thing to do. It's so sneaky and and bad to do. So anyway,
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benchmarks should always include dividends and interest income. And then yes, the timelines of investment
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performance should be shown. Yeah, you can show quarterly and year-to-ate performance, but you should also show
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three, five, and 10 year performance and and longer time periods too. Question 17, which professional credentials do
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you have and what are their requirements? Ben Zwig says among the best are the CFA, chartered financial
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analyst, the CPA, certified public accountant, and CFP, certified financial planner, which all require rigorous
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study, continuing education, and adherence to high ethical standards. Many other financial certifications are
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marketing tools masquerading as fancy diplomas on an advisor's wall. I agree
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with this. Here, our firm, Cobblestone, we have seven certified financial planners. And I should say, I think we
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have 42 employees now. seven certified financial planners, six chartered financial analysts, two CPA accountants,
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we have an attorney, trust and estates. He started in trust and estates, like I said earlier, he doesn't write legal
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documents anymore, but he's a T& attorney and and taxation attorney. And
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then I think we actually have four younger employees right now, all simultaneously studying for their CFPs,
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which is just awesome. They're kind of taking the initiative there. But yeah,
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going back to the earlier earlier question about what do you focus on? Is it solely investment management or is it
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more? Is it comprehensive wealth management? And why? I mean, one of the thoughts that we have is, you know,
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there's a reason we're able to provide this comprehensive wealth management.
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And in large part, it's because of the the expertise we have on staff. I think,
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you know, just doing some math in my head, that's what 17 credentials professionals, I think, out of 42
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employees with four more waiting in the wings. And it's important that we provide that kind of expertise to the
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people that we work with. Question number 18. After inflation, taxes, and fees, what is a reasonable estimated
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return on my portfolio over the long term? Then Zwag says, "If I told you anything over 3 to 4% annually, I'd be
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either naive or deceptive." And I agree with what Zwag is saying here. And the
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math explains pretty clearly why that is. So, let's start with a say a typical
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60/40 portfolio. If we look at historical track records, that portfolio over a long period of time might return
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something in the 8 to 9% per year range. First, we have to take out whatever fees
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an advisor is charging you. So, maybe that 8 to 9% drops down to, let's say, 7
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to 8% per year. Then, we have to take out taxes. Again, depending on the actual proceeds there, if you earned 9%
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in your portfolio, odds are the tax bill is going to be between 1 and 2% of that.
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So, we were at 7 to 8. Now, we're probably going to drop to something like 5 1/2 to 6 1/2, something like that. And
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now, we have to think about inflation. And if inflation is 2 to 3%, well, let's
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just use 2 and a half% there as the inflation number. Our 5 and 1 half to 6 and a half drops down to 3 to 4%. So
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again, that's after inflation, after taxes, after fees. The real after tax return that a investor will get is
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something to 3 to 4% annually. That's still growth, right? Real growth is real
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growth. And that's what we want. We want to have postinflation real growth in our
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portfolio. But for someone to sit there and say your portfolio is going to grow at 10% per year, right, that's not
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exactly the truth. There's a little bit of obfuscation there. Granted, the way
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the question is worded is after inflation, after taxes, after fees. And that that is the way to ask this
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question if you're out there speaking to adviser. The gross return of your portfolio is nice to understand, but
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really that the number that you care about as a investor or you care about as a client is after inflation, after
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taxes, after fees. And that brings us to question 19. Who manages your money, Mr.
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or Mrs. Adviser? And the answer that Zwag proposes is that I do. And I invest in the same assets as I recommend to my
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clients. And again, I love this question. And this question actually was part of the reason why when I started
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working here I was like you know what this is a really important question and I wanted to dive deep on the way that we
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invested our assets anyway. And so right my investable accounts my old 401k you know I rolled it over into an IRA and
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it's managed here in the same exact way in the same exact individual securities
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right the same strategy the same securities as what my clients hold. So when I'm working with say a much older
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client, maybe they're in a much more conservative 50/50 portfolio. I'm in a
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more aggressive 8020 portfolio. So the the fractions are different, right? The percentages are different, but the
