The X’s & O’s

Renowned personal finance author, Ramit Sethi, had recently tweeted about the 4 signs when you might want a financial advisor. Brent, Matthew, and Joshua offer their opinions on this tweet and discuss how an advisor can add value to your situation.

The Hosts:

Brent Pasqua, Matthew Theal and Joshua Winterswyk

Transcript:

Brent Pasqua: Welcome back, and we are back. We’re ready. Welcome to Retirement Plan Playbook. I’m your host, Brent Pasqua, founder of RPA Wealth Management, and I’m here with Matthew Theal, certified financial planner, and Joshua Winterswyk, certified financial planner. And we’re excited to get into this topic today. We’re going to talk about how to know when to hire a financial advisor. But before we get into that, I wanted to ask you guys. The weather is really starting to warm up. COVID is winding down and you can see the end in sight. Summer’s coming up. Do you have any summer travel plans?

Matthew Theal: Hey, Brent, nice to see you today. I really want to travel. I want to get out there. I want to get some kind of resort or beach or pool trip going. The wife and I were looking at Hawaii, and honestly, we’re priced out. It’s expensive right now. I think everybody’s looking at Hawaii or some kind of travel like that, and we just can’t make it work with our schedule. So, yeah, no Hawaii. Might go up the coast or something like that, do something in California. But, yeah, I’m definitely craving some kind of summer trip this year.

Joshua Winterswyk: No plans either, actually. LAFC summer of soccer I’m excited for, but me and my wife don’t have any plans set. I’m sure we’ll look at that. But we got an expensive summer. We’re closing on a house in the summer, probably about July, so that might defer any trips until the fall. But excited for summer to come. We can already feel the heat.

Brent Pasqua: It seems like there’s an even more premium right now on hotel and air flights for when kids are out of school right now, and that’s probably why many people seem to be getting priced out of it right now.

Matthew Theal: That, and I think they’re just raising prices to meet demand, and they’re like, “You know what? We got crushed last summer. We’re going to make it all back this summer.” So, yeah, summer’s not going to be travel. Joshua, I feel like you might some good deals once school goes back in, maybe September or October, so that’s when I’ll look to do my trip.

Brent Pasqua: When we started looking at vacations over the summer, what we started to really spend a lot of time on looking at is just some of the different dates that you could go, and I could find price breaks within certain dates and certain months. So I think right now, it’s probably booking up super quick. It’s got to be a little bit more… I spent a little bit more time going through it to just try and find some, where those dates are where it’s a little bit cheaper.

Matthew Theal: That’s a good idea.

Brent Pasqua: All right. Let’s jump into hot take headlines. Big in the news, this has been a massive story over the last week, Joe Biden is proposing a 39.6% capital gains tax rate up from the current tax rate of 20%. When combined with Medicare, the sur tax charge can be as high as 43.4%. This would not include state income tax laws. With people living in California and New York, that could exceed 50%. What are your thoughts on this potential tax rate hike?

Matthew Theal: So this bad. There’s no way to sugarcoat this. I think though for listeners, I think we should talk a little bit about what capital gains tax is because there’s probably some misconceptions. Josh, will you just jump in and correct everything when I’m wrong here?

Joshua Winterswyk: Of course.

Matthew Theal: When you are buying a financial asset like a stock or a bond or a house or even considered a business, you have a basis, and then you sell it for something and hopefully you made a gain. The difference between what you sell it for and your basis is your gain. That gain is what we call capital gains and there’s a special tax rate for it. And previously that had been… The highest is 20% but 23.8% when you factor in that Medicare surcharge.

Matthew Theal: But for most people who are making under I believe right now somewhere around $400,000, the rate’s actually 15%. So it’s extremely low. And then if you’re under I believe $100,000 a year or maybe $75,000 a year-

Joshua Winterswyk: 75000

Matthew Theal: Is it 75?

Joshua Winterswyk: Yeah.

Matthew Theal: Your capital gains tax rate is zero. And this guy Biden wants to raise it into the 40s? That’s ludicrous.

Brent Pasqua: When you say that… Great explanation by capital gains by the way. But it is different than the tax you pay on your earned income. I just want to make that a point. So like Matt had said, any bonds, stocks, precious metals, real estate property, you have a price that you purchase for and it hopefully grows, and that difference between that price you purchase for and it grows is that capital gains like Matt said. But it is different. That tax bracket is a lot different than when you go to work and you get your paycheck, you have ordinary income tax. And that is on a scale anywhere from again zero to almost 40% too. So I just wanted to make that clear, the two differences, capital gains tax and income tax are two separate, and we are talking about capital gains tax just to be clear on that.

Brent Pasqua: But why is capital gains… I guess this is just a question to you guys. Why is capital gains taxed differently than income tax?

Matthew Theal: Because in this country, we want to spur investment. We want people to take investment rates. We want them starting businesses, buying financial assets. So therefore, we reward people for taking risk so we tax them less on their gains.

Brent Pasqua: I’m for it. I just wanted to hear that because to kind of give the audiences, well, an explanation of why this is taxed differently. And I agree for investors. Why are we raising this so high? In California getting close to 60% as the max capital gains rate when potentially the maximum is just above 20% is just crazy.

Joshua Winterswyk: And I think one thing that has to be clear. Just remember that capital gains tax is tax that you’re taxed on in after-tax accounts, right?

Matthew Theal: It is not retirement accounts.

