July 16, 2026 • 35 mins
What exactly is a model portfolio—and should you trust one with your retirement?
Tom and Don explain why professionally designed model portfolios can improve consistency and reduce advisor bias, but also why investors should be wary as firms like Morningstar begin adding private equity, private credit, and other alternative investments to traditional portfolios.
00:12 What is a model portfolio?
02:11 Why advisors should use investment models
03:31 Morningstar’s new private market portfolios
05:20 Liquidity problems with private investments
07:27 The high cost of private equity
08:12 “Persistent inflation” claims examined
10:49 Why Wall Street wants retirement assets
12:23 Listener questions begin
14:17 AUM vs flat-fee vs hourly advisors
21:22 Do ETF expense ratios add together?
23:21 Roth IRA income limits and backdoor strategy
27:44 BrokerageLink inside a 401(k)
31:00 Costco, avocado oil, and gas prices
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Episode Transcript
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SPEAKER_03 (00:05):
We're gonna do a really great financial future.
Dumb and dumb are talking realmoney.
SPEAKER_01 (00:12):
What is a model?
A model.
It could be a uh well, it couldbe a small airplane that
somebody made in their garage.
That could be a model.
It could be somebody walking arunway in uh Paris.
That that's a model.
Uh it could be behavior, a modelcitizen.
That's a model.
Or, you know, when it comes totalking real money, it could be
(00:36):
a model portfolio.
Today's episode, all aboutmodels.
Model portfolios.
Do you need them?
Should you have one?
How do you get them?
Who's making them?
What are good?
What are bad?
We're gonna cram all of thatinto about 10 minutes.
I'm done.
That's Tom.
This is the Talking Real Moneymodel podcast.
SPEAKER_02 (00:57):
Yeah, you know, and the thing about the model play
on words is I use it at home.
I'm gonna go out to the garageand work on my model.
It just gets a big eye roll, youknow, like uh okay, we can't
hilarious.
Yeah.
Again.
How many eye rolls can you do inone day?
But I got it coming.
So I the thing about modelportfolios is I don't think many
people understand that really atthe end of the day, if you're
(01:20):
working with an advisor who'snot using a model portfolio.
And by that I don't meaneverything's not built for you
individually, but there is a setof investments, a set of rules
that go with that.
There's not, I get they don'tget to pay.
SPEAKER_01 (01:33):
I need you to step back.
I need you to step back, though,because that's where the
confusion comes in.
A model portfolio sounds like acookie-cutter portfolio that
applies to everybody, but that'snot what a good model portfolio
should be.
It's it's more of the, well,it's the I'll I'll date myself.
(01:54):
It's the little metal parts ofthe erector set that you they're
all they're all to the rightscales, and you use those parts
to create the Ferris wheel orwhatever it is you're trying to
build.
SPEAKER_02 (02:04):
Exactly.
You'll date yourself, by theway, because no one else will.
That's why.
Uh but the My wife still datesme.
Okay.
But the thing about that is amodel portfolio has picked out
the the investment options.
It it's a series of exchangetraded funds, could be mutual
funds.
For some people, it's stocks.
We don't buy that approach.
(02:25):
But it doesn't have the nobodyhere in the building has the
option of saying, oh, I'm gonnatake uh DRAM, uh, the hottest
ETF ever, and put that in theportfolio.
Nobody gets that option here.
I wouldn't hire any firm thatwasn't using the model approach,
okay?
SPEAKER_01 (02:42):
Because then if you don't use the model, which has
been vetted hopefully byacademic research and a more and
a research department, uh,analysts and all those guys, uh
the the risk is you get put inthe latest hot thing that the
advisor has read about or hasbeen pitched by a wholesaler or
(03:02):
a a uh regional director orsomething of the company.
SPEAKER_02 (03:09):
A series of ideas.
Don't want that.
But uh according to what we justread, model portfolios are now
used by more than 80 percent offee, and they call them
fee-based advisors.
I would never use a fee-basedadvisor.
SPEAKER_01 (03:21):
Right.
Those are the ones well, likefor example, uh Merrill Lynch
has uh a fee-based advisory.
They're fee-based, not fee-only.
SPEAKER_02 (03:31):
Troubling.
Because there you could be solda commissionable product.
But okay, so but there's stillproblems with model portfolios
because what goes into them, itturns out, is it becomes rather
important if that's the same.
SPEAKER_01 (03:43):
You mean the devil's in the details of the model.
SPEAKER_02 (03:45):
Exactly.
So uh when we read recently thatMorningstar is partnering with
people like um Apollo andFranklin Templeton to build six
model portfolios that will usetraditional exchange-rated
funds.
And guess what else they'regonna throw in there?
Oh, alternate, alternative uhportfolios, like you already
(04:08):
know the stuff, right?
Private investments, privateequity, private real estate,
private lending, private creditlending.
All those things are gonna beadded in.
So now you're going to own whatyou thought was a diversified
portfolio, and they're gonnahave exposure to the public and
private markets.
I don't like that because it'sjust it it's bearing bad stuff
(04:28):
in there that uh that you mightnot be aware of.
SPEAKER_01 (04:31):
And again, here's a great example.
This is a company.
Morningstar is a company thathas for literally decades been
providing us with greatinformation that we use to help
educate you.
Uh Vanguard is another companythat has provided great products
for investors like you.
But both of them both of thesecompanies appear to be kind of
(04:54):
jumping the shark a little bitin search of magical excess
profits somewhere.
They're they're they're they'reoverstepping their sensible
bounds, in our opinion, andgetting into things that could
be really dangerous potentiallyfor their users.
And these private products are agreat example, Tom, because
there has been a lot of newsrecently about a lot of
(05:17):
investors.
They're not flooding money,they're not flooding into these
things, they're not pouringmoney into them.
They're desperately trying toget their money out of some of
these private equity products.
Trevor Burrus, Jr.
SPEAKER_02 (05:29):
And they can't.
Uh there's for a variety ofreasons, right?
SPEAKER_01 (05:32):
Well, illiquidity.
SPEAKER_02 (05:34):
Yeah, that would be the biggest one, of course.
You know, I struggle with uhpeople like Jim Zettler, who is
the president of Apollo, when hesays the next generation of
model portfolios will blendpublic and private markets and
offer investors greaterdiversification, more yield, and
reflect the full breadth of theeconomy.
(05:54):
Now, you know what they'rereally saying here is read
between the lines.
Look, fewer and fewer companieshave been going public in the
last 20 years.
So all of these smart ideas, thebig, the hottest stuff is
private.
So you need to make sure thatyour portfolio is exposed to
those, right?
Because there are fewer publiclytraded stocks.
Well, think that through alittle bit.
(06:15):
Uh why are they waiting?
Well, they may be waitingbecause they don't want to go
through the rigmarole of goingpublic, which is not an easy
thing.
But for many of these companies,they're not going through it
because they're probablytroubled in some fashion, or
they haven't been tested in avariety of markets, or a lot of
other things.
Or it's an idea, can you saypets.com, that uh that probably
(06:37):
doesn't deserve your investment.
SPEAKER_01 (06:39):
And the other thing that we these private equity
products and private lendingproducts and private money
products uh that are run bycompanies like Apollo, which is
a big hedge fund manager, a biguh private equity manager, these
things are expensive.
You don't get this on the cheaplike you do VT for you know six
(07:00):
what is VT these days?
Six basis points.
SPEAKER_02 (07:04):
Let's just say we'll say that.
SPEAKER_01 (07:06):
With with Apollo, you you they typically charge
individual investors.
Now I don't know what they'regonna charge through
Morningstar.
That was not released.
Don't know the number.
But they typically chargesomewhere between one and a half
and two percent a year to theirindividual investors, and then
they have what is called thecarry.
(07:26):
Uh and that is twenty percent ofthe profits the fund makes,
sometimes over and up or above acertain percentage.
If they make under that, thenthey don't share the profits.
If they make over that, theyshare the profits.
But this is a very, veryexpensive proposition.
And there's just not greatevidence that the old two and
(07:50):
twenty model and the privateequity selections uh in
aggregate outperform just buyingthe cheap old market.
Trevor Burrus, Jr.
SPEAKER_02 (08:02):
Yeah.
The publicly traded cheap oldmarket.
By the way, I I struggle evenmore when people like Franklin
Templeton's CEO Jenny Johnsonsays we're living in an
environment of persistentinflation and structural
uncertainty.
SPEAKER_01 (08:17):
Now What the heck does that mean?
Structural uncertainty.
Are we about to have a meganationwide earthquake and we're
worried about buildings fallingdown?
SPEAKER_02 (08:28):
What is struggling check your crossing?
Okay, did Jenny ever readhistory?
And persistent inflation.
I mean, inflation's at somewherearound three and a half percent.
That's fairly, if you look backa hundred years, pretty average.
I mean, inflation averages aboutthree percent.
So that's a silly thing.
