EPS 29 - Fees in Financial Products

Jerry talks about disclosure regarding fees in financial products.

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Episode Transcript

UNKNOWN (00:01):
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SPEAKER_02 (01:06):
Welcome to the Pink Money Podcast.
This is Jerry, and we talk aboutall things related to money from
a gay perspective.
And this is season three.
You know, it's been a littlewhile since I've spoken to you,
and hey, things happen in ourlives, things get in our way,
but hey, here we are.
So let's go.
And, you know, today, what Ireally wanted to talk to you
about, you know, is about aconversation I had with a guy.

(01:29):
So we were kind of swappingstories.
And I was telling him a littlebit about my background.
You know, I've been a financialadvisor for 20 some odd years.
And, you know, I have a master'sdegree in personal financial
planning.
And what he asked me was, well,what kind of advice would you
give someone?

(01:51):
And I thought about it, and Ithink sometimes people want a
great stock tip or some sweetinvestment opportunity that they
may not know or understand.
And all things like that arepossible.
I don't really like giving stocktips because unless you really
are ready to invest and loseyour money, you probably

(02:16):
shouldn't do it because...
Hey, what do I know if a stockis going to go up and down or
sideways, right?
I don't know.
I mean, I'm hoping it goes up.
And if you took myrecommendation and you jumped
into it and it went up, great.
Hallelujah.
I must be a sage.
But if it goes down and you loseyour money and then you curse me
out, then you're like, thatidiot doesn't know anything.

(02:38):
And you would probably be right.
Because again, I don't know whata stock is going to do.
We hope it goes up, like I said,but often it doesn't.
So nevertheless, What reallycame to mind though, and what I
started telling him, is I thinkwhen you want to buy a financial
product, you really have tounderstand the expenses.

(03:02):
And I've spoken about this acouple times, but I guess it
really bears repeating because Ithink that this is the part that
is not very transparent to mostpeople and most financial
advisors or sales reps orwhatever they want to call
themselves, that they will sellyou something and they have an
obligation to tell you whattheir fee is going to be,

(03:26):
especially if it'scommission-based or if it's a
front-end load or what have you.
They're supposed to disclose allthat, and they can tell you that
pretty easily.
They can also tell you some ofthe internal fees, but those are
not readily apparent fees.
And it can be very confusing.

(03:46):
They may even just gloss overthem.
But ultimately, it is a partthat you really need to get a
handle on because it's going tobe a big part of your world.
And what I mean by that is ifyou buy into something, let's
just say an annuity, and I'mgoing to say right off bat that
annuity All financial productshave pluses and minuses, okay?

(04:07):
So you can't paint everythingwith a broad brush, although
there are some people who do.
Like, let's say annuities arelike, oh, they all suck, you
know, you should never get intoone, they're all terrible, blah,
blah, blah, blah, blah.
And there's a point there, but,you know, on the other hand,
there's some really good ones,good reason to be in an annuity
as well.
And I'm not going to belaborthat point.

(04:29):
What I'm really talking about,again, is expenses and where
they are and how to see them andwhat you can do to really get
your arms around them.
Because as your portfolio growsand you're in this for one year,
two years, five, ten, whateverit is, then those fees are going

(04:50):
to always be there and they'regoing to be taking a part of
your money.
That sales advisor who youoriginally spoke with, he or she
is long gone.
They got their money up front.
They went on to the nextcustomer, and who knows where
they are today.
So you're not going to be ableto go back to that person
typically.
You can go back to the company,and you can have them explain
some things to you and get yourstatements.

(05:11):
You can pour over them, and youcan glean whatever you can from
them.
But again, the expense ratio isreally something that you really
want to understand well.
Like life insurance is anotherproduct that is not clear what
you're paying.
And it's never explained verywell.
So, you know, as your portfoliois in this product or multiple

(05:37):
products, that's usually thecase.
You don't normally have justone.
You have multiple financialproducts, especially when you
build a portfolio over time.
So all these expenses are eatingaway at your money.
So as hopefully your portfoliois growing, there's also
something that's being takenout.
Is that all bad?

