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What’s Going On In the World and How Best to Identify the Right Financial Advisor

financial advisor Nov 12, 2020
Financial Advisor

What’s Going On In the World and How Best to Identify the Right Financial Advisor to Help Your Navigate Through These Choppy Waters (with Legendary Real Estate Developer, Ken McElroy)

In this interview, John MacGregor talks with legendary real estate developer and investor, Ken McElroy, cover a range of timeline topics ranging from, the state of the economy, common mistakes people make and why, and keys to selecting the appropriate financial advisor to assist you with your financial planning and investing needs.

As John states, one of the biggest pitfalls he has seen over the past 25 years in working with clients, is people’s willingness to hand over their hard earned money to someone they barely know and have not vetted. This has led to countless disasters. And as John states there are no “do-overs”

Here you will uncover critical mistakes people are still making, and the keys in what to ask and what to look for in finding the right person to be a steward of your money.

John:
The hardest conversation I have to have with an individual, Kenny, is when someone comes to me when they’re 65 years old and they lay out their financial statements and they say, “John, I'm ready to retire.” And I have to look at those and I just know right away that they can’t.

Ken:
So, what's your observation on what's happening right now? I know you’re still connected in so many ways with a lot of investors. So, what are you seeing?

John:
Well, if I could sum it up in one word, Kenny, it would be bananas. That’s my Wall Street term for what’s going on right now.

John:
Yeah. It’s crazy. I mean this is unprecedented time. Something I’ve never seen before. I mean I started back in 1994. That's 26 years ago. I’m dating myself. And that was the worst bond market in U.S. history, but here we are fast forward to today. We’re looking at times that we haven’t seen since the Great Depression. And you know, I'm getting messages, I'm getting social media posts, I'm getting phone calls from people all over the place. In fact all over the world. Just concerned, scared, nervous. You could just sense the vulnerability in people right now and it's scary. I really feel for these people, but there is hope for this. And we can get into that in a little bit. I think that’s part of the reason I wrote my book The Top 10 Reasons the Rich Go Broke, and part of the reason you're doing your YouTube videos. I don't think there's a better time for your videos or my book than right now given what's going on.

Ken:
You know, I’ve studied with you for years. And you know, obviously, I've known you a long time. You know, we’re students. You know, we're trying to figure out how to not mess up, right? I mean, really, personally. And we're saying, “Okay, what should we be doing?” And so, that's why I love having you on because you managed all these folks for all these years. What are they telling you, what are they asking you, and what are you saying? 

John:
Yeah. And I'm glad you brought that up. A couple things on that. You know, it’s interesting, Kenny, since you and I met, gosh, going back— I don’t know how many years now. I swear most of our time is talking about the mistakes we made, right? I mean that's where a lot of our emphasis is, is talking about all the things we did wrong and the screw-ups we made because that's where learning really happens. The overarching theme of this book is learning from people’s successes as smart and we've all done that, but learning from people's mistakes is genius and that's what this book is about. And then of course, we added in another one. Learning from difficult times makes you invincible and that's what we’re in right now. So, yeah—

Ken:
I know. I told somebody the other day— I said “Listen, I haven’t learned a thing when I’m making money and when things are piling in. I’m all over the place doing dumb things. I’m buying stuff I don’t need. And I think I’m the smartest guy ever.”

John:
Happens all the time.

Ken:
And then “kaboom”!   Because, you don’t really learn when you’re making money in my opinion. You might learn how to do a deal or you might learn something new that you’re doing. But you know, it's a tough pill to swallow when you're sitting there with no job, your businesses that you work for shut down, and you have limited money in the bank, and you don't know your financial future, right? I mean that's essentially what a lot of people are dealing with right now.

Previously on John's Blog:
The Most Powerful Force That Will Change Everything in Your Life

John:
Absolutely. In fact, a lot of the stories in this book are about people that were making money. And in essence what happens, they put their blinders on and they're not willing to take in new information because they think they know what they're doing, and that always leads to problems and that's exactly what happens when we’re making money. We know it all and we're not willing to accept new information.

Ken:
I know.

John:
I also want to be clear that although this book is about why the rich go broke, this book really gets to the heart of why so many go broke and why so many people, just average people, are unable to achieve lasting financial freedom and peace of mind they desire and they deserve. And that’s really what this book is about. The book has the alluring stories of these rich people and they’re great stories, very emotional stories, but it’s really for anybody.

Ken:
Right. And that’s why I loved it. So, let’s break this up into a couple things. You know, one of the things that’s confusing to me and I remember right when I got out of college, I immediately had a financial planner all over me. I remember plain as day the guy is all slicked up, nice suit. A friend said, “Hey, I put some money with this guy.” And so, , I gave him $2,000. I thought “Oh, man, it’s a lot money, you know.” But then of course, you went away for a while and the statements went all over the place because I was moving around. And one day 5 years ago, I’m thought “You know, I should probably look into this.