But here's a bigger struggle forme, frankly, that they are
(08:48):
saying that in these intervalfunds, they expect the uh the
private portion, which it couldinclude equity, credit, real
estate, all those things, to besomewhere between 12 and 20
percent of the portfolio.
Now, that sounds even uh ifyou're gonna have any exposure,
it would be for me very, verysmall, but 20% of your portfolio
(09:08):
to be in private things were,again, as you point out, more
expensive, less liquidity, andit has to be riskier, right?
Just by the nature of it.
SPEAKER_01 (09:17):
Yeah, and I want to come back to Jenny's inflation
thing because I think fla factsare just lovely things.
When you talk about aninflationary environment, are
you nuts?
Were you born in 1995?
In 1974, the U.S.
inflation rate.
The rate was, according to theFederal Reserve, 11.1%.
(09:42):
In 1974, I mean 1979, theinflation rate was 11.3 percent.
But wait, there's more.
SPEAKER_02 (09:51):
Yeah.
SPEAKER_01 (09:52):
In 1980, it was thirteen point five percent.
Now, that was an era ofpersistent inflation because
from the average inflation rateover the uh the the 20-year
period from 1970 to 1990, so ifyou average all of it in, the
(10:13):
low and the high, it still wasfour and a half percent.
Higher than today's rate.
SPEAKER_02 (10:18):
Indeed.
SPEAKER_01 (10:19):
For 20 years.
SPEAKER_02 (10:20):
That was persistent inflation.
And the bridge is held.
Uh so you had the structuralintegrity as well.
Uh those are silly reasons.
And I I there's a person namedBenjamin Schifrin, who's the
director of securities policy atBetter Markets, says, and this
is where I completely agree.
The private funds industry nowwants to get its hands on the
(10:41):
trillions of dollars in retailinvestors' retirement savings.
SPEAKER_01 (10:46):
Well, here's what happens generally, generally.
They run out of smart moneythat's gullible enough to go
with them.
The big money, the the theultra-rich.
Finally, the ultra-rich aregoing, wait, why are we buying
into these products when you'renot even beating the market in
aggregate again?
Why are we pouring our money in?
(11:06):
They're pulling their money out.
We see that happening right nowwith some of these.
The the smart money is pullingtheir money out or trying to,
and they're having a hard timedoing it.
And then the industry comesafter you.
You're the last one they comeafter.
You're their last resort, andyour advisors, your trusted
(11:28):
managers of your money, many ofthem are going to fall prey to
this morning star product.
And I'm not saying it's illegal.
It's not.
I I I'm not saying it's totallyethical, because I don't think
it is.
But it's, of course, it'scapitalism.
It's a free market.
(11:48):
They can do what they want todo, and we can, in that same
free market, warn you that thiskind of stuff could.
Could.
We don't know that it will, butit could really bite you later.
We just don't want.
Honestly, I know we're uh we'recapitalists too.
We'd like for our firm to makemoney, yeah, yeah, yeah,
(12:09):
whatever.
But really, truly, honestly, ourmain focus is really making sure
you're taken care of, and that'swhy we bring this stuff up.
So there we have it.
Now something funny happened.
It's probably just from us beingwhiny.
SPEAKER_02 (12:26):
There's a bit of that going on, yeah.
SPEAKER_01 (12:28):
But but over the summer, uh, or as as summer got
started, the questions waned alittle.
And we let you know that thequestions had waned.
Complaining began.
We we complain.
And um this show was recordedjust days before Tom goes on an
epic vacation throughout theMediterranean, trying to
(12:50):
recapture the glory of what wasonce the Roman Empire.
SPEAKER_02 (12:53):
That's right.
You didn't I already I'm got mytoga all ready to go.
SPEAKER_01 (12:57):
So Toga.
And so uh just so we get caughtup, suddenly all these questions
poured in.
This is airing in July after youget back from vacation, but we
had to record them in advancebecause he would be on vacation.
So we got to go through a wholebunch of questions right now
that came in attalkingrealmoney.com just by
(13:18):
hitting that button that saysask a question upper right.
SPEAKER_02 (13:22):
Yeah, and I want to point something out.
I want to point something outhere.
We take all comers.
We don't we don't edit the we'regonna edit one just for length.
SPEAKER_01 (13:29):
Well, okay, we sometimes edit for brevity.
SPEAKER_02 (13:32):
Yeah, right.
SPEAKER_01 (13:32):
But other than that, or I edit for your mistakes.
If I hear you guys like a coupleof my caller ones that was like
I restart they restart and I go,okay, I'm gonna take that.
SPEAKER_02 (13:41):
I wish you'd edit my mistakes.
SPEAKER_01 (13:42):
No, no, no, no.
SPEAKER_02 (13:43):
No, I know you love keeping them.
SPEAKER_01 (13:45):
No, they're way too much fun.
SPEAKER_02 (13:47):
So we take them all.
And this one is um, you know, aninteresting, a fascinating, and
uh sensitive, I'd say, topic.
So and I went and asked a fewpeople in our company about this
too.
So just to give you uh that,Joseph from Eatonville,
Washington, he writes, hello,Tom and Don.
Recently on your June 10thpodcast, a listener asked and
(14:07):
questioned the AUM fee, assetsunder management fee.
That's where advisors, this ismy words, charge a percentage of
the money they manage for you.
So and you may have heard Mr.
Ken Fisher say, the more youmake, the more we make.
Uh-huh.
Yeah, uh, and we go on.
You both explained that the flatfee or hourly is not as holistic
and basically could never do orcover as much as an AUM fee
(14:31):
covers.
This is not true.
SPEAKER_01 (14:33):
I just, you know, I don't think we said that.
I think it was misinterpreted,but go ahead.
SPEAKER_02 (14:38):
Let's finish.
And uh, this is not true, andnot an honest and fair statement
for your listeners.
There are many flat fee andhourly type advisors who would
do exactly what some AUMadvisors do, as not all AUM
advisors are like Apella.
I know this to be true.
If you remember me, I'm the guywho ended up interviewing 15
firms before deciding on thedirection I wanted to go, and
(14:59):
Apella was one of them.
They scored well, by the way, asdid others, some AUM, some flat
fee, and one hourly.
I will say that hourly washarder to find as being complete
in advertisement, but there area lot of flat fee advisors
giving as much as any good AUMadvisors for less cost,
especially if you have a largerportfolio.
My hope is that you both willcorrect yourselves on the air
(15:20):
for your listeners as to whathas been been telling them is a
bias and not true in today'sworld.
Thank you both for what you do,keeping doing what's right and
be honest.
SPEAKER_01 (15:31):
Okay, let's let's talk about the three kinds of
fees that we're talking we'rewe're discussing here.
One is the AUM, that's apercentage of assets under
management.
That's what Appella does.
Starts at 1%, but it goes downthe the more money you have.
So the fee reduces over overlarger assets.
Then there's the hourly, whereyou pay someone.
(15:51):
Generally in the industry today,it's about four to seven hundred
and five.
I've seen seven hundred hours.
Then there's the flat fee whereyou pay a few thousand dollars,
and it's usually a few thousanddollars a year, depending on the
(16:14):
complexity of your situation.
Um they are all, they all havebenefits, they all have
detriments.
Um and let's start with I wantto start with the den of the
benefits and detriments of theflat fee.
I mean, one of the the y it'sgreat because there is no
(16:38):
financial incentive for theadvisor to raise more money to
try to get their fee up.
But it requires that the clientwrite an actual check.
It's kind of like writing acheck to the IRS every year.
You may pay with this, you maypay a little less, maybe, but
not always, and you got to writethat check.
(17:00):
The other thing is, is when itcomes to a smaller account,
we've looked at a lot of theseflat fee programs and look at
the number.
Um as a as run it as apercentage of the assets that
they'll be managing for you.
If you're under a milliondollars, these flat fees can be
much higher than the AUM uh uhsetup.
(17:22):
Hourly means you have to pickthe time you're gonna talk.
You you you decide when you'regonna use it, uh need advice.
Generally, you're you're gonnatry and go cheap.
You're gonna only talk to themwhen you really need help.
Now, is there anything wrongwith that?
Not if you're good at what youdo, and if you've got control
and you've got a plan and you'reall set up, hourly can be great.
(17:42):
Then there's AUM-based, andAUM-based is the what Ken Fisher
talks about.
You we make more money, you makemore money, but that's really
you know, that's only part ofthe picture.
SPEAKER_02 (17:54):
It is.
Okay, so let's let's just talkabout what you may need as a
consumer, right?
I mean, if you're young andyou're growing your assets, and
you could pay somebody an hourlyrent, you know, a certain amount
and they build the portfolio,and away you go.
SPEAKER_01 (18:10):
Yep.
I think that's actually a veryviable way to go for someone in
the and and that's why we don'tbad, you know, that's why I take
issue with the with the thecorrespondence recollection of
the comments.
I don't think we said you shouldnot use these things um because
I I think hourly works reallywell in the accumulation phase
of life.
SPEAKER_02 (18:30):
Yeah, and and we have a very inexpensive sort of
accumulator program here.
We have an advisor who handlesit.
