Behind the Numbers: How Financial Advisors Get Paid
by SGL Financial
Our 2 Cents – Episode #187
Behind the Numbers: How Financial Advisors Get Paid
Welcome back to another great episode of Our 2 Cents! On today’s show, Steve and Gabriel share which former Chicago Bulls star finally found a buyer for his iconic mansion. Then, they answer the question on everyone’s mind: How do financial advisors get paid? Listen in now using a link below!
- Finally Sold:
- After 12 years on the market, this 32,683-square-foot Highland Park estate, often remarked as a popular tourist destination, is now under contract with the selling price unknown.
- How Do Financial Advisors Get Paid?:
- Uncover the various pay structures of financial advisors and what they mean for your financial future.
- Learn about the different types of financial advisors, their potential biases, and the pros and cons for each compensation model.
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Podcast Transcript
Announcer: You’re listening to Our 2 Cents with the team from SGL Financial, building wealth for life. Steve Lewit is the President of SGL Financial, and Gabriel Lewit is the CEO. They’re here to discuss all the latest and financial news, trends, strategies, and more.
Gabriel Lewit: Well, hello. Welcome to Our 2 Cents. You’ve got Gabriel Lewit, Steve Lewit, and the production crew in the background here.
Steve Lewit: Wait, I got to scooch up to my microphone.
Gabriel Lewit: Oh, yeah. Before we started the show, I had asked producer Katie here to turn up the headset volume just a skosh. And then somehow we got onto the topic, how do you spell that?
Steve Lewit: And is it a word?
Gabriel Lewit: Well, yes. It turns out-
Steve Lewit: Skosh is a word.
Gabriel Lewit: You thought it was spelled scooch, S-K-O-O-S.
Steve Lewit: Like scooch over.
Gabriel Lewit: No, that’s not turning it up a skosh, that’s a scooch. Anyways, so it turns out we Googled this for you, in case you were wondering, because we tried to figure how to spell it. It took us a long time to figure it out. The word skosh comes from the Japanese word sukoshi, which is pronounced skoshi and means a tiny bit or a small amount. At least this is according to Merriam-Webster’s dictionary.com. Don’t blame me if that’s incorrect.
Steve Lewit: How did you know this?
Gabriel Lewit: We Googled it right here in front of us.
Steve Lewit: Yeah, but how did you even hear of this word skosh.
Gabriel Lewit: Skosh. You’ve never heard the word skosh?
Steve Lewit: I’ve never heard the word skosh.
Gabriel Lewit: Scoot over a skosh or turn up the volume a skosh?
Steve Lewit: No. No.
Gabriel Lewit: I’m not saying scoot. I’m saying-
Steve Lewit: I hear you.
Gabriel Lewit: And it means, again, a very tiny bit or a small amount.
Steve Lewit: Very nice.
Gabriel Lewit: So, you could add a skosh of cream to your coffee.
Steve Lewit: So, this was a skosh of an introduction.
Gabriel Lewit: No, that’s inaccurate usage.
Steve Lewit: Okay.
Gabriel Lewit: All right. Well, we’ve got other important news for you too. Apparently Michael Jordan might actually have sold his overpriced mansion that’s been sitting on the market for 12 years.
Steve Lewit: 12 years, yeah.
Gabriel Lewit: Now they say the final price has yet to be revealed, but the house is under contract. And just in case you were wondering, it was listed in 2015 for $14,855,000.
Steve Lewit: Down from.
Gabriel Lewit: Down from the original asking price of $29 million in 2012.
Steve Lewit: Yep.
Gabriel Lewit: It’s got seven acres. You can Google, by the way, for a tour through the property.
Steve Lewit: You can.
Gabriel Lewit: It’s very interesting.
Steve Lewit: You can.
Gabriel Lewit: If you haven’t. It’s a seven acre luxury property, includes an indoor regulation size basketball court, a tennis court, a putting green, and a very large swimming pool. It’s got nine bedrooms, 19 bathrooms, 15 of which are full size, an office space library, cigar room. I think he likes cigars, Michael Jordan.
