In this episode, Jim continues his conversation with Marc Bautis about what it means to be a fiduciary financial advisor. You can listen to Frugal Living with Jim Markus on Apple Podcasts, on Spotify, on Amazon, on Anchor.fm, iHeartRadio or anywhere you go to find podcasts.
This is the second part of a two-part episode. Want to hear more from this expert? You can find Marc at Bautis Financial and by listening to the Agent of Wealth podcast.
How Can Technology Help Me With My Finances?
Bautis explains how finance management softwares like Truebill and Mint can help you keep track of your spending habits and budgeting in a much more efficient way than before. Trying to keep tabs on a variety of purchases can become cumbersome for many people to manage, but new technology has advanced so that staying updated and on track can finally become reality.
When thinking about sharing your data with third party services, it is important to keep in mind that the software is designed to have you redesign your finances as well. As Bautis puts it, “nothing is really free”. Data is very valuable to companies and they use it for their profits. Although the goal is to keep track of our finances, keeping control of our data is also important to consider.
Fiduciary Financial Advisors Genuinely Want to Help
Fiduciary advisors are different from the suitability standard of advisors. Fiduciary advisors are required to act in the best interests of their client and are not allowed to base their advice off of making a profit for their services. They genuinely have to advise what they believe is best. Suitability advisors promote products as though they are selling them, and are not bound to share the absolute best advice with their clients.
Thus, it is important to ask upfront if a financial advisor is fiduciary or suitability. Bautis recommends checking with your advisor to find out which one they are, and then to have them put it in writing as confirmation. Having awareness of your finances is invaluable when planning for the future, and taking action is a proactive way to keep your finances secure and well managed for the years to come.
Read a Transcript from This Episode
Jim (00:02):
This is Frugal Living. Welcome back to Frugal Living. This is part two of a two-part interview with Mark Bautis, fiduciary financial advisor and founder of Bautis Financial. If you haven’t heard part one, you can check that out now. We’re gonna jump right into part two.
Mark (00:32):
Technology has improved so much over, you know, the past 10, 15 years where a lot of this can be done for you. There’re different tools out there where you can, you know, basically pull in all your credit card transactions or all your bank transactions and the software will categorize them for you. And that’s good because at a high level, you can see, well, “I’m spending this much on housing,” or, “We’re spending this much on entertainment,” or, you know, “This much on food,” for example. But then also on that cost-cutting party, you know. An example of one site that helps with this is called Truebill where they’ll go through your transactions and they’ll tell you. You know, some people have a long list of transactions and even going through that can be cumbersome and, and pretty painful. So Truebill will actually help you and they can help even unsubscribe from some of the, the services or, or subscriptions that you have. So there’s a, a plethora of technology out there that can help in this.
Jim (01:24):
That sounds really helpful. I had not heard of Truebill, but that is something I will check out myself.
Mark (01:28):
Again, some of the companies, they’re, they’re smart, they don’t make it too easy to unsubscribe.
Jim (01:31):
So on, on that same note though, with sites like Truebill, I know there are sites like Mint that can do similar things where they’ll evaluate all of your spending. There is a trade-off with especially free services like this. You’re giving your–access to your information to a third party. And they’re using this information and they’re selling it to advertisers to advertise to you and others like you more effectively. I guess, what are your thoughts on that? Is that, is that a worthwhile trade?
Mark (02:01):
Yeah, so, and, and again, you know, I think everyone has to realize nothing is free, right? You know, you, like you said, you use a site like Mint, which technically you don’t have to pay them, but they will take your data and they will start pushing you ads for refinancing or for investing in this, or for, you know, a credit card with a better rate than, than what you currently have. And you just have to make a decision. Do I want to do that? Or, there are tools out there where you can pay a subscription to–Like, one of my favorites is called You Need A Budget or YNAB. Great. I’ve used and come across a lot of different budgeting tools. And that’s probably my favorite one, not just from the tool itself, but also the framework that they promote around budgeting and, you know, giving every dollar a job and, you know, having a rainy day fund. So, you know, I’m a proponent of YNAB. Uh, we use, you know, with, with the people we work with, we have our own tools similar to Mint. Obviously not with the advertisements, but essentially someone’s paying us a fee to work with us. So again, there’s, there’s trade-offs with, with all of it. But that’s, like, everything where, you know, data is so valuable now where all these companies are, are taking data and, you know, they’re one, they’re profiting, they’re using it, they’re… So, yeah, it is something that you have to consider.