I forget what the rate is.
We it's still an AUM charge, butit's less than the 1% because
you don't need as much, right?
That makes sense.
Um to the AUM side, though, uh,and I asked around the company.
I asked Jim Scanlon, our uh CEO,I asked Jason Gentile, our
(18:55):
director of wealth, and theirtake was kind of what you know
what what he said here, that itthat the AUM approach feels more
holistic.
But you're right.
The other could be as good.
It depends on the relationship,it depends on your needs, et
cetera.
This is and what Jason said, Ithink was spot on.
We feel like our clients arealigned with us.
(19:16):
That the what we're offering isin alignment.
It it's it is the planning, itis the tax planning, it is the
portfolio design, it is whichall those things.
And we've done this for a longtime and it's worked for us.
Again, it doesn't mean that theother approach wouldn't be
perhaps cheaper and might not bejust as good.
That I don't know.
SPEAKER_01 (19:33):
Here's the problem.
Here's the problem.
There are great, and and thiswas mentioned in the in the
note.
There are great AUM advisors.
Great ones out there.
Not very many, but there aresome great ones.
There are great hourly advisors,there are great flat fee
advisors, and yet in themajority are the bad ones in
(19:55):
every one of those categories,but more more likely in the AUM
category, because folks, that'swhere the Americes and the Ed
Jones and the Merrill Lynchesand the Morgan Stanley's, that's
where all of them reside intheir in their their fee-based
businesses.
But remember, these guys, someof them charge, according to
(20:18):
their form ADV, up to threepercent per year.
That's just bad on the face ofit.
SPEAKER_02 (20:27):
Yeah, it really is.
So, Joseph, I hope we'veanswered this.
We're happy to take thisquestion up again.
It's a good one.
Again, um, I think in ourpractice, this has worked well
and is continuing to work well.
I think our clients would say soas well.
SPEAKER_01 (20:40):
But um again, there's a lot of And we're
trying to be really, really,really fair about it.
Initially, Tom and I, when westarted Vestry, we were doing 90
basis points, nine tenths of onepercent.
And here's the problem it maysound like an awful lot of money
when you look at it as it is apercentage of your money, but
when you see what the costs ofrunning a registered investment
advisory firm are behind thescenes, you you you would you
(21:05):
would be shocked.
And we really had to go to oneto make us a little bit of
money.
Us, the the owners.
SPEAKER_02 (21:13):
Now that we don't have to look at that anymore.
I can't like it.
SPEAKER_01 (21:17):
Somebody else's somebody else takes care of all
those expenses.
I'm good with that.
That's good.
SPEAKER_02 (21:22):
Uh, from Parsons, Kansas, John writes, Dear Don
and Tom, thank you for theexcellent show.
Question.
If I have ten exchange tradedfunds and mutual funds at, let's
say, Vanguard, with an expenseratio of point one zero each,
does that mean the total expensewill be one percent for the
entire portfolio?
Do you simply just add them up?
SPEAKER_01 (21:43):
No.
No, because it's one tenth ofone percent for each fund.
So the total for the entireportfolio is one tenth of one
percent.
That's what you're paying.
You're paying one tenth of onepercent.
Let's here, I'll do it this way.
Got you've got ten accounts,each of them with$10,000.
Well, let's use$100,000.
(22:05):
One tenth of one percent is athousand dollars.
Is that right?
Is that one percent?
No, it's one hundred dollars.
Sorry.
I'm using a hundred thousand,right?
SPEAKER_02 (22:17):
Oh, we can charge a thousand, that's sure.
No, let's go.
SPEAKER_01 (22:20):
So you got ten of those, each charging you a
hundred dollars.
That's a million dollars infunds.
The total charge across thewhole portfolio is a thousand
dollars.
One tenth of one percent.
Yep.
SPEAKER_02 (22:32):
Okay.
SPEAKER_01 (22:33):
You don't add them up.
That's it.
That's pretty simple.
SPEAKER_02 (22:36):
Okay.
SPEAKER_01 (22:37):
We're going for four questions today.
Four questions.
SPEAKER_02 (22:40):
Gotta keep working.
Candia, New Hampshire, Chriswrites.
Probably Tom and maybe Don.
I don't know what that means,but it's funny.
Uh I'm a big fan of the show tohave been listening for several
years.
My wife, 43, and I, 38, areright on the edge of the Roth
IRA income limit.
And since that's there, what isthe Roth?
What is that this year for thecity?
(23:00):
I don't know.
I'm going to say$195,000 for acouple, something like that.
If you make more than that, youcannot put money directly into a
Roth IRA and you'd have to usethe backdoor.
SPEAKER_01 (23:16):
Itches for a full contribution, ladies and
gentlemen.
A modified adjusted grossincome.
Gotta make sure that that's inthere.
That's right.
Of$250,000.
$250.
At$260,000, you're totally out.
SPEAKER_02 (23:32):
You're out.
Okay.
Fair enough.
Okay.
So uh he continues.
Chris does.
I would like to have a plan todeal with our IRA balances
before this becomes a problem.
Our 401ks use Fidelity IndexFunds for S P, International
Large Growth, US Small Blend.
So we use our IRAs and Roth IRAsto capture the rest of the asset
classes in Paul Merriman's 10fund portfolio.
(23:54):
If we rolled the IRAs into our401ks, if we rolled the IRAs
into our 401ks, we'dsignificantly reduce our tilt to
small and to value instead ofcontributing$7,500 to each Roth,
wouldn't a conversion from anIRA to a Roth that has a tax
bill of$7,500 accomplish thesame thing in retirement.
I haven't heard this optionrecommended.
(24:15):
Wait a minute.
SPEAKER_01 (24:17):
Yeah, I'm not understanding the question.
I think what he's talking aboutis I don't know why you'd want
to put it into his 401k and losethe small value tilt and looks
like that.
SPEAKER_02 (24:26):
But if he does that, if he cleans it up, you're only
38.
If he cleans that up now andhe's under the income limit,
then he could start makingregular Roth contributions and
then buy the small value and allthe stuff that you don't have to
do.
Wait, wait, wait.
SPEAKER_01 (24:40):
Well, okay.
Uh hold on.
How is money in an IRA?
How is moving the IRA into the401k going to reduce his income?
SPEAKER_02 (24:48):
No, no, no.
I'm not that two separatethings.
Not conflating them.
No.
Okay.
No.
Um, in fact, it's going toincrease his income because you
move money from an IRA to aRoth, that's the same as taking
income.
Right.
Yeah.
No, what he's asking about is itdoesn't make sense to sort of
clean in my mind, he's asking,should I just clean things up?
Get rid of the IRA?
Now I just have to.
SPEAKER_01 (25:09):
The regular IRA.
SPEAKER_02 (25:10):
Yeah.
SPEAKER_01 (25:12):
No.
That's my no, no, you lose hissmall value tilt.
But then he won't be able to dothe back door, is my take.
Oh, because of the pro ratarule.
Correct.
SPEAKER_02 (25:23):
That's what it's like.
SPEAKER_01 (25:24):
How much is in his IRA?
SPEAKER_02 (25:25):
He doesn't get into that.
SPEAKER_01 (25:26):
Um I mean, it really would depend.
I mean, because it's apro-Radder rule.
It means you don't have to takeit, you don't have to pay taxes
on the whole thing.
SPEAKER_02 (25:34):
Or you could do it over time, too.
Um, but then he goes on.
He said, I've just discovered my401k is a brokerage link
options.
From what I can find in thedocuments, there's a hundred
percent annual fee, and it canmanage up to one half of my
401k, currently four five fiftythat five hundred and fifty
thousand dollars total.
I don't like the unnecessaryfees, but this seems worth it
(25:55):
for the extra exposure to smallvalue emerging markets.
Is there anything to be wary of?
SPEAKER_01 (26:00):
Was it a hundred dollars?
Because you said a hundredpercent.
Particularly if the funds he'susing are higher expense funds
and he can get really low-costETFs through the direct
(26:20):
brokerage option.
SPEAKER_02 (26:22):
Here's the thing.
Um yes, I think brokerage linkmakes sense.
Again, I'd have to look at allof the funds available in your
current 401k before I saidabsolutely.
But I still, at your relativeyoung ages of 43 and 38, want
you to commit a sizable amountof the savings into Roth,
whether that comes in your RothIRA or in your current 401k,
(26:44):
because you want to have thosedifferent buckets when you get
to retirement twenty years downthe road.
It's gonna be anything.
SPEAKER_01 (26:50):
What about the thought?
Um What about since they'reputting uh a lot of money away
and they're right at the limit,they really can't make the Roth
anymore or the contribution.
Why not uh start move all your401k contributions to the Roth
option?
SPEAKER_02 (27:10):
Which you could do, right?
SPEAKER_01 (27:11):
Which you could do.
So you could still get a Roth umand still do the regular IRA and
get what what you're doing isyou're swapping deductions
possible.
Well, no, you wouldn't get adeduction for the IRA anymore.
No.
Not anymore.
