An Interview with Sarah Catherine Gutierrez from Aptus Financial – Podcast #58

Podcast #58 Show Notes: An Interview with Sarah Catherine Gutierrez from Aptus Financial

I interview Sarah Catherine Gutierrez from Aptus Financial in this episode. She was a very popular speaker at our conference in March. We talk about how she got into the financial advising world, the mistakes she sees doctors making in their financial plan, even the DIY guys, and where she sees the financial advising business going in the future. We discuss the different ways that advisors are paid and the conflicts of interests with each type.
You can listen to the podcast here or it is available via the traditional podcast outlets, ITunes, Overcast, Stitcher, Google Play.  Or ask Alexa to play it for you. Enjoy!

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[00:00:19] I estimate that 80% of doctors need, want, and should use a financial advisor and/or an investment manager. Some investment gurus such as Dr. William Bernstein think my estimate is way too low. At any rate, if you want to use an advisor temporarily or for your entire life, there is no reason to feel guilty about it—just make sure you are getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors at whitecoatinvestor.com/financial-advisors. 

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Quote of the Day

[00:02:33]  “You can tell your values by looking at your checkbook stubs.” -Gloria Steinem

Intro

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Main Topic

[00:02:43]  Sarah Catherine Gutierrez, CFP, of Aptus Financial is our special guest in today's episode. She was  a very popular speaker at the White Coat Investor conference in Park City this spring.

[00:03:43] She talks about her upbringing, education, and how she came to be a financial advisor.

[00:03:43] We discuss our work with the homeless, a cause that is important to both of us.

[00:13:10] I've been to Sarah Catherine's home and done fireside chats with residents there in Arkansas. When I first met her she was doing financial planning for seventy five dollars an hour.  We discuss what she was thinking to do it so cheaply.

[00:17:08] Sarah Catherine's talks about the evolution of her flat fee advising and how she came to settle on the current price.

[00:20:20] We discuss where Sarah Catherine sees the profession of financial advising going in the future.

[00:22:02] We talk about fees and how those are paid to financial advisors.

[00:26:14] Sarah Catherine seems to be targeting kind of a unique niche among docs, those who want to become do it yourselfers or those who just need a little bit of help rather than those that are looking for an advisor to take care of everything. I asked her what her sense of that niche is. Is it growing? What percentage of the market does she think it is now?

[00:28:50] When I started blogging in 2011 even in 2012 and 2013 I was basically still a lone voice in the wilderness. Last month five new physician financial blogs were started. There are now over 50 of them. I asked her what effect she thinks that has had on the financial advice market for physicians.

[00:32:44] Most of the financial advisors I recommend are working with  clients I send them by phone or email or video conference. We discuss what that is like and how well it works.

[00:34:51] I asked her what issues she is seeing with the people coming in her door. What are the recurring themes? What mistakes are doctors making?

[00:40:42] We talk a bit about the industry in general and the conflicts of interest with each of the various advisory compensation models from hourly to a set annual fee to an asset under management fee to commissions.

[01:01:16] I asked Sarah Catherine what surprised her about the WCI conference and what questions she got from people there.

Ending

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Full Transcription

Intro: [00:00:00] 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. Here's your host Dr. Jim Dahle.

 

WCI: [00:00:19] Welcome to Episode number 58 the white coat investor podcast an interview with Sarah Catherine Gutierrez. This episode is sponsored by Set for Life insurance. Set for life insurance was founded by President James K. Fleischer CLU CHFC LUTCF in 1993 which she started while attending Washington University in St. Louis. They specialize in individual term life disability and long term care insurance. Their work on the client's behalf to shop around to find the most suitable products at the most cost effective rate. Set for life is first and foremost a client centric company. They listened carefully to the needs of clients and shopped around to find the best products available at the best rate. For more information visit set for life insurance dotcom.

 

WCI: [00:00:58] You know it's interesting I find there's a lot of people out there listening to the podcast or reading the blogger interact with us in some other way who are not signed up for the free monthly newsletter. I have a free monthly newsletter I've been doing since almost the beginning of the white coat investor that goes out to over 17000 people. We include an update on what we've been doing here at the White coat investor including into special deals or any courses or conferences or books we're working on as well as a market report that tells you what's happened in the last month in the markets.

 

WCI: [00:01:31] We also update you on what's going on on the white coat investor blog as well as our partner blogs the passive income M.D and the Physician on fire and we update you on some of the cool stuff that's been going on both on the podcast and the forum. Also a section on any new videos we put up on the youtube channel. And then at the end it's like a whole fancy private blog post that nobody else gets is not published publicly. It only goes out to the newsletter listeners. So be sure you're signed up for that you don't have to sign up to get all the blog post in your e-mail. So you're getting something Five days a week if you're signed up for that. you can just get the monthly newsletter that comes out once a month. Yes. If I come up with something new if I write a new book I'm going to send you an e-mail about it. But for the most part all you're getting is that one e-mail a month with all that great information is really a wonderful value is totally free to you. yes there's an ad in it like there is in everything else we do but it's totally Free to you. So make sure you sign up for that at the Web site white coat investor dot com.

 

WCI: [00:02:33] Our quote of the day today comes from Gloria Steinem. You can tell your values by looking at your checkbook stubs. And that is certainly the truth because what you value is what you spend your money on.

 

WCI: [00:02:43] All right. Today we've got a special guest on the podcast we have Sarah Catherine Gutierrez CFP of Aptus financial. Sarah Catherine was actually a very popular speaker at the White Coat investor conference in Park City this spring and it got excellent ratings lots and lots of people enjoyed her talk and loved her enthusiasm. I was particularly impressed by her enthusiasm given the travel snafu she ran into the night before her talk. I think we were emailing close to midnight and she was still all the way across the country and scheduled to speak at like 10 in the morning. So she got in. I think she got two or three hours of sleep and then got up in front of 300 people and just nailed her talk. It was really great. And so I've asked her to come on the podcast today. Sarah Catherine welcome to the podcast.