Joshua Winterswyk: So your 401Ks, your IRAs, this does not pertain to those. This is all after-tax money. But what I think it does for so many people is it makes it so much harder to want to invest. Because if you say, “Well, I have to take risk in buying let’s say Apple stock, and then I go to sell it and then I’m going to lose 40% of my gains when I sell it when I just took the risk to make money on stock, that seems very unattractive.”

Brent Pasqua: Absolutely. And especially in America. We’re talking about real estate. Real estate’s so popular in America, not only just your primary residence, it’s a whole different topic, but looking at rental properties, vacation homes, all of those different types of property that you own, this does affect potentially those gains that you have embedded with any property you have that has accumulation.

Matthew Theal: You know what I’m going to do? I think there’s two things for most people to do here. The first play is you should service your debt faster. You should be paying down your mortgage faster because the trade-off’s not going to be there on your expected rate of return between your mortgage, especially if you’re around 34%, then you know that they’re going to pretty much take half your gain away if you buy a financial asset. Just start paying off your mortgage faster. Why? Because it’s going to lead to earlier retirement.

Matthew Theal: And then once you do, you just start doing backdoor Roth IRAs. So everybody should start doing a nondeductible IRA contribution. You convert it to a Roth, and then boom. Now you have your Roth account going and they can’t tax it. That’s going to be the way around for most people.

Joshua Winterswyk: Not everybody. We can’t say that.

Matthew Theal: We can’t say what?

Joshua Winterswyk: Everybody.

Matthew Theal: Why?

Joshua Winterswyk: I figured with the compliance guy in here, there’s got to be some kind of compliance thing-

Matthew Theal: Oh yeah. That’s true. That might be a-

Brent Pasqua: I wouldn’t say… Anyways, that is a complex strategy, Matt. I do like the strategy. I think it’s very smart to get around the capital gains situation. One that’s complex but also kind of easy. You explained it in just a few seconds. I don’t think that it is necessarily for everyone. That takes a little bit more of an in-depth analysis.

Matthew Theal: Sorry. I’m fired up today.

Brent Pasqua: Just in my opinion.

Matthew Theal: This makes me mad.

Brent Pasqua: But I think you make a great point though, is that there are ways to potentially avoid this too, right, if that is the case that this proposal is passed.

Joshua Winterswyk: How much of this is just political show where he’s saying “39” but it ends up somewhere around 30, and then we kind of settle somewhere around this number?

Matthew Theal: I’m hoping all of it. Yeah. I hope all of it is. I hope he actually doesn’t raise it.

Joshua Winterswyk: And you see there’s already Democrats that came out and opposed this too. Because it’s going to affect them as well.

Matthew Theal: If he raises it, he won’t get reelected.

Brent Pasqua: It creates the exact opposite of what we want from investors. We want investors to buy, hold, and keep their gains there in stocks for a long period of time, and then sell them in the future when they need the money. And that’s when you sell them.

Brent Pasqua: I thought there was an interesting proposal by proposal by Chuma

Matthew Theal: Chuma Polytia

Brent Pasqua: Yes. He was reacting to Biden’s proposal and he put in a modification to what he was basically saying. He said, “If you hold it for less than one year, then raise capital gains tax to whatever you want. 75%. If you hold your stock for one to two years, 35% capital gains tax. Two to three years, 25%. Three to five years, 15%. Five to 10 years, 10%. And if you hold your stocks for 10 years or longer, then you have 0% tax on it.”

Brent Pasqua: In theory, what this would do is eliminate short-term investors from the market and make people hold their stocks for long periods of time which would also seem to help companies and in the market.

Matthew Theal: That’s such a better proposal. That’s great. I love that.

Joshua Winterswyk: So do I. Yeah, I really like you’re giving a benefit for people to hold onto their investments, really participating in the market the way it was meant to be.

Brent Pasqua: And then this is what I thought was interesting. The day that this proposal came out from Biden’s administration, they basically, the market tanked for what? It was half a day. And then the next day the market came out and it basically dismissed these changes and it was positive the next day. So I don’t know. Is this being taken seriously or not?

Matthew Theal: I don’t know. I’d like to think within that time all the big investors called their lawyers and asked if they could move their companies overseas, and they said, “Yes,” and so then now they’re all working on doing that. So they’re going to avoid it anyways and then it’s just going to be the guys in the middle who can’t quite move their companies overseas or their investments overseas who get stuck with this tax. That what I like to think at least.

Brent Pasqua: This is such an interesting time. While we still have a lot of Americans that are potentially struggling. We’re still coming out of this recession and we’re talking about capital gains tax. I think it is also though important that there is income thresholds for this increase as well to talk about. So your income has to be over a certain level in the proposal to see the increase in those capital gains rates.

Matthew Theal: This is a 1% thing. This isn’t a 99%, right? So this is going to affect employees who work for large corporations that get stock options and who are making high-six/low-seven figures a year in annual take home pay. This is going to affect business owners who are making probably mid-six figures and who have very valuable businesses who they want to sell. Other than that though, I don’t know if I see this impacting that many people. Startup investors, definitely. Entrepreneurs like that. But for most people who are working, collecting a paycheck, I don’t really see this as much of a big impact.

Brent Pasqua: One thing to note though too, and if I understand the rule correctly, this would go into effect retroactive to January 1st, so it makes no sense in if you think this is going to impact you, trying to do something now.

Matthew Theal: Oh yeah. It’s over. If they pass it, everybody’s done. So it’s going to go into effect-

Brent Pasqua: Everyone’s done.