(05:58):
No.
And the reason why is because ifyou could do these things for
yourself, you would.
Like stock picking.
If you could pick all the stocksyou want, which you can, are
they all going to grow?
I don't know.
Are you going to stay on top ofthem?
I don't know.
Maybe you're really good atwatching your money and making
those tough decisions aboutwhether to buy, hold, sell.

(06:19):
But maybe you aren't, you know,there's always that sentimental
reason sometimes why people holdon to stocks, you know, oh,
grandpa had this, la la la.
But oftentimes, you just have tolet it go, right?
So if you can dispatch yourselffrom your emotions, and just
let, you know, pure analyticalreasoning guide you, then you
can, you know, maybe maketougher calls and be good with

(06:42):
it.
Some people day trade andthey're in and out, in and out,
in and out, and that's how theymake their money, but other
people just leave it, leave it,leave it, and never even turn
their attention to it.
And then after some time, theylook at it and go, ooh, I
haven't looked at this in likefive years.
So, Yeah, you should be, numberone, paying attention to money,
and number two, you should bereviewing it on at least an

(07:05):
annual basis, if not just withyour own eyes, you know, get
your financial advisor to lookover it with you.
Now, just speaking about that,not to go off on a crazy tangent
about that, but, you know, mostadvisors, wealth managers,
whatever they're called, youknow, they have their hands
full.
They have a lot of people intheir book.

(07:25):
And they've got a lot of peoplethey got to talk to on a day in
and day out basis.
And they have their quotas,numbers, all their metrics they
have to meet.
So they are really humping it,usually.
If they're good, they are reallyhumping it.
And they got a lot of things ontheir plate.
So yeah, there is a requirementusually from most firms that you

(07:47):
meet with all the customers inyour book on an annual basis.
And if you have two, 300 peoplein your book, You can see that
that's going to be pretty tough.
There's only so many hours inthe day.
And you've got to schedule thisand you have to get everybody in
and you have to pull the numbersand you have to create the
report.
And then you have to, you know,spend time with your client and,

(08:09):
you know, go over the entirething and they're going to have
questions for you.
So it's not a 20 minute meeting,usually, you know, an hour at
best.
And you know, that's generallyall you're really going to get
with your financial advisor,even though you're paying him or
her, you know, let's say a 1%fee every year, right?
So you're paying them a goodamount of money and you're not
going to spend a whole lot oftime with them.

(08:30):
Now, the more money you haveand, you know, the more money
you're paying them, then yes,you are typically going to have
a much closer relationship withyour financial advisor, right?
I mean, you've got...
$10,$20,$30,$100,$200 millionwith a firm, you're probably
going to be paid closerattention to.

(08:50):
But on the other hand, if you'rewith Fidelity or Schwab or go on
and on and on, you're not theonly one with a couple hundred
million dollars.
Now, if you've got a couplebillion dollars, again, you're
in the upper echelon then.
of rarefied air where youprobably have someone working
directly for you and they'repaying very close attention to

(09:12):
your money right because theydon't want to lose that gig they
don't want to lose your moneyand they know that you could
replace them in a heartbeat sothey can't replace 200 you know
a million or they can't replacetwo billion dollars easily right
there's not that many fish youknow wallowing around with that
kind of money that are justwaiting for someone to come pick
them up they've already beentaken so you've got to be you

(09:35):
know savvy you have to kind ofpush for what you want and when
it's time for you to scheduleyour annual review with your
portfolio manager if you are ifyou don't hear from him or her
then you make sure that you pickup the phone and you schedule it
yourself.
Let's say, you know, March 1,whatever it is.

