Hi, my name is Bob Brooks. And today I want to talk about the business of financial advice. You know, getting financial advice is tricky. And I just don't think that a lot of you realize that because they don't know of the moving parts and the dynamics that are going on in the background. And it's these moving parts in dynamics that can really cause a problem and cause people to make bad decisions. And then you have the added layer of you meet with somebody, you sit down, and you had questions run through your mind.

Do you trust them? Are they are they in your best interest? Are they trying to sell you something? And then it's this whole level of trust that you are forced to give somebody because you just don't know what you're doing when it comes to money. Now, you know, we spend 12 years going through school, maybe four to five years extra going through college and we do not get any education. I'm probably one of the most important skill sets that we need, which is money.

So we depend upon financial advice, and I got to thinking there's so many different people that could actually help when it comes to financial I put a list together and you know starting with a property casualty agent, you know, this is a an individual that takes care of your home and your auto insurance, but yet they could sell you life insurance, they could set up a life insurance program. And then you have financial advisors, financial planners, certified financial planners. And then now the newest one, which is robo advisors, when a using a computer generated advice to help guide you through your goals. So you have all this confusion around financial advice. I don't think people really understand these dynamics that are happening, maybe in the back of their mind or thinking about it, but on the forefront, it's just happening, and maybe you're not making good decisions.

So it comes down to the process of selection. Because here's the reality of it. You have Person A and Person B, Person A goes through the process of selecting a financial advisor, does the homework, ask the questions looks for the red flags, everything we're going to talk about staying I'm going to teach you and then there's Person B who rushes through the process. quickly select somebody. And then the question is 10 years down the road, who has the best shot at being successful, or who has the best shot, and having made a mistake on the front end, because here's the reality, you waste a lot of time if you've made a mistake, because you have to get you have to give the advice, the chance to work. And it may not work if first but then it might start working, you have to give it time and time your time is precious.

And it may be four or five, six years down the road, when you realize, wow, I should have picked somebody else. So it comes down to this process and how you go through it. Now, here's some of the things that you want to ponder when it comes to the selection process. And when I say selection process, I mean, literally, you are interviewing candidates to be your financial advisor. Most people don't take this approach. But the first thing are you rushing the process.

This is not a process that you need to rush and I would suggest if you're not in a place where you can devote Some time to the process, don't go through the process, you don't want to rush it. And I think that, you know, in the back of our minds, it's kind of a human tendency to rush the process because number one, you probably don't want to be going through the process to begin with. You don't it's it's kind of stressful picking somebody and selecting somebody to work with you with your money, and all the dynamics that go with it. So I think that there's that tendency to meet somebody and you immediately liked and say, This is the one I'm going to go with them. Don't do that. Make sure you go through the process.

The other one is, how comfortable Do you feel talking to this person? You know, through the years of working with people. I've learned some pretty personal things, very confidential things. People had to be very comfortable with me to tell me these things. And you've got to have that comfort level because if you don't reveal everything about your finances, your financial adviser can't do the best job possible. So you got to be comfortable.

How do you to communicate and this is critical as well. If you feel awkward in the kitchen, munication if it doesn't flow, it's just extremely important because what, at the root of financial advisor and client relationships that don't work is this problem with communication? So you want to make sure that you are communicating well. What does Google say about your candidate? How many times have you talked to somebody and said, I'm going to Google them and just see what what's out there on the internet. I get a bulletin from the Texas securities board, but once every couple of weeks, and it talks about the different advisors who've been been busted for doing various things and unethical things, and if you go Google their name, it comes up Sure enough, and how into you are they and I say that, because if you're sitting with somebody that is not that accept as if they have all the time in the world, they're interested in what your goals are, they're interested in, in in helping you succeed.

That's the kind of person that you want, not somebody that rushes through. I used to my doctor's an example I got a phenomenal doctor, and every time I go to see him this takes too much time almost. And he spends time he asked me questions. And it's almost as if I'm his only patient for the day. That's how you should feel when you're talking to the right person. Now, it's important to be looking for red flags.

And let me tell you, if you're watching for red flags, you're going to see them and you got to determine if this is a deal breaker or not. We're gonna first start with the fiduciary responsibility. That sounds like a big word, but it is an important word to know. Would you be alarmed if I told you that there is a whole classification of advisors who are not required by law to put your interest ahead of theirs? I know that is pretty shocking. But that is the truth about the situation that they can put their interest ahead of your interest.

That's the fiduciary responsibility. And if you're if you're, if your advisor is under a fiduciary standard, then he or she has to put your responsibility your best interest ahead of their best interest. Let me give you an example. And this really, this really applies to the commission business. And when I talk about the commission business, my disclaimer is, is that there's some good people in the commission business. And there's some people who are just out selling products without your best interest in mind.

