Michael Kitces on the State of Financial Planning

INTRODUCTION

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 380.

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All right, welcome back to the podcast. Hope you had a good week. I missed you. I'm glad you're here. Thank you so much for listening to this podcast. It wouldn't be much without you. A podcast, I suppose, could be just somebody talking into a microphone, but if nobody's actually listening to it on the other end, it's not much of a podcast.

QUOTE OF THE DAY

Our quote of the day today comes from Benjamin Franklin, who said, “Wealth is not his that has it, but his that enjoys it.” That makes me feel better, given that what I talked about last week about renting a McLaren for a couple of days. It doesn't do any good to just sit there in those accounts. Once you have become wealthy, once you've taken care of your financial ducks, it's okay to spend some of your money. Just make sure it's an amount you can afford and it won't keep you from reaching your financial goals.

The goal here is not to be the richest doctor in the graveyard. The goal is to have your money under control so it's doing what you tell it to rather than you having to do what it's telling you to do.

All right, don't forget about our podcast sale. This is just for you, just for podcast listeners. It goes through the 19th, I think this podcast drops on the 15th, so you got four more days. 20% off everything WCI courses and the WCI store, just use the code PODCAST20.

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INTERVIEW WITH MICHAEL KITCES

All right, we've got a guest on today. I mentioned it last week, if you listened to the podcast. We've got Michael Kitces here today, and we're excited about this. This is an interview I've wanted to do for a long time.

Michael is an expert in financial planning, but we're not going to talk about financial planning today. We're going to talk about another thing that he's an expert in, which is financial planners, and really get a good overview of the current state of the financial advisory industry. So let's get him on the line here. I hope you enjoy this interview, listening to it as much as I enjoyed doing it. And we'll see you after the interview.

My guest today on the White Coat Investor podcast is Michael Kitces. Michael, welcome to the podcast.

Michael Kitces:
Thank you, Jim. Good to be here. I'm looking forward to the discussion today.

Dr. Jim Dahle:
For those of you who don't know Michael, you just need to go to kitces.com, where he hosts the Nerd’s Eye View blog. But this is a website with traffic similar to White Coat Investor. It is a big deal in the financial advisory industry.

I spent some time on his bio page in preparation for this. He's got a lot of letters after his name, a couple of master's degrees, one in financial services, master of science in financial services, one in taxation. He's got a CFP, a CLU, a CHFC, lots of letters after his name. There's three other designations there. I'm not sure it's going to mean much to my audience.

It's impressive how much you love learning about this stuff. But what's more impressive is what a great job you've done teaching this to your industry. He is a financial blogger for financial professionals. Is that fair to say?

Michael Kitces:
Yeah, yeah. Although I still kind of straddle the divide as it were. I am still a registered advisor. I don't take clients directly at this point. Folks that want to work with us, work with the firm collectively. But I'm still registered. I still, as I put it, sit in the chair from time to time across from clients that we work with and did that for many, many years. And so, it was for me a bit of an evolution from, “Okay, I'm doing this for our clients, but I'm one of those reach impact people, make a dent in the world before you move on kind of folks.”

And so for me, it just wasn't enough to only do it for the clients of the firm that we were serving. And that drew me many years ago to say, “Okay, we're doing all these cool things for our clients. I'm coming up with cool ideas. I think other advisors would be interested in this as well. Maybe I could share this with other advisors.”

And that turned into some speaking, which turned into some writing, which turned into a blog, which turned into a media company, which turned into a speaking business, which turned into a whole bunch of other businesses that we built over the years back out to the advisor community and just going further down that trail.

Dr. Jim Dahle:
Yeah. As I told Michael before we started recording, I was totally impressed that at one point he was doing over 50 speaking gigs a year. When I got up to about 15, I was like, “That's it. I'm not going to travel anymore.” This is way too many. And the fact that you did that many for so many years, I was just totally impressed.

Michael Kitces:
Yeah. I was a road warrior for the better part of a decade. I think my high was 73 in a year. I did almost 200,000 miles on United, all domestic. Usually people that do high miles, they go back and forth to other continents on a regular basis. I was just ping-ponging around the country for a number of years.

Dr. Jim Dahle:
Michael, I want to first take an opportunity to thank you for the blog. This is an incredible resource, not just for advisors, but lots of hardcore DIYers get on there.

Michael Kitces:
Oh, yes. We have a number from the Bogelheads community that come visit us.

Dr. Jim Dahle:
Yeah. And it's been a place people can get authoritative information at a deep level. At a level appropriate for a professional in the financial industry for many years. Thank you for putting that together. You are making a big difference in the world. And by just making sure advisors are more educated out there, it means all of us are getting better financial advice. So thank you for doing that.

Michael Kitces:
Absolutely. Thank you. I appreciate it.

Dr. Jim Dahle:
Now, let's ask you some of the hard questions.

Michael Kitces:
All right. Bring it.

SALESPEOPLE VS PROFESSIONAL FINANCIAL ADVISORS

Dr. Jim Dahle:
There's a certain subset of what I call rapidly aggressive DIY investors who basically feel that nobody ever needs a financial advisor and that the entire financial services industry exists primarily to move money from the pockets of clients to the pockets of the advisor.

And that might be best exemplified by the classic Bernstein quote, where he says, “Act as if every broker, insurance salesman, mutual fund salesperson and financial advisor you encounter is a hardened criminal and stick to low-cost index funds and you'll do just fine.” What's your response to these rabidly aggressive DIY investors about the value of professional advice and service?

Michael Kitces:
Look, I'd answer this in two ways. The first and most direct is that you have to separate the financial salespeople from the folks who are actually in the business of financial advice. The Bernstein quote to me castigates the salespeople and then lumps and groups the advisors in the middle of that as well. The problem is just fundamentally to me, salespeople and advisors are separate professions.

Now the challenge in our industry, and frankly, one of the things that we advocate for from our platform is that our own industry has done a horrible job of appropriating the advisor title from the advisors and assigning it to the salespeople. And they did that 20 or 30 years ago when everyone stopped calling themselves stockbroker and insurance agents, and started calling themselves financial advisor, financial consultant.

The product industry claimed the titles before the actual people who are doing it realized that they probably needed to defend the titles. In the context of your industry, your audience, it would be like the pharma company drug reps all claiming that their pharmaceutical reps are doctors because doctor is not a regulated title. And then they sell drugs to consumers directly through their proprietary doctors who not surprisingly only write scripts from their own company because they're actually drug pharma reps from the company posing as doctors and wearing white lab coats, but having no actual medical degree, license, training, or education.

That's basically where our profession is right now. Where medicine was, I don't know where it was, like 100 years ago, 150 years ago, you had the bonafide doctors and the people who literally sold snake oil as medical salve, both posing and claiming that they're doctors and a horribly confused consumer public that had trouble figuring out the doctors from the snake oil salesman.

And so, eventually regulation came in and helped to sort that out. And while as a person who's founded multiple businesses, I'm not the highest on regulation in general, regulation tends to stop us from doing things as a business owners sometimes. But to me, this is actually an area where I think regulation has largely failed.

In our industry, the phenomenon of regulatory capture has very much happened in our world where the product companies have a lot of representation in Washington and in many of the regulatory organizations. And they continue to write and rewrite the rules in a way that makes it very hard for actual advisors to distinguish themselves from the salespeople.

Yes, to the extent of Bernstein's quote, I don't know if I would quite go as far as a hardened criminal, but act as if every broker and insurance salesman is acting in their own interest, because they are, that's what salesmen do. When I go into the gap, and they say the jeans look good on me, I'm clear on the nature of this relationship. And how likely it is the genes really look good on me or the fact they work on commissioning to sell a pair of jeans today.

But when I'm going out for advice, I have a fundamentally different expectation of the relationship. We do have a segment of that in the industry. Technical labels, registered investment advisor, different regulatory standards that would actually be what you would expect for an advice provider. But our industry, unfortunately, has worked very hard to muddy that line, because the product industry, frankly, has figured out it's very beneficial to keep that line muddy. And so, they continue to do so.

Dr. Jim Dahle:
Which explains recent actions being voted down, requiring fiduciary relationships.

Michael Kitces:
Correct. And this is why there's been lobbying for uniform fiduciary standards for advisors. The SEC chose not to do this with what they call regulation best interest, which ironically does not fully require a best interest standard. That was literally the industry figuring out how to appropriate the fiduciary language of best interest standard into something that's not actually a fiduciary best interest standard.

One of my organizations actually tried to sue the SEC to block that rule, unfortunately, unsuccessfully did not get a good luck of the draw on judges. It's why the Department of Labor is now working on their version of fiduciary rule.

Some regulators more than others are recognizing we have this problem now, where consumers can't tell the difference between the salespeople and the advisors and are trying to figure out what to do with that. But the industry has had so much financial success selling products under the guise of advice. They're making it very, very difficult to take that title back for the advisor side of the industry.

And I have an immense amount of sympathy for the average consumer. And I look at these articles that many good folks put out, like the 17 questions that you should ask to figure out if your advisor is a good advisor. I'm like, “What a crappy process that we make you ask 17 questions of multiple people just to figure out who's actually worth trusting in the first place.” I think it's an awful state of affairs. It's part of why I get active in some of the regulatory advocacy side of our industry.

But to me, just the big takeaway for your listeners, I think, is understanding there is a difference between advisors and salespeople. There's a legal difference. There's a standards difference. There's a training and education difference. But our industry is not actually discriminating in how those titles work. Unfortunately, a lot of the due diligence for an advisor is just figuring out whether you're actually talking to an advisor or whether you're talking to a salesperson.

Dr. Jim Dahle:
Yeah, and it is a real problem. There was an article last week. And this will be several weeks ago by the time people hear this podcast. But Jason Zweig in the Wall Street Journal wrote an article about this couple that won the Powerball lottery. Did you see this article?

Michael Kitces:
No, I hadn't seen this. I'm a big fan of Jason.

Dr. Jim Dahle:
Yeah, they win the Powerball. They get $60 million. They decided to give almost half of it to charity. They start this foundation for this rare disease. And they go to the “local financial advisor.” And my fingers are in quotes for those of you not watching this on YouTube, who happened to be a rep for a well-known insurance company and invested 93% of this foundation's money into variable annuities. Terrible organization, already totally tax free, puts it all in high expense, crappy investment, variable annuities.