But uh I don't know.
I I I I think I might go withthe Roth and the 401, though, if
that's an option for you.
Trevor Burrus, Jr.
SPEAKER_02 (27:28):
That is.
Then then you build the Roththere.
You use the brokerage link toget the proper exposure to the
other asset classes that youcorrectly point out you don't
have.
SPEAKER_01 (27:36):
And then you can gradually, if you want to, start
converting that uh IRA slowly sothat you do some tax management
along the way.
You don't creep up a bracket.
SPEAKER_02 (27:44):
Yeah, I agree.
So we've got one more here.
Got time to do that.
We have what the heck?
Farmington, Connecticut, Shanewrites, Hi, Don and Tom.
My wife and I aren't satisfiedwith the investment options in
her 401k.
I understand the traditionaladvice in this situation is to
at least invest the minimum toget the match and then put the
rest in your brokerage account.
(28:06):
However, my wife is very wellcompensated, and contributing
the minimum to get the matchactually max out it maxes out
the 401k.
Max the match ends up being$20,000, which is great.
SPEAKER_01 (28:18):
I don't care what the options are.
I honestly I hope I want thefree$20,000.
A lot of money.
That's a lot of money.
The options can't be that bad.
Okay, let's assume.
What do we have any of theoptions?
SPEAKER_02 (28:32):
Well, her 401k is through T Row Price.
unknown (28:35):
Okay.
SPEAKER_02 (28:35):
Not the fees that give us pause, he says, but the
prevalence of active fundswithout broad diversification
and with turnover rates ofgreater than 50%, including one
with a whopping 230% turnover.
The index offerings are allSpartan Index Pools, uh, which I
understand are collectiveinvestment trusts.
I found it hard to findinformation about their
holdings.
SPEAKER_01 (28:54):
So Oh, do those, do those, do those, do those, do
those.
These collective uh uh trustsare they're they're yeah,
they're not as transparent.
They're not transparent, butthey said they're but they're
indexes.
Okay?
Therefore, portfoliotransparency is not an issue.
SPEAKER_02 (29:12):
Yeah.
SPEAKER_01 (29:13):
What's the issue is the fee transparency, and
generally speaking, thesecollective trusts have lower
fees than comparable mutualfunds because they have less
regulation.
Yes, I love those.
I mean, I'm already good withthat one.
SPEAKER_02 (29:28):
Uh the question is the 401k Prospectus offers a
self-directed brokerage througha Schwab Personal Choice
Retirement Account.
Sound familiar?
Oh, that was the previous one.
No, because this sounds likeexactly what I'm looking for.
Prospectus says T Row Price willcharge us$50 a year for this,
but this is going to be the onlyfee if I stick to ETFs.
I can't find a list of theinvestments available in the
Schwab Personal Choice account.
(29:49):
I think it's anything at SchwabChoice.
SPEAKER_01 (29:51):
Everything is available in that.
So A V G E, D F A W, VT, all ofthose, all of those ETFs.
Now, not all the mutual funds,but the ETFs are all available
because they trade as regularstocks.
That is the best option of themall.
It's$40.
We just said do it for$100.
SPEAKER_02 (30:10):
$50,$50.
If I say Oh,$50.
SPEAKER_01 (30:12):
$50.
I'm sorry.
$50.
I know I just misheard.
SPEAKER_02 (30:22):
I think it's right.
I think it's just some of thelimitations in the mutual funds.
Is this oddly exactly what we'relooking for?
SPEAKER_01 (30:28):
Oddly, it's exactly what you're looking for.
Yeah.
Or the collective trust.
You know, if you if$50 bothersyou, which it shouldn't, because
your wife is highly compensated,and now suddenly what you do is
you take a mediocre plan, youget the free$20,000, and you
make it a great plan for$40.
$50.
Why do I keep saying$40?
SPEAKER_02 (30:49):
I don't know.
I corrected.
SPEAKER_01 (30:51):
I have got$40 in my head for some.
Yeah, I'm I'm oh, that's it.
That's my subsidy.
Yeah.
If$50 bothers you, let's take itdown to$40, shall we?
SPEAKER_02 (31:02):
Exactly.
You're selling like that.
SPEAKER_01 (31:04):
I don't know why I thought it was$40.
No, that's a good option.
Now watch, I'm gonna leave mymistake in too, though.
SPEAKER_02 (31:09):
Okay.
I'm gonna check to make sure youam.
Uh so no, I think that's a verygood option.
And uh by the way,congratulations on the 20K.
I just read again, I hate topick on them, but um Costco's
match$500.
Doesn't matter what you make,doesn't matter what you're
putting in, five hundred dollarsin your 401k.
SPEAKER_01 (31:27):
Well, you know, I was just at Costco and the
prices are so good that I cansee why they can't afford to do
that.
I got a bottle of avocado oil,and I was in it's funny, I went
to Costco yesterday, and then Iwent to Publix to get a few
grocery things.
And I saw the same bottle on theshelf, except it was a little
shorter.
It's a smaller bottle because ofcourse it's smaller.
(31:49):
I paid, I think it was$18 forthe avocado oil at Costco.
At Publix, it was$23 for asmaller bottle.
See?
So, you know, Costco can'tafford much more than that,
apparently.
I'm gonna let you say that.
So And I got gas?
Not you know, I didn't have thehot dog.
(32:11):
That you know, I know there'sgas from that.
SPEAKER_02 (32:13):
Buck fifty for the dog.
SPEAKER_01 (32:15):
I went to the gas station at Costco.
My gosh, it felt good to fill upat$3.46 a gallon.
SPEAKER_02 (32:21):
Wow.
SPEAKER_01 (32:22):
Three forty forty six a gallon.
SPEAKER_02 (32:25):
You could pay at least two dollars more than that
here.
Uh I still see six dollars fromaround town.
That just over, it's peace andthe hormouse is open.
SPEAKER_01 (32:36):
And it's so funny, we went in to get uh some olive
oil because their olive oil isso good, and Debbie had a
hearing aid thing she needed todeal with, and and we ended up
walking out with uh$250 worth ofstuff.
SPEAKER_02 (32:47):
Uh it's surprising, right?
SPEAKER_01 (32:48):
That that I swear stuff just jumped in my cart on
the way out of the store.
It's like, how did that getthere?
SPEAKER_02 (32:55):
There's two reasons I don't go there.
Number one, things like that.
Number two, there's that manypeople around.
So I just don't know.
SPEAKER_01 (33:00):
No, and I I found the key.
We went on a Wednesday at 2 p.m.
SPEAKER_02 (33:04):
You take the break after lunch, blah, blah, blah,
everybody's home.
SPEAKER_01 (33:07):
Wednesday at 2 p.m., I found the day because we go in
there on a Saturday or a Sunday.
SPEAKER_02 (33:12):
Forget it.
No way.
SPEAKER_01 (33:13):
And I start feeling a little anxious and suicidal.
unknown (33:17):
I couldn't.
SPEAKER_01 (33:17):
I want to jump from the top of one of those really
tall shelves.
SPEAKER_02 (33:20):
I'd still suggest that if I were you.
SPEAKER_01 (33:22):
So Okay, good idea.
Thank you all.
We appreciate you being thereand keep sending those questions
in because we'll get themanswered.
We will eventually we're workingon them.
You can also speak them and theygo to the Friday podcast.
And uh, by the way, the Fridaypodcasts are, you know, the the
the questions coming in forthose have been great, so keep
that up and keep listening andkeep telling your friends
(33:42):
because the more the merrier,because everybody out here in
the United States of America andbeyond.
Oh, yeah, Toy Story came out acouple of weeks ago.
Yes, it did.
To America and beyond uh needsto be what?
Talking real money.
SPEAKER_03 (34:02):
The opinions and views expressed in this podcast
were current on the daterecorded.
Opinions, estimates, forecasts,and statements of financial
market trends that are based oncurrent market conditions
constitute our judgment and aresubject to change without
notice, including anyforward-looking estimates or
statements which are based oncertain expectations and
assumptions.
SPEAKER_04 (34:16):
Although information and opinions given have been
obtained from or based onsources believed to be reliable,
no warranty or representation ismade as to their correctness,
completeness, or accuracy.
SPEAKER_03 (34:25):
Information presented on the podcast is not
personalized investment advicefrom Ophello Wealth.
The views and strategiesdescribed may not be suitable
for everyone.
This podcast does not identifyall the risks, direct or
indirect, or otherconsiderations which might be
material to you when enteringany financial transaction.
Past performance does notguarantee feature results, and
profitable results cannot beguaranteed.
We hope you realize that theinformation provided on Talking
Real Money is for informational,educational, and hopefully
(34:47):
enjoyable purposes only.
The podcast is not trying to getyou to buy or sell any financial
products or securities.
Instead, the program is providedas a public service by Apollo
Wealth, a C-only registeredinvestment advisor.
Apello Capital, LLC DBA ApolloWealth, is an investment
advisory firm registered withthe Securities and Exchange
(35:08):
Commission.