That's within any industry. But within the commission business, if you came into my office, and you sat down, and we talked about various products, and I came back to you, and I said, Okay, here's product A and product B, behind the scenes dynamic, you don't know that's going on. If I sell you product A I make a 10%. commission. If I sell you B, I make a 6% Commission. And let's say that I recommend a and maybe that's not the best product, but it pays me 10%.

Now, I've rationalized in my mind, obviously that this is the best product for you, but it may not be the best product for you, but it does pay a 10% commission I've put my interest above yours. Now. The interesting thing as we as I shoot this video in 2015 regulators are really working to put together a universal fiduciary standard that applies to the fee business, which are the fee business registered investment advisors are already under the fiduciary standard. But it's also going to apply to the commission side of things. And I think it's going to be messy because this is a tough thing. Because as long as there's that conflict of interest, there is this problem.

So that's the first one you want to find out about. The second one, are you working with a salesperson or a consultant? This is critical, this is probably the easiest one to see. And I want to suggest to you if you're working with a pure salesperson, then you want to head for the door because that's all you're gonna get. That's that that's probably the environment they're in. It's all about selling product at any cost set taken to define a salesperson this way.

The first one is an individual who sells goods and services to entities or individuals. That's pretty much the definition. The second one, an individuals whose sole purpose is to sell goods and services to entities or individuals. And then third, an industry Who problem solves first and communicates options to solve the problem you want number three, because to me a sales is a communication process. That's what it's all about. It's all about sitting down, understanding the client's needs, understanding their hopes, their dreams, the things that concern them, coming back, putting together Options, Options to solve the problems, options that will help them achieve their financial goals.

You communicate the pros and cons to those options. And this is where the difference between an aggressive salesperson and a consultant stop that consultant gives you space and says you need to figure this out which one works best for you. If I need to communicate anything else, clear up any concerns, clear up any misunderstandings, let me know so I can do that. And then here's the key. They're not attached to whether or not you go through with it or not. These are these people are hard to find.

But this is the consultants heart when it comes down to their interest is that you have the best interest in If you are giving them the best option, they take the best option. If you are the best option, that's great. If not, then they need to be working with someone else, as opposed to forcing it to happen. So look out for the salesperson and since the salesperson and consultants close clothing, because you feel rushed and pressured, very little fact finding, I mean they're going to sit down and talk to you and get a little bit of idea of what what your life is like. But the minute they see an opening to start a presentation, they're going to jump at it. no downside at all.

This is a huge red flag and I see it all the time is that they're telling you about this product and these there's just no risk to it. There's no possible loss. I mean, everything's great. They're just tough talking about the benefits. If you bring up a concern about maybe what about this risk, they're gonna downplay because there's just no risk to it. Now let me tell you something about risk.

Every decision you make, there's a pro and a con. That's just the way it is. If you put your money in a money market market, there is a Pro in a con, there is an upside and there's a downside. And so you want somebody who's going to tell you, this is the downside and make sure that you're comfortable with it and not sugarcoat it, that there are real downsides to every investment. I went to a real estate seminar once I was invited, it was a dinner and basically was a company that was pitching this pitching their product. And so what they wanted to do, they wanted us to take this product back to our clients.

So I I don't like to go to these things, but I ended up going in anyway so I go to this real estate seminar. And what was interesting was telling my business partner that that everything they talked about was the benefit of investing into this this product. But they never said the downside, because it just didn't seem like there was one we all know there is and similar bring up What about this? They would downplay it. And so I shied away from it, I decided that I didn't want to do business with anybody that presented like that. And sure enough, a month this last month, that company was busted.

For some pretty unethical activity. And now they're pretty much shut down, just looking for those little red flags tells a lot. And then there's the closing tactics. They're pressuring you for a decision there. They want a decision today, it's on their terms. Every decision that you make about a financial, or financial decision that you make should be on your terms, not on someone else's terms.

And then say you're on the fence. Say you leave the meeting and you say, you know, there's some red flags, but I have good chemistry with this individual, watch their follow through because if they are really interested, and they're really there to work for you, they'll have great follow through another red flag. Does your advisor have options? Or are they captured this is what a lot of people don't realize when they sit down with somebody is that this advisor works for a company and they can only provide company products. Now, not that there's anything wrong with company, their company products, but are you getting the best available option, and that means they're captured in my opinion, and this is my bias. Is that you want to go to somebody that can offer you a lot of different options.

Or if you go to the captured advisor, go to somebody else and compare and look at different options, so that you know, you're getting the best possible option because there's a lot of competition when it comes to investment products, another red flag, you think you want one advisor, and you really need two or more, you know, a lot of advisors and I see this in the financial advisor community, they start out and really their maybe their, their their specialty is life insurance and estate planning. But they just kind of add the retirement planning piece so that they can make more Commission's and but they really that's not their forte, it may be that, you know, they're settling back up and there's some that are really good at all different areas, you need to determine that because you want to make sure you're working with somebody who's good in the various areas.