Steve Lewit: He still does. Yes.
Gabriel Lewit: Yeah, five fireplaces and a 14-car garage. ‘Cause you need to house all your cars. So yeah. Yeah. It’s a very popular tourist destination apparently as well to take pictures in front of.
Steve Lewit: Yeah. So the neighborhood doesn’t like that, but it says here they’ve learned to live with it.
Gabriel Lewit: Yeah. Yeah. So any who’s, yeah, we’ll keep you appraised of that. Just news to use.
Steve Lewit: We will.
Gabriel Lewit: Maybe when we get the final price, it’d be interesting to see. Because not all real estate is a good deal. There’s our financial tie-in.
Steve Lewit: Okay. Where are you leading us here?
Gabriel Lewit: Nowhere.
Steve Lewit: Oh.
Gabriel Lewit: That was it.
Steve Lewit: That was it?
Gabriel Lewit: Yeah. We just needed a tie-in.
Steve Lewit: You know, I’d like to take a tour of that. I’ve never, I’ve driven by it and I’ve stood by the gate with the big 23 on it, but I’ve never-
Gabriel Lewit: You stood by the gate?
Steve Lewit: Yeah.
Gabriel Lewit: When?
Steve Lewit: Oh, it had to be when he was still living there. Yeah.
Gabriel Lewit: Wouldn’t have guards have come out to-
Steve Lewit: No, you could just-
Gabriel Lewit: …shoot you at that point?
Steve Lewit: No, there was nobody there. You could just stand by the gate. But I never took a tour. I’d love to see that place.
Gabriel Lewit: That sounds to me as exciting as there was a, in Chicago recently, there was this whole hubbub about, there was apparently a, in a concrete, there was an indentation of a rat.
Steve Lewit: Oh my God.
Gabriel Lewit: And they called it the Chicago rat hole attraction. And people were literally flying in and then driving over to take a picture next to this rat hole indentation in the concrete. And then it was like, really? And they filled it in. And so now it’s gone and you can’t, you missed your chance.
Steve Lewit: And tourism is down in Chicago.
Gabriel Lewit: Tourism is down in Chicago because the rat hole is gone.
Steve Lewit: Hey, the Fed is announcing interest rates today.
Gabriel Lewit: Yeah. So by the time you listen to this, you’ll know the answer, but it’s probably going to be a decrease is what most predict. So we will likely talk about that next week.
Steve Lewit: For sure.
Gabriel Lewit: What that means for you. Again, just keep you apprised of the markets and the economy. Okay. So well, with that riveting introduction out of the way, it’s been a little bit since… I don’t know if we’ve ever talked about this on the show.
Steve Lewit: I was thinking about it. I don’t think we ever have.
Gabriel Lewit: We might have, maybe it’s been a while. But we’re going to talk about how do financial advisors like SGL Financial or others out there get paid? And what should you look out for if you’re a consumer? And what is good, what is not good? We’re going to dive into this world. And I think it’s hopefully going to be something that’ll be enlightening and eye opening and give you some food for thought on that front.
Steve Lewit: Well, I think most people think advisors earn a fee and that’s it, and that’s how they get paid. But there’s a whole world out there of compensation for advisors that we’re going to visit today and fill you in on the pros and the cons.
Gabriel Lewit: Yeah, yeah. So let’s jump in, a high level. Let’s talk about the very big picture ways that advisors can get compensated. But before I do that, and related to this, we’re going to talk about the types of places where advisors work. For example, some advisors work out of a bank. You go to JP Morgan Chase, you’re talking to the teller. The teller happens to see that you’ve got a bunch of money in cash.
Steve Lewit: Cash and-
Gabriel Lewit: “Oh, Mr. Smith, Jimmy over here in our advisory department has got some great ideas on some market link CDs or investment options. You might be able to get a better return on your cash. You want to come over and talk to them for a minute?”