Matthew Theal: If you sold something this year thinking it’s going to get taxed at 20%, well there’s a chance based on your income, it might get taxed at the 40 or the 50, like you’re saying.

Joshua Winterswyk: Yeah, don’t go do something because this is being proposed right now because you’re not going to get it at the lower tax rate.

Brent Pasqua: That’s a good point. You got to wait out and see what’s going to actually happen because it is just a proposal.

Matthew Theal: Yeah, your best strategy is actually probably never to sell if they raise the rate this much anyways.

Joshua Winterswyk: And if you’re trying to avoid that capital gains tax because you have massive gains and call us because we could talk about other ways of shifting that wealth.

Brent Pasqua: What about the step you in basis removal? One of you guys want to talk about that today or is that a different podcast?

Matthew Theal: We can talk about it. So is he proposing that they’re going to take away step up on basis in inheritance?

Brent Pasqua: Yeah. So if you were to pass, right now currently under the law, then your investment actually steps up to the value of when you passed so that your heirs who inherit it actually don’t pay any tax on the accumulation prior to the grantor passing or the original owner.

Matthew Theal: Is there an estate size limit?

Brent Pasqua: I don’t know.

Matthew Theal: You know, that’s interesting. I actually like that policy more than raising the capital gains tax because we should be taxing people who… It’s better to tax people who are inheriting something than it is to tax people who are creating something. And when you’re taxing capital gains, you’re taxing creators, and when you’re taxing inheritance, you’re taxing people who didn’t earn it.

Joshua Winterswyk: And from my understanding, they’re going to do that with property as well, right? That’s part of it.

Brent Pasqua: Yeah. And again, for Americans, that’s huge. A lot of families inherit wealth through real estate or property, and right now, if you had a $250,000 house that let’s say a family member owned and now it’s worth $500 and they passed, again, now that step up in cost basis is now $500. You don’t owe any tax. But with this proposal goes through that they eliminate that step up, now the person inheriting the house is paying taxes on that $250,000 gain. That’s really big, especially for someone who maybe even was expecting it or thought had a certain amount.

Joshua Winterswyk: Or they would live in the property.

Brent Pasqua: Or they’d live in the property as well, yeah.

Joshua Winterswyk: You could just see the massive amount of challenges it would create.

Matthew Theal: Well yeah, because they’re going to be forced to sell.

Joshua Winterswyk: Correct.

Matthew Theal: Yeah, that’s a bad policy. Yeah.

Joshua Winterswyk: You can’t pay the tax, then you have to sell it.

Matthew Theal: Oh man. Three and a half more years, then we hold another election and hopefully-

Joshua Winterswyk: Well, I guess the one thing too is hopefully this thing doesn’t pass and it doesn’t go through and it saves some tax problems here.

Brent Pasqua: Yeah, I think so too. We hope that even if it does, it’s just a slice of what is proposed. Not the whole thing.

Joshua Winterswyk: And whatever political agenda you’re on, I think what we want is what’s best for investors.

Brent Pasqua: Absolutely. All right, so let’s move on. Let’s get into the retirement planning corner. A personal finance author we respect, Ramit Sethi, had really an interesting tweet that we all considered… We stopped to think about it. He tweeted the four signs you should need a financial advisor. So we thought we’d jump into this one and really kick off what some of those four signs would be.

Brent Pasqua: The first sign that you would possibly need a financial advisor that was tweeted out would be why would you want an advisor if you have over a million dollars in investible assets? Why would somebody want an advisor?

Matthew Theal: I think this is an interesting one to talk about, and when I saw his tweet at first, I was like, “Oh yeah, yeah. Definitely. That makes sense.” But then as we were preparing for the podcast, I was like, “I bet there’s quite a few investors with over a million who kind of do fine going their individual ways,” but really I think once you hit that million mark, that becomes a decent sized nest egg for most people. And you probably want some sort of professional advice on how to maintain it and continue to grow that amount of money.

Brent Pasqua: Is a million dollars even enough to retire off of?

Matthew Theal: I don’t know. What do you think, Josh?

Joshua Winterswyk: We get this question a lot about how much is enough. To me, what I always think of when that question’s asked is how much are your expenses? Because it goes hand-in-hand. I can’t tell you how much you need in the nest egg unless I know how much expenses that are actually going out of your plan.

Joshua Winterswyk: So a million dollars in today’s dollars, it just seems like that is a lot more achievable, a lot more common like it isn’t as much as it used to be. It’s not going to last as long as it used to be obviously. But I think that the threshold is definitely a good one if you’re listening or you’re reading to think about if you do need help now. Because it is getting more complicated once you hit that million-dollar threshold.

Brent Pasqua: Is a large portfolio where there’s over a million dollars sort of like having a bigger house versus a smaller house? If you have a real small house, maybe you don’t have as much complexity as with utilities or keeping it up. But the larger your house, the more problems you begin to have. It’s harder to maintain. Do you see that in portfolio sizes? More money, more allocations, more assets you’re holding, more stocks, more positional challenges?

Matthew Theal: Yeah, that’s a good way to look at it. And it’s also a different ballpark. You have more skin in the game, right? You have a million-dollar house, well, in some way you put probably a million dollars into it to get that house. And same with that portfolio. Sure, you put it in but you grew your money over time and then you got to figure out how to maintain it. It’s absolutely a good analogy.

Joshua Winterswyk: How much value can an advisor bring when a client has this much money?