The firm only transacts businessin the states where it is
properly registered, or excludedor exempt from registration
requirements.
Registration with the SEC or anystate securities authority does
not imply a certain level ofskill or training.
Apello does not provide tax orlegal advice, and nothing either
stated or implied here should beinferred as providing such
advice.
Thanks for listening, and pleasevisit talkingrealmoney.com for
more information and importantdisclosure related to
(35:30):
performance of any specificindex or fund quoted in this
podcast.
I think I need a nap.
We're gonna do a really great financial future.
Dumb and dumb are talking realmoney.
SPEAKER_01 (00:12):
What is a model?
A model.
It could be a uh well, it couldbe a small airplane that
somebody made in their garage.
That could be a model.
It could be somebody walking arunway in uh Paris.
That that's a model.
Uh it could be behavior, a modelcitizen.
That's a model.
Or, you know, when it comes totalking real money, it could be
(00:36):
a model portfolio.
Today's episode, all aboutmodels.
Model portfolios.
Do you need them?
Should you have one?
How do you get them?
Who's making them?
What are good?
What are bad?
We're gonna cram all of thatinto about 10 minutes.
I'm done.
That's Tom.
This is the Talking Real Moneymodel podcast.
SPEAKER_02 (00:57):
Yeah, you know, and the thing about the model play
on words is I use it at home.
I'm gonna go out to the garageand work on my model.
It just gets a big eye roll, youknow, like uh okay, we can't
hilarious.
Yeah.
Again.
How many eye rolls can you do inone day?
But I got it coming.
So I the thing about modelportfolios is I don't think many
people understand that really atthe end of the day, if you're
(01:20):
working with an advisor who'snot using a model portfolio.
And by that I don't meaneverything's not built for you
individually, but there is a setof investments, a set of rules
that go with that.
There's not, I get they don'tget to pay.
SPEAKER_01 (01:33):
I need you to step back.
I need you to step back, though,because that's where the
confusion comes in.
A model portfolio sounds like acookie-cutter portfolio that
applies to everybody, but that'snot what a good model portfolio
should be.
It's it's more of the, well,it's the I'll I'll date myself.
(01:54):
It's the little metal parts ofthe erector set that you they're
all they're all to the rightscales, and you use those parts
to create the Ferris wheel orwhatever it is you're trying to
build.
SPEAKER_02 (02:04):
Exactly.
You'll date yourself, by theway, because no one else will.
That's why.
Uh but the My wife still datesme.
Okay.
But the thing about that is amodel portfolio has picked out
the the investment options.
It it's a series of exchangetraded funds, could be mutual
funds.
For some people, it's stocks.
We don't buy that approach.
(02:25):
But it doesn't have the nobodyhere in the building has the
option of saying, oh, I'm gonnatake uh DRAM, uh, the hottest
ETF ever, and put that in theportfolio.
Nobody gets that option here.
I wouldn't hire any firm thatwasn't using the model approach,
okay?
SPEAKER_01 (02:42):
Because then if you don't use the model, which has
been vetted hopefully byacademic research and a more and
a research department, uh,analysts and all those guys, uh
the the risk is you get put inthe latest hot thing that the
advisor has read about or hasbeen pitched by a wholesaler or
(03:02):
a a uh regional director orsomething of the company.
SPEAKER_02 (03:09):
A series of ideas.
Don't want that.
But uh according to what we justread, model portfolios are now
used by more than 80 percent offee, and they call them
fee-based advisors.
I would never use a fee-basedadvisor.
SPEAKER_01 (03:21):
Right.
Those are the ones well, likefor example, uh Merrill Lynch
has uh a fee-based advisory.
They're fee-based, not fee-only.
SPEAKER_02 (03:31):
Troubling.
Because there you could be solda commissionable product.
But okay, so but there's stillproblems with model portfolios
because what goes into them, itturns out, is it becomes rather
important if that's the same.
SPEAKER_01 (03:43):
You mean the devil's in the details of the model.
SPEAKER_02 (03:45):
Exactly.
So uh when we read recently thatMorningstar is partnering with
people like um Apollo andFranklin Templeton to build six
model portfolios that will usetraditional exchange-rated
funds.
And guess what else they'regonna throw in there?
Oh, alternate, alternative uhportfolios, like you already
(04:08):
know the stuff, right?
Private investments, privateequity, private real estate,
private lending, private creditlending.
All those things are gonna beadded in.
So now you're going to own whatyou thought was a diversified
portfolio, and they're gonnahave exposure to the public and
private markets.
I don't like that because it'sjust it it's bearing bad stuff
(04:28):
in there that uh that you mightnot be aware of.
SPEAKER_01 (04:31):
And again, here's a great example.
This is a company.
Morningstar is a company thathas for literally decades been
providing us with greatinformation that we use to help
educate you.
Uh Vanguard is another companythat has provided great products
for investors like you.
But both of them both of thesecompanies appear to be kind of
(04:54):
jumping the shark a little bitin search of magical excess
profits somewhere.
They're they're they're they'reoverstepping their sensible
bounds, in our opinion, andgetting into things that could
be really dangerous potentiallyfor their users.
And these private products are agreat example, Tom, because
there has been a lot of newsrecently about a lot of
(05:17):
investors.
They're not flooding money,they're not flooding into these
things, they're not pouringmoney into them.
They're desperately trying toget their money out of some of
these private equity products.
Trevor Burrus, Jr.
SPEAKER_02 (05:29):
And they can't.
Uh there's for a variety ofreasons, right?
SPEAKER_01 (05:32):
Well, illiquidity.
SPEAKER_02 (05:34):
Yeah, that would be the biggest one, of course.
You know, I struggle with uhpeople like Jim Zettler, who is
the president of Apollo, when hesays the next generation of
model portfolios will blendpublic and private markets and
offer investors greaterdiversification, more yield, and
reflect the full breadth of theeconomy.
(05:54):
Now, you know what they'rereally saying here is read
between the lines.
Look, fewer and fewer companieshave been going public in the
last 20 years.
So all of these smart ideas, thebig, the hottest stuff is
private.
So you need to make sure thatyour portfolio is exposed to
those, right?
Because there are fewer publiclytraded stocks.
Well, think that through alittle bit.
(06:15):
Uh why are they waiting?
Well, they may be waitingbecause they don't want to go
through the rigmarole of goingpublic, which is not an easy
thing.
But for many of these companies,they're not going through it
because they're probablytroubled in some fashion, or
they haven't been tested in avariety of markets, or a lot of
other things.
Or it's an idea, can you saypets.com, that uh that probably
(06:37):
doesn't deserve your investment.
SPEAKER_01 (06:39):
And the other thing that we these private equity
products and private lendingproducts and private money
products uh that are run bycompanies like Apollo, which is
a big hedge fund manager, a biguh private equity manager, these
things are expensive.
You don't get this on the cheaplike you do VT for you know six
(07:00):
what is VT these days?
Six basis points.
SPEAKER_02 (07:04):
Let's just say we'll say that.
SPEAKER_01 (07:06):
With with Apollo, you you they typically charge
individual investors.
Now I don't know what they'regonna charge through
Morningstar.
That was not released.
Don't know the number.
But they typically chargesomewhere between one and a half
and two percent a year to theirindividual investors, and then
they have what is called thecarry.
(07:26):
Uh and that is twenty percent ofthe profits the fund makes,
sometimes over and up or above acertain percentage.
If they make under that, thenthey don't share the profits.
If they make over that, theyshare the profits.
But this is a very, veryexpensive proposition.
And there's just not greatevidence that the old two and
(07:50):
twenty model and the privateequity selections uh in
aggregate outperform just buyingthe cheap old market.
Trevor Burrus, Jr.
SPEAKER_02 (08:02):
Yeah.
The publicly traded cheap oldmarket.
By the way, I I struggle evenmore when people like Franklin
Templeton's CEO Jenny Johnsonsays we're living in an
environment of persistentinflation and structural
uncertainty.
SPEAKER_01 (08:17):
Now What the heck does that mean?
Structural uncertainty.
Are we about to have a meganationwide earthquake and we're
worried about buildings fallingdown?
SPEAKER_02 (08:28):
What is struggling check your crossing?
Okay, did Jenny ever readhistory?
And persistent inflation.
I mean, inflation's at somewherearound three and a half percent.
That's fairly, if you look backa hundred years, pretty average.
I mean, inflation averages aboutthree percent.
So that's a silly thing.
But here's a bigger struggle forme, frankly, that they are
(08:48):
saying that in these intervalfunds, they expect the uh the
private portion, which it couldinclude equity, credit, real
estate, all those things, to besomewhere between 12 and 20
percent of the portfolio.
Now, that sounds even uh ifyou're gonna have any exposure,
it would be for me very, verysmall, but 20% of your portfolio
(09:08):
to be in private things were,again, as you point out, more
expensive, less liquidity, andit has to be riskier, right?
Just by the nature of it.
SPEAKER_01 (09:17):
Yeah, and I want to come back to Jenny's inflation
thing because I think fla factsare just lovely things.