Steve Lewit: Yeah. Well, that’s what they do.
Gabriel Lewit: That’s what they do.
Steve Lewit: They feed you from the teller’s line into the little private office.
Gabriel Lewit: And that’s very typical at Wells Fargo’s, Chase banks, anywhere where you’ve got a physical branch location, that’s a very common setup. And so there are many advisors that work, what we call in our industry captive, for a bank directly, meaning they typically work for that bank as a W2 employee.
Steve Lewit: Yeah. And captive means that they’re not running their own business. They have the rules of the bank to follow, the products of the bank to abide by.
Gabriel Lewit: The quotas of certain products the bank might want them to present
Steve Lewit: For sure.
Gabriel Lewit: Okay. So that’s one type of environment. Another is what’s called an independent advisor. So we are independent advisor, somebody that started their own company and they do not have a bank telling them what to do. And typically they will have a choice of a wider range of product options out there. And I do say typically, because we’re going to talk a little bit more about this in just a moment. Some independent advisors choose to keep their investment selection very narrow, and others decide to keep it very broad and provide lots of options. And that will directly impact the compensation model that they’ve got.
Steve Lewit: Yes.
Gabriel Lewit: So independent advisors start their own business. You’ve got advisors that work for big broker-dealers, so not necessarily what you would think of as a bank, but think Charles Schwab. Nobody says, “Oh, my bank is Charles Schwab.”
Steve Lewit: Ed Jones.
Gabriel Lewit: Edward Jones. So these are more called wire houses or big brokerage firms predominantly, even though they may offer some banking type features.
Steve Lewit: But they’re not banks in themselves.
Gabriel Lewit: They’re not banks, yeah. You don’t go up there just to open a checking account typically. So advisors work for them sometimes and most commonly as W2 employees. And again, usually captive versus independent. Although there are some independent models where somebody is affiliated with a bigger name bank or institution, but they quote unquote are independent-ish.
Steve Lewit: So, the shingle on the office might say Merrill Lynch, but that business might be owned individually by a group.
Gabriel Lewit: Yeah, exactly.
Steve Lewit: Something like that.
Gabriel Lewit: Something like that. And then last but not least, you’ve got people that are insurance agents that sometimes put out that they are retirement advisors, even though their sole focus might be insurance. And all of this comes back into how do advisors get paid? Because how they get paid might be very dependent on the type of environment that you find them in.
Steve Lewit: The type that you find them in and the products they are offering and recommending.
Gabriel Lewit: Yes. Yep. Exactly. Which will vary from type to type. So Mr. Lew.
Steve Lewit: Yes, sir.
Gabriel Lewit: Which of these would you like to dive into first?
Steve Lewit: Well, let’s start with the most popular, which is fee-based advisor.
Gabriel Lewit: Yeah. So you mean independent?
Steve Lewit: Independent fee-based advisor?
Gabriel Lewit: Yeah.
Steve Lewit: Well, fee-based advisor could be independent, or it could be captive.
Gabriel Lewit: It could, yeah. But let’s talk independent for a second.
Steve Lewit: Okay.
Gabriel Lewit: We’ll switch back to captive, and we’ll switch back to insurance agents. We will try to reference these for you. And if it seems confusing, well, it kind of is.
Steve Lewit: Which is why we’re talking about it.
Gabriel Lewit: Which is why we’re talking about it. So we’re an independent advisor and we’re what’s considered, then we’re going to use some new terms for you, fee-based. There are some independent advisors that are considered fee only, and then there are some independent agents, insurance agents that call themselves advisors but don’t sell any advisory products and just sell insurance. And those are generally going to be commission-based.
Steve Lewit: Yeah. And in actuality, they’re not supposed to call themselves advisors.
Gabriel Lewit: Yep.
Steve Lewit: They’re insurance agents, but oftentimes they’ll refer to themselves as, “Well, I’m an advisor.” By law, they’re really not.
Gabriel Lewit: They’re not supposed to say that. Yeah.