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actual ticker symbols, the actual assets that we own are one and the same. I invest in the same assets that I
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recommend to my clients. And I think there's some real power in that. And there's some truth in that. And if
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someone doesn't necessarily do it that way, it's worth understanding why. It
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definitely is worth understanding why. So, that's Jason Zwag's 19 questions,
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and I think they're 19 great questions. And as I said, if you want a copy of
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this, I'm I'm absolutely happy to send you the PDF version that I have. I did
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mention earlier that there are a couple more questions that I just think they're
00:23:10
very simple, very straightforward, and I think worth adding to this list. The first one is to ask the adviser, what's
00:23:16
your succession plan? I think it's important for any adviser out there to ask themselves, well, if I got hit by a
00:23:22
bus, what would happen to my clients? or there comes a certain age when it's
00:23:27
simply hey if you're looking to work with a adviser who's 55 they probably
00:23:31
have a wealth of experience but if you're 55 yourself let's say you know
00:23:36
let's face facts your adviser might be retiring in 10 years and you're still
00:23:41
going to have 20 years of life after that point so you might have to go find a new adviser or maybe they have an
00:23:46
internal succession plan and I just think it's worth understanding that your
00:23:50
timeline as a client might not match up with your adviser's timeline in their
00:23:54
career And it's just worth having that conversation up front. The second question I would add is what is the
00:24:00
communication cadence that you should expect as a client of a particular adviser. Different folks have different
00:24:05
expectations there, right? If someone comes to me and they say, "You know what, Jesse? I I really want to have a a
00:24:10
weekly roundup call every Friday afternoon to hear how my portfolio is doing." I'll tell them up front like,
00:24:16
"Hey, that's not really how I do things. That's too much. It's too much time and
00:24:20
that's not how I approach my client service. It's also not how I think you
00:24:24
should approach the investing problem as it were to have a weekly check-in. If instead someone said, you know what,
00:24:29
Jesse, I'm hiring you and to be honest with you, I don't really want to hear
00:24:33
from you. I just, you know, I'll let you know when I'm ready to talk and it might
00:24:36
not be for 5 years. I also don't think that's very good. I think it's important
00:24:40
part of the financial planning process is to have some regular check-ins. But anyway, I do think it's important for
00:24:45
you as a client to have a pretty similar expectation for communication cadence as
00:24:50
what your adviser how they tend to operate. So, you should figure that out upfront. The third question I think you
00:24:55
should ask is how many clients or how many households or how many families does your adviser work with or does the
00:25:02
firm work with? And perhaps you can add to that too, what they believe an appropriate amount is because again some
00:25:09
some advisers out there will say I work with 50 families and the reason why is because it's just me. I'm a solo adviser
00:25:16
and it takes a lot of work to work with a family and I don't have any support
00:25:19
here and so 50 is the right number. That's where I limit myself as. There are some other adviserss I won't name
00:25:24
names or name firms but there are some people I know who in their words they would have over a thousand clients. Now,
00:25:32
the reason why that tends to be is because their clients are someone who they sold a product to and then haven't
00:25:38
really kept in touch with ever until that product expires and it's time to renew a new product. But just I mean,
00:25:44
think about it. If you had a thousand clients, there's only 2,000 working hours in the year. So, something there
00:25:50
doesn't quite add up. Depending on the who you ask or depending on where you
00:25:54
look, the quote unquote appropriate number of clients will vary. It probably depends on the service that a adviser
00:26:00
plans on giving to their clients, too. I've seen numbers anywhere from say 75
00:26:06
families up to 200 families being like these reasonable numbers. I could see arguments for for different numbers in
00:26:13
there, too. But either way, I I do think to myself that somewhere in that range,
00:26:17
again, depending I think if someone says they support more than that, hopefully it's because they have a lot of backup,
00:26:23
you know, a lot of people behind them. I know here, you know, we have, like I said, 42 employees and we serve about a
00:26:30
thousand families and and the reason why, you know, I've talked about it before, we we split up responsibilities
00:26:35
here amongst a few different teams. We have a a relationship management team that I'm on, a financial planning team
00:26:40
where all our CFPs and our attorneys sit, investing team where the CFAs sit. And so, the idea is that it allows us to
00:26:47
to spread some of the planning or portfolio management workload into subject matter experts. But still right
00:26:53
now I'm working with like 60 families. That number definitely has a lot of room
00:26:56
to grow. But still I can see the limits coming right and I can see some of my colleagues who maybe are working in with
00:27:03
120 or 140 families and they're just doing the relationship management work.
00:27:07
They're just doing the client service, the client facing work and it gets really really busy at those numbers. So
00:27:12
it's it's worth understanding that before you start working with an adviser. And then the last question I
00:27:16
have is can I speak with a client or two to hear their opinion? I think that's a
00:27:20
totally fair question to ask is anytime you're you're looking to reach out to an
00:27:24
adviser, it just is a really hard decision to make. I think when maybe you've never worked with an adviser
00:27:30
before or maybe you're just having a really hard time delineating between how
00:27:34
different advisory firms work or how different adviserss work or the difference between an insurance agent, a
00:27:40
broker dealer, a fiduciary adviser, you know, it can be hard to tell the difference. So asking them, hey, can you
00:27:47
put me in touch with a client to to hear their opinion? I think is a worthy question. Just know and and they're
00:27:52
probably only going to put you in touch with a client who they know will give them a positive review. I can certainly
00:27:57
say that when I've been asked that question, I think of my clients who are most likely to be, you know,
00:28:03
enthusiastic and optimistic and just say like, "Oh, yeah, sure, Jesse. I'll talk
00:28:06
to one of your prospective clients. No problem." Well, yeah, those are probably
00:28:09
also clients who will say good things about me. I think most my clients will say good things about me, but just know
00:28:15
it's a good question to ask, but just keep it with a a grain of salt, right?