Brent Pasqua: Oh, tons. And like you had just talked about when you’re talking about just the tax implication of investing that much money. So you have a million dollars and even if it’s between a 401K and after-tax account, a savings account, however you have it distributed, just the analysis of now when you do retire or you have that much money and how you’re going to take that money out of those accounts, and that tax implication is there’s just tons of value there that an advisor can provide in the tools that they have.

Brent Pasqua: And then also just with allocation, making sure that your expectation is met from the money as well. You’ve done such a good job of building this nest egg, I think it’s really, really important now to make sure you preserve it that actually matches your expectation of how it should be preserved or the expectation of how it should be growing. An advisor can really research that and showing you so you just feel more comfortable now that you have this very, very large nest egg.

Matthew Theal: And then also, managing out is this after-tax or is it pre-tax? If it’s pre-tax money, you’re going to pay ordinary income on the withdrawals so there’ll be the withdrawal strategy angle, but if it’s after-tax money, you can manage the dividends. You can manage the capital gains in the portfolio. There’s a lot you can do as an advisor to add bottom-line value to the client’s tax return and investment returns over the long term.

Brent Pasqua: Yeah, because if you have money in an after-tax account and then you have money in a pre-tax account, you can manage what positions are in the after-tax for taxable advantage versus the pre-tax. You’re going to be making new money contributions in the 401K plan. You can manage how those new allocations are being invested. It seems like the larger the portfolio, the more complex it can get, seems like the more value-add that can be done as well.

Matthew Theal: I agree. And then from an advisor standpoint, right, like we’re all advisors here. We’re running a business. And clients who don’t have that much money, aren’t quite there yet, there’s lots of good low-cost options out there for you to go get a good portfolio that will help you grow to that level, which I think is important to add as well.

Brent Pasqua: I think those are all great points. Let’s get into the next one. So what would be an example of some complex financial situations that would require the expertise of an advisor?

Joshua Winterswyk: Give you a couple examples here, and I’m sure we can keep the list going. But just to start off, retirement. We’ve talked a lot about, and this is the retirement plan playbook, but it is probably one of the biggest financial transitions people go through in their lives. Of course at that time, having a think partner to help you with that transition I think is just very valuable. And then also, selling a business, another big transition point, especially in America, we have so many small business owners, that is maybe not one that comes first to everyone’s mind but I think it’s very important. And then also, just anyone with company stock options. There’s so many rules, tax rules, regulations, vesting schedules with company stock options, that I think it’s very important to consult with an advisor when you’re actually working that partner product. And then also, inheritance, another big transition period that I think a situation where an advisor can provide tons of value.

Matthew Theal: I think you hit the nail on the head. The number one reason that people usually do reach out to any advisor is for that retirement help. That’s like that big, I guess life moment where most people realize that they need the help of a professional to get them through retirement.

Matthew Theal: Selling a business is that one where I’m sure you’ll agree with me on this, Brent, that you actually wish people would reach out more. That sometimes business owners, I think they try and they’re used to doing it all themselves or kind of trusting their gut but going to sell your business isn’t a gut decision. That’s something that you want someone who’s worked on a deal team before, who’s worked with clients who’ve sold a business, and understand the moving pieces there.

Brent Pasqua: And I think from a business owner’s perspective, they probably think that nobody is going really be able to come in here and understand my business the way that I do so why do I need the help selling it? Which you could understand that thought, but usually business owners aren’t really selling very many businesses. They’re usually selling their one baby that they’ve been raising for the last 35 or 40 years, and this is their first time to really sell this thing.

Matthew Theal: And if you are a business owner you want to sell your business, one mistake I see is people reach out the day they want to sell it. “Oh, I want to put my business on the market. I want to get out in six months.” You need to reach out to an advisor maybe five to six years before you sell your business.

Brent Pasqua: What that advisor’s going to do is actually begin with looking at the end, begin with looking at what the dream is. When you’re so busy as a business owner, you’re thinking about making it today and maximizing growth for today or this year. What an advisor can provide through that transition is actually helping you look at the outcome, the end, the dream, your lifestyle. I think that’s just really important and can provide a lot of value.

Joshua Winterswyk: I think one of the things that advisors do well when working with business owners and when they’re really getting ready to sell their business is they’re making their business look really nice and completed. And it’s kind of like a real estate agent who comes into your house, they’re going to put it on the market, they stage your house, they make it look super nice, they make it look the way it’s supposed to look, and then they put on the market. Advisors do the same thing for business owners. You get it in position to sell. You come in. You fix all the things that need to be cleaned up, and you make it super marketable, and you take some of that emotion out of it. It’s hard seeing staged furniture come into your house. It’s hard making a couple of these adjustments. But it’s going to market your business so that it can sell at a top dollar.

Matthew Theal: Absolutely. Love that analogy as well.

Brent Pasqua: Why is it better though for an advisor to solve these issues than a person really trying to do them themselves?

Matthew Theal: To me, I think it’s a simple answer, right? It’s always two minds are better than one. You’re going to want some professional guidance. As advisors, we’ve seen so many different people in different situations, and everybody’s situation is unique, but a lot of people have common themes across their plan. So I think having an extra brain that could be like, “Oh no. This will work. This won’t work. Here are your four options. Let’s lay them out and explain to you so you understand.” That’s worth millions of dollars.

Brent Pasqua: Does software and cause and effect that you can calculate within software extremely helpful?