 

Sarah Catherine: [00:03:32] Thank you so much Dr. Dahle. It's a pleasure to be here.

 

WCI: [00:03:35] Let's start with just letting our listeners learn a little bit more about you. Can you tell us about yourself and your upbringing and your education.

 

Sarah Catherine: [00:03:43] Sure. So I'm from Little Rock Arkansas still live in Little Rock Arkansas. And you know I just grew up kind of a normal normal little slow you know slow upbringing here and our cozy little town and went to a high a local Catholic high school here and then decided to kind of expand my horizons got into a women's college in North Carolina called Salem College. And you know from there just get me out a Little Rock. I really feel like that was kind of a moment where I saw you know I wanted to have more had a mission oriented life than I ever would have imagined for myself.

 

Sarah Catherine: [00:04:37] And so interestingly I did study business in my undergrad and in my college there. But my senior year I had gotten this amazing job at this investment bank back in Little Rock Arkansas. And I thought you know I think there's something bigger out there for me and much to the unfortunate surprise of my entire family. I put off that that job offer and joining the Jesuit Volunteer Corps which is a Catholic organization that sends people all around the country to do service for a year. And I became a job developer for the homeless and I did that for a year. And I really thought I could make a bigger difference and so I ended up doing it for two more years and was able to kind of be part of this group making some really interesting policy around homelessness and getting people long term more sustainable jobs sustainable housing and got accepted to the Harvard Kennedy School and I so I went up there thinking you know I'm going here for to extend this work you know around homelessness. And what I really found was that the way my brain works is in policy issues. So at the Kennedy School we were taught to look at widespread problems widespread you know areas of market failures. And then think how can we plug that failure. How can we make this better. And so interestingly I graduated from there decided you know I'm going to go back and make a difference in my hometown took that investment bank offer came back working in that for four years.

 

Sarah Catherine: [00:06:51] And it was interesting because all this kind of led to me being at this you know in the capital markets in 0 8 – 0 9 so I started my job there in 0 7. And we all know what happened in 08 09. And at that point I made a startling discovery in my mind and that was that all these people basically bought homes they couldn't afford because they were getting bad advice. And so realizing that there's got to be a real problem here. If a whole bunch of people are buying houses they can't afford. And so it led me looking at well where do people get advice. And so if you look at the market you know if you have a lot of money you're getting advice by someone who's trying to sell you something. The people that the companies that you see advertising on television and you know say let us build you a financial plan. You know we want to cover everything we're fee only financial advisers. That's a great industry. You know for a lot of credentialling a lot of expertise is there. But you look at the average age of people that are able to go to those firms and they're in their mid 50s and you realize they've got these asset minimums. So you've got to have five hundred thousand dollars stuffed under your mattress to even go in and talk to them. And you know that's kind of bizarre right. So bring us your first five hundred thousand will help you get your second. And so to me that was a really stunning kind of discovery was we have a massive amount of people that just can't even get access to good non conflicted advice.

 

Sarah Catherine: [00:08:51] When I realized this I literally quit my job and said My I was about to get married and said to my now husband like I want to start a business where I just give everyone else access to financial advice. So that's kind of the you know it's kind of a funny way we kind of bounce around in life but I really believe that everything I was doing led me to that moment where I happened to be in the market at the time that the housing crisis you know brought down our markets that were 40 percent.

 

WCI: [00:09:36] Very cool. That is so impressive. You know it reminds me of being on the medical school admissions committee my fourth year of medical school and sitting there reading these essays from people applying to get into the school and being so impressed with them that I wanted to give them my spot and wondered how I ever got into that school. You know with all these impressive people out there I did not know that you spent that time working on homelessness. That's really very cool and a cause that's near and dear to my heart.

 

Sarah Catherine: [00:10:03] So OK that's right it's very very cool.

 

WCI: [00:10:05] I volunteered in a homeless clinic both as a medical student and then ended up being one of the student managers there for a while and we continue to donate to just about every organization that helps the homeless in our city every year Now. It's it's really something particularly an emergency medicine. You know you're always interacting with the homeless because that's the safety net in our medical system. And so something is near and dear to my heart for sure and I thank you for that.

 

Sarah Catherine: [00:10:32] Well and likewise you know it is there are so many complicated issues around it as you know and if you miss one of them you know it just doesn't work. Then the network who have the build to actually move people out of chronic homelessness to functioning as is really challenging and health care is one of the biggest components. I'm so grateful for the local physicians here that have a clinic for the homeless it's it's really phenomenal.

 

WCI: [00:10:59] You know it's interesting is in Salt Lake they've kind of taken an approach that's received a lot of recognition nationwide of housing first. They literally just put people in houses up here and are amazed at many other problems go away you know.

 

Sarah Catherine: [00:11:12] Yeah. So that's so when I said I was part of that group a policy maker so I was part of the Housing First movement in Phoenix. And so that's exactly right. You get that you get them in housing first and then you wrap services around them. So we were part of that and we wrap the employment around them. And so we were we were the ones that were engaging the eligible employees you know finding employers who would who would work with them. So we are part of a larger network just wrapping around these people who've had permanent supportive housing.

 

WCI: [00:11:47] Very cool. Now I've been in sort of Sarah Catherine's house a couple of times when I've been out there speaking at University of Arkansas School for Medical Sciences a couple of times I've come over to her house and spoken to some of her clients and so I've been in her house and met her family and it's a wonderful family of some incredible kids and husband and I thank you for your hospitality when I've been out there.

 

Sarah Catherine: [00:12:11] Thank you for coming here. I joke that you know the White coat investor came to my house before he was really the White Coat investor. So. So it was just stunning to be able to to to be able to have local physicians you know we as you remember we did these fireside chats just get to sit in the living room with you and just in a very kind of cozy setting and just be able to fire off any questions that they had. And I still I'm so grateful that we had that time with you I know that would be impossible now but it was incredible at the time.