So let’s talk about fee-only as a starting point. So fee-only, what that means is a firm that’s independent, usually, will say out front, “We will not sell or offer any investment product ever if it pays us a commission. The only compensation we will ever earn will be some form of advisory fee agreed upon between us and the client. And the client will pay that advisory fee.” And assuming that that’s the case where they do not receive any commissionable compensation of any kind, and we’ll talk about why that might sound good on the surface, but it actually maybe isn’t good.
Steve Lewit: Well, let’s talk about why they take that stand.
Gabriel Lewit: Yeah. Well, you want to dig into that?
Steve Lewit: Yeah. So there is a misconception, well, I wouldn’t call it a misconception, but the idea behind that is that if people are working on commission, they’re always going to push high commission products and not work in your best interests.
Gabriel Lewit: Yeah. The thought behind that is that quote-unquote commissions equals bad.
Steve Lewit: Yeah. Commissions equals bad.
Gabriel Lewit: Ergo we will never do anything with them, and we will just charge you advisory fees that you’re aware of.
Steve Lewit: Yeah. So firms grew up in the business and said, “No, we won’t touch a commission because that’s just a terrible thing to earn commissions. So we’re fee only,” which is a way of saying that we’re better than the other guys because we’re not taking a commission.
Gabriel Lewit: Yeah. Now what’s interesting about it is… Well imagine for a second, there’s different sides of this opinions on this matter. We’ll talk to you about ours. We don’t think all commissions equals bad, we’ll get into why. But imagine for a second an industry that typically pays commission that people probably wouldn’t change… Imagine you went to your car dealership and they said, “You’ve got to pay us $5,000 to help you find your new car. Regardless of the price of the car, you’re going to pay us 5,000.” Most people would be like, “What are you talking about?”
Steve Lewit: Exactly.
Gabriel Lewit: “I don’t want to do that.”
Steve Lewit: Yeah.
Gabriel Lewit: Right? The car guy gets paid from his company, which gets paid from the car manufacturer for the sale of the vehicle. That’s that business model. Our business model in the financial industry is very different of course, but the idea that all people want to pay fees is also false. Another reason why having flexibility in this industry in different types of compensation, not everybody wants to pay fees on everything.
Steve Lewit: For sure.
Gabriel Lewit: In fact, we have many clients who are very fee-averse. But the other part too is let’s say again, going back to fee only, so what’s going to happen is when you go to that firm, they’re going to say, “Okay, you want us to manage your money and we’re going to charge you an advisory fee. A annual percentage of the investments we manage on your behalf,” typically ranging between 0.5% on the very low end to 1.5 to even 2% at some places on the very high end. And so there’s a very wide range. If you were to ask what is the industry average for an advisory fee, the go-to for that is kind of the quintessential 1%.
Steve Lewit: 1%.
Gabriel Lewit: All right. So I go to an advisor, they’re going to charge me 1% on my assets. But again, that can highly vary depending on company to company. Ours, for example, is less than that, and we’ll talk about that in a second. And others are quite a bit more than that. And not necessarily meaning you’re getting more value, you might just be paying more. So that’s the fee only side. You’re going to be charged a fee. That fee gets deducted from your account balances, and then that is how the advisory firm gets paid.
Steve Lewit: Yeah. So if you go to a fee only advisor, it’s like going to, Gabriel, it’s like going to a restaurant that only serves steaks, because you’re dealing with somebody who works in the stock market with the stock market. That is a fee-based advisor. You’ve given them your money, your money’s going into the stock market. That’s the only choice on the menu.
Gabriel Lewit: Yeah, maybe we’ll mix in some of the pros and cons here. So obviously the advantage there is it should be very clear what you’re paying for. It should be clear, in theory, what you’re receiving. And that money is coming from you and you’re aware of that in advance. And there are no commissions being paid. But the downside there is that in itself creates conflicts of interest. Let’s say you have $300,000 in your money in an investment account, and you say to the advisory, “Yeah, I want to pull all this money out to buy a house.” They’re going to be conflicted because they don’t want you to pull all the money out-
Steve Lewit: Pull the money out.