Joshua Winterswyk: Yeah, that’s when Matt was talking, that’s one thing that popped into my mind was hiring an advisor, you’re hiring also someone to do that research for you. The research, the analysis, they have the tools and software that know will work to help you and provide value. So you know you’re hiring someone that’s not only helping you in this very hard and emotional time, a lot of these situations are difficult, and they’re going to be able to help you do all of that research, provide that software that’s just going to help you make a better decision.

Brent Pasqua: I think those are all great points, and when those are being talked about, it really brings me to point number three. And point number three on how to know when to hire a financial advisor would be of some examples of when you know you need to have a temporary set of eyes on things. What would be some of those examples?

Matthew Theal: I have a few here on my paper. Let’s say you have a pension and you want to do some analysis there, figure out what option you should select. That’s a popular one. One for the crowd call it under 40 is, can I afford a home? How much home can I afford? That first home decision. And then the same one with the under-40 crowd is putting together a plan to pay off the student loan debt, or even credit card debt as well. And then lastly, those savings strategies. I’m making X. How much of my paycheck should be going to my emergency fund versus my retirement account versus my kid’s school? Those are those temporary projects that I think advisors could help people with.

Joshua Winterswyk: I think there’s a couple that I want to add to there too is even like marriage or divorce, like in other transitions where there is a big change in the financial situation that you definitely need a temporary set of eyes to maybe just start a quick plan for you when you get married or getting you back started like we said with divorce. So this is another couple different times when I think that an advisor’s set of eyes can definitely provide some value.

Brent Pasqua: If you are working with an advisor and they’re assisting you, what is some of the long-term financial impacts that that can have for somebody? How can it benefit them?

Matthew Theal: Well, if you have poor credit, you have a lot of debt, it’s going to compound itself meaning when you go for a new debt product, whether home or car, you’re probably going to get charged a higher interest rate. And you can tell that based on your credit score. That’s one way to look at that. So if you work with an advisor to pay off some debt, get that credit score rebuilt, then when you go to buy a new product on credit, your interest rate could be lower.

Brent Pasqua: We worked, Josh, together on so many clients with paying off their mortgages or doing amortization schedules with longing at long-term interest and how much they’re going to pay. How much have you seen that when somebody has a higher interest rate because of bad credit and not being prepared, how much more they’re going to pay over the lifetime of their home?

Joshua Winterswyk: Oh yeah. It’s thousands and if we’re just looking at all of the cases that we’ve worked on, you’re probably getting close to millions of more dollars spent. You know who’s benefiting is the actual lenders, not the client. And that’s what as advisors we’re trying to uncover is the value. We don’t want to pay extra money to the lenders, so what steps can we take to reduce that amount that you just talked about which is paying higher interest than you need to because of bad credit or because of poor planning. We want to pay less to uncover that value. And it’s really important, and it’s just going to put you in that much of a better situation if you get started.

Brent Pasqua: What are some other examples, Matt?

Matthew Theal: You could look at a savings strategy, putting money in that emergency fund, that 401K plan like I mentioned. How much goes here? Maybe “Do we save for the kids’ college?” Stuff like that.

Brent Pasqua: Whether someone’s high net worth or not, how many times have you seen it where they come in and the substantial amount of money is just sitting in their regular bank savings account?

Joshua Winterswyk: Oh, that’s really common. Yeah, like the savings strategy and the investment strategy isn’t just being maximized regardless of the net worth, low or high, and I think that that’s really important. You don’t want to sell yourself short either. Paying yourself first and selling yourself short is just going to create an issue later down the road. So solving it sooner regardless of your net worth is going to be positive for your overall family and your situation.

Matthew Theal: What’s that rap song, Josh, where the lyrics go like “More money more problems?” Do you remember that?

Joshua Winterswyk: Mase, P Diddy.

Matthew Theal: Oh yeah, yeah. Totally true. Absolutely. The more money you have, probably the more complex, more problems you have, and the more help you most likely need.

Joshua Winterswyk: That’s a great song by the way.

Brent Pasqua: And there’s so many good online savings accounts nowadays that just having your money sitting in Bank of America, Chase, Citi, or any of the major banks, US banks, you’re just throwing away money every month. There’s free money sitting there.

Joshua Winterswyk: Yeah, the banks are benefiting. You’re not.

Brent Pasqua: You’re really doing that for access. Ease of access. That’s the only reason.

Joshua Winterswyk: Or just not knowing where to put it that you trust.

Brent Pasqua: That’s true. You know, block buy on US dollar coins giving 8% right now. Just going to drop that in there.

Joshua Winterswyk: That’s for another show. Go back to the crypto or savings accounts.

Brent Pasqua: And that is not part of the recommendations that we’re talking about here.

Joshua Winterswyk: Full disclosure. It’s not a part of the recommended…

Brent Pasqua: So those are all good tips on the first three. Let’s get into the last one, number four. What types of personalities could benefit from behavioral coaching? I’ll start the list off. We have spouses not on the same page, also the know everything type, compulsive spenders, short-term thinkers, and instant gratification.

Matthew Theal: I love the know everything type. So let me tell you about the know everything type. They probably listen to this show and say one of us is stupid or all of us are stupid, right? They’re constantly saying the opposite of what somebody else is saying. Those are my favorite types of personalities.

Brent Pasqua: Are those the people you like to work with?

Matthew Theal: No. They actually aren’t clients because they know everything.

Brent Pasqua: But they might need an advisor.