And it just gets worse from there. There are no winners in this story. Everybody loses by the time the story's over. But it's a real problem because Joe Bob, American, he's like, “Well, this guy says he's a financial advisor, and he walks in the door and he gets advice like that”, that Jason estimated 15 to 25 million was what was lost from this bad advice. Just a terrible, terrible outcome. And there's a whole bunch of kids with a terrible disease that aren't going to get the benefit they could have had if this foundation had earned fair returns that they deserved.

Michael Kitces:
And look, I understand that a lot of the folks that are DIY, I think it was as you put it, rabidly aggressively DIY. I won't deny, our industry has created a terrible state of affairs around this. And it's because for every honest advisor who managed to work their backside off to generate a couple hundred dollars of fees for providing advice, there's some dude that makes $20 million off of a godawful annuity sale.

And guess who has more money to market their stuff to consumers? It's the one that just made $20 million in commissions on bad sales. That even structurally is part of what's unfortunately perpetuated the state of affairs longer than many of us on the advice side of the divide wish it had continued.

WHAT IS A VALIDATOR AND HOW CAN THE INDUSTRY SERVE THEM BETTER?

At the same time, though, there is a segment of folks that they like to spend the time, they have the knowledge, they have the inclination to go and do this for themselves. But the caution I always give, even including for the folks that are on the DIY side is not everyone has the knowledge or wants to take the time to get it and read nerdy Kitces style articles until the early hours of the morning trying to learn all this stuff for themselves.

There are other people that would rather pay for expertise. Rather just delegate it, I could also figure out how to fix my toilets, but I have absolutely no idea how to do it. So I hire people for basically everything in my house. You ask me tax code, I can do internal revenue code sections. You ask me anything about my house, I'm hopeless, I have no idea how it works.

I'd like to think I'm a reasonably smart dude, like I could figure out how to do these things. It's not where I choose to spend my time and energy. And so, I spend money on that. And I do other nerdy financial stuff. And some people want to do the reverse every mix in between.

My challenge around it is “Look, if you're happy doing it, do it more power to you.” I'm not in the camp of every human being should have a financial advisor. And they're wrong if they're doing it themselves. If you got the time and the knowledge, the inclination, and you're having fun, and it's working for you, do your thing and be awesome for you.

But I don't think we have to make people feel guilty if they don't want to spend the time doing that, if they don't have the inclination to pursue it, if they don't want to accumulate all the knowledge. Yes, I do think there's some level of financial literacy that is good, if only so you can pick a good advisor and understand who's taking care of your interest properly.

But to me, it goes so much beyond that, if you want to do it, do it. But we don't have to make people feel guilty who don't want to do it and would rather work with a professional. People do that across a lot of domains, and we choose the domains that we want to do it in. And some people want to do that with their finances and let someone else be the expert that worries about this stuff for them.

Dr. Jim Dahle:
I've thrown out this number in the past of people, percentage of educated professionals that want and need a good financial advisor. I throw out 80%. I think about 80% want a good advisor and should be using a good advisor. Would you agree with that? Would you say it's higher or lower?

Michael Kitces:
I think that's the neighborhood. There's a consumer research company out there called Forrester Research that I think does really good work in this space. They do a lot of consumer psychographics work around who engages with the financial services industry and how.

They basically put people into three broad groups. I'm overgeneralizing some very sophisticated research of theirs. They put people in three groups. On the one end are the pure do-it-yourselfers, which they estimate, yeah, it's like somewhere around maybe 25%, 30% of the market of varying degrees of do-it-yourself-ness.

There's a segment at the other end that are the pure delegators. “I just don't want to deal with the money stuff. Just someone else please do the things for me. I want to do other things with my life.” That's another 20% to 25%. It's actually not a huge group, although it's where a lot of advisors are a lot.

And then there's a group in the middle that Forrester calls the validators. And quintessentially, validators don't necessarily want to fully delegate. “I don't need you to do all the things for me.” Start coming to the advisor, “I'd like you to validate that I'm on the right track. Maybe I bring my stuff in and you look over my stuff. I don't need you to do all of it for me, but I'd love to buy a couple hours of your time to look at all my stuff and what I'm doing and let me know whether I'm on the right track and give me some feedback and guidance.” And they actually find that group is the largest and larger than either of the pure DIYs or the pure delegators.

Now, the challenge in our industry is we're really good at delegators. Most of our business models are built around people that just want to delegate and let us do it for them. It's very scalable from our end.

Obviously, we don't work a lot with the DIYs by definition. And our industry is not very good at the validator segments, because historically, we've been so built around delegators that we didn't know what to do with people who didn't want to delegate. So you get these awkward conversations like, “Hey, I'd love to hire you for financial advice. – Sure, we'd love to work with you. $300,000 asset minimum.” It's like, “Well, I didn't really want to give you a portfolio. In fact, I don’t have one. I just wanted to buy a few hours of your time.” And they're like, “Yeah, $300,000 minimum. We'll give you unlimited financial planning.” It's like, “It’s not really what I was looking for.”

Some segments, some models are starting to grow in that direction. We see more hourly planners. We see advisors building subscription-style models. We see advisors doing more project planning. “Just come in, I'll do some planning work for you.” We're slowly building more models and solutions for the validators out there.

But to me, the other challenge we fundamentally have is our industry is sort of over-tuned to one particular segment of consumers. That's the furthest possible on the spectrum from the DIYs. And we're not doing a great job for the mass of folks in the middle. We're trying to get there.

I've been involved in creating some organizations now that are trying to build that direction and helping advisors build business models and start firms to serve people in that middle group where there's not assets or they don't want asset management. They just literally want financial advice. But sadly, that's still a minority of financial advisors by headcount. And part of that is just there literally aren't enough of us for all the consumers that want to be served.

Dr. Jim Dahle:
Yeah, for sure. And when you get an audience like that, that congregates around a financial website like the White Coat Investor, a much higher segment of those are validators.

Michael Kitces:
Absolutely.

Dr. Jim Dahle:
Because if they were a total delegator, they wouldn't be reading a financial blog.

Michael Kitces:
No, no. Some advisors in our space joke, “Why are you sending reports to your clients? They're delegators and don't want to read them.” That's a big debate in our industry right now. I'm all for financial information to clients. But most advisors have the experience like “We send all this information to our clients and they literally don't open the emails or read them because they're delegators.”

ARE THE GOOD GUYS IN THE FINANCIAL INDUSTRY WINNING?

Dr. Jim Dahle:
Yeah. Let's get back just for a minute to the industry. It's trying to professionalize, trying to make this distinction between real planners and product salesmen. Are you winning? Is there going to be a time when the industry of financial advisors is fully professionalized and advisors are viewed with respect like doctors, lawyers, accountants, etc?

Michael Kitces:
I appreciate the question. The good news, we are winning. We're winning really slowly though. What's happening functionally is we're not winning with regulators, or at least we're winning very incremental, we're moving the ball a couple of inches down the field, but it's still on our half of the field. Playing the game of inches is that hard, it is not very constructive.

We're making slow but very slow progress with regulators in part because, candidly, from a pure advocacy regulatory ends the lobbying dollars on the other side are like 10X the dollars for lobbying that the advisor side has. We just literally get outspent in a lot of lobbying efforts that happen.

But essentially we are winning in the court of public opinion. The media at least figured out a long time ago and has helped to train the public. You should be looking for a financial advisor who's a fiduciary. That word is out there now. You should be looking for someone who's obligated to act in your best interest. And consumers are voting with their feet.

What we see in the internal industry end is basically our side of the industry kind of gets broken into a couple of channels. There are the salespeople folks that work under brokerage firms, there are the salespeople folks that work under banks, there are some salespeople folks that work under asset managers. There's like a couple of different segments there. The brokerage firms have big national firms and then independent brokerage platforms.

And then there's the RIA, the registered investment channel, which is the legal licensing registration for being a fiduciary. And if you look internally in the industry, every single channel is a net negative decline, except the RIA channel, which is collectively winning at the expense of every single other channel.

Consumers increasingly are moving towards fiduciaries. Advisors, including the good ones who may be started at sales firms, but really actually want to be advisors are eventually saying, “It's really difficult giving advice in a sales organization, I think I'm going to go hang my own shingle and make an actual advice firm.” And so, they're leaving one channel and moving into the RIA channel.

And so, that is happening live and real time in our industry. But it happens literally at a pace of small single digit percentage of advisors in any particular year. We move like 2 or 3% of advisors that go from one channel to another. When you look back over 10-15 years, there's been a huge sea change in what's happening in our industry already. But it's taken 10 to 15 years.

If you just look at aggregate numbers, there's roughly 300,000 financial advisors. We're up to 100,000 that have CFP certification, which I view as least as a reasonable benchmark of training and education to actually be an advisor that has knowledge to give as a professional advisor. At best, we're up to one in three. And of the one in three, some portion of those actually got CFP marks, but they still work for product companies and have not fully made that shift yet.

We're a growing minority. CFP professionals was fewer than one in 10, 20 years ago. And so, moving from one in 10 to one in three is real progress. And I think that's coming because at the end of the day, literally consumers get served better, and they're voting with their feet. And so, the industry is responding and moving, but it's really slow.

Now, when I look at that from an industry end, I do know how this plays out, which is in in some period of time, which unfortunately, maybe another 10 or 15 years, unless we can do some things to accelerate it as some platforms like ours try to do.

At some point another 10 or 15 years, the folks that give advice and work in the fiduciary channels will actually be the majority. Not the minority trying to change the industry, they'll be the majority of the industry. And at the point that they're the majority of the industry, new coalitions start to form, new organizations that previously were antagonistic now start working together, because they're all on the same side of this new divide.

And then eventually a new coalition will come together to say, “Hey, those like rogue salespeople are a minority of the total industry. And now they're dragging us down now that we've transformed ourselves, we should go reform the regulations and stamp out those salespeople.”

But what's happening for even a lot of the large product organizations is they're well aware of where the puck is going as well. They're trying to transform themselves and certainly very slowly and very painfully, but they are. And so, at some point, a lot of our large brokerage firms, the industry are going to rehabilitate themselves into giant RIA fiduciary platforms, spin off their old legacy broker dealers, say, we're RIA fiduciaries now and really will be. And then they'll lobby forward for fiduciary regulation.

But until they get there, they try to slow that pace of change so that they can do it on their terms rather than having regulation do it to them or do it for them. I really do think we get to this point of industry change simply because at the end of the day, consumers are already voting with their feet. It is happening, but it's happening slowly and painfully, one really messy transition at the time.