Gabriel Lewit: ‘Cause they’re charging advisory fees.
Steve Lewit: Or they don’t want you to do a Roth conversion because there’ll be less money in your account.
Gabriel Lewit: Yeah, exactly. They say, “Oh, if we convert your $300,000 Roth and it becomes a IRA to a $250,000 Roth.”
Steve Lewit: Well, I just lost money.
Gabriel Lewit: Yeah.
Steve Lewit: Right.
Gabriel Lewit: So, conflicts of interest are present anywhere, and we’ll talk about that here as we talk about the other compensation models.
Steve Lewit: So, I’m going to add on another complexity to this, is that in captive fee-based advisors that are using proprietary products from the company, there are other incentives over the fee, and there are other costs such as in the mutual funds they might be using or in the ETFs that they might be using. So it’s not only the fee, but what are the other costs and what are the limitations of a fee-based advisor?
Gabriel Lewit: You mean fee only?
Steve Lewit: Fee only. Sorry, fee only. Fee only.
Gabriel Lewit: Yeah. And that’s a little beyond the scope here. Yeah, there are other expenses to be aware of, but yeah, there is always even then something else to usually keep in mind.
Now I’m going to switch gears because I’m going to switch to commissionable and then I’m going to switch to fee based, which is really a hybrid of the two. Commissionable, no surprise, you work with somebody that offers a product. The product itself may not have any fees. But you might then ask, “Well, how does the advisor get paid?” The advisor gets paid via the company that provides the product, pays the advisory commission as compensation.
Most of the time that does not come out of your pocket. There are some types of investment, believe it or not, not just insurance but investment products that charge commissions. And sometimes those do come out of your dollars. But most commissions are paid by an insurance company or a financial provider, and they don’t come out of your pocket, that’s how the advisor gets paid.
Generally pretty simple. Those commissions can vary in size depending on all sorts of different types, the types of products and the terms of the products. So it is hard to give a one flat size like we did for the advisory fee, but that’s generally how that world works.
Steve Lewit: And some of those commissions can appear to be very large. And why would you earn such a big commission over two hours of work or three hours of work? Or how do I know that you didn’t sell me the highest commission product? And that’s why the commission business has always got this question mark next to it, because there’s no fiduciary responsibility there. There’s no advisory responsibility. It’s only what we call a best interest.
Gabriel Lewit: Well, that’s starting to change a little bit-
Steve Lewit: It is now.
Gabriel Lewit: …a little bit. So there’s new regulations coming in place.
Steve Lewit: But years ago, commission business was very questionable.
Gabriel Lewit: Yeah. And then the last version is what’s called fee-based. Now, fee-based means the company offers both investment products that could be advisory fee based, or they could offer products that pay a commission. So they have flexibility to offer different types of products. Now, that’s where SGL falls in. We’re what we consider or call a very holistic, comprehensive advisory firm. Meaning we offer a wide range of investments where we have managed portfolios. We charge an advisory fee to manage those assets for you. We do offer life insurance, some annuities, some term life policies, Medicare, disability. Because we’re a full service. So we want to offer to you, and we’re experts in because we have experience in offering these things to so many clients, all of these different aspects of your plan, they just happen to pay us a commission if we do so.
Steve Lewit: Yeah. So if I go back to the restaurant analogy, if I can Gabriel, because you use this a lot. I think I picked this up from you, actually.
Gabriel Lewit: Mayhaps.
Steve Lewit: Mayhaps, yeah. No, that doesn’t work there either. Yeah. So look, if you go to an investment house, Maryland’s, at Jones or Wells Fargo, really the menu is the stock market. The menu is-
Gabriel Lewit: Steak and other flavors of steak.
Steve Lewit: Steak and steak and steak-
Gabriel Lewit: We’ll get rib eye steak-
Steve Lewit: And rib eyes and pork chops, maybe.