Joshua Winterswyk: I think we talked about this last show about spouses not being on the same page. I think this is such an important one and why.

Brent Pasqua: Yeah, we did talk about that and I think, again, you’re bringing someone into the room that’s going to have an objective opinion about the situation instead of it just being a confrontation. They’re going to take the stance of doing what’s in your best interest, so even if one spouse isn’t on the same page as the other, this advisor… You hire an advisor to come in and be objective can definitely help you break that barrier that you’re struggling to break.

Joshua Winterswyk: I feel like as Americans we’re just not taught very well how to manage our finances. It’s not taught well in high school. It’s not taught well in college. And then we get to our 30s, 40s, or 50s and we carry these bad habits all the way throughout our life and we spend all this extra time working more hours, doing the grind, and trying to make more money, and taking all this debt for college, but we never really learn how to manage very well what we have coming in and what we have going out. And that to me is mind boggling.

Brent Pasqua: It is, and I also think just to add onto what you just said because I completely agree with you that it’s not talked about enough. It’s not even talked enough about in the household I feel like. That conversation is very private for a lot of people, and even to share with their children. So that financial knowledge is never even passed on because, again, the financial conversations aren’t even being had. So it’s just really hard to build on that financial education from a young age because it’s not really easily achievable.

Joshua Winterswyk: Do you see the same traits happening with higher net worth people as well?

Matthew Theal: Yeah, absolutely. They’re prone to the same mistakes as someone with lower net worth. And I think that’s another great reason to sit down with an advisor. Get those habits, get them straight, and learn. So much from going through the CFP education for me was I think a lot of these things are common knowledge. For instance, if you have equity in a home, what does that mean? How do you use it? Can you buy a new home with that equity? Should you pay off credit card debt or student loans? Can you access that to put a pool in? These are things that as I talk to people, a lot of them don’t understand that. Or even their retirement accounts, how much should they be saving? What are the projections going to be when you go to retire? How much are you going to have based on what you’re saving right now? Those are those little things that to my brain, I automatically know it when I see the numbers that 99% of people don’t.

Brent Pasqua: So what’s that journey like for somebody who comes in, who’s struggling with some of these personality traits whether in a marriage or just themselves short-term thinking, impulsive spender, from sitting down with an advisor and struggling with these things to coming out on the other side of it with a lot of clarity. What is that journey like?

Matthew Theal: Well, hopefully for them it’s eye opening to learn but you have to be open to it. You can’t go in and sit with a professional and not be really willing to hear their advice. If it is, you’re wasting your time and your money, and then you’re wasting that professional’s time. So it can be an eye-opening experience if you’re ready for it, but if you’re not, then don’t come in and sit with a professional either because that’s just a waste of your time and their time.

Brent Pasqua: But I think if you’re not too, and just to go on the other side of this, which is spend the time to do your research. You work really hard for your income, for your job, whether if it’s through school, building wealth, and now you have let’s say this big nest egg or this high net worth, but you’re not spending the time to actually protecting it, to grow it, and to learn from it. It does require a lot of work and an advisor can help take some of that work off of your plate but it isn’t something that… And we’ve seen this with so many people. It isn’t something you can put in the corner and just leave it there. It does take nurturing. It does take a lot of different strategies and a lot of work to keep that net worth and to continue for it to grow. So an advisor can just help with that if you’re not willing to do it yourself.

Joshua Winterswyk: I think a lot of times for me, these are my favorite situations to begin doing planning with when somebody comes in and they’ve got complexity in their financial life or they’re on two different pages, and there’s just so much murkiness to what they’re doing, and they don’t understand where they’re going. And then to watch over the next six months this go from just the complexities and somewhat animosities and just the unknowns, to getting to the other side of pure organization and clarity and understanding and people being on the same page, I think it’s an amazing process and I wish more people could go through it because it does really strengthen not only relationships, but people’s mental understanding of finances.

Matthew Theal: And you’re giving them confidence to make decisions in their life.

Joshua Winterswyk: Yeah, and you see the big picture. There’s a bigger picture to all of this. We understand what the bigger picture is. The advisor’s helping us solve for the bigger picture.

Brent Pasqua: Why is recommending a fee-only advisor important, and as this is just an add-on, what is that?

Matthew Theal: I thought this was the part that really got me interested about his tweet. One, because we are fee only and we talk about it a lot on our show, why fee only is better. And I like that a personal finance author, blogger, personality like Ramit who’s well respected is saying, “Hey, if you want to work with an advisor, you better go hire a fee-only one.” And for that is for people who haven’t heard it on the shows is you’re paying your advisor for advice. They’re not making money on a product. So you’re getting advice that’s already paid for that you know there’s no backdoor relationships with any companies. They’re not making any commission. You’re paying for your advisor’s time when they’re fee only, and that’s a big difference from how the industry’s modeled right now.

Joshua Winterswyk: And I’ll give some example to this because I think it’s important for people to hear. I started in on the commission side when I was young in my career. But let me give you an example of what this actually means. Let’s say somebody were to invest $100,000 and the broker advisor were to put them into a mutual fund with a front-end load of 5% or an annuity with a 7% commission on it. That advisor up front is going to make $5,000 or $7,000 just on that transaction. And a lot of those transactions have trails so they’re getting paid off that continually for the next several years.