Jim (03:13):
I, I appreciate the insight. And thank you for the reminder on You Need A Budget. This is super well respected in the financial independence community, in the early retirement community. There is a fee, but you know, it, it might sound like a weird idea to pay for a budgeting service, but it can be incredibly helpful. And again, there’s also professionals out there that you could pay to help with this kind of information. And that’s what you do. And I really support this, but I wanna take this into a little bit more about financial advisors and people who call themselves financial advisors because the first financial advisor I ever met was an insurance salesman. And it ruined me for financial advisors for years. What do people look for when they wanna find someone they can trust?
Mark (04:05):
Yeah, I mean, I think you brought up a good point. And I’m in New Jersey right outside of New York. And I think there’s something like over a hundred thousand financial advisors in this tri-state area: New York, New Jersey, and Connecticut. And one of the problems is that basically anyone can call themselves a financial advisor. And then you have all kinds of topics, you know, titles around that. You have financial advisor, financial planner, wealth manager, you know, investment advisor. And for the person who’s looking for help financially, they’re like, “I don’t even know what these people do.” Just looking at the title of someone, it’s really impossible to, to tell what they do. You really wanna look for a couple of different things whenever you’re considering working with a financial professional. And again, some people come to us for different things. We have some people that come to us and say, “I just want you to manage a pile of money. I don’t wanna do any planning. I just want you to get the highest return possible and beat the S&P 500.” And that’s all they really care about. And that’s fine. You know, again, it comes back to what’s important to the person. But they’re different than the person that comes and says, “I need help. I wanna put my kids to college. I want to retire. I wanna know if I’m on track for retirement. You know, what are the things I should be thinking about? I’m expecting a baby. What, what do I do?” And, you know, that’s more of a planning type of engagement. You want someone who’s really gonna look at you holistically from a top down. Right, here’s the high level. Here’s what you’re currently doing. Here’s what you wanna do. Here’s what you should be doing. You know, your experience, you talked about your first financial advisor was, you know, a person in the insurance side. And, you know, probably over time, things have gotten a little bit better. But I know, like, the way it used to be is, “You know what? You wanna save for college? Buy some life insurance. You wanna retire? Buy some life insurance. You wanna, you know, be your own bank? Buy some life insurance.” And, all of a sudden it’s like, “All right, is life insurance the panacea for everything? And then you, kind of, trace it back and you’re like, “Oh, this guy’s getting a pretty big commission on every life insurance policy that he sells. So maybe he’s incentivized a little bit to sell life insurance.” One of the things that’s I think a little bit different about the way we’re structured in–Yeah, our clients are gonna pay us a fee, but as fiduciaries, we are required to act in their best interest. So if what’s best for them is to bury their money under their mattress or in their backyard, we’re gonna tell ’em, “That’s what’s best for you.” And everyone is, is different, but, you know, there’s nothing wrong with life insurance. It provides a need. If someone dies unexpectedly and their beneficiaries or their family had life insurance, they were definitely happy that they had life insurance. But there’s different ways to buy life insurance. As an example, one of the things we would do, we’d say, “Well, you need this much of life insurance because if something happens to you, here’s how your family can, can survive and can, can move forward.” And then we show the different ways of purchasing it. “Here’s one option. And here’s what the cost is. And here’s what the pros and cons are. And here’s another option. And here’s what the pros and cons are.” And help them make that decision of how it fits into overall what they’re trying to do. Not just look at every single silo of what someone’s trying to do and say, throw a product at it. And, it, we’re picking on life insurance, but they’re not the only, it’s not the only area of financial professionals that lend to this bad rap. There are a lot of Wall Street products that are out there, which you’d look at, and you’d be like, “The fees on this thing are insane.” And what happens is the fees get buried in, like, this 200-page prospectus in print size five. Unless you know what you’re looking for or where to find it, no one knows what the fees are. I’ve had some people come to me and, you know, they come to me and say, “Well, I think I need an advisor. I’m currently using this advisor and I’m not paying anything for it.” And I’m like, “You know what, very unlikely.” And then I’ll show them, “Here’s the different ways that, that you’re probably paying.” You know, it could be on the product