When you talk about aninflationary environment, are
you nuts?
Were you born in 1995?
In 1974, the U.S.
inflation rate.
The rate was, according to theFederal Reserve, 11.1%.
(09:42):
In 1974, I mean 1979, theinflation rate was 11.3 percent.
But wait, there's more.
SPEAKER_02 (09:51):
Yeah.
SPEAKER_01 (09:52):
In 1980, it was thirteen point five percent.
Now, that was an era ofpersistent inflation because
from the average inflation rateover the uh the the 20-year
period from 1970 to 1990, so ifyou average all of it in, the
(10:13):
low and the high, it still wasfour and a half percent.
Higher than today's rate.
SPEAKER_02 (10:18):
Indeed.
SPEAKER_01 (10:19):
For 20 years.
SPEAKER_02 (10:20):
That was persistent inflation.
And the bridge is held.
Uh so you had the structuralintegrity as well.
Uh those are silly reasons.
And I I there's a person namedBenjamin Schifrin, who's the
director of securities policy atBetter Markets, says, and this
is where I completely agree.
The private funds industry nowwants to get its hands on the
(10:41):
trillions of dollars in retailinvestors' retirement savings.
SPEAKER_01 (10:46):
Well, here's what happens generally, generally.
They run out of smart moneythat's gullible enough to go
with them.
The big money, the the theultra-rich.
Finally, the ultra-rich aregoing, wait, why are we buying
into these products when you'renot even beating the market in
aggregate again?
Why are we pouring our money in?
(11:06):
They're pulling their money out.
We see that happening right nowwith some of these.
The the smart money is pullingtheir money out or trying to,
and they're having a hard timedoing it.
And then the industry comesafter you.
You're the last one they comeafter.
You're their last resort, andyour advisors, your trusted
(11:28):
managers of your money, many ofthem are going to fall prey to
this morning star product.
And I'm not saying it's illegal.
It's not.
I I I'm not saying it's totallyethical, because I don't think
it is.
But it's, of course, it'scapitalism.
It's a free market.
(11:48):
They can do what they want todo, and we can, in that same
free market, warn you that thiskind of stuff could.
Could.
We don't know that it will, butit could really bite you later.
We just don't want.
Honestly, I know we're uh we'recapitalists too.
We'd like for our firm to makemoney, yeah, yeah, yeah,
(12:09):
whatever.
But really, truly, honestly, ourmain focus is really making sure
you're taken care of, and that'swhy we bring this stuff up.
So there we have it.
Now something funny happened.
It's probably just from us beingwhiny.
SPEAKER_02 (12:26):
There's a bit of that going on, yeah.
SPEAKER_01 (12:28):
But but over the summer, uh, or as as summer got
started, the questions waned alittle.
And we let you know that thequestions had waned.
Complaining began.
We we complain.
And um this show was recordedjust days before Tom goes on an
epic vacation throughout theMediterranean, trying to
(12:50):
recapture the glory of what wasonce the Roman Empire.
SPEAKER_02 (12:53):
That's right.
You didn't I already I'm got mytoga all ready to go.
SPEAKER_01 (12:57):
So Toga.
And so uh just so we get caughtup, suddenly all these questions
poured in.
This is airing in July after youget back from vacation, but we
had to record them in advancebecause he would be on vacation.
So we got to go through a wholebunch of questions right now
that came in attalkingrealmoney.com just by
(13:18):
hitting that button that saysask a question upper right.
SPEAKER_02 (13:22):
Yeah, and I want to point something out.
I want to point something outhere.
We take all comers.
We don't we don't edit the we'regonna edit one just for length.
SPEAKER_01 (13:29):
Well, okay, we sometimes edit for brevity.
SPEAKER_02 (13:32):
Yeah, right.
SPEAKER_01 (13:32):
But other than that, or I edit for your mistakes.
If I hear you guys like a coupleof my caller ones that was like
I restart they restart and I go,okay, I'm gonna take that.
SPEAKER_02 (13:41):
I wish you'd edit my mistakes.
SPEAKER_01 (13:42):
No, no, no, no.
SPEAKER_02 (13:43):
No, I know you love keeping them.
SPEAKER_01 (13:45):
No, they're way too much fun.
SPEAKER_02 (13:47):
So we take them all.
And this one is um, you know, aninteresting, a fascinating, and
uh sensitive, I'd say, topic.
So and I went and asked a fewpeople in our company about this
too.
So just to give you uh that,Joseph from Eatonville,
Washington, he writes, hello,Tom and Don.
Recently on your June 10thpodcast, a listener asked and
(14:07):
questioned the AUM fee, assetsunder management fee.
That's where advisors, this ismy words, charge a percentage of
the money they manage for you.
So and you may have heard Mr.
Ken Fisher say, the more youmake, the more we make.
Uh-huh.
Yeah, uh, and we go on.
You both explained that the flatfee or hourly is not as holistic
and basically could never do orcover as much as an AUM fee
(14:31):
covers.
This is not true.
SPEAKER_01 (14:33):
I just, you know, I don't think we said that.
I think it was misinterpreted,but go ahead.
SPEAKER_02 (14:38):
Let's finish.
And uh, this is not true, andnot an honest and fair statement
for your listeners.
There are many flat fee andhourly type advisors who would
do exactly what some AUMadvisors do, as not all AUM
advisors are like Apella.
I know this to be true.
If you remember me, I'm the guywho ended up interviewing 15
firms before deciding on thedirection I wanted to go, and
(14:59):
Apella was one of them.
They scored well, by the way, asdid others, some AUM, some flat
fee, and one hourly.
I will say that hourly washarder to find as being complete
in advertisement, but there area lot of flat fee advisors
giving as much as any good AUMadvisors for less cost,
especially if you have a largerportfolio.
My hope is that you both willcorrect yourselves on the air
(15:20):
for your listeners as to whathas been been telling them is a
bias and not true in today'sworld.
Thank you both for what you do,keeping doing what's right and
be honest.
SPEAKER_01 (15:31):
Okay, let's let's talk about the three kinds of
fees that we're talking we'rewe're discussing here.
One is the AUM, that's apercentage of assets under
management.
That's what Appella does.
Starts at 1%, but it goes downthe the more money you have.
So the fee reduces over overlarger assets.
Then there's the hourly, whereyou pay someone.
(15:51):
Generally in the industry today,it's about four to seven hundred
and five.
I've seen seven hundred hours.
Then there's the flat fee whereyou pay a few thousand dollars,
and it's usually a few thousanddollars a year, depending on the
(16:14):
complexity of your situation.
Um they are all, they all havebenefits, they all have
detriments.
Um and let's start with I wantto start with the den of the
benefits and detriments of theflat fee.
I mean, one of the the y it'sgreat because there is no
(16:38):
financial incentive for theadvisor to raise more money to
try to get their fee up.
But it requires that the clientwrite an actual check.
It's kind of like writing acheck to the IRS every year.
You may pay with this, you maypay a little less, maybe, but
not always, and you got to writethat check.
(17:00):
The other thing is, is when itcomes to a smaller account,
we've looked at a lot of theseflat fee programs and look at
the number.
Um as a as run it as apercentage of the assets that
they'll be managing for you.
If you're under a milliondollars, these flat fees can be
much higher than the AUM uh uhsetup.
(17:22):
Hourly means you have to pickthe time you're gonna talk.
You you you decide when you'regonna use it, uh need advice.
Generally, you're you're gonnatry and go cheap.
You're gonna only talk to themwhen you really need help.
Now, is there anything wrongwith that?
Not if you're good at what youdo, and if you've got control
and you've got a plan and you'reall set up, hourly can be great.
(17:42):
Then there's AUM-based, andAUM-based is the what Ken Fisher
talks about.
You we make more money, you makemore money, but that's really
you know, that's only part ofthe picture.
SPEAKER_02 (17:54):
It is.
Okay, so let's let's just talkabout what you may need as a
consumer, right?
I mean, if you're young andyou're growing your assets, and
you could pay somebody an hourlyrent, you know, a certain amount
and they build the portfolio,and away you go.
SPEAKER_01 (18:10):
Yep.
I think that's actually a veryviable way to go for someone in
the and and that's why we don'tbad, you know, that's why I take
issue with the with the thecorrespondence recollection of
the comments.
I don't think we said you shouldnot use these things um because
I I think hourly works reallywell in the accumulation phase
of life.
SPEAKER_02 (18:30):
Yeah, and and we have a very inexpensive sort of
accumulator program here.
We have an advisor who handlesit.
I forget what the rate is.
We it's still an AUM charge, butit's less than the 1% because
you don't need as much, right?
That makes sense.
Um to the AUM side, though, uh,and I asked around the company.
I asked Jim Scanlon, our uh CEO,I asked Jason Gentile, our
(18:55):
director of wealth, and theirtake was kind of what you know
what what he said here, that itthat the AUM approach feels more
holistic.
But you're right.
The other could be as good.
It depends on the relationship,it depends on your needs, et
cetera.