 

WCI: [00:12:51] Well it's actually my favorite format to get to meet you know readers and listeners is to just you know a small group sit there and talk to people it's great. Now I'm not going to lie. Traveling to Little Rock from Salt Lake is not a fun experience but you know it. It's wonderful once you get there.

 

Sarah Catherine: [00:13:09] That's right.

 

WCI: [00:13:10] Now when I first came in contact with you I don't know if it was an e-mail or what it was but when I first met you were doing financial planning for seventy five dollars an hour. That's 15 to 50 percent of the price of most people out there doing an hourly rate financial planning for doctors. What were you thinking to do it so cheaply?

 

Sarah Catherine: [00:13:28] I was thinking that I'm really proud of it actually. So you know I kind of think back to where my story left off. You know I wasn't trying to work with physicians like I figured physicians were covered right. Like I mean that never even dawned on me that physicians would come to my practice. I mean I was envisioning a world where you know I would be working with people who would actually even if they say 20 percent of their income would never get to that 500000 in assets and that's it because they made the median income of sixty thousand dollars a year. And so you think like they couldn't. I mean seventy five dollars an hour would be a lot of money for a lot of people to get financial planning. And so you know I did have this great little business and you know I didn't do any investment advice and I knew steer clear of that. First of all the people I was working with that was kind of the last thing on the list. We were much more working on getting out of credit card debt student loan debt. And you know they had their company retirement plans that they be you know it be years before they could even max that out. So. So investing was kind of covered. And so I was able to kind of have this just advice only business and really give anyone access to financial advice. And so then you know you know I did. So I had a physician come into my practice and he said to him you're telling me a lot of advice that I've read in this book. You need to go read this book.

 

Sarah Catherine: [00:15:08] And so I you know you dropped it by my house and it was called the White coat investor and of course the first thing I did was roll my eyes because up until that point all the books I had read were so self-serving right like they they were pitching you know some kind of business or some kind of investment product or something. And so I start reading this book and I'm you know just a husband right there. I'm like you know say oh my gosh you know this is what I believe. And so I finished reading the book and saw your blog and reached out to you and and you know I think that it was kind of a mutual feeling I think you could see You know it probably the passion for for for this business and giving people access to this not conflicted advice given people a fair fee that was affordable. And you know it really sparked this kind of avalanche of new business from people who had a lot more sophisticated needs then I'd been you know working with prior. I mean I had the credentialling to deal with it but I just it was going out of use. And then you know as much as I resisted it I knew I had to start giving my clients formal investment advice. These physicians coming into my practice wanted me to say this is where you need to invest your money but to do that opens up a can of worms and you know we have a lot of people to thank for for this unbelievable compliance that investment advisers have to have. But there's been a lot of badness in the universe and so it's a highly regulated business. And so. Seventy five dollars an hour was never going to work to give investment advice and to cover that that overhead.

 

Sarah Catherine: [00:17:08] And so so I started raising the price and I didn't raise it all that much. I went to a hundred dollars an hour that clearly did not work and then I got to 150 dollars an hour pretty quickly and it just wasn't quite enough. And then once we got to 200 dollars several several years ago you know I realize it would work. And remember when I started my practice was working out of my home. It was just a it was a very kind of you know I'm constantly trying to figure out you know how do I you know how do I build this slowly and intentionally from the ground up because I never just envision this practice to be as Sarah Catherine Gutierrez because remember I'm a public policy person. I wanted a practice that could meet needs across the country not just locally. And so so when I was coming up with with a fee it was not just how much is what is Sarah Catherine Gutierrez and her credentials and her experience what is she willing to work for. I'm just realizing I'm talking about myself in the third person here but it's really you know how to build a practice that you know can attract and retain you know highly credentialed highly experienced people. And so so that's what I have always had a mind for. And once I hit two hundred dollars an hour is kind of a magical number. And we've been able to to make that a very sustainable fee. So yes. Seventy five dollars an hour was ridiculous. If you think of it in the context of what we do now.

 

Sarah Catherine: [00:18:45] But I still think you know you know maybe one day there will be a place for for that you know a 75 dollar fee that doesn't have investments but it's just a very tough road.

 

WCI: [00:18:58] OK so all the advisers out there listen to this I hope you heard that because I have been trying to clone Sarah Catherine all over the country because I think it's a wonderful thing. It's wonderful what she's doing now. Are you guys fully up. Do you have expansion plans. I mean what's the practice look like from here going forward.

 

Sarah Catherine: [00:19:16] Yeah I mean we can still continuously take clients and you know we have a guided DIY process so. So we're not trying to necessarily accrue clients. We do a one time planning because we think for the most part especially people who read white coat investor and and other financial blogs you know a lot of people can take a play and run with it. Maybe check in a few hours once a year. So that that means that we can kind of continuously take on clients.

 

WCI: [00:19:50] Which is very unique among financial advisers. Mostly they get their 50 clients 60 75 clients and they close a practice. They're done. That's enough to keep them busy and certainly enough to generate a solid income.

 

Sarah Catherine: [00:20:02] Right. So remember. So again we're go back to this is a public policy question. And so when I built this company I didn't build it from what's the best thing for the advisor. I've built it from what is going to be the future demand of people who want financial advice.

 

Sarah Catherine: [00:20:20] And and I believe that the future is people are going to want to be able to not have their wealth annuitized in fees every year. Right. They are going to get greedy. They're going to say look I think I need a financial plan and I want a financial plan early in my life I don't want to have to wait for it. So I don't want to have to wait till I five hundred thousand dollars to do a full financial plan. And I want to do a financial plan and then go implement it and keep those fees out of my wealth. And so it is great when you're a financial adviser to say I just have to get 50 people willing to pay me you know ten thousand dollars a year. And there you go. I can retire in the sunset with that. I mean obviously that would be fantastic. But I just I just think people are going to want something different and you know we feel like we're skating to where the puck is going and and you know I would be lying if I told you that it's all been great. There have been times where I thought this is never going to work. You know this is people. Because if you think about the challenges it's not just that people are paying us 200 dollars an hour. But imagine that comparable . So you either engage in a relationship where someone is taking your retirement money that for you is not real money because you're 35 and you're not going to see that money until you're 65. So it's not real. And so you have someone taking money out.