00:28:19
In terms of when you hear what the client has to say. That's all. Here's a
00:28:23
quick ad and then we'll get back to the show. I love getting your questions and
00:28:26
some of you ask me questions about the wealth management firm I work for in Rochester, New York. Others ask about
00:28:31
the best interest blog and this podcast, Personal Finance for Long-Term Investors, which operate without
00:28:35
advertising, without pushy sales, and with no payw walls. How can the blog and podcast stay afloat without me dumping
00:28:41
my own money into it? Well, to answer both those questions, I want to point you to episode 78 of Personal Finance
00:28:46
for Long-Term Investors. I intentionally recorded episode 78 to shine light on those topics and inform you how you are
00:28:52
actually helping and can continue helping these projects carry forward. So, if you've ever been curious about
00:28:57
the business of my blog and podcast, or if you're curious about my day job in
00:29:01
wealth management, please check out episode 78 and let me know what you think. And with that, I now want to
00:29:06
bring Don McDonald into the episode. Like I said earlier, Don is a longtime financial radio host, author, and
00:29:11
educator known for his non-nonsense approach to investing in personal finance. As a co-host of Talking Real
00:29:16
Money, Don helps listeners navigate the complexities of markets, emphasizing evidence-based investing and avoiding
00:29:22
highcost financial products. With decades of experience, Don is a strong advocate for fiduciary advice and
00:29:28
simplifying money management for everyday investors. Don, thank you for joining us today. And
00:29:38
for those unfamiliar, I think it's important we we set a little foundation today and we define this broad category
00:29:44
of investment products that we're going to spend the rest of the conversation
00:29:47
talking about annuities. And then so right a broad definition sorry I'm sorry I'm allergic
00:29:55
to the term. It causes my eyes to water, my nose to run cuz to me and and no pun intended or
00:30:02
maybe there is a pun intended. It's like the word snake, you know. Are we talking
00:30:06
about a one- foot garden snake that kind of helps out and eats some bugs or is it
00:30:10
a 15 foot anaconda? Both kinds of snakes scare my wife to death. We just had a rat snake in the uh or a black racer in
00:30:18
our yard in Florida and I mean she's freaking out. I said, "Honey, it's
00:30:21
fine." She goes, "But look, it's shaking its tail." I said, "That's because it
00:30:25
wants to scare you, but it's not poisonous." Most annuities I I got I they're not life-threatening, but they
00:30:33
are wealth threatening. Wealth threatening. So just really broadly when someone hears the term annuity, what
00:30:41
should they be thinking from not whether good or bad? I mean, we'll get to that
00:30:44
part, but just what exactly logistically is an annuity? Oh, darn it. I I was going to say sales pitch. If you want,
00:30:51
what should you be thinking? Sales pitch. There's a there's a saying in the
00:30:55
financial business that annuities are not bought, they are sold. No, I have never met anybody going I think I need
00:31:03
to buy an annuity. But let's define the different types of annuities. Great because there are there is a universe of
00:31:10
them and I'm going to cover the broad not the granular because the insurance
00:31:15
industry is massively creative when it comes to developing variations on the product theme. But the primary annuity,
00:31:23
the one that most people think about when they think of annuities, is the fixed annuity, which is a an annuity
00:31:30
that is a contract with an insurance company. You give them a chunk of money, they say, "We're going to give you an
00:31:36
interest rate of this over x amount of time." That's how it works. You give
00:31:41
them the money, they take the money and invest it in ways that can make more money because of their economics of
00:31:47
scale. And they give you a portion of that and they take a profit out of the middle. And a person selling that
00:31:53
annuity to you 99.999999% of the time is going to collect a pretty sizable commission for
00:32:01
selling that to you. Now that is a non-disclosable commission because of the lack of regulation over the
00:32:07
insurance industry. It is pathetic regulation. That's type number one. Type number two, which is very popular with
00:32:15
seniors, basically it's what a pension is. It's an income annuity. And a
00:32:20
pension is basically your company goes out and buys or puts up the money to pay all of its retirees a set amount of
00:32:30
money every month for the rest of their life. It's called an immediate annuity,
00:32:34
which means it immediately starts paying you income. Here's the downside. You get
00:32:39
and you're looking at the number going, "Well, wait, that's great. That's 7% per
00:32:42
year. That's more than I can get on a CD." Well, wait. There's a catch. You
00:32:48
gave them all your money. You can never get it back. But what if I But what if I
00:32:53
die tomorrow? Don, you're saying I can't. Sorry. So, got it. Red luck. The
00:32:59
money is the insurance companies. Unless you got a writer, which was a joint life
00:33:03
or some sort of certain term over which that annuity will be paid to your beneficiaries, you're out of luck.