And I think it takes many more years, unfortunately, until that really gets enshrined in regulation that just makes it law. And then you get the official dividing line as basically is this any profession. Medicine, law, accounting all have a clear standard that at some point the title is regulated, the ability to hold out as that professional is regulated. You have to license in order to do that. You have to have certain training, education experience in order to get the license, in order to hold out. The models there. We know how it works. It's been time tested in many other professions. We just need a little more time to get there, but we are.

Dr. Jim Dahle:
Okay. Let's say we've got some delegators that's mistakenly listening to this podcast. Somebody sent it to them and made them listen to it.

Michael Kitces:
They got lost.

HOW TO RECOGNIZE A REAL FINANCIAL ADVISOR

Dr. Jim Dahle:
They got lost. They're here. They don't know squat about the financial advice industry, about financial services in general. They're a financial novice. They've been listening to, and they're like, “Oh yeah, I want a real financial advisor.” How can they recognize a real financial advisor?

Michael Kitces:
Here's how I would break it down. Our industry uses have lots of criteria and jargon. I'll try to keep it to a minimum of how much it is. I would say number one that matters is that you work with someone that's actually accountable for giving you good advice. What that means functionally is that they're subject to a fiduciary standard act to your best interest.

From a regulatory standard, what that means is you're looking for someone that works at a registered investment advisor and someone that only works at a registered investment advisor. Our industry has a label called dual registrants, which means you're with a registered investment advisor and some brokerage firm. Brokerage firms functionally are product sales, product distribution platforms.

There are many good advisors at brokerage firms that maybe someday will move to the fiduciary RIA space. They just haven't yet. But when it's hard to figure out the good ones from the not good ones, the most straightforward way is you just pick someone that's only on the RIA side of the industry in the first place.

This is relatively easy to figure out. If you go to whatever the advisory firm's website is that you're checking out, go to their advisory firm, hit the end button on your browser, which will take you to the bottom of the page in the footers. If they are a registered investment advisor, it will have information about how to access their form ADV, which is the regulatory document that they provide.

And if they're a brokerage firm, it will say “Securities are offered by such-and-such broker-dealer for which they are a registered representative.” Because we all have these required disclaimer languages at the bottom of our websites. So, it's pretty quick to figure out whether it's someone that's working for a brokerage firm or a registered investment advisor.

Number one to me is, accountability matters, which means you're looking for someone that's at RIA. The second corollary to this is they're only working in an RIA and they're only getting paid in fees. You can figure this out a couple of ways, or practically speaking, you can ask them.

Advisors don't lie. We're not always the most transparent in some parts, particularly the sales side of the industry, but we do get very sued when we don't tell the truth. We do give accurate answers if you ask us directly, even if the marketing brochures are a little fuzzy sometimes. Do you receive any compensation besides the fees that I pay to you directly or through any related businesses?

If they are a registered investment advisor, there is this document called Form ADV, Form Advisory. It's the regulatory document that we're all required to produce. And there's a section in it that talks about other compensation we receive and conflicts of interest. So you can check the answers there. And every advisor's ADV is reviewed by their compliance and legal counsel. And no lawyer will let anything through that does not accurately describe what's going on.

Number one, are they RIA? Number two is, are they only getting fees and no other kind of sales related compensation? Number three, are they a CFP certificate?

Our industry has lots of letters. I've got many of them on my business card as well. To me, they all start at CFP certification. We've got some other designations that are pretty good. We've got a lot that are very spurious. We've got some that are pretty lightweight that you can get with a weekend class and a mail away thing for a couple hundred bucks.

CFP is a very high quality, credible designation. And to me, it's a good starting point if they've got as a minimum. Ideally, they've got some things after CFP because you don't really add anything after CFP unless it's useful. You don't really add junky designations when you've got a good one. CFP certification may be ideally a little bit more after that. And if you don't know what the letters mean after that, you can ask them.

The last two to me that get really important aside from RIA fee only CFP is talking to them. And there's two things ultimately you're looking for when you talk to a financial advisor to get to know them and see if you want to work with them. Number one is, do you work with clients like me and tell me about the clients you work with to make sure that they're clients like you.

A lot of challenges crop up. If you're a 40 something year old doctor and this advisor mostly works with retirees, this is probably not the best fit. Yes, we're trained financially. I was kind of in the medical world like, yes, I'm a trained doctor. I can help you with a lot of things. But if you actually have a brain problem, you really want to see a neurosurgeon, not any doctor that learned about the brain in medical school.

There comes a point where if my problems are complex enough, you really want a person who focuses and specialized in that. And that's what they do with people like you, with problems like what you have. And so, asking the advisor around what kind of clients you work with and what their typical situation. Tell me about the kinds of problems that you solve with them to understand whether they're giving answers about people like you and problems like what you deal with.

And the last part to me is just at the end of the day, do you feel comfortable talking to them? And if you're in a couple, do both of you feel comfortable talking to the advisor? Does the advisor engage with both of you that you feel like this is someone that you can work with and talk to?

Money for most of us is a really personal thing. It's a taboo subject. At worst, we've got all sorts of drama and trauma associated with money and money challenges that we've had through our lives. And so, if you can't talk about the money stuff comfortably with the advisor you're talking to, or at least semi comfortably, if that's a really challenging subject for you, it's not going to work very well.

It's like with almost any professional. If you hire the professional, but you can't actually talk to them about the stuff, it's really hard for them to help you and do their best work as well. So, make sure it's someone that you're comfortable communicating with. And you can find an advisor who is a wonderful advisor and just their communication style is not your communication style. And it just doesn't work very well. RIA fee only, CFP clients like me, and I'm comfortable talking to them. And if you can sort through that, most of the rest starts to sort itself out thereafter.

WILL THERAPY TRAINING EVER BE PART OF BECOMING A FINANCIAL ADVISOR?

Dr. Jim Dahle:
Yeah, it's interesting. I talk to advisors and a lot of them tell me what they do more than anything else, especially with clients that are a couple, is marital therapy. Do you see a time when there will be a therapy requirement to be a financial advisor?

Michael Kitces:
It's starting to crop up in some ways. Financial psychology was added to our CFP curriculum body of knowledge four or five years ago as our profession is starting to move that direction. There is a segment out there called the Financial Therapy Association that has a number of people that come from marriage and family therapy backgrounds that bring a counseling background that are trying to figure out how to bring and translate some of those skills into the financial advisor domain.

It looks a little bit different. We are not trained counselors for anybody who has been through that training, professional education. I'm fully cognizant that we are not there, but there are marriage and family therapists that are starting to cross over. And so, I've even seen a select subset of firms that have those people on staff or have external folks that they work with that they bring in to support clients and client relationships.

But more generally, yes, for any of us have experienced the financial advisor ends, this really does come up a lot. We see it as well. The joke on the financial advisor's end is tell me about all your goals and then I'll make a great financial plan for you to get them. If you can tell me exactly when you die, it'll be a perfect plan.

But we start this conversation, tell me about your hopes, dreams, goals and wishes. And then we ask a married couple in the room. And it's often the first time that they realize it's not the same. They're not lined up. And obviously, at some point, if you're going to pursue joint financial goals, the couple is like “We need to figure this out.”

But yes, it means a lot of us as financial advisors end up getting pulled down a little bit of a marriage and financial therapy route because it just gets unearthed when we start asking questions about “What's important about money to you and why does this matter? And if you got to the point that you were financially independent and you didn't really need your dollars anymore, what would you be doing with your time?”

And the two members of a couple start answering very differently about what they would do with their time and dollars. And sometimes you get down to really fundamental things or stuff that we grew up with. “Money is my security. I need to accumulate more of it. Money is how I show love. So we need to give more of it to our kids.” And so, now all of a sudden I've got marital strife because you want to give it to the kids because that makes you feel good. And I'm freaking out because you're making our balance go down. And suddenly a couple has a bunch of strife there.

And it's not that one is the right or wrong answer, but they've got very different money beliefs, money scripts in their heads of what money means. And then the conflict starts showing up in couples. We do see it a lot from the financial advisor end. And psychology and maybe some lighter elements of therapy training is starting to show up in our space for that reason.

Dr. Jim Dahle:
Yeah, it's good to hear actually. I'm glad to hear that more training is coming that way because I do hear about it a lot from advisors.

WHAT IS A FAIR PRICE FOR A FINANCIAL ADVISOR AND WHAT SERVICE MODEL IS BEST?

Let's turn the page a little bit. My mantra when it comes to financial advisors is that you want to get good advice at a fair price. What do you view as a fair amount to pay for financial planning and for investment management? And how does somebody know when they're paying too much?

Michael Kitces:
I look at this ultimately through a lens of the way I think about engaging almost any kind of services professional with expertise. I compare this a lot to thinking about engaging lawyers, thinking about engaging accountants. If I'm going to engage a trained professional in one of those disciplines, I'm probably paying, depending a little bit on where I am regionally in cost of living, I'm probably somewhere in a $200 to $400 an hour range for paying for professional services across those.

And if I've got more specialized problems, the numbers start going up from there. If I've got specialized problems, I might have legal or accounting complexities that's going to get me a $500 to $700 an hour person. And if I got some really complex stuff or particularly a lot of business and other issues going on, I can easily be in a realm where I'm paying someone $750 to $1,000 or more. And I'm basically trying to get my questions answered as expeditiously as possible because that's a lot of money per hour.

Financial advisors roughly fall into a similar realm. One of the things that we do, from our kitces.com platform, one of the things that we do is a series of advisor research studies. We do actually one on their well-being and how they're doing as advisors. We do one on advisor tech, we do one on advisor marketing, and we do one on advisor productivity, where we actually get into process advisors use where their time goes and what they're pricing.

One of the things that we actually do in that research is we take all advisor business models across the board. We boil them down to, at the end of the day, how much time you actually spend doing client things and how much revenue do you get for all the client things that you do. And we divide B into A, and we actually figure out what advisors are getting paid on an hourly equivalent rate.

And the answer, when you look across the country, most advisors is we get paid somewhere in the neighborhood of about $250, $300 an hour, which is not terribly dissimilar than the averages for lawyers and accountants.

Now, there are a couple of interesting sort of asterisks and caveats to that. The first is advisory firms are not as good as a lot of other professions at making sure that all of their time is spent on client-facing client activities. Most other professions, and we've gotten really good, the professionals spend 80% of their time, 90% of their time on client-facing activities, and we build staff and teams around us to support. Doctors have a whole team that work around them. The legal profession has tiers with paralegals and other people who support. Accounting has a version of it as well.