 

Sarah Catherine: [00:22:02] Sure. You know they're taking money out. That's taking money out of future dollars and I'm taking money out of your current dollars. Right. So you're writing me a check out of this year's income and so you feel it in a way that when an adviser is kind of taking money every quarter out of your account you don't feel it. And plus we've had this huge like unprecedented bull market. So people are seeing their accounts go up and they're thinking oh you know this is great. This adviser relationship, money is going up. Well yeah your money is going up because the stock market is going up. Right. So the barriers to this practice are enormous. Right. From a psychological basis. But but we know that this is the right thing and you know my husband had so much faith in me and you know the times I thought you know let's just throw in the towel. You know he said look we can make this work. You know so we you know we we lived on his income and gave it the time and the patience and instead of going out there and trying to figure out you know marketing and sales gigs. You know I just saw it. No I'm going to keep my head down and I'm going to become the best financial adviser in the country. Like that's the best thing I can do at this point. And some day people are going to say I'm going to pay. I want to pay out of pocket because I don't want to have my retirement account annuitized every year.

 

Sarah Catherine: [00:23:34] And I want to go to the best and I don't need to have a local adviser that you know really nice and a friend and it's you know a parent on my kid's soccer team like I want I truly what's the best advice at one point. But you know at one point in time in my life and then I'm going to run with it and take it over. So. So I knew that that it would just be a matter of time.

 

Sarah Catherine: [00:24:00] So my partner Tim Quillen I love how he describes us. He's like you know we're going to have that hockey stick. And I can get to that work. We're kind of in it now. And he said it's going to be a little like Revenge of the Nerds where the nerds win you know where where you know we are not advisers you know who have a sales and marketing background or you know accumulating assets really is a sales and marketing effort. Right. You kind of think about it. That's you know that's not us and it's never going to be us. What we're going to do is continuously innovate continuously sharpen our financial planning process make it more efficient make it more valuable and make it more actionable for people and sustainable and that you know if you build it they will come. And you know I think that the hockey stick is here. So and so we have had the most significant demand these past two years. And I think it's largely from from the blogosphere.

 

Sarah Catherine: [00:25:13] You know certainly you have blogged a lot about fees. People are not blind to those anymore and you blog a lot about you know firing your financial advisor. I mean I think that has to work in a lot of business for people say OK I'm in but I don't want to do this totally by myself right. And then the other thing that's happened is that Department of Labor now failed fiduciary rule efforts raise enormous attention around fees. It wasn't even really about fees it was about you know conflicts of interest and hidden fees that it raised a lot of the issues on how much people are paying in fees and the magnitude of them. And I think a lot of people who didn't realize that they were paying you know anything because they thought that you know that this study was kind of investing them as a as a you know as a favor found out that you know oh my gosh I've had 10 to 20 thousand dollars taken out of my account every year and I had no idea.

 

WCI: [00:26:14] So it's pretty easy when you really know when you really start adding it up isn't it. And you seem to be targeting kind of a unique niche among docs those who want to become do it yourselfers or those who just need a little bit of help rather than those that are looking for a money guy to take care of everything. What's your sense of that niche. Is it growing how fast as a growing percentage of the market do you think it is now that that's just looking for some help to come in and do it yourself.

 

Sarah Catherine: [00:26:40] You know I think it's still tiny and we're just seeing the tip of the iceberg. So we you know we're seeing that the people reading your blog and other blogs who are passionate DIY years they come into our practice and they know what a backdoor Roth is. Right. So they they know a lot of these days they don't have to know it but they do tend to know it and they think they're probably doing it all right but they want a second set of eyes and I'm telling you we find we find glaring issues. And so I still think that even people who are DIY. It probably pays for most people to get this kind of diagnosis right. This diagnostic like yeah you are probably do it all right. But you know you might not be. And it is funny how we will catch things like you know someone's got a big IRA balance so because they had work with the previous advisor who you know when they left their practice and moved to another one instead of rolling 403b into the next one they rolled it over into an IRA that could be managed. And so now they can't do backdoor Roth because of the pro-rata taxation. Right. So we still see these like glaring issues that even people who are kind of taking things on themselves have to kind of sort out. We're still seeing a ton of young doctors buying cash value life insurance right. So and So. So we we've got a lot of smart people who are reading the blogs and say I want to do this but just need a little bit of handholding.

 

Sarah Catherine: [00:28:29] And so I think as the blogosphere grows which I mean I bet you could talk about this a lot more than I can. Talking about your readership which has absolutely exploded I think that we're going to probably see you know the same hockey stick. Continue. You know in our own practice.

 

WCI: [00:28:50] You know it's interesting indeed our readership and listenership on the podcast and all that has grown incredibly but you know I started the blog in 2011 even in 2012 2013 who's basically still a lone voice in the wilderness right. Last month five new physician financial blogs were started. There are now over 50 of them. What effect do you think that has had on the financial advice market for physicians.

 

Sarah Catherine: [00:29:22] I am so glad you asked this question because I really think so. I'll tell you I'll answer that specifically. So I think that physicians as a group are are are absolutely taking on their finances. And so if you look at the blogosphere the blogosphere is aiding them with with very deep subject expertise. Right so you can find any answer to any financial question out there on how to do a backdoor Roth IRA, starting a solo 401k, refinance your student loan debt so you can find an enormous amount of information at your fingertips and that has been phenomenal. I think that there is a there is a much larger thing happening that feels so basic to us that are all kind of in it. But physicians are starting to save enough money for retirement. And if you think about how interesting that is physicians have had a bad rap for undersaving, living beyond their means, you know falling prey to all these like really crazy financial schemes. So I think that the blogosphere has fixed that.