00:33:10
That's the gamble. And guess who wins this gamble? Not me. No. Well, the insurance companies, they have to. It's
00:33:19
like a casino. If more of the players won than the house one, well, that casino is going to go belly up like
00:33:27
those of a major real estate developer many years ago, whose name I will not mention. So, so let's dive into really
00:33:34
quick while we're still defining this down. Let's dive into So, there's this
00:33:38
bad reputation. Some of the specific fees or commissions, timelines, and contracts. You said it's it's
00:33:43
non-disclosable, but still I know you know some of what's going on under the
00:33:47
Oh, yeah. Yeah. Yeah. Let me just grab the last two big big categories. I just The next one is a variable annuity. Now,
00:33:53
you're going to find this in almost every 403b plan or 457 plan in America because the insurance company has
00:33:59
insurance companies have swooped in and really captured this market. And a uh variable annuity is an annuity wrapper
00:34:07
which is by law it gives you tax deferral around a portfolio of mutual funds. So you pick the funds within the
00:34:14
annuity. The reason why it makes no sense for a 403b or a 457 is the fact that you can't get tax deferral twice.
00:34:24
You only get it once. And the 403b and 457s and IAS and all those are already tax advantage. What it does is it
00:34:31
inserts another level of layers that decrease your return. And then finally, the industry's latest horrible lie is
00:34:39
the indexed annuity or the equity indexed annuity or variations on that theme. There also some index life. And
00:34:45
these are products where they tell you you can get the return of the stock market with none of the risk, which in
00:34:52
itself is a blatant lie. And you'll never see that written down. They'll say
00:34:57
stock market like returns with none of the risk. They'll speak the words in their steak dinners telling you that
00:35:03
this is the greatest thing. So, let's talk about commissions. Yeah, let's talk
00:35:07
about them. Commissions on very vanilla, cheap annuities can be 1 or 2% at the lowest end. They can be very, very low.
00:35:16
At the highest end, I've seen them as high as 12% on indexed annuities. Your
00:35:21
spread's going to be somewhere in there. But the problem is they're not going to
00:35:26
tell you. If you go to one of these free steak dinners, and this is where index annuities are pitched all the time, why
00:35:31
would they pay for a Ruth's Chris filet minan, put it on your plate if they were
00:35:37
doing what was right for you? Why would they do that? And I just love you people. I just want to give you a steak.
00:35:44
No, they're doing it because their commission's probably eight or 10% on
00:35:48
this thing. And if they can just get a couple of you to buy it, you've paid for
00:35:51
the dinner and the Lexus. So on a, you know, if I'm a retiree and I'm thinking
00:35:56
about taking my my $300,000 that I've saved in a 401k, rolling it over to an
00:36:02
IRA, and then buying one of these annuities because a stake dinner salesperson told me so. An 8% commission
00:36:09
there is what, $24,000 on 300? Is that So that's the salesperson's incentive to push. You got
00:36:15
it. You have it. And it's so funny because I run into a lot of these. In fact, many of them have radio shows. For
00:36:22
some reason, these guys have a lot of radio shows. The reason being, again, the profit margins. The margins are
00:36:28
great. And they say they're a fiduciary. We're acting in your best interests. And some of them are CFPs.
00:36:36
How the the Certified Financial Planner board lets them get away with this is baffling. I've reported some of them to
00:36:42
the CFP board. Never received a response from them. Never ever because they're
00:36:47
protecting their own. But these guys will say they're a fiduciary and then they'll sell you an index. I have a
00:36:54
story about this, Don. There's someone I know in person here who dropped that
00:36:57
line on me. I mean, he was trying to pitch me on why I was going about my career. You're an investment advisor
00:37:03
rep, right? You're an AR, correct? And he tried to sell you. So, he tried to
00:37:08
pitch me that I wasn't going about my business the right way. And he said, "Well, Jesse, you have seven CFPs on
00:37:13
staff and you guys don't sell annuities." Like, I was a crazy person. And I said, "You're a CFP who's supposed
00:37:19
to be acting as a fiduciary, and you do." Now, here's something I learned.
00:37:23
The CFP, to obtain the CFP, you have to take an ethical oath to act as a fiduciary. You do not have to take a
00:37:31
legal oath. I know. I know. It's an ethical, it is not a legal oath. The only legal one is the SEC's
00:37:38
requirements. Correct. And that's where you and I know do like my firm, right?
00:37:42
And we were talking offline the work that that you've been doing. We have to
00:37:45
take a legal obligation to act as a fiduciary. And if we don't work in a client's best interest, sue us. That's
00:37:52
something that these annuity pushers that you were just talking about, they they don't face that threat. When legal
00:37:57
suit comes, that will change your behavior to make sure that you really are acting in the best interest of
00:38:02
clients. Problem is though, the lobby for the insurance industry and by the way for the broker dealer industry is so
00:38:08
strong, so powerful, so wellunded that as a matter I'll give a story. several
00:38:14
years ago back around the time when uh started talking real money like 15 or 16 years I don't remember the exact time
00:38:20
frame index annuities were just coming into their own and the securities and exchange commission had proposed
00:38:26
regulating them as a security because they sell them as if they're the stock
00:38:31
market right you're going to get the return of the stock market with none of
00:38:34
the risk so the SEC said we really need to regulate these as investments not as insurance policies well my understanding
00:38:43
is that the insurance industry spent a couple hundred million dollars lobbying Congress to keep the control of the
00:38:51
regulation of those products under the states, not under the federal government, which allowed them because
00:38:59
have you ever looked at the makeup? Most Now you're in New York, right? Correct.