This is and what Jason said, Ithink was spot on.
We feel like our clients arealigned with us.
(19:16):
That the what we're offering isin alignment.
It it's it is the planning, itis the tax planning, it is the
portfolio design, it is whichall those things.
And we've done this for a longtime and it's worked for us.
Again, it doesn't mean that theother approach wouldn't be
perhaps cheaper and might not bejust as good.
That I don't know.
SPEAKER_01 (19:33):
Here's the problem.
Here's the problem.
There are great, and and thiswas mentioned in the in the
note.
There are great AUM advisors.
Great ones out there.
Not very many, but there aresome great ones.
There are great hourly advisors,there are great flat fee
advisors, and yet in themajority are the bad ones in
(19:55):
every one of those categories,but more more likely in the AUM
category, because folks, that'swhere the Americes and the Ed
Jones and the Merrill Lynchesand the Morgan Stanley's, that's
where all of them reside intheir in their their fee-based
businesses.
But remember, these guys, someof them charge, according to
(20:18):
their form ADV, up to threepercent per year.
That's just bad on the face ofit.
SPEAKER_02 (20:27):
Yeah, it really is.
So, Joseph, I hope we'veanswered this.
We're happy to take thisquestion up again.
It's a good one.
Again, um, I think in ourpractice, this has worked well
and is continuing to work well.
I think our clients would say soas well.
SPEAKER_01 (20:40):
But um again, there's a lot of And we're
trying to be really, really,really fair about it.
Initially, Tom and I, when westarted Vestry, we were doing 90
basis points, nine tenths of onepercent.
And here's the problem it maysound like an awful lot of money
when you look at it as it is apercentage of your money, but
when you see what the costs ofrunning a registered investment
advisory firm are behind thescenes, you you you would you
(21:05):
would be shocked.
And we really had to go to oneto make us a little bit of
money.
Us, the the owners.
SPEAKER_02 (21:13):
Now that we don't have to look at that anymore.
I can't like it.
SPEAKER_01 (21:17):
Somebody else's somebody else takes care of all
those expenses.
I'm good with that.
That's good.
SPEAKER_02 (21:22):
Uh, from Parsons, Kansas, John writes, Dear Don
and Tom, thank you for theexcellent show.
Question.
If I have ten exchange tradedfunds and mutual funds at, let's
say, Vanguard, with an expenseratio of point one zero each,
does that mean the total expensewill be one percent for the
entire portfolio?
Do you simply just add them up?
SPEAKER_01 (21:43):
No.
No, because it's one tenth ofone percent for each fund.
So the total for the entireportfolio is one tenth of one
percent.
That's what you're paying.
You're paying one tenth of onepercent.
Let's here, I'll do it this way.
Got you've got ten accounts,each of them with$10,000.
Well, let's use$100,000.
(22:05):
One tenth of one percent is athousand dollars.
Is that right?
Is that one percent?
No, it's one hundred dollars.
Sorry.
I'm using a hundred thousand,right?
SPEAKER_02 (22:17):
Oh, we can charge a thousand, that's sure.
No, let's go.
SPEAKER_01 (22:20):
So you got ten of those, each charging you a
hundred dollars.
That's a million dollars infunds.
The total charge across thewhole portfolio is a thousand
dollars.
One tenth of one percent.
Yep.
SPEAKER_02 (22:32):
Okay.
SPEAKER_01 (22:33):
You don't add them up.
That's it.
That's pretty simple.
SPEAKER_02 (22:36):
Okay.
SPEAKER_01 (22:37):
We're going for four questions today.
Four questions.
SPEAKER_02 (22:40):
Gotta keep working.
Candia, New Hampshire, Chriswrites.
Probably Tom and maybe Don.
I don't know what that means,but it's funny.
Uh I'm a big fan of the show tohave been listening for several
years.
My wife, 43, and I, 38, areright on the edge of the Roth
IRA income limit.
And since that's there, what isthe Roth?
What is that this year for thecity?
(23:00):
I don't know.
I'm going to say$195,000 for acouple, something like that.
If you make more than that, youcannot put money directly into a
Roth IRA and you'd have to usethe backdoor.
SPEAKER_01 (23:16):
Itches for a full contribution, ladies and
gentlemen.
A modified adjusted grossincome.
Gotta make sure that that's inthere.
That's right.
Of$250,000.
$250.
At$260,000, you're totally out.
SPEAKER_02 (23:32):
You're out.
Okay.
Fair enough.
Okay.
So uh he continues.
Chris does.
I would like to have a plan todeal with our IRA balances
before this becomes a problem.
Our 401ks use Fidelity IndexFunds for S P, International
Large Growth, US Small Blend.
So we use our IRAs and Roth IRAsto capture the rest of the asset
classes in Paul Merriman's 10fund portfolio.
(23:54):
If we rolled the IRAs into our401ks, if we rolled the IRAs
into our 401ks, we'dsignificantly reduce our tilt to
small and to value instead ofcontributing$7,500 to each Roth,
wouldn't a conversion from anIRA to a Roth that has a tax
bill of$7,500 accomplish thesame thing in retirement.
I haven't heard this optionrecommended.
(24:15):
Wait a minute.
SPEAKER_01 (24:17):
Yeah, I'm not understanding the question.
I think what he's talking aboutis I don't know why you'd want
to put it into his 401k and losethe small value tilt and looks
like that.
SPEAKER_02 (24:26):
But if he does that, if he cleans it up, you're only
38.
If he cleans that up now andhe's under the income limit,
then he could start makingregular Roth contributions and
then buy the small value and allthe stuff that you don't have to
do.
Wait, wait, wait.
SPEAKER_01 (24:40):
Well, okay.
Uh hold on.
How is money in an IRA?
How is moving the IRA into the401k going to reduce his income?
SPEAKER_02 (24:48):
No, no, no.
I'm not that two separatethings.
Not conflating them.
No.
Okay.
No.
Um, in fact, it's going toincrease his income because you
move money from an IRA to aRoth, that's the same as taking
income.
Right.
Yeah.
No, what he's asking about is itdoesn't make sense to sort of
clean in my mind, he's asking,should I just clean things up?
Get rid of the IRA?
Now I just have to.
SPEAKER_01 (25:09):
The regular IRA.
SPEAKER_02 (25:10):
Yeah.
SPEAKER_01 (25:12):
No.
That's my no, no, you lose hissmall value tilt.
But then he won't be able to dothe back door, is my take.
Oh, because of the pro ratarule.
Correct.
SPEAKER_02 (25:23):
That's what it's like.
SPEAKER_01 (25:24):
How much is in his IRA?
SPEAKER_02 (25:25):
He doesn't get into that.
SPEAKER_01 (25:26):
Um I mean, it really would depend.
I mean, because it's apro-Radder rule.
It means you don't have to takeit, you don't have to pay taxes
on the whole thing.
SPEAKER_02 (25:34):
Or you could do it over time, too.
Um, but then he goes on.
He said, I've just discovered my401k is a brokerage link
options.
From what I can find in thedocuments, there's a hundred
percent annual fee, and it canmanage up to one half of my
401k, currently four five fiftythat five hundred and fifty
thousand dollars total.
I don't like the unnecessaryfees, but this seems worth it
(25:55):
for the extra exposure to smallvalue emerging markets.
Is there anything to be wary of?
SPEAKER_01 (26:00):
Was it a hundred dollars?
Because you said a hundredpercent.
Particularly if the funds he'susing are higher expense funds
and he can get really low-costETFs through the direct
(26:20):
brokerage option.
SPEAKER_02 (26:22):
Here's the thing.
Um yes, I think brokerage linkmakes sense.
Again, I'd have to look at allof the funds available in your
current 401k before I saidabsolutely.
But I still, at your relativeyoung ages of 43 and 38, want
you to commit a sizable amountof the savings into Roth,
whether that comes in your RothIRA or in your current 401k,
(26:44):
because you want to have thosedifferent buckets when you get
to retirement twenty years downthe road.
It's gonna be anything.
SPEAKER_01 (26:50):
What about the thought?
Um What about since they'reputting uh a lot of money away
and they're right at the limit,they really can't make the Roth
anymore or the contribution.
Why not uh start move all your401k contributions to the Roth
option?
SPEAKER_02 (27:10):
Which you could do, right?
SPEAKER_01 (27:11):
Which you could do.
So you could still get a Roth umand still do the regular IRA and
get what what you're doing isyou're swapping deductions
possible.
Well, no, you wouldn't get adeduction for the IRA anymore.
No.
Not anymore.
But uh I don't know.
I I I I think I might go withthe Roth and the 401, though, if
that's an option for you.
Trevor Burrus, Jr.
SPEAKER_02 (27:28):
That is.
Then then you build the Roththere.
You use the brokerage link toget the proper exposure to the
other asset classes that youcorrectly point out you don't
have.
SPEAKER_01 (27:36):
And then you can gradually, if you want to, start
converting that uh IRA slowly sothat you do some tax management
along the way.
You don't creep up a bracket.