Gabriel Lewit: Steak medallions.
Steve Lewit: I’m getting hungry. If you go to an insurance company, what are they… They might have investment-
Gabriel Lewit: Chicken. You get this kind of chicken, you got that kind of chicken.
Steve Lewit: Glazed chicken, baked chicken. All right? And we said, Gabriel and I, when we built the company, and when I started the company, I said, you know what? Every product I think has a pro and a con to it.
Gabriel Lewit: Yep.
Steve Lewit: Just like everything on the menu. For some people this works. And for some people, I don’t like fish. I like steak, but I love the restaurant. So I want to go to that restaurant and have a lot of choices.
Gabriel Lewit: Yeah.
Steve Lewit: And so that’s how we built this place.
Gabriel Lewit: We do. And I think to me, that makes the most amount of sense. I mean, it’s interesting because I think when you go to a restaurant, most people like to have options. I think if you go to an advisor, you want to know that there’s a wide range of choices that the advisor is going to try to assess what is best for you based on what you like and don’t like, and give you a range of options to meet those goals. And like any investment menu, I mean, certainly we can have a specialty. You go to some menus, they have 800 pages of options. You go to others that have 12, and you could go to another that just has all steak, maybe. I don’t know if there’s an all steak restaurant. But the idea here is I think most people like knowing they have options and like knowing that their advisor’s going to customize things for them based on their unique profile.
And here’s where this really starts to come… I talk to a lot of people, they go, I’m not going to name the name on our show, but they come to me and say, “Yeah, I filled out this questionnaire online and I got a bunch of calls from this big company that just trying to sell me on their assets management program and their 1.5% Fees. And they didn’t talk to me about anything else. They didn’t talk to me about tax planning. They didn’t talk to me about insurance. They said, ‘oh, they said, everything else is bad that you can buy because they pay you commissions. All we want… You should just be in our large CAP S&P fund. Or our large CAP US stock fund. 1.5% Management fee.” And that was the pitch. And I say to myself-
Steve Lewit: And people like that.
Gabriel Lewit: Some people like it, but I say, yeah, but not everybody in the world just wants that. Isn’t having more choices and options good, right?
Steve Lewit: Well, that person may, that goes there, might say, and this is possible to say, “You know what? I’ll have this guy manage this part of my money. I’ll have my insurance guy over there. I’ll have my attorney down the block. I have my CPA down there,” and on and on.
Gabriel Lewit: Yeah, now you’ve got a mishmash.
Steve Lewit: Well, you got a group of people-
Gabriel Lewit: Yeah, you’ve got six quarterbacks.
Steve Lewit: That never talk to each other.
Gabriel Lewit: Yeah, six quarterbacks all wanted to control the-
Steve Lewit: And that’s how it’s always been. Because getting all of this under one roof, as you know, I’m not tooting our horns here, but it’s a bear.
Gabriel Lewit: Yeah.
Steve Lewit: It’s not easy.
Gabriel Lewit: And well, one other important thing. So some of these same fee only or investment only shops, here’s the other flaw that I see as a flaw is if you ask them about, “Hey, I’ve heard about this annuity,” as an example. “How does that work?” They do not offer the products, meaning they have no experience in them. So you’re asking an unqualified person who only sells one thing to give you an opinion on something that they don’t offer that they have no experience in. And what they all come back and say, “Oh, those are no good. You don’t want those. You should be in the market.”
Steve Lewit: Well, they whitewash it because they don’t know what to do.
Gabriel Lewit: No. They might say by not offering commissions, they’re unbiased. I would say by not offering everything to their client or all types of options for, they are in fact very biased.
Steve Lewit: Yes.
Gabriel Lewit: Because they can only earn compensation one single way that would be best for them, so they’re going to start to steer you in that direction.
Steve Lewit: Yeah.
Gabriel Lewit: Unfortunately.
Steve Lewit: So-
Gabriel Lewit: And we see that a lot.