00:39:02
Yeah. You actually have a pretty strong state insurance commission. Correct. Some states though, if you look, you'll
00:39:10
see that they're either former insurance company executives or if you look forward down the road, you find that
00:39:17
many come from the leave the commission, retire, and go to work for a big insurance company. H I wonder who they
00:39:26
want to help. So, so that's that's a really good little side point right
00:39:29
there. The annuity industry doesn't have much federal oversight. Instead, there's
00:39:33
a state-by-state insurance oversight. Correct. In that in essence there is no federal oversight of the insurance. The
00:39:40
only reason there's some federal oversight of variable annuities is because of the fact they have a security
00:39:48
within or securities within them in the form of mutual funds. Here's a quick ad
00:39:53
and then we'll get back to the show. Every week I send a quick free email to
00:39:57
thousands of readers that shares three simple things. One, my new articles and podcasts. two, the best financial
00:40:04
content of the week from all over the internet. And three, a financial chart that explains some important concept in
00:40:11
the news that week. It's a great primer to boost your financial knowhow. But
00:40:16
Jesse, I don't want another email. Well, this might not be for you, but I do hear
00:40:21
you, which is why I make it very short, sweet, and full of only the essentials. A whopping 66% of subscribers read my
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email at least once a month. They're enjoying it and maybe you will too. You
00:40:33
can subscribe for free on the homepage at bestinterest.blog. Again, that's a free
00:40:38
no strings attached subscription at bestinterest.blog. So, real quick, we already kind of got into some of the
00:40:46
conversation about who the people are who are selling annuities, Don. And I think one of my challenges, I just had a
00:40:52
conversation last couple weeks ago with a woman here at work. her adviser, her current adviser, she dearly enjoys
00:40:59
spending time with her current adviser and the company and the conversations they have. And she sees her adviser as a
00:41:05
very good person. Her adviser also has put this woman in $1.5 million worth of annuities. And to me, I I think to
00:41:12
myself, there are a lot of really good people in this world who maybe I don't
00:41:16
agree with exactly what they do for work. And so from your point of view, I mean, you've been to the steak dinners,
00:41:21
right? Oh, yeah. I love going to the steak dinners. My wife won't let me go anymore because she has to go. You have
00:41:29
to take your spouse and I embarrass her and I make them mad. I have ruined many a steak dinner and felt very good about
00:41:38
it because and I told her this when she said, "Oh, look at this one. This one's
00:41:41
this is a Roose Chris. Let's go." In fact, it was yesterday. And I went,
00:41:45
"Okay." She goes, "No, you can't say anything." I said, "I can't not say
00:41:48
anything." I said, ' Because I'm sitting in a room with a bunch of very nice
00:41:52
people, albeit chintzy, and you know, they're looking for cheap dinners, but
00:41:56
I'm sitting in a room with a bunch of nice people, and can I with a clear conscience allow this incompetent nink
00:42:04
poop on up at the front of the room to sell them such a horrible, misleading product? Can I just can I do that? Oh,
00:42:12
by the way, it's not just me who thinks this about indexed annuities. FINRA has
00:42:16
an investor alert about them that they've had up for years about the understandings that are promulgated by
00:42:23
the industry. They want you to misunderstand them. And by the way, if you're ever sold one of these, ask for
00:42:27
the disclosure document. When you get it, you'll realize just by holding it in
00:42:32
your hand why this is not a good investment because it's so big cuz you can't carry it. You can't you won't read
00:42:39
it. But help for the listeners, Don, I mean, help them understand from your experience. I mean, I'm I'm I'm
00:42:45
genuinely curious. Are the individual people, the humans who are doing the selling, are these just people who have
00:42:51
just terrible misaligned incentives, are a good person? Are they in a bad spot? Is it just deliberate ignorance,
00:42:58
unknowing? They they're genuinely convinced they're doing the right thing,
00:43:02
or do they just deep down inside they know they're screwing you and they're
00:43:05
okay with screwing you? I think the answer is it runs the gamut of humanity from outright crooks and
00:43:13
those are the ones who have the radio shows that they pay for in major markets and come right out and lie on the radio.
00:43:21
They're they know what they're doing, particularly those that are CFPs. They've decided that they're going to
00:43:25
get a lot more butter on their bread with a an indexed annuity than by a feebased or a fee only financial
00:43:32
planning practice. So, those are the the worst of the worst. Okay, I went to one
00:43:37
just down the street from my house. The guys were middle-aged. You could tell by
00:43:43
the way they spoke that they weren't the brightest bulbs in the box. And one guy
00:43:49
was actually wearing a cheap polyester suit. And I mean, it was the cheap polyester if it was kind of it was
00:43:56
almost a dressy pants suit, a tracksuit. It was just so bad. One guy had his shirt unbuttoned all the way down with
00:44:04
gold chains. Great. It's like mobster. You're thinking mobster. This guy's a
00:44:09
mobster. And this was one of them where I asked questions. They put a chart up in front of the room on a on an easel.