Advisors were not as good at it. A lot of advisors, at the end of the day, only actually managed to have productive client time for maybe 55% to 65% of their hours. If they get 70%, that's pretty good. Some advisory firms effectively have to start pricing up the value of their time because they've got to generate 100% of their salary on only 60% to 70% of their time, which means effectively hourly rates start going up a little bit.

So, starting point, I would say, is there. That's what you'll find for most advisors if you actually take the stuff that they do and divide by what you pay for it. With some tiering similar to other professions, advisors who work with higher dollar amount clients where there tends to be more complexity and frankly, you usually want more experience and expertise at that point, they are higher. And we'll see advisory firms that work with more affluent clientele whose numbers show up more in the $400, $500, $600 an hour range, and some firms that work with very, very affluent high net worth folks think $10 million or tens of millions and up, where if we do the math and compute their time, they might be generating $750 to $1,000 an hour.

The numbers are not that different than what we see for a lot of other professions. The weird effects that we get in the advisor world is that we tend to sell it in very large chunks. If you look in particular at things like a traditional asset center management model, the average advisor that works with an asset center management client spends somewhere around 30 to 40 hours working with their clients in the first year, when we add up all the time that they and their team spend doing all the stuff, stuff you see, the stuff behind the scenes that we have to do to make it all happen, and then on an ongoing basis, typically end up spending somewhere around 20 to 25 hours per client per year.

Because of that, a lot of us cap out on the number of clients that we can work with, we can only handle so much. In the industry world, we're commonly capping out at 60 to 80 clients per advisor, above that number with 20 to 25 hours per client, we just run out of time in the year since we still got business overhead, management, professional development, the other things that we need to do.

But we don't like selling in smaller chunks than that. I know a lot of folks, particularly, per the earlier discussion, the validator segment, they're like, “I'm looking for an advisor, I can just hire for a couple hours to get some feedback on my financial situation, share some thoughts.” And the advisor basically says, “Well, I won't work with you unless you do the like 20 to 30 hour a year aggregate AUM comprehensive holistic relationship model.”

And if you actually take what AUM charges down to the hourly rates, they're not that far off from what other professionals have. But it's very hard to find firms that don't essentially do that in large blocks. Part of that is because from the advisor end, it's really hard getting high end clients in a competitive environment, in part because the product firms do all the marketing, and then we have to do all the stuff to explain why we're real advisors and they're not. And that's very, very time consuming. In the advisor world, part of the research that we do, the average advisor effectively spends $3,000 to $4,000 in marketing expenses to get one client, if we add up their marketing dollars, their business development time and everything that goes with it.

If it takes me $4,000 to get a client, and they hire me for three hours, I'm going broke, is the unfortunate reality for most advisory firms. We have to, I'm now air quoting for those who are not watching on YouTube, we have to work with clients that engage us in fairly large chunks of blocks, or it just becomes very, very problematic for us to run sustainable business models. Because clients don't ring the phone, knock on the door, show up on demand, we generally have to go out and promote our services much more than most other professions. And it essentially raises the cost of advice.

Indirectly, it's one of the reasons why we pound the table so hard around regulatory reform. The industry likes to make the case that we raise the regulatory standards, consumers will lose access to advice because their salespeople won't be able to give advice under the guise of selling products.

The problem we actually see is that the sales side of the industry is driving up the cost of advice for consumers because the actual honest fiduciary advisors have a lot of trouble marketing to clients and differentiating themselves from the rest.

Dr. Jim Dahle:
Amen to that. Amen. That is well said. That is a real problem.

Michael Kitces:
Yes.

Dr. Jim Dahle:
A good financial advisor shouldn't have to market. A doc that's been out five or 10 years, they don't market. The clients just come in the door and that's the way it should be for good financial advisors.

Michael Kitces:
And in our world, good financial advisors who are very experienced might get down to the point where they only are expected to spend 20 to 25 percent of their time on business development. And you just imagine, from any professional services firm, I got to run my whole P&L on the fact that a quarter of my time is non-billable hours, if you want to get technical.

I got to run my whole P&L and my staff support and everything else on the fact that I have to spend a quarter of my time just trying to find the next clients to come in and keep the business growing. Because this is not “Oh, woe is us or anything about how hard it is for advisors to get clients.” But we struggle with this divide as much as many consumers struggle with trying to figure out how to find a good advisor. And it really does drive up the cost of advice for us.

So, what we get is hourly rates that at the end of the day don't look different than a lot of other professions, but very strange ways that we package it. Fairly high minimums that we tend to set, larger bundled arrangements, whether it's like, “I'll do a plan. You got to buy a whole plan from me, not buy the hourly advice, or you got to have a whole AUM relationship.”

Because from the advisor, If I'm only going to get a half a dozen to a dozen new clients in a year, which is pretty good for a lot of advisors. If that's all I'm going to generate new growth for the year, I have to generate a certain amount of revenue per client or my business model just doesn't sustain.

And that's why even for a lot of folks out there, I know they find an advisor who will work with them for an hourly basis. And then they go back a few years later and the advisor isn't doing hourly anymore. They're now doing other business models. Because for a lot of advisors, as we get to the point where we can get clients that will engage with us in deeper relationships, that ultimately are more hours per client and allow us to generate more revenue per client. It's so much more sustainable for us in running a business that it's very hard to stay in hourly models.

Advisors just tend to get pulled out of them or conversely, eventually they get some clients who say, “I will just pay you a lot of money to do all this stuff for me.” Because they come across a delegator that wants them to do it. And as an advisor, when you start getting some clients like that, eventually you start saying, “Why am I trying so hard to work with a huge number of clients in really small increments, when I can work with fewer clients and get more dollars for it. And frankly, just get deeper, more meaningful relationships with my clients.”

It's sort of an indirect version of what I know is happening in medicine now as well, where a lot of doctors are getting drawn towards concierge medicine style practices in the same manner. It would be really nice to go from a 1,500 patient load or 2,000 patient load down to a couple hundred and be able to work more reasonable hours and actually get to know my patients and spend more time with them not feeling like I'm running along to the next one. And we get a similar draw in our industry, except the allure in our version is not from high volume practice to concierge. It's basically from hourly to AUMs or subscription or some model of that sort.

Dr. Jim Dahle:
Speaking of all those models, do you have a favorite model for financial planning, a favorite model for investment management? Do you think annual fees or subscription or hourly or AUM fees? I think it's pretty clear you're not a fan of commissions being their primary way to get income. Do you have a favorite among the others?

Michael Kitces:
I struggle to say favorite because to me, I'm one of those people that looks at marketplaces and consumers and sees lots of different people that have different needs and different wants. There are a lot of people out there, “If I could just have someone to bounce some stuff off of an hour or two a year or an hour or two every other year, that'd be great. And that's all I want. I'd be well served.” And so if that works great, yay for the advisor, yay for the consumer who engages them. Everybody wins.

Likewise, there's a subset of people that really just want someone to handle all the portfolio stuff for them. And AUM to me works great for that. At the end of the day, you're a delegator with a pool of money and you would like someone else to be responsible for said pool of money. The AUM model works pretty well.

And for those who are listening, because this always comes up, you don't want to pay your advisor based on their performance results. You think you do. I'll pay you if it does well, and then I won't if it doesn't. Our industry did this a long time ago. And what ends up happening is once we figure out we're only paid for results, we take huge amounts of risk with client money. Because if it goes up, we get paid. And if it doesn't, you lose your money and we go find another client. And that happened about 100 years ago, writ large through the market run up and crash in the 1920s and 1930s.

And so, most financial advisors now are actually legally prohibited from using performance fee structures because consumers got so horribly destroyed the last time our industry allowed it that we basically banned it for the majority of the industry. You won't be able to find an advisor most of the time that charge performance fees. There's a couple of exceptions for very high net worth clients because our industry's view is basically if you've got that much money and you want to take the risk and get yourself screwed, that's up to you. That's your responsibility.

But AUM models are actually like for investment management services really are remarkably aligned. I can say that as someone that's been a partner in AUM firms over the years. We are more attuned than you would probably realize into how well all of our clients' collective portfolios are doing because at the end of the day, our entire revenue and profitability moves with how our client portfolios are doing.

And so, we are very incentivized to make sure that that is going well, especially because when your portfolio goes down, your numbers go down. When my portfolio goes down, I still have to pay my staff, which means every time a bear market comes through the financial advisor world, all of our profits go to zero for a year, like hard zero. And that's if we're lucky. If we don't run our firms well, we actually have to put in money to make payroll.

On the investment management end, AUM models work well. And for folks that want an ongoing relationship with an advisor and either they don't have assets, they don't want asset management, they just want a financial planning and advice relationship, to me, that's where you're seeing growth in subscription style models. Monthly, quarterly, annual, our industry is doing in a lot of different flavors these days. But it's another way to pay fees, have an ongoing relationship.

Ultimately, you get someone that knows you and understands your situation and what's going on so you don't have to re-explain it every time and can help you with whatever it is that's going on. And then you get back to “What's their expertise? Do they work with people like you?” Because different advisors do that with different consumer segments.

To me, they all work. The asterisk from the industry end is it is pretty hard to do the hourly version sustainably, scalably for an extended period of time. Most advisors that start out hourly eventually get drawn towards subscriptions or AUM models or something similar because it lets them go deeper into fewer relationships that are more meaningful.

And most of us, at the end of the day, the people who become advisors and not sales people are wired for helping others and service to others. That's who shows up in the pure advice realm. And so, when you're wired for helping others and service to others, you tend to like models where you can get deep relationships with your clients or really get to know them over time. We tend to get drawn in that direction.

Dr. Jim Dahle:
Let me read between the lines a little bit. I think in addition to the other messages you're giving, I'm hearing here that you cannot charge enough on an hourly basis to serve validators. You can't charge enough that they won't pay it. What you'd have to charge to have an ongoing business model that works that way.

Michael Kitces:
You can make a number that works. It's higher than what a lot of people would like. You start getting to a realm of it's really hard. I can scale an AUM model for an advisor that generates $250, $300 an hour. It's really hard to scale an hourly at that rate. I end up needing to charge more, like $400 to $500 an hour so that I can cover staff overhead. The fact that I can't bill every hour all year long. I've still got to do marketing. I don't get paid for on a billable basis. It gets really hard. It effectively drives up the cost. And I'm sure there's some subset of people that are so eager for an hourly advisor they'll still pay that rate.