(09:55):
Every year, March 1, at least,you have your annual review.
If you need to call him or herat the end of the year because
you got some dividends orcapital gains you want to go
over or maybe you need to dosome tax harvesting by the end
of the year or you got arequired minimum distribution
that needs to be taken, Thosecan be a secondary conversation
where you can talk about, youknow, hey, what do I need to

(10:15):
buy, sell, get rid of, whateverit is.
You know, if I need some cash,there's none in my portfolio,
you know, what do I need to sellto free up the cash?
You know, that's a goodopportunity, especially at the
end of the year.
Don't want to wait until 1231,mind you, right, because they're
busy.
And that's a hell of a time tobe trying to squeeze in.
So you want to do that earlier.

(10:35):
You know, November is a goodtime.
So that again, there's not ahuge rush at the last minute.
Kind of like, you know, tax day,right?
April 15th, everyone'sscrambling to get their taxes
in.
Those that, you know, kind oflaid back and forgot about it.
But that is, that's somethingelse.
You know, I digress.
So let me just get back toexpenses.

(10:56):
So again, you really need to beaware of where these expenses
are.
And that's where theseprofessionals come in.
Now, if you're buying directfrom the company, Let's say
it's, I don't know, nationwide,you know, whatever it is.
You know, if you bought a lifeinsurance policy, you bought an
annuity, you bought whateverfinancial products you got from

(11:18):
them, then you can go straightto the horse and you can ask
them, explain to me, you know,what the fees are that are
associated with this and thefinancial product I have.
Not generally, you want to knowspecifically.
Now, certain things aren'treadily apparent every day, like

(11:38):
in a mutual fund where theexpense ratio is pretty much
easy to calculate.
But another thing is it's not asclear.
But, hey, that's not yourproblem.
That's theirs.
They need to dig thatinformation out and tell you so
that, again, you know, right?
You need to know.
If you're paying$87 a year forthat one financial product,

(12:01):
Okay, it is what it is, right?
And is that a good deal, baddeal, you don't care deal?
Will it go lower, higher?
You don't know.
Find out, right?
You need to ask those kind ofquestions.
That's all I'm saying.
So I was giving this advice andhe nodded his head and he said,
yeah, that's really good advice.
So It just reminded me thatsometimes, yeah, maybe somebody

(12:23):
is looking for a hot stockrecommendation, but oftentimes a
good recommendation is justsaying pay close attention to
your money.
As you're building yourportfolio, these kind of things
can be hidden, buried, and youneed to ferret them out so that
you know exactly what you'repaying.
That's all I'm saying.
Another thing that kind ofjumped into my mind, I might as

(12:46):
well say it now while I'mthinking about it, You know,
especially when we're talkingabout advice and guidance.
You know, when it comes totaxes, yes, you can do your
taxes on your own, just likeinvesting.
You can do all that on your own.
Should you?
Maybe.
You know, I don't know.
It depends on your experience,your understanding, your

(13:06):
education, and just how much youwant to do on your own.
So, you know, instead of buyingindividual stocks, yeah, you can
go ahead and buy an ETF or amutual fund, right?
Those are easy ways to do.
You can buy direct from whateverinvestment company you want,
usually, or, you know, getyourself a financial advisor and
he or she can make somerecommendations to you and point

(13:27):
you in that direction or craft aportfolio with you based on your
level of risk and timeframe, etcetera.
But when I recently was speakingwith somebody regarding taxes,
and now this is someone who'syounger, but it kind of reminded
me that this could be anybody.
But what they were halfcomplaining about and half

(13:51):
beating their chest about isthat in their taxes that they
were a 1099 employee, sosomebody who's an independent
contractor.
They're not a W-2 salariedemployee.
The company's not keeping themon.
They could fire them at any timebecause there's this 1099.