00:44:17
It's a p a cardboard, you know, done kinko's chart. Mhm. And it shows the
00:44:21
stock market since like 1929. And this stock market, they show you the stock market since 1929. I think
00:44:29
they used the Dow or something. Maybe it was the S&P. No, cuz the S&P didn't
00:44:33
exist back then. Anyway, they show you this horrible chart and tell you how over decades if you invested in the
00:44:39
stock market in 1929, you didn't make any money. Well, I pull out my phone, I
00:44:44
look at the numbers, I go, "Wait, excuse me. Did you include dividends in that?"
00:44:50
Oh, I dividends. Uh, well, I'm not I don't know. I said, "I don't think that
00:44:55
includes dividends." I said, 'I'm pretty sure if you include dividends, you made
00:45:00
money after about 5 years. I said, 'N no, you know, I've got Anyway, so he
00:45:04
shut me up. Oh, well, we'll just let's move on. We're going to Then at the end,
00:45:07
I said, so what's the cost of this? There's no cost. I said, there's no
00:45:13
cost. Well, how do you make money? The insurance company pays me. I said, ah, so the insurance company pays you and
00:45:21
they don't take what they pay you out of the money you raise. No. I said, "Sir,
00:45:26
that's now that is now a lie." Right. Right. Because every penny they pay you
00:45:30
has to come out of the money they take from clients. So, it's a lie. The business is based on lies. Lie after lie
00:45:38
after lie after lie. But the thing is is they're spoken lies. So, you can't
00:45:42
really nail them on it as long as they gave you even a link to that ponderous multiundpage disclosure document. Right?
00:45:51
The truth is in writing and the truth is in writing in this really hard to untangle document. But the idea is that
00:45:57
the document that you end up signing as an annuity purchaser technically that document has all the truth in there and
00:46:04
it says you read the document. It's well think about it. When was the last time
00:46:08
you downloaded software and read the end user agreement? Have you ever done it ever in your life? I haven't. Never. Not
00:46:16
once. And I'm an advocate for people, but I have to trust that they're not
00:46:21
going to shaft me, but you can't do that with insurance salespeople. I I want to
00:46:27
start arming our audience right now. Some of them are approaching retirement age. They're they're on the AP list, and
00:46:34
that means that the steak dinner postcards are starting to show up in the mail. Don, so what are some of the most
00:46:41
misleading sales pitches? I mean, you've already talked on some of them. What are
00:46:44
some of the sales pitches that we need to arm ourselves against? How do the sales people take advantage of maybe
00:46:48
some of our fears to then sell to us? How do the guarantees get misrepresented? What are the red flags?
00:46:55
Take it from here. Well, there's no greater fear for an investor, particularly a senior investor like I
00:47:01
am, than the prospect of losing a substantial amount of what you have now saved 40 years to build. You don't want
00:47:12
to lose it. And that's the biggest one. And I think they exploit this fear of
00:47:16
losing it to a horrible downturn in the market. But if they told the truth, then
00:47:22
you wouldn't be as afraid because the reality is there aren't a lot of dramatic declines in the market. In
00:47:32
fact, there aren't any that were permanent. Never has there been a downturn in the market. Even 2008, which
00:47:38
was the worst one we ever saw for stocks. And having said that, then what's the solution to avoid that bad
00:47:44
feeling? Because if you ask any of your clients, any person on the street, you got a million dollars and I take away
00:47:50
500,000 of it. I'm going to just take it right now from you. I'm going to walk
00:47:54
down the street. Now, before I go, I promise I'm giving it back. Well, at least I promise I've always given it
00:47:59
back in the past. Pretty sure I'm going to do it again. You know, I mean, I could get hit by a bus, but if I don't,
00:48:05
I'm giving you the money back in a year. Giving it back. Are you okay with me
00:48:09
taking it away and bringing it back in a year? Or maybe two. Can't promise anything. Most people will say, "Oh, no.
00:48:17
Right. You can't have it." Well, then that's where what we do comes into play.
00:48:23
And that is creating the right plan for every individual's individual risk profile and risk need.
00:48:33
It's a combination. You know, how much risk can you take? How much risk do you
00:48:36
need to take? So they're going to they're going to exploit that. They're
00:48:39
going to exploit. A lot of people hate paying taxes. So they're going to talk
00:48:43
about the tax deferral aspects of annuities that they're going to give you tax deferral. Well, the thing let's use
00:48:49
a variable annuity for example. You they're saying, okay, you got all this money in this taxable account. It's not
00:48:53
in your IRA, it's not your 401k, it's in your taxable account. Why do you have
00:48:57
that in a taxable account? When you as you as that money is making money, you're paying taxes on it. Let's put it
00:49:02
in one of these variable annuities where we'll shelter it from taxes. you won't
00:49:05
have to pay the taxes till you take it out. They neglect to mention that if you have it in a bunch of if part of your
00:49:11
portfolios in equities and you have it in ETFs, you will probably not experience any taxable capital gains
00:49:17
until you take the money out. And then when you pay taxes on that, you will pay it at a capital gains rate, which right
00:49:24
now is dramatically lower than the income rate. If you take when you take money out of your annuity, you will pay
00:49:30
taxes at your income rate. It's a bad thing. And the deferrals is not very valuable. It's really not very valuable.