Steve Lewit: So, there’s these different models. I don’t want to run out of time. Could you go into the flat fee model?
Gabriel Lewit: Well, yeah. Then there’s just, “Hey, advisor’s going to, I’ll pay you $1,500 or $2,000 to create a plan for me.” Okay, a one-time plan.
Steve Lewit: A flat fee.
Gabriel Lewit: I will manage the money myself.
Steve Lewit: That’s a planning fee.
Gabriel Lewit: Planning fee.
Steve Lewit: Okay.
Gabriel Lewit: And I’m going to quote-unquote save money by just paying you to do a plan. There’s just a couple problems with that model.
Steve Lewit: Well, we’ve been through that.
Gabriel Lewit: We’ve seen it over and over. Because we do offer fees for plans or plans for fees.
Steve Lewit: Yes.
Gabriel Lewit: Yeah. That was reverse.
Steve Lewit: Yes. We’ll do that too.
Gabriel Lewit: Yeah. And then we have a check-in call six months later and it’s like, “Hey, did you get that implemented?” No.
Steve Lewit: No. Or here’s what I would get when we were doing that a lot is, “Well, I showed it to my advisor and he didn’t like it.” It’s like, right, of course not.
Gabriel Lewit: Or I get, “Hey, did you want us to run a tax analysis for you to see what the best place for you to invest your money would be. Roth? Pre-?” “Oh no, I don’t want to pay you for that.” So much advice can get missed there or not implemented. So everything’s got pros and cons, folks.
And I think you said that. That hits the nail on the head. There are pros and cons to everything. We offer a holistic comprehensive suite of investment menus. One other example I like to give about the fee-based side, or fee only being maybe a conflict of interest. There are fee-based fixed rate annuities called MYGA. Let’s say one right now, 5.6% as of today. But the advisor would have to charge an advisory fee. And let’s say their advisory fee was 1%. So what they’re going to do is they’re going to say, “Okay, I’m going to buy this advisory fee, MYGA pays no commissions. And you’re going to get 5.6 minus our 1% advisor fee. So you will net 4.6%.” And you’re going to say, “Oh, that sounds great for five years. That’s a good rate for five years.”
Steve Lewit: Sure, except…
Gabriel Lewit: Except that advisor could get a commissionable version of that product, pays no fee. Does pay the advisor a commission and it has a 5.2% rate for five years. Identical product.
Steve Lewit: So, you just lost 0.6% because the guy is a fee, or the gal is a fee only person.
Gabriel Lewit: Right. Who’s supposed to be a fiduciary. And if you looked at both those options side-by-side, one just happens to pick, which one is better. If you the client were given that option, net of compensation, 4.6, 5.2, I think most would, same product, same company even, which would you choose? Because the same companies are offering two different versions of the products. You would choose the 5.2.
Steve Lewit: So, it’s a very complex-
Gabriel Lewit: What a world, huh?
Steve Lewit: …Fees in our business and insurance business are very complex, very misunderstood. There’s a lot of stuff going on behind the scenes that people are not aware of. But we’ve come down, like you said Gabriel, to the point and say, “Look, if it’s out there, it probably has a pro and con. It does. But if we can find the right place for the right product, we’re way ahead of the game
Gabriel Lewit: Not only that, on insurance products that offer both fee version and commissionable versions-
Steve Lewit: And many do.
Gabriel Lewit: Which many do these days, we will look at both options for you.
Steve Lewit: At both of them, see which is better for you.
Gabriel Lewit: True. So I really like to say nobody is truly 100% unbiased in this industry, but you can reduce the odds of someone being biased by making sure you’re working with someone that can truly offer all available options and product types to you independently, not captive and beholden to the company they work for.
Also, last but not least, about the amount of the fees. A lot of these companies charge high fees, the advisory fees, not the commissions, I’m not talking about that, for just investments. Whereas we try to charge a lower below market rate fee. ‘Cause I honestly think a lot of advisors overcharge.
Steve Lewit: Yeah, we do.