So you may actually need more than one advisor. Now, this is the worst of all situations. You know, there's there's aggressive salespeople that push and pressure in there really only out sell product. There's that that aspect of that angle, the bad parts of the business. Then there's the con artists, the Bernie Madoff, the people who are out to set up Ponzi schemes to rip you off. And I get this question all the time.

How do I avoid being a victim of a Ponzi scheme? And I gotta tell you, if you got your eye, if you have your eyes wide open, it's easy to figure out. These are the keys. Number one, the secret you wrote a check directly to the advisors bank account. This is what happened with the Bernie Madoff Ponzi scheme, the largest financial fraud in the history of the financial markets. He was basically taking in money that money was going into bank, his bank account.

Now let me show you how this works is this is key to understanding. There's layers of protection that are there and therefore reason when it comes to your financial protection. there's what's called a broker dealer. You have the firm with the the advisor that you're Dealing with you have the Clearinghouse now the broker dealer regulates the the advisor make sure everything stays in compliance. The Clearinghouse handles the money. And typically you have different ownerships with this.

So say you have fidelity is the broker dealer. Now they happen to own the clearing house, but there's a wall of separation between the advisory firm and fidelity. So if you deposit money into fidelity accounts, you're making the checkout the fidelity account, not you're not making it out to the advisory account. What happened with Bernie Madoff? What people don't realize is that he owned the client firm. He owned the broker dealer, and he owned the Clearinghouse.

In fact, I think he even owned the accounting and CPA firm that handled out everything. So when you wrote a check to Bernie Maroney made out company, you were writing a check to him, he had authorization to pull money out of any bank account, and that's what he did. So you've got to be careful with that. If you're writing if you're writing Check directly to the financial advisor, you need to ask some questions to make sure you're okay because that is how money gets stolen. secret number two, you fell for the too good to be true claim. Now, this is just common sense.

But the problem with the investment business is that it's seductive. Everybody wants they want the big return, but they don't want the risk. And if someone comes up with the big return and very little risk, there's a part of us that just really wants to believe it wants to wants it to be easy, but if it's too good to be true, it's just too good to be true. Because there is always a pro and a con to everything. As we talked about earlier, there's a risk to everything. Now I always think about the life settlement business company down in Waco that sold basically so people's life insurance, you invested in people's life insurances you were the beneficiary when they died, you got paid.

It's kind of a weird investment. But this this ended up being a Big racket. And it's a it's one of those things that the claims that they were making is that this beats the stock market, they always pay out. And there was just a lot of red flags with that. But always check the going rate as well as a rule of thumb, the going rate, let's say that they CD is paying 4%. Most CDs are paying 4%.

And you get an offer that offer the CD that pays 6%. Well, this, this exact same thing happened to a client of mine, he called me up and he said, Hey, listen, Bob, I got an opportunity to put money into a 6% CD and I said, Look, the going rate is 4%. Why are they able to pay 2% more on a safe CD, when banks are paying only 4%. There's an element of risk there that you're taking, and you need to understand what it is. Well, unfortunately, he went into it, put $250,000 into it. And that ended up being a Ponzi scheme.

He lost all of it, because he didn't respect the fact that there's a discrepancy between what the going rate is and there's a big discrepancy You always want to know why. secret number three, the investment is likely regulated. Most investments, the good news are very, are heavily regulated, and are pretty transparent. But there are some types of investments, maybe partnerships that you got to be real careful about, I'd mentioned this life settlement business is very lightly regulated. And if it is, then people take advantage of the system. I mean, if regulators aren't watching you, you can do whatever you want.

That's kind of the attitude that they take. So you want to be real careful with that, and make sure that that there are regulated. Now there's, there's a good thing and a good resource that you can check out to make sure that your broker or your advisor is being regulated, and make sure that they haven't broken any laws. Because here's a little known secret. Do you know that a financial advisor can actually break securities laws or do unethical things, get caught doing them and still retain their license? How would you like to Work with snow find out that you are working with somebody who has a questionable past now not that they haven't maybe they've changed their ways maybe they've reformed whatever it is but wouldn't you like to know that to be able to make up your mind and decision on whether you should continue to work with that person you can go to triple W dot broker check comm and that will tell you exactly everything that's happened to your your financial advisor broker check COMM And the regulator's are really pushing this and pushing the advertising on this so that people stay informed.

Now here's the bottom line is that there's a sales aspect to financial advice. And that's can be a good or a bad thing. The good aspect of it is is when it's done in a consult from a consultant standpoint, and the advisor really has your best interest at heart. Finding that person going through the process can eliminate a lot of those risks because once again, you're not going to know that you made a mistake until you get way down the road. And what happens is you waste all that time. So make sure that you do go through the process.

Take the tips, the red flags, everything we talked about today and make it a interview processes that you select the right financial advisor to help you reach your long term goals.