But the challenge that starts to crop up is like, “Okay, if you're going to have to start spending $350, $450, $550 per hour to get an advisor who's going to sustain that model over the long term as you start accumulating wealth, you're going to get to a point where if you've got any level of complexity and ongoing needs, the AUM and subscription advisors are going to actually start looking price competitive after all.”

Now, maybe not if you need an hour or two every year or two. And there's certainly a good place for that. But because we have a shortage of advisors at large across the industry, the subset of people who have more financial wherewithal and more willingness to pay for ongoing advice relationships essentially are cornering the market on the advisors. There are only 100,000 CFP professionals. Not all of them are even really fully in advice mode.

But even if they all were and a lot of us top out at 60 to 80 client relationships before we're really at relationship capacity, maybe we get to 100 with some team support and cool tech efficiencies and the like. 100,000 advisors serving 100 clients each is about 10 million households that get served. There are 130 million households in the U.S.

There are only enough of us to maybe serve 10 or 20 percent of consumers right now. And so indirectly, the part of the challenge that comes up is the folks that are willing to pay for ongoing relationship models are slowly drawing the financial advisors into relationship models, which we kind of want to go to anyways because we're help service to other mentalities that like having deep relationships with the people that we're serving.

Dr. Jim Dahle:
The biggest criticism for AUM fees is it feels like you're paying a fair fee when you've got $600,000 and it feels like you're being ripped off when you got $6 million. Why do AUM fees in practice scale down so slowly. They're like, “Okay, well, after you got $2 million, we'll go from 1% to 0.9%.”

Michael Kitces:
Here's how I would think about this because I've seen this from the industry end because I work with many of these firms in practice management consulting and the like.

Firms whose average clients are $6 million have a different set of services and capabilities than firms whose average clients are $600,000. And we see this very clearly in industry studies and metrics as well.

The firms that have $6 million clients on average have way fewer clients per advisor, have way more hours per client. Typically have significantly more experience, usually have more credentials, and often but not always, the firm has additional services or capabilities bundled in, whether they're doing additional private investments and alternative investment strategies, maybe they're doing tax preparation and deeper tax planning. The $600,000 firm will tell you to get a will, the $6 million firm will call the attorney, put them in our office and sit there with you through however many meetings it takes until you've got the documents and you understand every word the lawyer said because we help translate lawyer into client.

The scope of services, the hours provided, the experience and expertise looks different, which in part is why firms that have clients with $6 million averages are not more profitable than firms that have clients with $600,000 averages because from the staffing end we have to hire significantly more experienced advisors with significantly more credentials and knowledge and capability who charge a lot more money and we usually need larger staff infrastructures because of ancillary services that crop up.

Part of the reason the tearing does not fall off as much or as much as some folks might expect is because at the end of the day the firm really just needs to get to a certain number of revenue per clients to justify and manage the scope of services that they're providing and they try to come up with some version of a fee schedule that is reasonable to the marketplace and ultimately gets them there.

The mismatches that you get is when you're a $6 million client with a firm that averages $600,000 clients because the firm is usually not really staffed and built to have the depth of service that $6 million clients typically expect when you've only got an average client of $600,000. You need to spend more hours for your top clients at that point. You're not necessarily staffed to do it. They want additional services you can't really do. It's a big client so most of us don't want to lose big clients like that so we try to service and accommodate them.

Our industry has all sorts of practice management advice about how you segment A clients from B clients and do special things for your A clients because they have 10X the dollars. $6 million to $600,000, you don't want to lose them.

And I'm actually fundamentally not a fan of that kind of practice management approach. I’d rather say if you are going to be good at $6 million clients, be good to all of them and do that. If you are doing to be good at $600,000 clients, do that. But no one wants to be the B in an A-B tier. It doesn't feel good for the clients, it frankly doesn't feel good for the advisor but it's where at least some practice management folks in our industry have migrated.

To me the fundamental challenge is why one of the core questions that I encourage asking in exploration is, what are your typical clients look like? We get back to those five questions and domains from earlier, because firms that are really built to serve clients at that level, whichever level it is, tend to really be staffed and systematized to do the right things for the clients at that threshold, and the expectations are different, as they should be.

I would expect more. I can do the math of what you guys made in AUM fee. I would expect more as a $6 million client than a $600,000 client, and you should. Some of that's hours of service, some of that's additional ancillary capabilities, some of that's just the sheer experience and expertise of the advisor you're working with. Firms tend to sort themselves out that way, being really materially different than the average clients in the firm is where you tend to get the mismatches.

WHAT FINANCIAL ADVISORS WISH THEIR CLIENTS KNEW ABOUT THEIR WORK

Dr. Jim Dahle:
Financial advisors out there would love to tell clients something, many things maybe, but they can't tell their own clients about it. What do financial advisors wish their clients knew about their work?

Michael Kitces:
Oh, wow. Probably the number one that I would say is, there's so much work that happens behind the scenes in working with and supporting clients that you don't see. Some of the numbers I mentioned earlier, the average advisory firm spends 20 to 25 hours per year working with a client with half a million, a million dollars in an AUM model. Probably no more than four or five of those hours are client meetings. The other 75% is what happens behind the scenes. It's investment management research and due diligence, it's planning analyses. The average advisor spends more than an hour of prep and follow up for every one hour of client meetings.

Some of that is our compliance. We've got compliance regulations about what we need to document, our version of doctor's notes. Some of that is just what you expect at the end of the day when you're working with a professional in an ongoing relationship. Again, if we're going to have ongoing relationship models, we have to actually show up in the meetings knowing what we're talking about and remembering who we're working with.

On the one hand, that's easier because our client loads might be 50 to 100, not 1,500 that I know some or more that some doctors have to work to. We've got real prep that we've got to do for meetings. We've got follow up that we should do as good professionals. We've got compliance obligations along with it.

There's a lot of shadow work that happens behind the scenes in supporting the business. In part, this is why the AUM model doesn't result in a bunch of yacht-owning financial advisors. We do pretty good. Financial advisors have a good income as a lot of professional services firms do, but it is a professional service. It requires a lot of supporting work for clients that happen behind the scenes in addition to what happens client-facing that you see directly.

That's part of why a lot of these models essentially equalize out to roughly similar dollar-per-hour models at the end of the day because we are acutely aware at all times of how much work we need to be doing for our clients so that we can try to hold on to them.’

THE REAL VALUE OF HIRING AN ADVISOR

Dr. Jim Dahle:
When people think about an advisor and the reasons they might hire an advisor, what do you see as the biggest value adds? What's the real value of hiring an advisor?

Michael Kitces:
The real value of hiring an advisor. It varies by the client and what they're doing. Let me give some context to that. Some clients that have hired us over the years, at the end of the day, it's about delegation saving time. I'm doing other stuff. I don't want to deal with this stuff. You deal with it. Maybe it's because I just don't want to spend the time because I'd rather have fun. Maybe that's because I'm enjoying retirement. I want to travel the world and you just do the money things. I'm going to travel.

Sometimes we get that because we're working with people in professional services. We're working with a doctor. We're working with a business owner who just has so much going on in their business and their practice that they want us to deal with the money things so that they can spend time on other stuff. Some of us get hired for delegation.

Some of us get hired at the end of the day for the core service of investment management. Financial advisors tend to be really negative on consumers managing their own money because we see the least successful of the least successful. If you're a DIYer and it's going well you don't call us. When you try a DIY and you blow your finances up and then your spouse says “You're not allowed to do this anymore, we're going to hire a financial advisor because you're trashing our family's financial future”, that too comes into our office a lot of the time.

We see the people who blow themselves up the most on their investments and a lot of the times we get hired because it essentially comes down to we do this better than you. That's not even necessarily that we're so great, it's that this might not have been your best thing to be self-managing your portfolio and dealing with the emotional roller coaster that goes with it.

Sometimes we get hired for delegation. Sometimes we get hired for just manage the money and do the investment stuff and help me not getting stuck in the greed-fear cycle where I sold and freaked out when the market was down and then I didn't buy it and it was coming back and now I feel bad about buying it because it's come back so much so I'm waiting for it to pull back again so I can buy it where I got out. The darn thing keeps going up and now it's just getting away from me further and now I've actually lost more money because of the run-up than I lost in the decline.

Just those kinds of cycles happen. A lot of people hire financial advisors at the end of the day to say, “I just want you to worry about this stuff because when I do it, I make mistakes and it doesn't go well.”

Sometimes we get hired for particular specialist expertise in an area. I'm dealing with a lot of student loans, I'm going to find a financial advisor who's really good at student loan strategies. I'm getting ready for retirement, I'm going to find an advisor who can figure out how to do the tax efficient drawdowns and coordinate the asset location and the withdrawals and the Medicare surcharge thresholds and the optimal Roth conversions and all the stuff that's my domain that I love nerding out on. But we hire advisors for particular areas of specialized expertise. “I'm going through something right now and I need some help with someone who's got this.”

Often we get hired into particular complex life transitions. A lot of advisors specialize around certain life transitions. Getting divorced, widowhood, sale of a business, just things where there's a lot of change, a lot of complexity, a lot of newness to our financial situation. Whether I'm going from business owner to lots of business, no cash to no business, lots of cash or widowhood or divorce. “I've never been the financially responsible one or I'm not the one that had to manage the investment stuff and the finances. My spouse did that and now we're separating and I have to figure out how to do all this myself and I'm not sure what to do.” A lot of the times we show up in life transition kinds of moments as well.

Each of those are different domains that speak to a certain segment of consumers who might need financial advice. When we view it, again, in the context of medicine, I'm like, “What's the biggest value out of a doctor?” I'll give you one answer if I've got cancer, I'll give you another answer if I've got flu, I'll give you another answer if I broke a bone. You tell me what the presenting problem is and I'll tell you what the value of a doctor is.

We get a similar combination in our realm with just the asterisk. Some clients, at the end of the day, I find tend to engage us because there's a specialized problem or a transition. Some just want to delegate, some just want to have someone deal with the investments and some I find just ultimately want a relationship where someone can ride along with them and just be that thinking partner and help me not make a bad financial decision that might not come up very often but can be really bad if it does.

There's a fairly famous financial advisor in our industry named Dick Wagner who had a famous saying in our world of, “Look, financial planning basically boils down to save more, spend less, don't do anything stupid. And if you're not sure about number three, call me first.”