 

Sarah Catherine: [00:30:42] So yeah you have a lot of physicians nerd out on really kind of crazy you know ways of really polishing their financial plans. But I think you need to remember that what's happening is they're actually pulling along the other physicians that are probably never going to go to that length but they're getting caught up in this movement of being responsible with their finances. And so said. First of all that's happening. And I think that that the pendulum swung so far with you know physicians kind of being the butt of every financial joke right. Two they're going to lead every other industry and these were not only doctors but were businesspeople right. Like I think that's what is happening but you know it is the physician financial blogs that I think are really driving a lot of just general wisdom. And if you think about the financial world one of the largest consumers of financial advice is physicians. And so I think that one of the greatest long term repercussions of what you have started. And let's be honest it's the white coat investor that started this all, is that we are going to see financial reform that doesn't have to come from the Consumer Financial Protection Bureau. It doesn't have to come from the FCC, it is going to come from demand from the grassroots from the people consuming this to say no I'm sorry I'm not going to work with you if you sell products. I'm sorry I'm not going to pay you an AUM fee the rest of my life. And so I think that you're going to see a transformation of how financial products are sold and how financial advice is given as a result of it.

 

WCI: [00:32:44] Speaking of giving financial advice and I'm totally flattered by her words. By the way I feel like just drop in the mic and walking out of the blogosphere here. But speaking of working with an adviser most of your clients are not in Little Rock so you're working with them via phone email and Skype and this is actually the case for just about all of my recommended advisors because my readership is nationwide and it's difficult for me to pin down a financial adviser for you that you can walk and sit across from. So most of the people I recommend are working with most of the clients I send them by phone or email or video conference. What is that like. Is that a big deal. Does it cause difficulties. Do people mind it. Is it a generational thing. What's your sense on working with people remotely as an advisor.

 

Sarah Catherine: [00:33:30] Just the same way we are having a conversation with no lag with no problem and you are out there in Utah. I am in Arkansas. It has never been a problem. So we use video conferencing very effectively. I feel like I'm in the room with all of my clients. And you know I just think that that has that has really democratized financial advice right. So now people can say I don't just want to find my guy to find the guy I love how you said that because every call their financial adviser my guy. I don't what just find my guy who's the best in my town. I want to find the best in the country. That's who I want to work with. And so that's what people need to do. They need to find who is the best financial out financial adviser out there and go to them.

 

WCI: [00:34:27] It's a little bit like people travel for you know elective medical procedures. That's exactly what they do. They try to find who's the best and they fly to Mayo or the Cleveland Clinic or whatever it might be for a particular problem or a particular specialty. So it's really not that different especially when the price of the you know travel is minuscule compared to the price of the service once you get there.

 

Sarah Catherine: [00:34:49] So exactly. That's right.

 

WCI: [00:34:51] So what issues are you seeing with the people coming in the door. What are the recurring themes. What mistakes are doctors making. I mean what can you tell my listeners to fix if they can. Even without advice were problems.

 

Sarah Catherine: [00:35:06] Yes. So. So I'll tell you said that people coming in. So there are people that now come to us with absolutely zero financial knowledge and that's because we'll have a reader who comes to us and then they go back to their practice and say Oh my goodness you've got to go to Aptus Financial. And you know their advisers you know they they can build you a plan. This is where you need to go. So. So that's kind of the. So if you talk about like someone who comes in they're like Aptus who?! and I don't know I've got these student loans. Not entirely sure how much they you know how much I really have.

 

WCI: [00:35:47] So you get a fair number of clients just don't know anything and are starting at the beginning. You've got to get educated person.

 

Sarah Catherine: [00:35:53] Right. And so there's really not a lot say about that. You know you walk them through an entire financial planning process from a to b. And it is. I mean I can tell you and you know like that is a significant win for them. Right. Because you just need to build a financial plan one time in your life. And if you can you know do that in your 30s or 20s like it's going to set you on a path you need to be on. But I think the more relevant question because your listeners don't fall into that category is you know what what are their mistakes. And I'll tell you what their mistakes are is that they do a lot of reading and they get hung up on a concept. So here are some examples that you have. I speak to the residency programs here at our local medical college. And you know and then we there's a there's always a white coat investor reader in there and so they'll come up and say you know I'm ready to do my back door Roth IRA. And you know there are a resident.

 

Sarah Catherine: [00:37:00] You get to explain Well I mean you could just contribute to one and you know directly and and also you know why not just open up the retirement account here at the Medical College where the fees are really low and then you get to have money taken regularly out of your paycheck and you know you never miss the money and it's just a really good kind of behavioral tool. So you know what that's really kind of saying and we see this across all different issues is that people are reading these blogs and it's giving them the full assortment of all the things that they can think about. But what they have a hard time doing is prioritizing them. So at the White coat investor conference I knew that was the biggest issue people had. And that's why I spent the majority of my talk on it. You all know what a backdrop ROth right. You know what an HSA is. But how do you prioritize one or the other. And so we've created that tax efficient waterfall and it's a blog on our website is available for anybody to kind of read. And and it gives people the relative priorities of all of these tax efficient options that are available to them. Everything from you know refinancing their student loans, how fast to pay them off. You know it all. There's a hierarchy of how to think about that. And so what we find the mistakes people make is they get them out of order. Right. So. So they do a they might be doing a backdoor ROth IRA but they're not maxing out there you know 403b and 457 plan right. So. So we just see like little kind of mistakes or or things that you know in the end like it's not maybe going to be a huge problem but we're able to fix them early on so they can really maximize what's available to them.

 

Sarah Catherine: [00:39:08] You know we are still and I said before this is a problem because it's hard to fix. But we are still seeing so many annuities coming in the door so many whole life policies cash value policies that it's just we just can't believe people are buying these still. And so so they're not blindspots people coming in because people are coming in because they know they have this. They know they made a mistake buying it and now they're you know they're doing a financial plan with us and part of that the financial plan is fixing that. So I don't think anybody is reading the white coat investor and and then after reading it going out buying a variable annuity. Right. They just they were resident. And you know even our local medical college. Every time I go and speak to a resident residency program I ask have you received an e-mail from someone trying to sell you an annuity or a life insurance policy onto your UMAS school issued email and every single one says yes. So you know and they're offering the delicious steak dinners to these residents who think that that's not going to have any impact on them. And so I think that's what that's what we're seeing is that people are buying those policies. You know right out of residency and you know the damage is done because they're really difficult to you know to unwind without losing money.