Joshua Winterswyk: If you’re working with a fee-only advisor and they put $100,000 into an account, the advisor who’s managing it, let’s say their family advisor’s charging 1% a year to manage the assets under management, they’re only getting paid $250 a quarter and it’s other until the following quarter. So you’re literally not getting paid for probably six months and it’s a very minute amount. So if an advisor chooses to be fee only, they’re only purely doing it to do it in the best interest of clients. Because if it was about money, they would just go the commission route like 95% of the industry and just go make the big lump sums of money up front.

Matthew Theal: Absolutely. And then also too, the nice thing about paying for your own planning is you’re a little bit more in control. Like a lot of these people who meet with these commission-based advisors, they hate them. And why? Because they only hear from their advisor when they want to get sold a product. You hear from someone like us six, seven times in the first six months we’ll meet face-to-face with a new client. And then after that they’re on a quarterly review process, seeing us every three to four months. It’s just a completely different relationship.

Joshua Winterswyk: And I think you follow the money, right? The relationship in a fee-only relationship with a client is our clients are paying us. We work for them. We’re not working for the insurance company or the mutual company that’s paying us the commission. That money is being transferred from that client to pay for the planning and the investment advice to the advisor, so our interest is with that client. We don’t have any other interest besides that. So I think that that’s just obviously the best way to get your advice because the other route, obviously someone’s benefiting more than the other.

Matthew Theal: Yeah, like you write a check or you pay RPA Wealth as company, and then RPA Wealth pays us all salaries. That’s how we get paid. We don’t make commissions. There’s no commission going on.

Brent Pasqua: Right, and there’s too, there’s the planning. If you’re doing planning there’s an upfront planning fee and then if we’re managing assets in our management, there’s a fee for assets under management. But I think what’s critical too is like let’s say that you were working with a client for 18 months or 12 months and you were charging them 1% a year on that $100,000, and that’s $1,000 that they’ve now paid you in a fee, and what happens if we didn’t do our job, right? They weren’t happy. Then they leave. We spent all that time and then we just made a thousand dollars. But for a broker or an advisor who gets commissions, they’ve gotten their $5,000 or $7,000 or $8,000 upfront, and if you leave, they don’t lose that money. That money’s in their pocket.

Joshua Winterswyk: How does that tie you to the client? To keep proactive planning going?

Brent Pasqua: It doesn’t.

Matthew Theal: I think it’s important too for people to understand why we think commission is a poor model. If you put $100,000 in, that means when your account’s open with that 5% commission example that Brent gave, you now have $95,000. So just by signing that paper, you lost $5,000.

Brent Pasqua: With mutual funds.

Matthew Theal: With mutual funds. That’s correct. And that $5,000 went to the pocket of your broker.

Brent Pasqua: Right. And then on the annuity side it’s even worse. Explain how that works.

Joshua Winterswyk: If somebody put $100,000 into an annuity and then they got offered this beautiful bonus that they were thinking that they were going to magically have this free money in their account for the next 10 to 15 years, the person selling it, the insurance agent, or the advisor, is you’re only going to get a 5, 6, 7, 8% commission. So they get $7,000 let’s call it, in the middle, up front. They get paid right off the top a big, fat $7,000 check. And then the advisor has locked them into this product for 10-plus years, and really, what’s his incentive to keep servicing the client because he already just got paid?

Matthew Theal: He has zero incentive.

Joshua Winterswyk: And one of the other things too is nowadays, there’s not that many fee-only advisors that specialize in working with business owners or complex estate plans because a lot of these types of advisors are really there to sell that big life insurance product, that big annuity, those big mutual funds, and what comes with that is this big paycheck as they were signing on these clients. Fee only does not work like that. It’s the exact opposite of that.

Matthew Theal: Absolutely. And I think that’s why Ramit hit the nail on the head there. Fee-only net worth, NAPFA. That’s where you find fee-only advisors. Obviously, if you like our personalities, you think you’d work well with one of us, reach out to us, rpawealth.wpengine.com. We’re fee only and we’d love to help you build your financial plan and help you with your money as well.

Joshua Winterswyk: There’s nothing that fires me up more than the fee-only conversation.

Brent Pasqua: I can see it on your face.

Joshua Winterswyk: I could go on for another 45 minutes with this and it’d probably just-

Brent Pasqua: Well, I just-

Joshua Winterswyk: … be me ranting very angry about why the industry’s so messed up.

Brent Pasqua: I think though, that passion shows and I think it’s good because you’ve made that decision. We’re all here. We all have that same vision of serving the client a particular way. And so there is passion behind it. I think even for myself, and Matt can touch on this too, but the passion’s there because we’ve made that decision to do what’s right for the clients and I’m proud of that.

Joshua Winterswyk: Yeah, and the thing too, I think what fires me up the most is that the decision an advisor makes with the client can truly impact their life so greatly. And there’s so many people in this industry, such a large percentage of advisors have really a negative impact on the outcome because they’re not really giving honest, fair advice. And to me, that’s not humanity. I just don’t think it’s right.

Matthew Theal: They’re not educated or they don’t have the proper credentials, but that’s a whole other kind of rabbit hole to go down about the credentials you need to actually be an advisor. Josh and I are CFPs. You obviously hired us so you know what you’re doing.

Joshua Winterswyk: Are you cutting me off on this topic?

Matthew Theal: No, I’m not. Well, kind of. I was going to start talking about real estate to make you happy. But if you’re working with someone, make sure they have the CFP because at least you know they’ve gone through the training to know how to build a proper financial plan using the six-step financial planning process. It’s six or seven steps. I think it’s six steps. The six-step financial planning process. Fee-only CFP, you’re in good hands.