00:49:37
As a matter of fact, it doesn't even exist in a tax deferred retirement account. So Betsy is listening right now
00:49:45
and she owns an annuity, maybe even more than one. Cuz I don't know about you,
00:49:49
they tend to come in like bunches. People will come in with eight unique annuity statements. So maybe you can
00:49:54
explain why that's the case. Dude, you nailed it with the story of the woman
00:49:59
who believes this person is so nice. Because what is the common denominator for successful salespeople? Likability.
00:50:11
They are so nice. A great car salesman, woman, so nice. Insurance so nice. Whatever it is they're selling,
00:50:19
particularly if it's on commission, man, you got to be nice or or you don't live
00:50:23
right. So, what the problem is, the reason they're getting sold it is because the person was so nice. Yeah. To
00:50:31
expand on that story a little bit, this woman sat in our office. She's been working with her adviser. I'll call her
00:50:37
adviser Sharon. She's been working with Sharon for 20 years. And so I asked the
00:50:41
potential the woman sitting across from me with all the annuities. I said, "When
00:50:45
was the last time Sharon discussed fees with you?" And the answer was, "Oh, I
00:50:50
don't think we've ever I don't think we've ever talked about fees." I mean,
00:50:54
that should paint a picture for all the listeners right now. It's been 20 years
00:50:58
and they've never once discussed fees. The fees are so well hidden they don't
00:51:04
have to. It's a little scary. I remember cuz I'm old back when I was a broker
00:51:09
back in the days when Dean Witter was sitting in Sears Robucking Company stores and then I got religion and got
00:51:15
the heck out of it and got into radio. Being told by Dean Witter at the time they had just no load funds were
00:51:22
suddenly coming into their own. This was in the mid80s, mid to late 80s. No load
00:51:28
funds were coming into their own and it was really starting to hurt our sales of
00:51:33
full commission funds. Our commissions generally ran 5.75% on a mutual fund. So I don't know if it was Dean Witter or
00:51:41
who came up with it, but it was a brand new idea that they just got approved by the Securities and Exchange Commission.
00:51:47
They got 12b1 fees approved so that they could create and roll out what I call and Christopher Cox of the SEC also
00:51:54
called them this liar load funds or sales loads in drag. They never put any of this in writing, but they would tell
00:52:01
us. When somebody, you call somebody, don't you don't talk about commission.
00:52:04
But if they ask, you can say, "Oh, no, no, no. You don't pay a load on this.
00:52:08
There's no commission. There's no commission upfront. There's no front
00:52:11
commission." You would say really quietly. And you because you knew nobody was going to read the perspectives and
00:52:16
see that the commission was coming through this new 12b1 fee at 1% per year for every year they had the fund. And if
00:52:22
they got out early, that's okay. There was a surrender fee. So, they got paid
00:52:26
back the commission they paid to me. So this is what the insurance industry does. They hide they obfuscate the fees.
00:52:33
They you deemphasize any of the negatives and you emphasize only the positives. Positives being decent
00:52:41
return, no risk or no taxes. What's Betsy to do? Betsy owns eight annuities right now and she's listening to us and
00:52:48
she all of a sudden feels like she's been dealt a raw deal. What can she do about her situation? Is Betsy in or
00:52:56
approaching retirement? probably is, right? Let's say yes, because she's
00:52:59
gotten eight annuities, so she's probably got a fair chunk of change. So, we're talking she's got like probably a
00:53:04
million bucks, right? Exactly. If she's heading into retirement or in it, this
00:53:10
is when you need desperately need true financial planning. And anyone who sells an annuity in my book is not a
00:53:22
comprehensive financial 100% fiduciary always taking care of your best interests advisor because they can't be.