WHY ARE SO FEW WOMEN WORKING AS FINANCIAL ADVISORS AND WHAT IS THE INDUSTRY DOING TO HELP THAT?

Dr. Jim Dahle:
That's some good advice there. Medical school is now 50-50, men to women, but that's not the same in every specialty. Orthopedics is probably still 80% guys, but compared to the financial services industry, orthopedics is totally egalitarian. I look at the pictures from a financial advisor conference and it's all guys in the audience. Why are there so few women working as financial advisors and what's the industry doing to help with that?

Michael Kitces:
First of all, yes, it's painful. Our industry metrics, 23% of CFP professionals are women. The industry has been doing a lot to change this over the past 10 years in particular, which is awkward because 10 years ago it was 23% women and 10 years before that it was 23% women.

It's actually kind of disturbing. It has not moved a percentage point in either direction in more than 20 years of industry efforts trying to change that. In practice, I think it comes down to, frankly, a lot of different dynamics. Our industry has a certain stereotype about what a financial advisor looks like. It's a white dude in a suit with a tie. You've seen some of them in movies.

And sadly, I think that even still shows up with some hiring bias of when hiring managers have to decide who's going to be the successful financial advisor there's a certain extroverted male sales type stereotype that still shows up and seems to tend to get the hiring nods. Some firms are working really hard to change that, at least in hiring practices with varying levels of success.

I think the secondary challenges to me get a little bit more nuanced from there. The majority of jobs into our industry are still into the sales firms, not the advice firms. Part of that is because, again, only one-third of financial advisors have CFP certification. The other two-thirds do not.

The majority of “advisors” in the industry are still working for sales firms. Because the sales firms have a very high churn rate, because not everybody who comes in ends out being successful in sales, the sales firms have, I don't know exact numbers, they might have 60% of the jobs, but they have like 92% of the job ads. Because they're constantly hiring new people, because of all the ones that they burn out and churn out with less than ideal sales practices.

And again, I don't want to over-stereotype, given a lot of traditional family roles for men versus women, it's difficult for a lot of women to come into positions where you're working mostly on commission, there's no salary, there's no stability, there's no set hours, it's really hard to do any kind of family caretaker duties if you've got either parents or children in the picture.

Right or wrong, disproportionately tends to fall to women. Our industry's hours and unstable salary and unstable career environments, especially in the first five to 10 years, makes that super difficult for women.

As well as things like when you build your own advisory firm, there's no maternity leave. It's your firm, if you're going to be out for three months, your clients just don't get served. There's no billable hours, there's no revenue getting generated. At best, maybe you're trying to hire and build a team around you so that there's some others that can support you.

But that means great, if you want to actually have maternity leave, you have to hire staff and have permanent salary and overhead, which actually just adds to the financial stress of the business. There's a lot of challenges that come up on that end. The interesting thing that we find, because we do a lot of research around this in the industry as well, is when you get past the first 10 to 15 years, women tend to do incredibly well in our business.

The more that we go towards advice and relationships, the better women seem to be doing in the business. We don't see any pay gaps for experienced women. We see some pay gaps because not as many women make it to the long term in the industry. But when we look at the segments who have actually made it 10 plus years, we don't see any pay gaps because it's very entrepreneurial, build the business the way that you want it and serve clients the way that you want to.

Relationship orientation in general is getting rewarded more now in the industry. Sales is starting to decline. Not as much because we still have a lot of salespeople for all the earlier discussion. But the industry is very slowly, or I would really say the advice side of the industry is slowly and steadily making this a much more constructive environment for women.

The advice jobs are becoming more rewarding for those that prioritize relationships over sales. Relationship models are more conducive to salary environments with financial stability and things like maternity leave. You look at a lot of large RIAs, they all have maternity policies. They have stable teams and structures and the ability to support while people are out and reasonable parental leave policies. If you look at sales organizations, if you don't show up, you don't get paid. It’s how it works.

Some of that is shifting, which is why we see, I forget what the exact number is now, we got up to 23.2, 23.3%. If we go a little further over the next year or two, it might round to 24%, which would be a record for the industry. Unfortunately, change happens slowly, but it is starting to shift. And I think a lot of that just comes, again, from this industry shift away from product sales and towards advice. And it attracts different people. It rewards different people. It creates different business structures that have different and I would say better support mechanisms for team members.

I think that is probably what will ultimately help move the needle on gender in our industry in a way that a lot of diversity initiatives have not because at the end of the day, when we recruit harder to bring in women into the same sales jobs with the same instability, it doesn't necessarily change.
Dr. Jim Dahle:
It's a good point. Michael, you've been very generous with your time and I'd love to have you back sometime to actually talk about planning nerd stuff. I love to hang out on the planning.

Yeah, I love to do some optimal Roth conversions and asset location and all that fun stuff, too.

Dr. Jim Dahle:
Yeah, rather than just talk about the industry. But I wanted to give you a chance before we stop recording, if there's anything that we haven't talked about today that you feel like our audience ought to know, I want to give you a chance to mention that.

THERE ARE GOOD ADVISORS OUT THERE AND THEY WANT TO WORK WITH YOU

Michael Kitces:
Oh, honestly, the biggest thing I would come back to is simply that, again, I'm speaking particularly to an audience that I know has a high volume of doctors. Our profession is where yours was 100 years ago. We have not separated the professionals from the salespeople. We have an industry where the salespeople are trying very hard to prevent that happening because they figured out a long time ago that advice is really good guys to sell products and we're trying to create that separation to figure it out.

And so, there is a segment of advisors that's fighting that battle very hard. I call them the advisors because I figure we're not going to get the financial advisor term back. So I made up a new word. So I call them financial advisors, like the people who actually are in the business of giving advice. And they are out there and they are winning slowly in the industry to change the industry. They want to work with you as much as you want to find them.

One of the actual good advisors that are out there, they show up in different colors and flavors and business models. But at the end of the day, they're all focused on providing professional advice services, getting a reasonable hourly rate for what they do, because that's what professional services firms come down to. And most of them are really at the end of the day, just focused on service and relationships. That's who tends to show up on that side of the industry in our world. And they're good folks to work with. And I'm so sorry, it is really hard.

Our industry has made it so hard to find them. We made platforms like XY Planning Network was one of the companies I was involved with in founding originally, all for subscription-based advisors. Many of them I know are advertising, promote on White Coat Investor.

We've tried to create an environment and catalyze that change a little bit more, but just know that they are out there. They're good service professionals who work hard and want to serve you well. And I'm just so sorry that our industry has made it so hard to find them.

Dr. Jim Dahle:
Speaking for all White Coat Investors, we appreciate that apology, because it has been hard for a lot of us. And those who know the story of the origin of the White Coat Investor, it was partially about that journey of just trying to get a fair shake.

All right, we've been talking with Michael Kitces, he's the founder of Nerd’s Eye View. You can learn more about him and his work at kitces.com. He's an expert on not only financial advice, but on financial advisors. Thank you so much for coming on the White Coat Investor podcast today.

Michael Kitces:
Absolutely, Jim. I appreciate the opportunity. Thank you.

Dr. Jim Dahle:
All right. That was great, wasn't it? You can tell Michael has spent a lot of time talking about this stuff in front of others and on podcasts, and he knows his stuff. And it's nice to hear somebody telling the truth about the financial services industry. An insider saying, “Yeah, it is the way the White Coat Investor has been saying it was for the last 12 years or whatever, 13 years we've been doing this.” How long we've been doing this? Shoot, 2024, over 13 years. It's been a long time.

For those of you who've been with us from the very beginning, thank you so much. We really appreciate you telling all your friends about the podcast and so on and so forth. Five-star reviews help us, too. I tell you this every week.

We got one from Doug, who said, “Great podcast. WCI should be required reading and listening in medical school and residency.” I agree. “I started listening around 2016.” Shoot, you missed the first 5 years, Doug. “And have listened to every episode since and have learned so much. I am now retired from medicine and still enjoy listening/reading and learning from both the WCI podcast and blog.” He's retired. Congratulations on that, Doug. Turns out this stuff does work. He finished, “Jim, thanks for the great work and helping us docs get our finances on track!” Five stars.

It's our pleasure, Doug. I wish I could take credit for what's going on around here. It is not just me anymore. It might have been 12 years ago. It is not now. There's a whole team helping take care of all of you guys as much as we can.

SPONSOR

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All right. Don't forget about that podcast sale. The code is PODCAST20. It's good through Monday the 19th, 20% off WCI courses and the WCI store. You can use your CME money on some of those courses. Others don't qualify for CME, but we keep those prices just as low as we can while still keeping doors open and making payroll.

All right. It's been another great podcast. Hope you enjoyed it. Keep your head up, shoulders back. You've got this. We're here to help. We'll see you next week on the White Coat Investor podcast.

DISCLAIMER 

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 183 – Emergency physician family pays off $300,000 in student loans in 11 months.

Today's episode is brought to you by Sermo, the exclusive online community where healthcare professionals can easily boost their income. To over 1.5 million doctors, APCs, and other HCPs, Sermo offers flexible paid surveys that fit into your schedule, allowing you to earn extra income on your terms.

Sermo paid over $25 million to its members last year. Some members have even earned more than $15,000. Beyond earnings, Sermo provides a supportive community where healthcare professionals can connect and collaborate. New members can visit whitecoatinvestor.com/sermo to take their first two-question $20 survey today.

All right, welcome back to the Milestones to Millionaire podcast. This is where we take your stories and celebrate them with you and use them to inspire others to do the same. You can apply to be a guest on the podcast at whitecoatinvestor.com/milestones.

Don't forget about our special sale just for podcast listeners. If you use code PODCAST20 from now through Monday, the 19th of August, you get 20% off all WCI courses and everything at the WCI store. That makes our new Fire Your Financial Advisor student course just $79.

You can use your CME money and enroll in courses such as Financial Wellness and Burnout Prevention for Medical Professionals where you get access to the entire Fire Your Financial Advisor course content as well as additional Wellness and Burnout prevention modules. CFE, Continuing Financial Education 2024 also qualifies for you to use your CME money app just like the conference where it was made qualified as a CME expense.

So, whether you want to write that off as a business owner, whether you want to use a dedicated CME fund to purchase it, it's a great way to do so. You can go to whitecoatinvestor.com/courses, whitecoatinvestor.com/store. If you use the code PODCAST20 through the 19th, you get that special discount. Another seven days from the time this podcast drops.