where there’s a commission or there’s a fee built implicitly into it where maybe you’re not getting a bill for it, or it’s not transparent, but they’re taking a little–they might be taking a little bit off of the principle every day, every month, every, every year. You know, and again, it’s not to say this is the bad way, or this is the good way. But I think that really the importance is to understand how they’re paying and what is the implication of the advice they’re getting. How is it correlated to what they’re, they’re paying for? And you always wanna, kind of, understand those two things because you wanna know, you know… As a fiduciar–fiduciary, we also have to be conflict free. So I can’t come and say, “Well, I think you should invest in this fund or this investment.” And then all of a sudden that fund company is sending me to Hawaii if I put, you know, 15 clients into that fund. So you always want to, kind of, trace it back and make sure that, you know, there’s no incentive to put someone into or, or that they’re gonna invest in some kind of product or, or fund. And the only reason they’re getting put into it is because it benefits the advisor and it benefits the, the fund company. So, I think the industry, it’s slowly getting more transparent and more visible, but it’s really opaque a lot of times what someone is paying for both advice, for the advisor and, but then on all, like, the surrounding products or investments that they have in their portfolio.
Jim (09:04):
You’ve mentioned my favorite word twice. I wanna make sure… I know there’s some people who listen to Frugal Living and they listen to it for, you know, our dumpster diving episode or how to make kombucha. But they don’t speak finance. Can you define or, or help me explain fiduciary? How do you know someone has a fiduciary duty? You obviously, as a, as a company, you fall into this category. You are fiduciary financial advisors. You don’t have conflicts with the things that you recommend to people. There are standards for you. How do you get it? How do you keep it? How is it monitored?
Mark (09:41):
So, I think as far as the investor side of things, I think the best way to know if an advisor is a fiduciary or not is to ask them and ask them to put it in writing. That’s probably the best way to do it. Now I’ll explain what the two differences are. So there’s the fiduciary standard, and there’s also something called the suitability standard. So fiduciary means, very simple, I’m required to act in your best interest or in the client’s best interest on any advice that I give. So I can’t look at it and say, “Well, there’s more fee if they do this, or if they do that.” It’s really, “What is in the absolute best interest of the client?” Suitability means it just has to be something good for them. Like, for example, this financial product, it may be good for them because it does X, Y, and Z, but there’s something else that’s a lot better and that would be better. So suitability is like, “Okay, we can sell them this product because it does this and they probably need something that does this.” But the biggest difference is there maybe better options out there. And they don’t have to tell you about those better options or they don’t have to promote those better options because essentially if the advice that they gave, it was suitable to what you’re trying to do, but it doesn’t necessarily have to be the best option for you. And, you know, as far as the investor, again, you do wanna look up, you do wanna ask upfront, “Are you fiduciary? Are you not a fiduciary.” I’m getting asked a lot more about it. So there’s more of an awareness from people. It seems to be starting to get more of an awareness on fees. So I’m getting asked questions. “Well, you know, how do you charge?” And one of the things we, we do about fees is we say, “We want everything to be transparent, everything to be visible. We want you to know these are all the fees that you have.” You can make a decision, you know, you really wanna make a decision. Am I getting value for this fee that I’m paying? And, you know, another thing that’s a little bit different about us is: If someone wants to engage us and after a day, a month, a year, five years, 10 years, they’re free to go at any time. Whereas in some of these products, someone will say, “Wow, I don’t really like this product anymore.” And they’re like, “Let’s get rid of it.” And then they look and it’s like, “Oh no, if you sell this product in the first seven years that you have it, you pay a penalty for, for doing it.” And you’re like, “I didn’t sign up for this.” And again, it was buried in some fine print in some document that you probably signed. So it is good that there’s starting to be a little more visibility and transparency in the industry as a whole. But I think there’s still a ways to go. You know, you look at some of the big Wall Street companies. And they’re public companies. Their primary focus is on their shareholders. It’s not necessarily on their clients or that, you know, the investors that invest in the company. So you have to, kind of, look at that from that perspective and always be thinking about, “Okay, this is what my advice is costing. And you know, this is how that cost is correlated to the advice that I’m, that I’m getting.”