 

WCI: [00:40:42] Very interesting. Let's let's talk a little bit about the industry in general and let's talk about conflicts of interest with each of the various advisory compensation models from hourly to a set annual fee to an asset under management fee to commissions. Let's start with what are the conflicts of interest when you're paying for your advice on an hourly basis.

 

Sarah Catherine: [00:41:05] So the conflict of interest is that I want to work with you. Right. So if you're an adviser and you you know you price by the hour your conflict is that you want someone to come to you. I mean I guess so in our case we fix our fees and most advisers that we see out there do that. We you rarely see an adviser who just charges an hourly fee. Usually people say this is how much it's going to cost. And that fixes the hourly model conflict that law firms have gotten in trouble with. Which is kind of overbilling and and and just kind of these these these tricky billing arrangements and I think that advisers going into hourly work solve that problem by telling here is the scope of our engagement and here's how it's going to cost.

 

WCI: [00:42:00] How many how many hours it's going to take. Clarifying that up front basically. And so because otherwise you've got this incentive to drag it out you know drag it out. What could be done in five hours drag it out to 20 hours.

 

Sarah Catherine: [00:42:14] Exactly. And so you know I know a lot of advisers who are hourly have done the same thing. But you know what. What you do to make a a very effective financial planning process work on an hourly basis as you refine the process and you know you get it so efficient that you can say to someone you know this process takes this much time and this is how much it's going to cost you.

 

Sarah Catherine: [00:42:42] And you know if it goes over that time you've kind of take you take the hit. And so you know in building an hourly practice like some pretty inefficient lean times to try to get that process refined. But I think a lot of advisers realize how important that is when you're an errantly model to to be able to have a little skin in the game to say you know I'm confident we can get this process done in this many hours. But the inherent conflict is that you want their business.

 

WCI: [00:43:20] Let's talk about annual retainer a single flat fee for the year. What are the conflicts of interest that paying for your advice in that way bring on.

 

Sarah Catherine: [00:43:30] So you know it's it's the same. I would say it's the same conflict. You want their business. So the advisers that are charging a fee that people are writing a check for you know that kind of solve the conflict. I think that when you have this flat retainer that you then take that you take out of assets. To me there's a calm behavioral conflict there that we talked about before where you know it doesn't feel like real money because it's coming out of future dollars and with hyperbolic discounting people discount those dollars because you know they undervalue the future to the present. And so I think that there's a little bit of a behavioral conflict when you get to just take money out of an account and not have people you know pay for it.

 

WCI: [00:44:23] Of course there is one benefit of taking money out of the account timing at least then you get to pay for your advice with pretax dollars right.

 

Sarah Catherine: [00:44:31] What I mean I guess that's fair but. But you're still taking money out of the account. And so the problem is is that I think it's still a tougher go for advisers who charge a retainer that people have to pay for. Compared to advisers that get to take it out of the account. Right. And so I think that you can have these sustained relationships where you don't even necessarily have to prove your value every year because people kind of forget. Right. They kind of forget they're paying you.

 

WCI: [00:45:04] All right. It's definitely a huge concern of mine with with paying for ongoing advice. I guess the other thing I worry about with an annual retainer is you know the advisor has been paid at the beginning of the year. Now his incentive is to go find a new client you know rather than to spend more time with me. He's already been been paid by me. And now you know the way he makes more money isn't by spending more time with me. It's by spending less time with me and on my account and going and finding more clients. Do you think that's a significant conflict of interest with that model.

 

Sarah Catherine: [00:45:34] 100 percent. I mean if you know you're going to get paid no matter what you have even less incentive to prove your value every year. So. So we you know we charge by the hour for ongoing work.

 

Sarah Catherine: [00:45:48] And you know what we tell our clients is is that the biggest advantage to us is you can come to us one time and then if you don't like us you don't have to break up with us. You don't have to take your money. You get to just walk away. And so we we attract our clients every year to come back and pay us by the hour. And I've had I've had you know these annual engagements that are pretty short because there's really not a lot to do. And you know a typical you know engagement is probably three hours a year four hours a year. So it's significantly less money than the first year. And what we do find is that people charge a pretty hefty ongoing thesis not just an annual retainer that's a problem. It's a pretty hefty annual retainer where you know you're not actually doing that many hours of work for that retainer. And I think again when people are writing a specific check based on a specific amount of work that's helpful. Now I will say in defense of people who have these retainers and you know we're certainly willing to do this if people ever want it. But there are clients that are so averse to feeling you know to the hourly model. Right. So they're so worried about. Oh should I budget this in. That said if you have an annual retainer there's a behavioral hurdle you get you get over which is I've already paid for it. Now I'm going to use.

 

WCI: [00:47:26] It just like in a season ski pass that way.

 

Sarah Catherine: [00:47:28] Yeah. So I mean I can see I can see the benefit of it. So you know I don't really have a huge problem with it as long as the fee is in line with the effort.

 

WCI: [00:47:38] All right let's move on to the most common fee only method of paying advisers asset under management fees. Let's talk about the conflicts of interest there.

 

Sarah Catherine: [00:47:46] You know I first want to say because I know so many great planners who are fee only. And so I just want to say the feel only world has had such a tremendous benefit on the market because we went from commission sales to a much fairer way of getting financial advice. So so I want to be very clear that those were pioneers in this industry. But I but there are inherent conflicts of interest with that model and if so. So basically if you think about a financial adviser they're putting their own kids through college they got mortgage payments right. So like. So they've got bills to pay. And the name of how they get paid is accruing assets and you can almost accrue endless assets in a fee only model. Right. So. So it's really whether you have five hundred thousand dollars under someone or 50 million there's not a whole lot of difference in effort that there is a huge difference in how much they get paid because they're getting a percentage of how much money you have with them. And so while I'm not sure that it's a conscious effort you have to realize that they have financial incentives as well.