I wanted to know how this thing did.” And it wasn’t very much. Very little in fact. I thought to myself, something’s not right here.” That’s actually when I started to dig in a little bit. Thankfully, it was not very much money.

I know it’s in your book, but what’s the difference between a certified financial planner and a regular financial planner and how can people navigate the differences, because I think this is a key point?

John:
Yeah. Great question especially now, Kenny, because there’s so much confusion in the industry and there has been for many years actually. Sadly, it hasn't changed. So, just to give you a little context around this and this may shock some of your viewers. A new person coming in the industry who says “you know what, I want to be a financial adviser,” they have to be sponsored by a firm, a broker dealer. This could be a Merrill Lynch, a Morgan Stanley, or one of these big firms and then they put them through a training program. Essentially, what they need to do is they need to pass an exam. It’s called the Series 7. It’s a license basically to trade stocks and bonds. Most go on to pass a second exam called the Series 65 or the Series 63, but the 7 is the big one. It’s not a fun exam, but it's not rocket science either. And it could take you anywhere from 2 weeks to 6 weeks to pass it. Most firms give you 6 weeks to pass it. Once you’ve passed that 6-week exam, you are a financial consultant, a financial adviser. You are now licensed to manage people's money believe it or not. It's crazy to me. And then what happens is you're in a training program for a certain time period. And once you hit your levels, production goals, revenue goals, then you’re off on your own and you are a full-fledged financial adviser on your own, not salaried or what have you.

The crazy thing is, is that in order to be a hairdresser— and I’m not demeaning hairdressers— it takes a year and a half to two years to be licensed to cut hair. But to be entrusted to manage somebody's retirement life, your financial life, it’s 6 weeks. Now, if you mess up as a hairdresser, the hair grows back, but not necessarily in the money situation. You mess up in the money situation and that money may never come back. The problem is most people just trust the first financial adviser they meet and they're willing to just hand over all their hard-earned money in one fell swoop without doing any due diligence. And that's where problems always, always happen.

Ken:
That's a crazy perspective of the timeframes, you know. Wow! What's interesting to me when I was an employee, I threw money into my workplace retirement plan. And it just got managed somehow, right? I didn’t know how. I didn't even know what to pick. There was a company that was selected for me. And then as I started making a little bit more money, candidly, I didn't understand all of the loaded fees, and the front-end, and the backend, and the mutual funds, and what was actually being invested in. I then turned over some money to an advisor when I was able to. But even then, I only met with my guy like once a year. So, it wasn't until I disconnected from that and said, “You know, I need to know where this money is being invested and I need to know what it's being invested in so that I can ask better educated questions.” And I think that's one of the frustrations I have with your industry, is they don't want you to know and it's super complex and sometimes the adviser doesn't even know.

John:
No question. And great point you brought up. I agree with you. You’re talking about the employer-sponsored plans, namely the 401k. Yeah, there's a huge disconnect between the individual investor and the financial adviser. And sadly, many of these financial advisors are under—pressure to generate certain revenue targets frankly in order to keep their job. I will say, this is a small percentage of the financial advisers that I’ve witnessed firsthand. When they're under that type of stringent guidelines or pressure to generate a certain amount of revenue, that can lead to bad behaviors that isn’t in the best of interest of the clients.

It can also lead to not servicing their existing clients and just looking for new clients to sell financial products and to bring them onboard. Once they bring them onboard, they transfer in their assets. They sell a financial product and then they’re on to the next client and the existing clients are forgotten or maybe not forgotten, but they're not paid attention to.

But I will add, a lot of this is on the individual investor as well. Too many times they put too much trust in their advisors or are not proactive. I see blame on both sides of this.

Ken:
So, what are the, I’d say, top 5 things you would ask a financial planner so we can navigate this?

John:
Yeah. Absolutely. Great question. But the way, a while ago, Kenny, you asked me to put together a guide, which I’ve done and it’s on my website. And it's called The Ultimate Guide to Selecting Your Financial Adviser. It’s a free download that people can get. It's a comprehensive guide that investors can use to really identify the appropriate adviser for them. The problem is that people are so hungry to find that adviser to give them their money so they can move on and go about their own business. They don't spend any time doing any due diligence. They basically interview, briefly, one person. In fact, it’s not an interview at all. They meet the first financial adviser and boom that's it, and they say “here, take my money, and call me in 6 months”. And that's just the wrong way to go and that always leads to problems. I can't tell you how many people have come to my office saying, “Hey, John, I was referred to you and I really need your help with my financial situation.” And then I’d go into my process and how I operate and my fee structure and they’d stop me in stride. They’d say, “John, we don't have time for that. Just take my money.” That happens so often, Kenny. Absolutely scary. “Just tell us what to do, John, and then call us if you need anything.” That just happens all the time. The problem is, like I said, is that the investors aren’t interviewing other financial advisors. They're afraid to ask questions because they're afraid to look dumb in front of people.