(14:14):
They come and they go, right?
Right.
Like, even if you're doing a gigwork, like, you know, Uber,
Lyft, DoorDash, whatever it is,you know, you're$10.99.
So, nevertheless, he was sayingthat he was proud of the fact
that he was able to claim such ahigh deduction because he

(14:35):
deducted everything.
And I was like, what do you meaneverything?
And he's like, wow, anything Ican, like food, like, you know,
whatever.
And it took me back a littlebecause, you know, specifically
food.
I'm like, you can't deduct food,okay?
You just can't.
Everybody has to eat.
You know, that'slife-sustaining.
Now, if you took a client tolunch, dinner, and you discussed

(15:01):
whatever business is pertinentto you guys, and you deducted it
on your taxes, and you were ableto back it up with receipts and
everything, an explanation aboutthe reason for this meeting, who
you met, and the reason for themeeting.
Because only in thatcircumstances would you be able

(15:22):
to deduct that.
And lo and behold, what he endedup sharing is that he'd been
audited by the IRS.
Well, of course, that's notsurprising.
If you're taking all thesedeductions where they're not
really allowed, well, it's nowonder they flagged your return.
Because you can't deductanything.
everything or no matter whatbusiness you're in not

(15:44):
everything is deductible youhave to know what is deductible
and how much can you take forthat deduction and what are the
reasons and situations that youcan deduct it and that's where a
text professional can really behandy and they can help you know
give you those explanations asyou turn in all your receipts or
you you know have thisconversation about what you've

(16:06):
been attempting to do You cantry your hand at TurboTax.
I'm not saying they're bad,right?
I don't know.
I don't know if they're good,bad, but they wouldn't be in
business if they were terrible.
That's what I would think.
But anyway, you get what you payfor, and I think everybody knows
that.
So if you really don't know whatyou're doing, you need to get

(16:27):
professional advice, guidance.
You go to a doctor for a reason.
You can't write your ownprescriptions.
You might have a difficult timediagnosing yourself.
You go to an attorney.
When you need their assistance,I watch a lot of YouTube videos
and I can't tell you how manytimes I've seen someone
represent themselves pro se andthey get themselves in all kinds

(16:50):
of trouble because they don'tknow what they're talking about.
And even though they havesomeone who's a standby attorney
and they have the ability totake advantage of that person's
education, knowledge, do they?
No.
They're stubborn and they try togo per se and they end up in
jail.
It's the craziest, craziestthing.

(17:11):
But it just goes back to, youknow, can you do everything if
you want?
Yes.
Should you?
No.
There's good reasoning for usingprofessionals.
And I feel like a broken recordin this regard because I know
I've spoken about this severaltimes.
And I'm not going to belabor thepoint.
So, again...
especially when it comes to yourmoney.

(17:33):
You want to get the best adviceand guidance.
Should you invest on your own?
Sure, right?
Go ahead.
Take 20% of your money and dowhatever you want to do with it,
right?
If you lose 20%, yeah, you mightcry, but it's not like losing
100%.
Then you're going to cry.
Then you're really going to cry,right?
And how long is it going to takeyou to get that money back?

(17:53):
A very long time, unless you winthe lottery, right?
And then you're not even goingto win the full shebang.
So anyway...
That's it.
I'm going to leave it at that.
I hope that you got somethingfrom that.
The next podcast I am going todo, however, just to let you
know, is going to be on thesignificant changes that the IRS

(18:14):
put out this year.
There's a lot of them, a lot,lot, lot of them.
And most tax professionals,financial advisors, et cetera,
all of them are being trained onwhat these new changes are
because they need to know sothat when you see them, You
don't have to figure out allthis on your own.
They should be able to help giveyou the advice and guidance you

(18:36):
need.
So there were some significantchanges, a lot of things that
you need to be aware of.
So I'm going to go over andhighlight some of these big
changes.
So be on the lookout for that.
That's pretty much it for metoday.
You have a great day, and I willtalk at you later.

SPEAKER_01 (19:10):
And a woman can love thee.
There's a few things, baby, youshould know about me.