Brent Pasqua: All right. Let’s get to the best part of the show. Let’s get into the RPA recommends. You look like you’re ready to go. Why don’t you tell us what you have?

Joshua Winterswyk: I’m ready to go? No, I’m good. Good show. My Peloton finally came. So I got a Peloton. My wife ordered one for me for my birthday back in January. It was delivered this last week. I’ve been waiting for it. I was an avid spin class goer before COVID hit so I was disappointed that I couldn’t do that over COVID. So finally got my Peloton. Ridden it three times so far. Love it. I guess that’s my recommendation. I don’t know if you guys have talked about yours or if you want to but I was excited to share that I finally got mine and I love it so far.

Matthew Theal: I like my Peloton too but funny you get yours as COVID’s winding down because Brent and I were going to SoulCycle after this to take a class, so-

Joshua Winterswyk: That’s the thing. That’s the thing I always thought. I’ll still go. I’m still down to go to the class. But it is just nice to get up, roll out of bed, click your shoes on, and get on the bike and start spinning.

Matthew Theal: Yeah, it’s really nice.

Joshua Winterswyk: It’s a new way to work out.

Matthew Theal: Peloton’s a product that gained popularity in the pandemic, but really as I have it now, it’s one for busy adults. You have kids, you’re busy at work, there’s really no excuse not to get on.

Joshua Winterswyk: Yeah, and promoting health and fitness is good. Full disclosure, I do own Peloton.

Matthew Theal: Oh yeah. Me too.

Joshua Winterswyk: So that’s just full disclosure from me.

Matthew Theal: Brent does too.

Joshua Winterswyk: But yeah, love it. Really, really nice product. I’ll give an update in a few months to see if I still like it, but so far so good.

Matthew Theal: I was thinking of what to recommend and I’m going to go with one that I bet you guys would never guess that I actually own. But do you guys know what a Shop-Vac is?

Joshua Winterswyk: Yeah.

Matthew Theal: I got one for my garage and it’s pretty awesome actually. They suck up everything. I got the car attachment so I could use it in the car, and it’s going through and sucking up all the dirt in the car.

Brent Pasqua: You’re full dad now.

Matthew Theal: Yeah, I’m a dad.

Brent Pasqua: You’re recommending Shop-Vacs.

Matthew Theal: I was like-

Brent Pasqua: What brand did you get?

Matthew Theal: The expensive one from Home Depot. It’s the orange one from Home Depot. I don’t know. It’s the top rated one on all the sites. I think it’s a professional one.

Brent Pasqua: Oh, okay. Nice.

Matthew Theal: Super powerful. It literally sucks everything up. It’s nice because you can keep your garage nice and clean. It’s basically like a vacuum for your garage.

Brent Pasqua: Yeah, dude, use that thing for everything, pulling in anything spills in the house, you could suck it up too. Use it for your car to vacuum.

Matthew Theal: Well, I got the car kit. I added that on, so really nice product. Highly recommend it if you want to keep a clean house, backyard, and car.

Joshua Winterswyk: Nice, dude.

Brent Pasqua: One of the things that I think my wife and I and kids really benefited from from the whole COVID situation over the last year is, we talked about this in the past, is just being able to learn how to cook. But we’re continuing to order from Siete which is the American Mexican brand that basically has non-GMO, much healthier product in terms of like chips and seasonings. And now they have cookies, like Mexican wedding cookies that are just phenomenal. A lot of it’s dairy-free or gluten-free, soy-free.

Joshua Winterswyk: Mexican wedding cookies?

Brent Pasqua: Yeah. They’re delicious. Their products are amazing. If you guys have time, go check it out. Siete. And the other thing to piggyback on that too. Not only is the product good but one thing that we talked about in our last show that’s critical, whenever you’re buying something online, please use coupon codes. Please. Because anytime you’re buying stuff, there’s coupon codes it seems like for everything. You could save money. Always try to save your money. Honey, coupon codes. You still using Honey?

Joshua Winterswyk: I use Honey. If I can’t find it on Honey, I go out looking for coupon codes just online. I start searching-

Matthew Theal: Look, those things don’t work. Don’t waste your time. Let’s talk about-

Brent Pasqua: Matt doesn’t know what he’s talking about.

Matthew Theal: Real quick on the Siete though, 100% right. That taco seasoning is the best taco seasoning I’ve ever had. If you make homemade tacos at home, ground beef, ground chicken, ground turkey, get that taco seasoning Brent’s talking about. It’s going to change your life. It’s so good.

Joshua Winterswyk: I endorse Siete too. I love their story about their family. I think it was the daughter who had like a gluten intolerance and that’s how they came up with the idea to make healthier Mexican food products. So great story. Great company.

Brent Pasqua: And they have enchilada sauce, which is amazing, tortillas that are almond flour. There’s just amazing, amazing products. Could really help change your healthy gut.

Joshua Winterswyk: So we’re helping your money and we’re helping your health here at RPA.

Brent Pasqua: Love it. All right. So as advisors we love helping people and that’s why we do it. If you’d like to schedule an appointment with us or give us some feedback, please go to rpawealth.wpengine.com and schedule a complimentary consultation. You can also go to our website to find out more information, or if you’d like the show notes, please go to our retirementplanplaybook.com. As always, thank you for listening to the show today.

Joshua Winterswyk: Thanks guys.

Matthew Theal: Thank you.

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