SPEAKER_02 (27:44):
Yeah, I agree.
So we've got one more here.
Got time to do that.
We have what the heck?
Farmington, Connecticut, Shanewrites, Hi, Don and Tom.
My wife and I aren't satisfiedwith the investment options in
her 401k.
I understand the traditionaladvice in this situation is to
at least invest the minimum toget the match and then put the
rest in your brokerage account.
(28:06):
However, my wife is very wellcompensated, and contributing
the minimum to get the matchactually max out it maxes out
the 401k.
Max the match ends up being$20,000, which is great.
SPEAKER_01 (28:18):
I don't care what the options are.
I honestly I hope I want thefree$20,000.
A lot of money.
That's a lot of money.
The options can't be that bad.
Okay, let's assume.
What do we have any of theoptions?
SPEAKER_02 (28:32):
Well, her 401k is through T Row Price.
unknown (28:35):
Okay.
SPEAKER_02 (28:35):
Not the fees that give us pause, he says, but the
prevalence of active fundswithout broad diversification
and with turnover rates ofgreater than 50%, including one
with a whopping 230% turnover.
The index offerings are allSpartan Index Pools, uh, which I
understand are collectiveinvestment trusts.
I found it hard to findinformation about their
holdings.
SPEAKER_01 (28:54):
So Oh, do those, do those, do those, do those, do
those.
These collective uh uh trustsare they're they're yeah,
they're not as transparent.
They're not transparent, butthey said they're but they're
indexes.
Okay?
Therefore, portfoliotransparency is not an issue.
SPEAKER_02 (29:12):
Yeah.
SPEAKER_01 (29:13):
What's the issue is the fee transparency, and
generally speaking, thesecollective trusts have lower
fees than comparable mutualfunds because they have less
regulation.
Yes, I love those.
I mean, I'm already good withthat one.
SPEAKER_02 (29:28):
Uh the question is the 401k Prospectus offers a
self-directed brokerage througha Schwab Personal Choice
Retirement Account.
Sound familiar?
Oh, that was the previous one.
No, because this sounds likeexactly what I'm looking for.
Prospectus says T Row Price willcharge us$50 a year for this,
but this is going to be the onlyfee if I stick to ETFs.
I can't find a list of theinvestments available in the
Schwab Personal Choice account.
(29:49):
I think it's anything at SchwabChoice.
SPEAKER_01 (29:51):
Everything is available in that.
So A V G E, D F A W, VT, all ofthose, all of those ETFs.
Now, not all the mutual funds,but the ETFs are all available
because they trade as regularstocks.
That is the best option of themall.
It's$40.
We just said do it for$100.
SPEAKER_02 (30:10):
$50,$50.
If I say Oh,$50.
SPEAKER_01 (30:12):
$50.
I'm sorry.
$50.
I know I just misheard.
SPEAKER_02 (30:22):
I think it's right.
I think it's just some of thelimitations in the mutual funds.
Is this oddly exactly what we'relooking for?
SPEAKER_01 (30:28):
Oddly, it's exactly what you're looking for.
Yeah.
Or the collective trust.
You know, if you if$50 bothersyou, which it shouldn't, because
your wife is highly compensated,and now suddenly what you do is
you take a mediocre plan, youget the free$20,000, and you
make it a great plan for$40.
$50.
Why do I keep saying$40?
SPEAKER_02 (30:49):
I don't know.
I corrected.
SPEAKER_01 (30:51):
I have got$40 in my head for some.
Yeah, I'm I'm oh, that's it.
That's my subsidy.
Yeah.
If$50 bothers you, let's take itdown to$40, shall we?
SPEAKER_02 (31:02):
Exactly.
You're selling like that.
SPEAKER_01 (31:04):
I don't know why I thought it was$40.
No, that's a good option.
Now watch, I'm gonna leave mymistake in too, though.
SPEAKER_02 (31:09):
Okay.
I'm gonna check to make sure youam.
Uh so no, I think that's a verygood option.
And uh by the way,congratulations on the 20K.
I just read again, I hate topick on them, but um Costco's
match$500.
Doesn't matter what you make,doesn't matter what you're
putting in, five hundred dollarsin your 401k.
SPEAKER_01 (31:27):
Well, you know, I was just at Costco and the
prices are so good that I cansee why they can't afford to do
that.
I got a bottle of avocado oil,and I was in it's funny, I went
to Costco yesterday, and then Iwent to Publix to get a few
grocery things.
And I saw the same bottle on theshelf, except it was a little
shorter.
It's a smaller bottle because ofcourse it's smaller.
(31:49):
I paid, I think it was$18 forthe avocado oil at Costco.
At Publix, it was$23 for asmaller bottle.
See?
So, you know, Costco can'tafford much more than that,
apparently.
I'm gonna let you say that.
So And I got gas?
Not you know, I didn't have thehot dog.
(32:11):
That you know, I know there'sgas from that.
SPEAKER_02 (32:13):
Buck fifty for the dog.
SPEAKER_01 (32:15):
I went to the gas station at Costco.
My gosh, it felt good to fill upat$3.46 a gallon.
SPEAKER_02 (32:21):
Wow.
SPEAKER_01 (32:22):
Three forty forty six a gallon.
SPEAKER_02 (32:25):
You could pay at least two dollars more than that
here.
Uh I still see six dollars fromaround town.
That just over, it's peace andthe hormouse is open.
SPEAKER_01 (32:36):
And it's so funny, we went in to get uh some olive
oil because their olive oil isso good, and Debbie had a
hearing aid thing she needed todeal with, and and we ended up
walking out with uh$250 worth ofstuff.
SPEAKER_02 (32:47):
Uh it's surprising, right?
SPEAKER_01 (32:48):
That that I swear stuff just jumped in my cart on
the way out of the store.
It's like, how did that getthere?
SPEAKER_02 (32:55):
There's two reasons I don't go there.
Number one, things like that.
Number two, there's that manypeople around.
So I just don't know.
SPEAKER_01 (33:00):
No, and I I found the key.
We went on a Wednesday at 2 p.m.
SPEAKER_02 (33:04):
You take the break after lunch, blah, blah, blah,
everybody's home.
SPEAKER_01 (33:07):
Wednesday at 2 p.m., I found the day because we go in
there on a Saturday or a Sunday.
SPEAKER_02 (33:12):
Forget it.
No way.
SPEAKER_01 (33:13):
And I start feeling a little anxious and suicidal.
unknown (33:17):
I couldn't.
SPEAKER_01 (33:17):
I want to jump from the top of one of those really
tall shelves.
SPEAKER_02 (33:20):
I'd still suggest that if I were you.
SPEAKER_01 (33:22):
So Okay, good idea.
Thank you all.
We appreciate you being thereand keep sending those questions
in because we'll get themanswered.
We will eventually we're workingon them.
You can also speak them and theygo to the Friday podcast.
And uh, by the way, the Fridaypodcasts are, you know, the the
the questions coming in forthose have been great, so keep
that up and keep listening andkeep telling your friends
(33:42):
because the more the merrier,because everybody out here in
the United States of America andbeyond.
Oh, yeah, Toy Story came out acouple of weeks ago.
Yes, it did.
To America and beyond uh needsto be what?
Talking real money.
SPEAKER_03 (34:02):
The opinions and views expressed in this podcast
were current on the daterecorded.
Opinions, estimates, forecasts,and statements of financial
market trends that are based oncurrent market conditions
constitute our judgment and aresubject to change without
notice, including anyforward-looking estimates or
statements which are based oncertain expectations and
assumptions.
SPEAKER_04 (34:16):
Although information and opinions given have been
obtained from or based onsources believed to be reliable,
no warranty or representation ismade as to their correctness,
completeness, or accuracy.
SPEAKER_03 (34:25):
Information presented on the podcast is not
personalized investment advicefrom Ophello Wealth.
The views and strategiesdescribed may not be suitable
for everyone.
This podcast does not identifyall the risks, direct or
indirect, or otherconsiderations which might be
material to you when enteringany financial transaction.
Past performance does notguarantee feature results, and
profitable results cannot beguaranteed.
We hope you realize that theinformation provided on Talking
Real Money is for informational,educational, and hopefully
(34:47):
enjoyable purposes only.
The podcast is not trying to getyou to buy or sell any financial
products or securities.
Instead, the program is providedas a public service by Apollo
Wealth, a C-only registeredinvestment advisor.
Apello Capital, LLC DBA ApolloWealth, is an investment
advisory firm registered withthe Securities and Exchange
(35:08):
Commission.
The firm only transacts businessin the states where it is
properly registered, or excludedor exempt from registration
requirements.
Registration with the SEC or anystate securities authority does
not imply a certain level ofskill or training.
Apello does not provide tax orlegal advice, and nothing either
stated or implied here should beinferred as providing such
advice.
Thanks for listening, and pleasevisit talkingrealmoney.com for
more information and importantdisclosure related to
(35:30):
performance of any specificindex or fund quoted in this
podcast.
I think I need a nap.
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