So, let me just give you some ideas of what people should be doing, not just questions, but what they should be doing. First of all, they should be interviewing at least, at least 3 financial advisers before they make their decision. Secondly, when they do meet with the financial adviser, they need to be asking some specific questions. Tell me about your background. What credential do they have? And if I would make one recommendation I would put a lot of emphasis on someone who is a Certified Financial Planner (CFP). That clearly indicates that they are committed to this business. I want to know why you're in this business, why you're doing what you're doing. Do you enjoy what you're doing? What's the future for you in this business? You can really get a feel whether or not that individual is really passionate, astute at this game, or if their they're just looking for the next client to sell a financial product to. Don't get confused by experience or time in the industry versus knowledge in the industry. I can't tell you how many 20+ veterans that I've coached and trained that are just so old school, that are just so stuck in their ways that they're not willing to accept new information or embrace new technology or what have you.

So, even though someone's been in the business for 30 years, that means nothing. The other things people should be focused on is what is their process. The process for you may be different for the process for other people. So, you want to make sure that you're dealing with a financial adviser that deals with people like you. If you're a median income earner and yet the adviser you're dealing with is a high net worth financial adviser, chances are you're not gonna get that attention that you so deserve.

The other key thing that people really need to focus on are fees. And as I said for years, fees are the great or can be the great destroyer of wealth. Now, it doesn’t mean fees are bad. Fees are inevitable in any service. You just need to make sure that the fees that you're being charged are appropriate for the services that are being rendered. And this can be kind of tricky to figure out and my guide will help you determine whether your fees are appropriate or not.

The other thing is you want to make sure that the administrative staff is well equipped because most of the time you're gonna be dealing with the admin team, making sure that things are running smoothly. So, you want to make sure that the adviser has the right amount of staff to support the amount of business that they're generating.

And then lastly, you want to make sure that the communication from the adviser is on a regular periodic basis. You mentioned earlier, Kenny, that you heard from your guy once a year. That is just not acceptable. You should be hearing from this person at least on a quarterly basis to make sure that you are keeping track, you're on track given the goals that you stated.

So, those are a couple things. And the other thing, the last thing I'll say is identifying the right financial adviser is not a one-shot deal. This is an ongoing process. You have to continue to evaluate that financial adviser over time to make sure that they are delivering on what they say they're gonna deliver and are doing that consistently.

Ken:
Those are really good points, John. Thank you. There's a lot inside of there and I know the book goes into a lot of detail and we're gonna put up that download for sure so people can pull that down. You know, it's interesting.

I remember talking to you once about— You saw an advertisement somewhere and I think it was in California. And you went to that seminar where there was a financial planning seminar. You know, we've all seen them. There's not a week that goes by and I don’t get 2 or 3 in my mailbox inviting me to a financial seminar. You know, your estate, or this, or that, or wealth management, or financial planning… So, anyway, I remember you telling me you went, and the room was packed, and the guy actually did an okay job of the pitch. And then you went up afterwards— This was the best part of the story. And you said….Well why don’t you tell the rest of the story?

John:
Yeah. This is like a punch in my gut, you know, because this is my industry that I'm representing and I’m witnessing this first hand. It just makes me sick to my stomach. I like to see what else is going on in the industry. So, like you said, I get solicited all the time for these, what I call “the chicken dinner syndromes”, you know, where people get enticed to go to the free chicken dinner and then the attendees are ready to sign up right away. Well, this was a luncheon, and this is a very well-known financial adviser. And he's got satellite offices all over the country and he’s on the radio pitching a luncheon event all the time.

So, I finally signed up and I went. And as soon as I got I could immediately tell I was the youngest by 20 years. These were 60+ year individuals and you could just sense they were ready to sign the check immediately before the presentation even began. So, the presentation begins and it's a sharp-looking guy giving your traditional, run-of-the-mill financial planning presentation. History of the markets, how they operate, how they manage money, etc. He was a bit of a character. He gave some impressions and so forth. I enjoyed his presentation, but there was a buzz in the room and people were ready to sign up immediately. So, after the seminar, everyone was lined up to sign up for their consultation with the local adviser, which I did as well. So, at my meeting with the local advisor, I'm sitting there and she basically had a script. Frankly, I’m not sure she knew the difference between a stock and a bond. She was basically an order taker. No one asked her questions. No one cared about fees. No one asked about process or any of those other things that I mentioned earlier. They were there to write a check, to hand over all of their money to this financial adviser firm frankly because this guy had one good year many years ago and wrote a book about it.