Gabriel Lewit: And provide greater value in the sense that you get comprehensive holistic planning: income planning, retirement planning, tax planning, estate planning, legacy planning, insurance planning, everything wrapped up together, all bundled under one roof. Including tax preparation, other guidance, and more.
Steve Lewit: Yeah. So that’s our model. I don’t want this to turn into an advertisement of how great we are, but we are.
Gabriel Lewit: Well, it is our podcast, so yeah, we can be a little biased.
Steve Lewit: A little bit biased. But look, folks, you could be doing business with a fee only advisor that is doing a great job for you, that’s communicating, that’s managing your money well and keeps you apprised. And that is great. We’re not saying this is bad stuff. We’re just saying that you have to understand what restaurant you’re shopping in and what they like. Some restaurants like garlic, some restaurants are, like you said, steak houses. If you go to a company and they’re selling you a proprietary product, ask yourself why? Is that really the best product out there? So it’s not that these are bad or good, it’s just they’re very, very different experiences for you in how getting peace of mind in how you handle your finances.
Gabriel Lewit: And one of the questions that we always recommend, if you’re out there, obviously we’re talking about this on our podcast, we’re not hiding this information from anybody. Because you should ask, when you go to talk to any advisor you’re interviewing, how do you get compensated? Right?
Steve Lewit: Yeah. And we’re an open book on it. We’ve got nothing to hide.
Gabriel Lewit: Yeah, absolutely. So yeah. Well, this ended up being what we call a deep dive segment. We were going to talk about other things, and I feel like I blinked and 25 minutes went by.
Steve Lewit: It did. It really did. I hope that was helpful though.
Gabriel Lewit: I actually don’t, I haven’t felt a show go by this fast in a long time. Maybe we just got-
Steve Lewit: Well, we’re very passionate about this, obviously.
Gabriel Lewit: Yeah, yeah…
Steve Lewit: But I hope this is helpful to you all out there, just to get an idea of what goes on in our industry, all the different kinds of shades of gray and this and that, that you have to be aware and ask the questions. You can’t be bashful.
Gabriel Lewit: Yeah. Yeah, absolutely. So if you’ve got questions on this or of any kind, or you want a list of other questions to ask advisors if you’re interviewing them, well give us a call. We’re here to help 847-499-3330 or go to sglfinancial.com or email us info@sglfinancial.com. We did have a couple of questions from listeners that came in.
Steve Lewit: We never got to them.
Gabriel Lewit: We didn’t get to. We apologize. We will cover them next week.
Steve Lewit: We will.
Gabriel Lewit: ‘Cause we do try to get to them timelier when they do come in. We don’t get questions every week, but we do occasionally, and then we try to bank up a couple for the show. So yeah, email us your questions. Share the show with your friend. I think I just heard the other day from Producer Gabby.
Steve Lewit: Gabby.
Gabriel Lewit: Gabby.
Steve Lewit: You mean Gabby.
Gabriel Lewit: That we’ve hit some our highest-
Steve Lewit: Gabby.
Gabriel Lewit: …highest listenership in recent episodes, which thank you so much for tuning in.
Steve Lewit: Thank you everybody, means a lot to us.
Gabriel Lewit: It does. And we want to continue to keep you semi-entertained by our maybe not so witty banter. And of course informed on financial matters.
Steve Lewit: But of course.
Gabriel Lewit: But of course.
Steve Lewit: But of course.
Gabriel Lewit: Have a wonderful day and a week, and we’ll talk to you next time.
Steve Lewit: Stay well everybody.
Gabriel Lewit: Bye-bye
Steve Lewit: Bye.
Announcer: Thanks for listening to Our 2 cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at (847) 499-3330 or visit us on the web at sglfinancial.com and be sure to subscribe to join us on next week’s episode.
Prerecorded Voice: Investment Advisory Services are offered through SGL Financial, LLC, an SEC Registered Investment Adviser. Insurance and other financial products are offered separately through individually licensed and appointed agents.