Jim (12:23):
It changed my life–understanding and, and knowing to ask myself, “How does this person make money?” And, it’s the difference between finding a financial advisor (in quotes) and a fiduciary financial advisor. It’s, “How does this person make money?” The first financial advisor I met, you know, we went out for coffee at Starbucks. We chatted a little bit about what I wanted. He disregarded it entirely and pitched me life insurance. And then it occurred to me, “Oh, you work on commission on, like, you said, selling life insurance.” That’s not to say life insurance is bad. I’m saying this guy was a bad financial advisor. Like, that’s how he made money. And you need to understand that that’s good. You know, it’s good for him to push as hard as he can to make money. Like, I understand that there’s a real person there, but that’s not the person I wanna do business with when I’m planning my future. It, it also applies to websites. You know, we talk about, like, YNAB or Mint. Mint is free (in quotes), but how do they make money? There’s no right or wrong answer on this, but it’s up to you to decide. Are you okay with them sending you offers? Are you okay selling your information? If you are, then great. It’s free. If you’re not, you know, go look for a company that charges you up front, you know? Look for a company that’s a little bit more straightforward with how they make money. So you can make informed financial decisions. I really like all of that and I think it’s something we all need to be talking about much more of. And I’m happy you’re hearing it more often.
Mark (13:53):
Yeah. And even, like, from my perspective, just being involved in it day to day, I’ve started asking me that same question. [inaudible] like, “All right, how does this company outside of finance? So I might be, you know, looking at doing some home repairs or something like that, and, kind of, just trace it back and just look and say, “Okay, well, are they incentivized to push this, incentivized to push that?” And then, you know, it’s not just limited to the financial industry. It’s everywhere where, you know, you can be pushed things that probably aren’t in your best interest or that maybe there are better options out there. So it’s probably just a good experience to just, kind of, always be asking yourself that question.
Jim (14:23):
Yeah, absolutely. Super applicable, especially for home repair. Great example. But everywhere, like in every iteration of every business, “How does this company make money?” is a very good thing to understand if you wanna make a decision, whether you wanna support it. You know, like, when you go to a bookstore and you buy a book, the book costs money. If someone’s giving you a free book, ask why. Yeah. There’s a, there’s a lot to that. We’ve talked a lot about a lot of great topics, but there was one other question, which I, I feel like we might have already gone over the answer to, but I, I’d like to get your opinion on it. What’s the biggest mistake people make when planning for retirement?
Mark (15:02):
So I, I think the, the biggest mistake they make is just addressing it too late. I have a lot of people that come in in their fifties, in their sixties, and they say, “I wish I would’ve done this. I wish I would’ve started earlier.” And so I didn’t finish that three-legged stool, but it’s really time. It’s really how much you’re saving. And then third component is what’s the return on my investments. And a lot of people get kind of hung up on that. They like the sexy investments and they like, you know, the, the high return and talking at their friends’ about that they did, made, invested in this stock or this crypto currency or this or that. If people focused on saving and focused on starting early, I think we’d be in so much better shape than, you know, that person that comes in in their fifties. And, and it’s, it’s not easy because you know, when you’re in your thirties, when you’re in your forties, you might be starting a family. You might just purchased a house and your expenses are at their highest. When, you know, maybe at some point in the future, your mortgage is paid off or your kids are outta, outta college. And you’re like, “Okay, I can breathe now. I can start saving.” But then you look at it and it’s like, “Whoa, I don’t really have that much time left if I wanna retire at, at a certain age.” The other thing I think, too, that people don’t realize is there’s a lot of variables that go into retirement. It’s not just your expenses. We know that your expenses can vary in retirement. But a lot of people will, will have this–you know, we, we talk about the success of 401ks.