00:53:29
If you sell someone an annuity, you have to know that most of the time, unless a
00:53:34
series of very special circumstances apply, that is not a suggestion that's in a client's best interest. The only
00:53:42
the only instance where it might make sense is if somebody must have a set income for the rest of their life. They
00:53:47
have to have it. Their peace of mind is so much higher than their need for return. Anyway, having said that, what I
00:53:55
would suggest every time is that somebody go that you seek out someone like you, someone like the people at my
00:54:03
firm, someone like the people at at a list. I mean, I got a list of them on talkingrealmoney.com of firms that I
00:54:10
believe always act as a fiduciary. Not just us, not just you guys. There are a lot of them. Problem is, they're hard to
00:54:16
find, right? Because 100% fiduciary firms tend not to advertise very much because generally speaking, they're
00:54:25
doing pretty well, because they're honest. But you need a planner. If nothing else, you need to get a
00:54:32
financial plan. Just a financial plan. Now, that's going to cost you several
00:54:35
thousand dollar. It is not a cheap document because it entails a lot of work with you and your adviser and your
00:54:42
planner and then your planner and their team to create the plan. It is a comprehensive document, but if it's done
00:54:48
by a fiduciary, it's going to be in your best interest if it's done by a 100%
00:54:52
fiduciary. So, at least get a plan. If not, start working with an adviser because even though you go, "Oh, what's
00:54:59
1% per year or 75 basis points per year or whatever it is, you just paid 5 6 7 8
00:55:08
9% for those annuities you got into. And generally the insurance company's I
00:55:14
guarantee making more money than you are in aggregate." And so I think Don, you
00:55:19
know, second question might be a very similar answer, but Betsy's brother Jim
00:55:22
is also listening right now. Hey Jim, nice to talk to you. He loves the idea of guaranteed income as many of us do.
00:55:29
It's understandable, right? That appeal and everybody's retirement, whether it's
00:55:34
social security, pension, bonds, they have some form of guaranteed or fixed income in there. So, he's been thinking
00:55:39
about an annuity, too. Maybe he's thinking about going to the steak dinner tonight. What does he need to know
00:55:44
before he, you know, dumps the A1 sauce on his steak? Buy the steak. just go ahead and buy the steak and skip the
00:55:50
dinner because these people are really good at what they do. There's a human thing we have. I don't know what
00:55:58
the psychological terminology is, but it's a tendency to reciprocate. Oh, yeah. We want to be reciprocal. Yeah.
00:56:06
It's just part of the social fabric of our brain. You got this free dinner and
00:56:10
you feel like, okay, I should take the meeting. Because that's what they're
00:56:13
there to get you to do. They're there to get you to take the meeting. Here's what
00:56:17
happened. They hold dessert until you give them the meeting. And they've even
00:56:21
said that. One of the on one of them I went to, they said, "Well, yeah, you
00:56:25
we're not going to we're not going to give you dessert until you sign up for
00:56:27
one of these meetings because if you sign up for one of these meetings, you're really going to change your
00:56:31
life." No, no, no, no, no, no. And and if it's that if the sales pitch is that
00:56:36
dominant in the dinner, imagine what they're going to do to you in their office. Just pay for the steak. I love
00:56:44
it, Don. I love it. So, let's talk about where our listeners can start tuning
00:56:49
into your show. How long's it been? Give us a quick history. What's it been, Don?
00:56:54
30 years. I have been doing a financial talk show of some kind. Before podcast, I was on 90 stations across the country
00:57:03
with Business Radio Network. I did a national talk show which went from network to network to network as radio
00:57:11
became paytoplay. radio is now in the financial end of radio. It's almost entirely paytoplay. And then I started
00:57:18
doing podcasts with Paul Marman of Marman Capital, who's well known nationwide. I've worked with Paul for
00:57:24
many, many years. Paul's the one who taught me all about dimensional funds and Devontis funds and this
00:57:28
evidence-based approach to investing, which I just adore. Back in 2009, Tom and I, who's my co-host and
00:57:35
partner, Tom and I worked for Marman Capital or Maramman, whatever it was called at the time, and funny thing
00:57:42
happened. And we were both in the marketing department. Okay. Funny thing happened. They called it 2008. Ooh. What
00:57:49
did firms do in 2008 when the market dropped by about half? Probably cut some staff. Got rid of
00:57:58
marketing. So we got laid off. And so in 2009, we got together and we went maybe
00:58:05
we should start an investment advisory firm based on what we're good at, which
00:58:10
is educating people. base it on education, don't base it on sales. We don't want to push sales. And so that's
00:58:17
what we did. We started a firm called Vest and the podcast Talking Real Money almost simultaneously. We're still doing
00:58:23
it. If your podcast is there, just type in Talking Real Money in the search bar and you'll find us right there. We're
00:58:30
not as popular as Stacking Benjamins. Dank joke sali. Well, Don McDonald, thank you for stopping by Personal
00:58:38
Finance for Long-Term Investors. My pleasure. Thanks for tuning in to this episode of Personal Finance for
00:58:44
Long-Term Investors. If you have a question for Jesse to answer on a future episode, send him an email over at his
00:58:50
blog, The Best Interest. His email address is [email protected]. Again,
00:58:56
that's jessevestinterest.blog. Did you enjoy the show? Subscribe, rate, and review
00:59:02
the podcast wherever you listen. This helps others find the show and invest in knowledge themselves, and we really
00:59:08
appreciate it. We'll catch you on the next episode of Personal Finance for Long-Term Investors. Personal Finance
00:59:15
for Long-Term Investors is a personal podcast meant for education and entertainment. It should not be taken as
00:59:21
financial advice and it's not prescriptive of your financial situation.