 

WCI: [00:49:15] So let's talk about some of the specific ways in which payment models can incentivize an adviser to give the wrong advice. What what are some of the possible ways that that would cause that conflict.

 

Sarah Catherine: [00:49:30] Yes well the AUM model certainly fixed a lot of the problems from from people selling products and making commissions on those sales and the conflicts of interest it did bring its own conflicts of interest. So if you think about your goal is to aggregate assets because that's how you pay your own mortgage and that's how your kids go to college you yourself as a financial adviser. And so you're making a percentage on how much you can grow those assets. And so if a client has any question on you know on a financial topic that could impact whether that asset base fundamentally grows or doesn't. It's a financial conflict of interest. Now a lot of advisers you know say we've you know you know we act in the best interest of our clients but I still think that having a financial conflict is still fundamentally a problem. So here are all the issues that can come up. So should pay off my student loans aggressively or not. Right. If you decide to pay if you decide to put every last dollar into paying your student loans off over a five year period of time and you're trying to work with a fee only financial adviser they're not going to make a dime for five years and then you're only starting to accrue assets so it's probably going to be another five to 10 years before they're making any material money. So they're part of that decision. It's really you know they're having to make to give you advice that that's counter to their own financial interest and so.

 

WCI: [00:51:10] So paying down student loans. That's one specific example. Some of the other ones I suppose paying down a mortgage say issue on a mortgage.

 

Sarah Catherine: [00:51:18] You know we see a lot of people who are risk averse in the market and you know paying down a mortgage needs to be an option. I mean that's a really you know that's a really nice place to find a you know an implied rate of return on your money. That's modest and fits so it needs to be up there. But you know you rarely see fee the only financial advisers recommending this. I loved your conversation and in your last podcast on Social Security and you think about that you kind of scratch your head and wonder why are all these people who are allegedly covered by the financial advising fee only world still not waiting to take Social Security until 70.

 

Sarah Catherine: [00:52:00] Well you know part of the strategy for delaying Social Security is you know spending down the bond portfolio. So if you're spending on a portfolio you're bringing down your asset base therefore bringing down the fees. Now a lot of fee only financial advisers act with incredible integrity. You know they are they are able to give advice against their own financial interests. But why even have that. Why even have that conflict is My question.

 

WCI: [00:52:30] I guess a couple other examples I could think of would be 401K rollovers. You know maybe you're better off leaving the money in a 401k to allow you to do a backdoor Roth IRA because the 401k is particularly awesome like the government TSP. But the adviser isn't getting paid on those assets and so they advise you to roll them over to an IRA inappropriately.

 

Sarah Catherine: [00:52:50] Well that's right. And a lot of fee only advisers don't know what a backdoor Roth is. You know and the reason they don't know what back to a Roth is is because a lot of advisers are going after those mid career IRA rollovers right so they captured three hundred thousand dollars you know because you just left your practice after 10 years to go to a different one. Well we you know we kind of in your blogosphere understand that the the better decision is typically to take your all for 4O3b or 401k and roll it over into the new practice plan which solves the pro-rata taxation problems for the backdoor Roth IRA. So yeah that's that's that's a really good indicator of a conflict of interest that that that people might be able to kind of self diagnose as they're listening to this podcast.

 

WCI: [00:53:45] You know I think another one might be hesitant to recommend any sort of investment that they don't manage like real estate for example very few fee only advisers paid on a AUM fee do any sort of recommendations to go invest in any kind of real estate whether it's your practice building or whether some syndicated investment. And I've never really been too clear on how much of that was just a lack of expertise in that sort of investment. How much of it was a lack of belief that that's actually a good investment. And how much is the conflict of interest. What do you think about that topic.

 

Sarah Catherine: [00:54:24] Yeah I think it's a really subtle kind of in between all of those that that probably happened so. So if you think about it if you're a fee only financial adviser and you can only make money through investing assets and get any kind of this this this backdoor fee through that then you're probably naturally going to only stay in that lane. So it's not that you're excluding real estate because your local real estate won't make me money but it's just that your your practice the thrust of it just continues down that path. And you know it's the same thing with with anybody who sells anything. You know you're just going to have an inclination to think that that's the best thing at all times. So I do think that it's somewhere in between all those things again. I do think that the fee only world has progressed to the industry so far. I'd like to give them a lot of credit for that. But you know you know I think real estate is another example of you know where that conflict sits.

 

WCI: [00:55:34] Let's move to the bottom of the barrel now. Let's talk about commissions as a method of paying for the advice you're getting. Talk about the conflicts there.

 

Sarah Catherine: [00:55:44] You know it's it's just it's just to me so abundantly clear and I just still don't understand why people consider someone selling something to be an adviser. I just don't understand it. I mean if if I you know invite you to come in and do a financial plan with you and I sell insurance. You know it is it is going to be abundantly clear that my client should buy an insurance policy and the rest is going to be a little less clear you know because any other financial idea out there is going to fundamentally impact whether your client can pay an insurance premium. So it is it is the most significant conflict.

 

Sarah Catherine: [00:56:35] Now do we need not have insurance brokers. No no of course we've got to have insurance brokers and we need them to sell insurance and we need it are people walking into their offices buying insurance not getting sold insurance and the way they're getting sold insurance is they are going into these offices under the impression that they are going to meet with an advisor that can address all of their financial needs and that is just crazy. You have to see the financial incentive for every person that you walk into their office and that is the most significant of all of them.

 

WCI: [00:57:14] You know. You know I think there's a lot of good people in the commission world. But the problem is even a good person cannot resist those incentives completely and do it long term. The problem with a commission model is if you got someone creating these financial products they want to get them sold the crappier or the financial product the higher commission they have to pay to get it sold. And so you've always got this conflict to give people the worst possible products in order to make the most money which is just a terrible place to be for your entire career if you're actually trying to do the right thing.