Mark (16:18):
A lot of people will have a lot of money saved in a 401k, but then they don’t realize they have a partner in there. Because that’s all pre-tax money, like, they may have a million dollars in there, but they’re not gonna see the full million because any dollar that comes out, they’re gonna owe tax on. So a lot of times they’ll make their projections. They’ll look, and they’ll see this big chunk in there. And they’ll say, “Yeah, I’m really good.” And they just don’t realize that taxes do come into play, which is why I’m a big proponent of Ro–saving in Roths, if you can. I’m a big proponent of HSAs, ah, which is a health savings account. And there’s really no other financial product out there that has the tax benefits that an HSA does. You get a deduction for the money that goes in, the growth in the HSA is tax deferred, and as long as it’s used for medical expenses, you don’t have to pay tax on it. I think it’s one of the most overlooked things. There’s certain types of plans that have HSAs and some that don’t have the availability of them. But when I talk to someone, I always say, “The HSA is an option in your health insurance plan.” So it gets the triple tax benefit, whereas like a 401k, you can either get the tax deduction upfront, but then you pay tax at the end. Even with the Roth, same thing, Roths are great. They’ve gotten a lot of really good publicity recently, but you’re paying with post-tax money. So your money’s, you know, you pay tax on it and, you know, you get the benefit of–at the end when you take the money out, you don’t have to pay tax on it. But again, it’s not the triple tax that the HSAs do. So it’s just a, you know, one example of, you know, look at all your options out there. And don’t just say, “Okay, you know, I…” There’s usually open enrollment that people have once a year with their employer benefits. And again, if you’re not employed at a company, it’s up to you to put your own benefits package together. And I think too many people just, kind of, wing it and say, “Eh, I’m not gonna worry about it. I’ll just do this option, this option, this option.” But we recommend always, every year, open enrollment, look at your options and make an ana–do an analysis. And does it make sense to take advantage of this? Take advantage of, of this option? You know, HSAs being one. Roth, whether it’s in your 401k or whether it’s an IRA, it’s another one. But you know, going back to your original question, it’s, you know, just start early, think about, you know, project out. There’s a lot of time bombs in retirement, from expenses going up, from health costs going up, from taxes potentially going up. There’s also market volatility that people don’t realize. They might have, you know, just, kind of, invested over the past 15 years or 10, 15 years. And sure they saw a drop last year. They may saw a drop in 2009. But people forget very quickly. And they think the markets just go up. And, you know, if someone retires and there’s a big drop, not only does that hurt, but it also hurts emotionally because you’re potentially making rash decisions and possibly not the right decisions based off of, you know, something negative happening in the markets where, you know, you wanna, kind of, be disciplined about or be strategic about it. So, you know, going back, it’s, it’s really evaluate all your options, but also project out and project negative because things aren’t always as rosy as they may look in retirement.
Jim (19:17):
Really, really good answer to your three-leg analogy. Time, savings, and return. That return, people are coming in to talk to you about. Of the three, it’s the one you have the least control over. You can’t control your return on the S &P 500. You know, like, if you’re, if you’re doing index investing, which, you know, if you don’t know anything about investing, even if you do know everything about investing, is a solid strategy worth looking into. Return is not guaranteed. But time, you know, if you catch it early, and savings rate, you know, if you start it as high as you can and make those small adjustments we’ve been talking about, those are things you can control. And I love the idea that we need to put our weight on those two legs of that three-legged stool as much as possible, and just hope that that third leg can support us with the rest.