All right, we got a great interview today. This is somebody from my specialty. I'm always partial to people in my specialty, but they've done something pretty awesome. Let's take a listen.

INTERVIEW

Our guest today on the Milestones to Millionaire podcast is Nathan. Nathan, welcome to the podcast.

Nathan:
Thank you, Jim. I’m happy to be here.

Dr. Jim Dahle:
Tell us what you do for a living, how far you are out of training, and what part of the country you're in.

Nathan:
I am currently in the Southeast, a pretty low cost of living area, large metropolitan area. I'm an emergency room physician trained at a three-year residency down here in the same city that we currently live in. And I'm one year out of training as of July, not as of this month.

Dr. Jim Dahle:
Tell us what milestones we're celebrating today with you.

Nathan:
We have two big ones. January of this year, my wife and I, we got back to broke. And so, we crossed that very fun $0 worth threshold. And then just in late May, early June of this year, we actually paid off all of our student loans.

Dr. Jim Dahle:
11 months? 11 months out of training, you paid off your student loans? How much did you owe?

Nathan:
We came out of residency owing $300,000.

Dr. Jim Dahle:
$300,000, okay. And you're using “we.” What does your wife do? Is she working?

Nathan:
My wife is a stay-at-home mother. She's a civil engineer by training, has her master's degree in civil engineering, and is one of the smartest people I know. And right now is pretty dedicated to staying home with our kids. We have three children, six, four, and two, our three children.

Dr. Jim Dahle:
So, it's all on your income in the last year that you paid off these student loans.

Nathan:
Correct. And a little bit about a year and a half, two years, I was able to moonlight a decent amount my third year of residency, which helped significantly.

Dr. Jim Dahle:
Okay. So, how much did you owe when you came out of med school?

Nathan:
When I came out of med school, I got really lucky, Jim, because if you think about the timeline, when I finished med school, about three months before I finished med school, our student loans froze. The day that I took out my student loan, one month later, the interest on my student loans froze. And so, the day I finished med school, I owed $298,000 and the day that I finished residency, I owed $298,000. I hit the three-year perfect when I maxed out my loans, if that makes sense.

Dr. Jim Dahle:
Okay. So, did you pay much during your residency toward the loans?

Nathan:
We saved up for when the interest rate restarted at the end of residency, but we didn't pay anything during residency because they were 0% interest, and we were a broke family trying to make ends meet initially.

Dr. Jim Dahle:
Okay. How much cash did you pile up during residency doing that?

Nathan:
About 80,000, roughly.

Dr. Jim Dahle:
So, a fair amount of moonlighting that last year, it sounds like.

Nathan:
Decent amount, yes, yes.

Dr. Jim Dahle:
All right, you got $80,000, but you still owe $300,000 and you come out of residency, and you get a job. What did that job pay?

Nathan:
For emergency room physicians, it's actually an average-paying job. Where we live, it's kind of hard to attract physicians here, and so while it's an average-paying job, $250,000 to $265,000, which is pretty good, I think. It is with a larger group. They do have a tough time getting docs here, and so there tends to be a lot of open shifts, a lot of bonus shifts that this group offers for people to pick up.

And being a young, hungry doc who's fresh out of training, for me, it was still an hour reduction to pick up shifts every month on top of what I was making, just as my base salary. I was able to maximize my earning potential by picking up extra shifts. That was kind of how I made more money than the average ER doctor this year.

Dr. Jim Dahle:
So, how many shifts were you working a month for the last year?

Nathan:
Yeah. My position is partially academic still, so I'm still one of the academic faculty at the university that I graduated from here. This is something I talk to my residents about a lot, is I actually signed my contract. They're full-time contracts here require that you work 120-hours to be full-time. A lot of people signed 140, but knowing that I was going to pick up extra shifts every month, I signed a 120-hour contract. That way, I could kind of have more control, flexibility over my schedule, and taper down as I realized that I met some of these early financial goals. On average, I was working anywhere from 180 to 200 hours a month.

Dr. Jim Dahle:
That's a lot of shifts. That's like 18 twelves.

Nathan:
Well, yes, yes, but it was also a reduction from being a resident. Our residency here, I was working on average probably 220, depending on the month where I was at. And so, I felt like it was a break and the paycheck didn't hurt with the burnout side of it.

Dr. Jim Dahle:
Yeah, live like a resident truly is what you did.

Nathan:
I did.

Dr. Jim Dahle:
Okay. Typical average emergency physician, it makes $375,000 or something. You were working about one and a half jobs. So I'm assuming you made about 50% more than that.

Nathan:
I did, that's correct.

Dr. Jim Dahle:
So, how'd you feel about that tax bill?

Nathan:
The first one was okay. My wife and I are pretty disciplined. We save exactly 35%. We also have an obligation to our church, and so we save an extra 10% on top of that. And that's something we feel passionate about and love doing. But both the tax bill and our building bill were big numbers, but it made us blush just a few years ago.

And I'm grateful to you. I used a lot of the advice from the website and trying to structure my life in a way that would be as tax efficient as possible, maxing out my solo 401(k). We have a high deductible health insurance plan. Luckily, my children and my wife and I are all pretty healthy right now in this stage of life. We're able to kind of benefit from that.

While we save 35% of my income from that moonlighting year, because that's really the only year that I've paid taxes on so far, the real kicker is going to be this next year. We've got a lot of money saved up for taxes, but we're doing everything we can to legally and ethically save for taxes and make sure that we're kind of all aboard there. But I've got a big cash amount right now sitting in a high yield savings account, just paying my quarterly taxes, ready for that to hit next April.

Dr. Jim Dahle:
We know about what you made. Half of that went to the student loans. A third of it went to taxes and charity, and you lived on a sixth of it, it sounds like.

Nathan:
We live in a really low cost of living city in the Southeast. And at the beginning of the pandemic, we were able to purchase our house. It's a nice four bedroom, two and a half bathroom house here in the city. And we paid $150,000 for the home. And those are numbers. Even I know with inflation, this house would only go for $250,000, $300,000. We're incredibly comfortable. It's got over a half acre lot. My kids love living here.

Schools leave a little bit to be desired where we live, but we're able to manage that by. We had our oldest test into a good public school nearby. And so we were really playing the cost of living game. We're very happy. We feel very, very content where we are. We've got a good community, really close neighbors and friends. But keeping that cost of living down has been key to what we've been able to accomplish in this year.

Dr. Jim Dahle:
Yeah. Now, six months ago, you reached back to broke. And that in and of itself is a huge accomplishment for doctors. What would you estimate your net worth to be now?

Nathan:
I did the calculations and actually went back and kind of estimated the calculations over the past 10 years, since my wife and I have been married for 10 years. And going through undergrad and all the way through medical school, our lowest net worth was when our student loans were maxed out. We had just bought our house. So we were kind of net there if you want to include that in your net worth calculation, which I did.

If you include our primary residents in our net worth calculation right now, we're at about $400,000. But a lot of that, if you take out our home, that's about $150,000 of that, right now, our net worth is up $250,000.

Dr. Jim Dahle:
That's a big swing from minus $300,000 though.

Nathan:
Yeah, yeah, definitely.

Dr. Jim Dahle:
Yeah, congratulations on that. That's pretty awesome.

Nathan:
Thank you.

Dr. Jim Dahle:
Well, you're no longer making student loan payments. You basically just freed up a huge chunk of income. And obviously some of that is going to just working less.

Nathan:
Exactly, yes.

Dr. Jim Dahle:
What's the rest of it going to?

Nathan:
Obviously, we're being aggressive, trying to front load some of our retirement accounts. We've got 529s for each of the children that we're going to get a little bit more aggressive, especially with the new kind of law changes around the $35,000.

We do plan on sending our children, ideally to a lower cost university, as well as the same one that I went to in undergrad. And that's our goal there is to save appropriately for that and let them benefit from our financial success this early and kind of set them up that way.

Right now the focus is kids, retirement, and honestly, putting on autopilot some of the things that have been tough to do with three little kids for the past few years. Really trying to take the stress off of my wife and make sure that we can be comfortable.

Jim, there were times in residency before I was moonlighting when it was middle of the pandemic, work was obviously pretty hard as an ER resident at that time. And as you know, as an ER doc, there was a lot of uncertainty there. To add on top of that the financial uncertainty of where we were with three little children, my wife not working. Luckily we were in a low cost of living area. It was tough for kids and trying to make that work.

And so, honestly, I have all of the humility and praise for my wife for being able to pull through this journey with three little kids and supporting me all the way through that. So, a big part of my goal right now is relieving her stress. She hates that as much as I do. I think that's pretty evident by how we structured our year in initial income, but trying to support her and make sure that we are balanced moving forward and focusing on the family and relieving that stress of the training years and worried about feeding your kids sometimes, Jim. It was tough. Yeah, it is.

Dr. Jim Dahle:
It's a lot of deferred gratification for both of you over the last decade.

Nathan:
There is.

Dr. Jim Dahle:
I'm curious what that looks like in your mind. Does this look like, obviously you working less, I think is part of it.

Nathan:
100%.

Dr. Jim Dahle:
Is there a housekeeper involved? Is there an upgrade in what she's driving? What stress reducing things are you looking at specifically?

Nathan:
Very quickly, the van has to go. It drains a lot of oil in our garage every day. The power steering just went out. We had to replace that a few months ago. It's a 2008 Honda Odyssey that we'll get upgraded very quickly. It's something she's interested in. But again, my wife would never buy a new vehicle. She would never be interested in that. So it'll be something just a few years newer, I'm sure. I don't know. I think total we've got less than $10,000 into both of our cars and both were paid off throughout residency. We never went into car debt once for vehicles. So that's a big thing.

And then yes, what's nice is our kids are all about to start school and it’s like a mommy's day out right now. And so, we're going to get some either housekeeping or something like that to help and just relieve that burden a little bit more.

Dr. Jim Dahle:
Yeah, awesome. Well, given your financial habits, the two of you can probably save up for a brand new minivan in two or three months.

Nathan:
You got to talk to her about that. I've tried. I've tried to tell her it wouldn't be an issue.

Dr. Jim Dahle:
Just a reminder. The goal is to be the richest doctor in the graveyard, right?

Nathan:
That's exactly right.

Dr. Jim Dahle:
Money's a tool and you got to learn how to not only earn and save and invest, but also to spend and give. And most of us that are financially successful, we're good at three or four of those activities and not so good at one of them.