So, on my consultation, she actually looked at me. She goes “Wow. No one has ever asked me these questions before.” I was like “This is crazy.” Anyway, I said, “So, by the way, who was that presenter at the event? He was kind of a character.” She leaned in. She says, “Don't tell anybody. He's not a financial adviser. He's a Hollywood actor.” I thought to myself, “You have got to be kidding me.” And she said, “Did you watch the Super Bowl last weekend?” I said, “Yeah, of course.” “Well, he was featured in a pizza commercial.” And sure enough, I looked him up and there he was, the center of a pizza commercial in the Super Bowl. And just a week later, he’s pitching us on this investment solutions. My mind was blown away. So, I'm glad you mentioned that, Kenny, because if that doesn’t demonstrate serious pitfalls that so many people can fall into, nothing does.

Ken:
Well, it’s true, John. And I think, you know, I appreciate, first of all, the courage to go up and try to educate people because especially now, you know, people are gonna start looking for trustworthy stewards of their money. It’s vital, people ask questions because if you don't, you're gonna be stuck. It breaks my heart that people are turning their money over to people blindly, without asking questions. It just blows my mind.

John:
Yup. I'd tell you, the hardest conversation I have to have with an individual, Kenny, is when someone comes to me when they’re 65 years old and they lay out their financial statements and they say, “John, I'm ready to retire.” In many cases, I just know right away that they can’t. And I have to have that conversation with them. They've worked their tail off for the past 30 years and they're sitting with insufficient assets in order to do so because they didn't plan accordingly, they trusted the wrong people, they paid the wrong fees, and in the very end it’s too late at that point. That’s why this is just so, so important.

Ken:
Yeah.

The difference between somebody that makes well-informed decisions and somebody who doesn’t that makes the exact same amount can be significant by the time they’re 60-65. Significant, you know. That’s all we’re talking about here, are choices on who you're allowing to manage your money and the questions that you're asking and the frequency that you're asking them. You know, we study everything we can, but one of them is obviously silver and gold. My financial planner reached out to me. He’s said “I think we should move, you know, some positions into oil.” Right? Well, I’ve been studying oil and I said “You know, I don't think that's a good idea.” This is a long time ago of course, so obviously it was a good decision. I told him “I'd like to move it into silver.” His response, “What are you talking about, silver?” I said, “Listen, trust me, I think I should move into silver.” I recently called him back, and he says, “Well, I guess that was a good move.”

Ken:
You know, a lot of the moves that these financial advisors are making, John, are based on financial incentives that they're getting, right?

John:
Well, yeah. I mean absolutely. I mean the name of the game is assets under management. The advisers want to manage as much assets as possible because they get a recurring fee on those assets. So, the more assets they have under management, under their management, under their tutelage, the more revenue that they’re generating.

Ken:
Right. And the one thing that drives me nuts is— I don’t know if a lot of people know this. But in most cases, these planners get paid a percentage of what they manage. So, it doesn't really matter if your portfolio goes down.

In my case, I don't get paid if our real estate doesn't make money. But in the financial planning world, they get paid on their total assets under management, which is why it's such heavily geared towards sales, right, because they know that they're gonna have some people leaving and they're also gonna have some people coming, right? And you just want to make sure you have a net gain going forward.

John:
Correct. Now, you know, in their defense, absolutely. The financial adviser is incentivized to grow their assets, right? They want you to perform well. They want your assets to grow because then their fee grows as well. Conversely, if the assets go down in value, then they take a haircut as well. But yeah, to your point, Kenny, regardless, whatever they're managing, money goes up or money goes down, they're still generating revenue on what they’re managing.

Ken:
Yeah. And I guess that’s what I meant because if it's 1% or 2% and you lose a million bucks, it's actually fairly insignificant as compared to what the client loses.

John:
Very true

Ken:
1% of a million versus a million. You know what I mean?

John:
Very true.

Ken:
So, that’s what I mean. But hey, John, those are some great questions. Thank you very, very much. We’ll make sure that we put the document up on the internet here so people can download that and then they can ask better questions. And certainly, guys, don't forget to go pick up this book. It's got some really good information in there, some strategies in there, some great stories in there that are real. Things that John's been through. So, John, thanks, man. This is great. I appreciate everything you're doing.

John:
Okay. I’m such an admirer of yours and I thank you so much. You've inspired me to write this book and continue doing what I'm doing. I just want to say thank you. It's been great to be with you.

Ken:
Awesome, buddy.

John:
Take care. Thank you

Free Download: The Ultimate Guide to Selecting a Financial Advisor

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