Mark (20:11):
Yeah, and it’s, I enjoy what I do. I get to help people, you know. I’m in an environment that changes all the time, so it, it doesn’t get stale. I get to be a coach at some times, educator. I get to, you know, teach people about different things. I, sometimes therapist too. The one thing I don’t like is that I can’t control the markets. And as much as people think that I actually can, I obviously cannot control ’em. You know, I always frame it as, you know, there’s risk that someone is gonna have to take. And even if we look at it from a risk perspective, there’s still uncertainty in there. But you know, we look at it as, this is how much risk you’re taking this. And we, we have ways of quantifying it and looking at someone’s investments and saying, this is how much risk is in there. We’ll kind of give them a test to see how much risk are you comfortable with. And really the purpose of that is to make sure there’s not too much risk, that they hit that breaking point where they’re like, “Sell everything! I’m out!” And obviously at that call is gonna come at the worst time for it. But then there’s also how much risk should they be taking? You know, I think we all would love to just have money sitting in a bank account with no risks, money sitting under our mattress, and really never have to hear another “The S&P is up this much today or down this much today.” But in reality, most people are gonna need to take some kind of risk to get some kind of return. And, you know, we just put, try and put as much structure around it knowing that there is a lot of uncertainty around it.
Jim (21:28):
Sure. And the other side of that is when you’re going to any advisor and saying, “Hey, I want the biggest return possible.” You’ve gotta understand what you’re asking for is usually “I’m open to the biggest risk possible.” And if you’re coming close enough to retirement, where you, you think return is the way to go, it’s probably the time you should be least tolerant to risk. That’s why we talk about, you know, putting people in bonds, you know, as they get closer to retirement, putting into them, you know, under the mattress, basically. You don’t wanna lose this money ’cause you’ll need it very soon. You need to be less risky is generally the advice you get closer to retirement. I hadn’t thought about it before, but it’s a wonderful and terrifying idea that people are saying, “I need high returns right now” rather than “I need to increase my savings rate” or “I need to have started younger.” And you obviously can’t control one of those two after a certain amount of time.
Mark (22:18):
Yeah. It’s all about focusing on things you can control. And the markets fall into that bucket of things that you can’t control. So focus on the things that you can, which, if we look at it from the analogy of the, the three legs, it’s savings and when you start saving.
Jim (22:31):
This has been illuminating and an incredible conversation. So thank you so much for joining the podcast today. Where can people find you?
Mark (22:40):
So yeah, you can find us on our website, which is BautisFinancial.com. And you can… I mentioned earlier, I host a podcast called Agent of Wealth. And we just, kind of, look at everything. We talked about how wealth can be, mean a lot of different things, but it’s really focused on what’s important to you and how people are on that financial journey and things that can help them maybe get to where they’re trying to go.
Jim (23:00):
One question about the nuts and bolts of your business. So you’re based in New Jersey. Do you work with people all over or is it just within the state?
Mark (23:06):
We do. So we’re not limited to New Jersey or in the surrounding states. We can work with anyone in, in any state in the US.
Jim (23:12):
Awesome. So if you need a financial advisor, good place to go. And if you don’t, but you wanna listen to a financial advisor for free, listen to the podcast. Special thanks to Mark Bautis, a real resource for financial knowledge, and our audio editor intern, Jenny Blauvelts. Frugal Living is sponsored by Brad’s Deals. That’s B R A D S D E A L S .com.
More about Frugal Living with Jim Markus
To hear more from Marc Bautis, check out the latest episode of Frugal Living. You can also listen to a Marc and Jim speak in-depth about being frugal and shopping online in Marc’s Agent of Wealth podcast episode. Frugal Living is a podcast for smart consumers. How do you spend less and get more? The show, sponsored by Brad’s Deals, features interviews, stories, tips, and tricks. Jim Markus hosts season four, out now.
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