Nathan:
Sure.

Dr. Jim Dahle:
All right. Well, you have just done absolutely fantastic. Super impressed. What advice do you have for somebody that's in a similar situation? They're coming out of an emergency medicine or OB-GYN residency or whatever. They owe $300,000 and they're like, “Is someone going to pay this off for me? Should I go for PSLF or can I actually just take this in a corner and drop an anvil on it?” What advice do you have for them?

Nathan:
The student loan world is changing rapidly. With the new SAFE plan, I have a lot of friends who are my same year who haven't even started paying on their student loans. A lot of my colleagues that I graduated with have very different mindsets around student loans.

For me and my wife, what we did felt best. I don't know that it's right for everybody. It was hard. It was a difficult thing to accomplish in the short time that we accomplished it. And we made a lot of sacrifices to get there.

And not to get on a high horse or anything like that either. I did feel a need or a desire, Jim, to pay back the debt that I owed. Something inside of me, I couldn't stomach the fear of a wealthy PIO paying back my student loans. Now, that comes off the back of, Jim, I saved about $60,000 to $80,000 in interest repayment because of the student loan freeze. And I'm not going to act like I'm not grateful for that or that I'm not okay with an interest rate kind of manipulation there.

Dr. Jim Dahle:
You're not going to give the Department of Education an extra $60,000, huh?

Nathan:
Indeed, I'm not. That will not be happening. But for me, there was something very personal. That's just how my wife and I have decided we view debt. And the reality is, because we paid off our student loans at 11 months, I've done the calculation both ways, and if I had just drug it out and paid the minimum payment for 15, 20 years, whatever that initial calculator that the government gives you before you even sign up for a repayment plan, I saved about $270,000 in interest on my student loans. The average interest rate was 7.3 to 7.8%. That's what I graduated with. I'm fresh out. That's kind of our most recent number there.

And for me, the savings was the peace of mind of not having the student loans, but B, also knowing that I borrowed that money and I paid it back. And again, let's switch back over to the oil we there. My wife sacrificed an immense amount to be able to help us. And she felt the same debt was ours, and that's okay, and that it's okay to pay it back there. We could have tried to finagle a way to reduce payments or stretch it out. And I'm not saying that's wrong. I am absolutely not saying that's wrong. It depends on your situation, where you're at, what's going on in your life. For us, the right answer was dropping an anvil on it.

Dr. Jim Dahle:
Well, congratulations to you. You've accomplished something remarkable. You should be proud of yourself. You guys deserve to go out and celebrate these milestones you've accomplished, and I hope you do. And I hope that minivan will not be leaking oil in your garage for much longer. Somebody else needs a minivan to come to their garage and leak oil in it, so I suggest passing it on to them.

Thanks so much for being willing to come on the Milestones podcast and share your success with others to inspire them to do the same.

Nathan:
Thank you, Jim. I appreciate it.

Dr. Jim Dahle:
All right, that was pretty awesome. I tell people what to do. It's not that hard to tell you what to do, right? To tell you to live like a resident, to tell you to work like a resident, to tell you that your greatest wealth-building tool is your income, to tell you if you can just keep your lifestyle somewhat similar to what you did as a resident, that you can do all kinds of incredible stuff in the first year or two or three coming out of your training.

But this is somebody who's not just listened to that, they have actually done it. Both of them, not just the doc. And the doc is working 200 hours a month. There's some sacrifice being made at home as well, especially when there's three small children. I know how that is. I had three small children at home when I was working 200 hours a month. I was in the military. I wasn't even getting paid nearly as well as Nathan was while I was doing that, but I suppose it was taking care of my med school debt in the same way.

This is hard to do. It's not easy. It's easy to tell you how to do it. The math certainly works. Nobody's going to deny math works. The hard part is actually doing it. And so, I thought this was a great example of someone that just went out, busted his butt. Worked a job and a half essentially, and then dedicated all of the extra income toward building wealth.

And you can see what happened, right? $300,000 in student loans in 11 months. I mean, it's incredible. What does that work out to be? That's sending in like, what? $27,000 a month to the lender? Something like that, right?

Practically speaking, that's how it happens. It has to happen that way. That's just the way the math works. But if you do that, your student loans go away very quickly. You can send them $5,000 and $10,000 and $15,000 and $20,000 a month. These things do not have to be carried throughout your entire career. You do not have to owe student loans when you were 45, when you are burnt out, when you were thinking about cutting back on work.

After we stopped that recording, I was talking to Nathan and he's telling me, “I love what I do.” It's so fun and it's exciting to me to hear that. It's exciting to me to see pre-med students and their excitement when they get into med school and to see MS4s on match day when they're excited about their specialty and people that are practicing a year or two out and they just love it. They love going in and operating or seeing patients or whatever they're doing.

But you know what? Let's be honest. For the vast majority of us, that excitement does not continue for 30 years. It's very difficult for us to project at 25 or 35 what's going to make us happy at 35 and 45 and 55 and 65. We change. The job changes sometimes. It's hard to be as excited about something as you were many decades before. You start feeling burned out and you want to make some changes in your career and in your life. There's other things that become interesting to you, other things you want to accomplish in your life.

The way you have the flexibility at mid-career that I promise you, you are going to want is by taking care of business at the beginning of your career in the way that Nathan and his spouse have done. They took the student loans in a corner, dropped an anvil on them, they're gone. 12 months out of residency, the student loans are gone.

Use that same sort of focus to get a down payment for your dream home or if you live in the Midwest, maybe pay off the entire home, boost your retirement savings. All of a sudden, within just a few years, you're a millionaire, a multimillionaire, you're financially independent, you have options. And I promise you, if you're a resident fellow in a few years in your career, you're going to want options 10 or 15 years out.

I hope you still love medicine. I hope you're one of the relatively small percenters that if I wrote them a check for $10 million that they would still practice medicine in the same way they're doing it today next month. But we know the vast majority of doctors do not feel that way. They would at least cut back and about a third of them would punch completely out of medicine if they had the money to do so.

Something changes along the way and you need to prepare yourself financially as you go through your career for you to be one of those people for whom it changed. It does change for a lot of us.

I'm still practicing, I'm financially independent, I still practice because I love it. In the emergency department yesterday, seeing patients and I enjoyed it, it was fun. 95% of my day I enjoy. I like going to see my friends and the nurses and the docs and the patients and helping them have a better day.

But that's not the case for everybody, number one. And number two, it's pretty darn hard to get burned out when you're working six day shifts a month like I am. The financial stability gave me the ability to work on my terms. And when you work on your terms, medicine's way, way, way more fun, way more exciting. And I want you to all have the ability to make those changes if you need to make them at mid-career, late career or whenever.

FINANCE 101: THE BEST PAYING HOBBY

All right, I didn't tell you at the beginning, but I wanted to talk a little bit about what's the best paying hobby out there. And that is certainly not boating. Boating is not the best paid hobby out there, I assure you. Boat stands for Bring Out Another Thousand. And if you buy a boat, please, please, please make sure you can afford the boat before you buy it. I love boating. It's a lot of fun, but it is not cheap.

You know what the best paying hobby out there is though? It's acting as your own financial advisor, being your own financial planner and your own investment manager. Let's just consider the cost of investment management. It's not unusual for somebody to pay 1% of their assets under management as a fee. I hope most people will negotiate something smaller than that by the time they're millionaires, but that's not unusual. Let's just use that as kind of the industry standard, the average fee that people are paying. Although I would hope you would pay less than that again.

Let's say you have a $4 million portfolio. You have $4 million, you're paying 1% a year. That's $40,000. Even if you're an emergency physician working a job and a half, that's a whole month's pay. It's a whole month's pay. That's a good paying hobby if you can avoid that expense, especially if you're paying with after-tax dollars. Then it might be a month and a half's pay. It's just a lot of money.

And it's not that an advisor can't provide that sort of value to you. It is possible. $40,000 is a little on the high side for sure, but it is possible. They can provide a lot of value to you. And I'm not against paying for value, especially if you're paying a little more reasonable price, like $5,000 or $10,000 or $15,000.

But even so, how many shifts do you have to work or how many days do you have to go to clinic or how many operations do you have to do in order to come up with what you're paying to a financial advisor? Well, it's quite a few. And it might be worth it to you to learn how to do that yourself competently.

You can do that by listening to these podcasts, reading the blog, reading our free monthly newsletter, interacting in our forums. If you need a little bit of help, you can take the Fire Your Financial Advisor course. It's a great course. And it can help you put your financial plan in place and teach you how to manage it yourself.

Now, even if you need to use a financial advisor at times to check in, or you want to use them for certain things, but not everything, you can save a lot of money there. It is a really great paying hobby. And if you think about $40,000 a year, and you apply some sort of future value of money calculation to that, let's say $40,000 a year, and let's apply 8% a year to that over 30 years of retirement.

How much money does that add up to? Well, it adds up to about $4.5 million over the course of retirement. If you divided that by 30, you could spend each of those years of retirement. That works out to be about $150,000. You can have a lot of fun with $150,000. You can rent a lot of McLarens for $150,000. You can take all your kids and grandkids on cruises for a lot less than that.

And so, just keep that in mind. I don't want to say everybody has to be a do-it-yourself investor. My best estimate is probably only 20% of docs want and are able to do this themselves. But that's a whole lot higher percentage of those of you who are listening to this podcast.

And so, I would encourage you to at least consider acting as your own financial advisor, learning how to do it competently. Because if you do it badly, that's not worth the savings. It's well worth paying a fair price to get good advice if you don't know how to do this stuff yourself. But I would encourage you to learn how to do it yourself. That is the right move for lots of you who are listening to this podcast. And it is by far the best paying hobby out there.

SPONSOR

Our sponsor for this episode is Sermo, a leading online community for healthcare professionals seeking to enhance their financial wellbeing and contribute to the future of medicine.

With more than 1.5 million healthcare providers globally, Sermo offers flexible paid surveys and other opportunities to help you earn extra income while sharing valuable insights. Last year alone, Sermo paid over $25 million to members.

Join a community of your peers where you can collaborate, share advice, and make a difference in healthcare by visiting whitecoatinvestor.com/sermo. New members will earn $20 instantly by taking their first survey at whitecoatinvestor.com/sermo.

All right, keep your head up, shoulders back. We'll see you next time on the Milestones to Millionaire podcast.

DISCLAIMER

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.