 

Sarah Catherine: [00:57:51] That's right. That's right. And the fact is is that you know in a more educated world a more financially savvy world you know these people that are making a significant living on selling annuities and whole life policies and this commission based products like they are not going to have customers because people would you know there are some exceptions.

 

Sarah Catherine: [00:58:18] I try to make sure people understand there's some gradations here but they are very specific exceptions of you know people with their finite money. You know they're not going to go buy a whole life policy when they know what the opportunity cost of those premiums are.

 

WCI: [00:58:37] Now there's a certain segment of diehard Do-It-Yourself investors out there that basically view all advisers as evil. What do you say to that person.

 

Sarah Catherine: [00:58:46] Well you know it's an it's an interesting pendulum swing. I mean maybe that's a healthy counterbalance to people peddling just complete blind trust in their advisers. Right so. So I mean you know thankfully that has that has improved the conversation and the vetting of the financial industry but I just think it's wrong. I mean and the the reason I think it's wrong is because we have yet to have a person walk in to a financial plan that hasn't done something glaringly wrong. So I mean there's just you know there is nothing hard about a financial plan like you know you read these blogs. And it's not that any of them are rocket science or difficult to understand. The problem is that it's just there's so much to know and so to me part of being a CFP and a financial planner is I at least know what I don't know at this point. And so you know it's Donald Rumsfeld so famously coined the phrase the unknown unknowns are what get people so it's what you don't know you don't know that can lead you to doing that IRA rollover or you know not choosing the optimal kind of student loan payoff strategy.

 

Sarah Catherine: [01:00:06] And I think that's why there will always be need for at least a one time financial plan and that's you know that's just what we've observed after doing hundreds of these. I mean if I was getting people coming in who are readers that you know these financial blogs here are just coming in and I could do a plan and say you know yet you know you just pay me two hundred dollars an hour for me to just completely Bless everything you've done. Then I would have to probably start scratching my head about working with that readership that has just never been the case.

 

WCI: [01:00:45] And of course there could be a bit of selection bias. Those who realize they need some help are probably more likely to come to you.

 

Sarah Catherine: [01:00:50] That's exactly right. That's exactly right. So I think that there are different levels of DIY and so the people that are reading you know 10 books out there and and really carefully writing out their plans like you know there there a good chance if they're not missing something that is probably kind of a middle. The majority of the people probably reading the blogs are are not putting in that level of effort.

 

WCI: [01:01:16] You know I'm sure thankful for you to come out to Park City what you think about the Park City conference What surprised you about it. What questions did you get from people there.

 

Sarah Catherine: [01:01:24] Well I was surprised by the just a mix of people there. See you you're you know you're really enthusiastic readership that I mean they were we had some very high end conversations and questions on some very specific topics.

 

Sarah Catherine: [01:01:42] And you had people there that just thought you know this is a good chance for me to start a financial planning process. And I was surprised by that. So I thought that that mix made it such an interesting conference. You know I came away from that conference saying I really truly believe that everybody needs to do something like that because I think that what a conference does is it takes you out of your everyday take you away from the laundry that needs to be folded and you know and the charts that need that are piling up on your desk and you and your spouse there were SO many spouses I loved that, you know get to spend a relaxing weekend in a beautiful location you know away from their daily stresses and they got to think about their finances in a very structural way. So you know one of the things I talk to you about is reading blogs and books you know you can you can forget how to prioritize things well when you have an entire line up that is serving that purpose to say OK here are all the things available to you. But here's what's really important. Taxes and Social Security and your practice and in my case your financial plan. You know people get to actually almost build their own financial plan you know right there in a conference setting. So I thought it was great that I think it jumpstarted a lot of financial planning processes for those people there for the first time. You know we have people reaching out to us afterwards you know wanting to really formally build a financial plan. I think it was a I think it was a great idea and hope that you continue to do that.

 

WCI: [01:03:28] Well certainly it's you know we've had a few months now to relax after finishing that. And we particularly feel good now that we've gotten the online version of it out. And so we feel like we're finally kind of done with that conference and we're certainly thinking more positively now about holding another one than we were before. Not ready to make any announcements yet. It's maybe maybe the bad parts fade as memory goes on and you only remember the good parts I don't know.

 

Sarah Catherine: [01:03:51] Like childbirth.

 

WCI: [01:03:52] Yeah exactly. So we've got just a few minutes to wrap up we've got another interview today for an upcoming podcast. But is there anything else you'd like our listeners to know.

 

Sarah Catherine: [01:04:03] Well I just want them to know that they can do it themselves. I know that the world seems daunting. And even if you've just dallied in a few blogs and you're just kind of just getting into this world it is not rocket science. It is a knowable quantity. We do believe that you can do this on your own and you don't have to read 20 books to do it. You can get a little bit of help at one time and then run with that in it. And you know the people that tend to do that tend to have higher savings rates. They feel comfortable they know what the plan is. They know how the market works. They're educated on it. And I just say it's worth every one doing. You don't have to feel like you have an affinity for finance to go down that path really and truly anybody can and should do it. So thank you for the chance to be able to kind of walk through what that looks like.

 

WCI: [01:05:01] Thank you very much for being on. Sarah Catherine Gutierrez of Aptus financial. Appreciate your time today.

 

Sarah Catherine: [01:05:06] Thank you so much.

 

WCI: [01:05:09] I'd like to thank this episode sponsor set for life insurance because of the volume and exceptional reputation of set for life insurance as well as the relationships they've developed over the years, set for life Clients have access to special services not available elsewhere in the industry. This includes special discounts gender neutral policies which save women significantly priority underwriting handling and on some occasions exceptions in the underwriting process. For more information visit set for life insurance dot com.

 

WCI: [01:05:35] Keep your head up your shoulders back. You got this. We're here to help you on the forum on the blog and on the podcast. We'll see you next time.