Need a Financial Advisor? Start Here!

Mindy:
Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me as always is my stimulating co-host, Scott Trench.

Scott:
Thanks, Mindy. Amped to be here. We’re here to make financial independence less scary, less just for somebody else, to introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Mindy:
On today’s episode, we are speaking with Jeremy Schneider from Personal Finance Club and Nectarine about a financial issue that he is especially passionate about, the business of financial advising. In this day and age, when anyone can sell anything for any price, it’s more important than ever to be educated about your options, especially when it comes to your finances.

Scott:
So stay listening, because in today’s episode Jeremy is going to help us demystify the world of financial advisors and give us actionable tips on how to get financial advice without paying fees we don’t need to be paying. I love his four tiers. You’re going to learn a lot from this and agree completely with him.

Mindy:
I am so excited to bring in Jeremy.
Jeremy, shifting gears, you started a company called Nectarine as a reaction to some of the issues you see in the financial advisor industry. Can you explain for our audience who may not know what a financial advisor is?

Jeremy:
So basically, I’ve been teaching about personal finance and investing since, I don’t know, which has been the last five years or so. The question that I always get is, how do I find a good financial advisor? And it’s a really hard question to answer, because there’s basically four major types of financial advisors, and we walk through them from worst to best.
The worst type is the insurance salesman. A lot of people walk into an office and a nice person there, and shake their hand. They have financial advisor right on the nameplate of their door or whatever, and then they proceed to try to sell them insurance. And it’s a very confusing experience for people, because they don’t know if they should be buying insurance, and that’s not what they thought they were walking into. The term financial advisor isn’t a regulated term. It’s a lot of insurance salesmen telling them that. So if you walk into an office and expect, or you have an associate or friend or whatever who’s trying to sell you insurance, that’s not a financial advisor. That’s an insurance salesman. That’s the worst business model.

Scott:
And by the way, these people are super professional. They’re scary. They’re like they’ve got it mastered. I host this podcast for the last five, six years, 500 episodes, and I was half convinced in one of these things before I figured out what was going on, for a good 30 minutes. These guys really know what they’re doing to get you going on all this stuff.

Jeremy:
Yeah. No, I mean, thank you. Every time I can say this, I do, because the more voices you hear of people on the side of reality is the better, because they have these really slick sales pitches and these really half-truth kind of pitches they give where you’re like, “Oh, yeah, that is true,” but then they don’t tell you the other half, which is the devastating fees and the underperformance and the strings attached and yada yada yada. So yeah, if you’re looking for a financial advisor, you don’t want to be dealing with an insurance salesman.
The second-worst type of financial advisor is what I call the strip mall financial advisor. That’s you walk into a financial advisor that’s in a strip mall, they sit you down, and then they just try to sell you products. Right? This is kind of like a theme in the financial services world. It’s a whole industry where they’re trying to make money at your expense by selling you stuff, and these types of products are … They can be mutual funds. They can help you set up Roth IRAs. Good stuff, but they’re usually really high fee, front loads, high expense ratios, like annual fee, statement fees. And they basically fee you to death, thus underperforming your actual investments, and don’t really have any incentive to give you advice. They just have an incentive to sell you stuff.
Do you guys have a strip mall financial advisor story?

Scott:
Nope. I just completely agree with you.

Mindy:
One of our former guests has a strip mall financial advisor story. I believe it was Episode 111 with A Purple Life’s mom. My list of past episodes, it was Episode 111 with A Purple Life’s mom. She has a lovely story about her strip mall financial advisor

Jeremy:
And don’t feel bad if it happens to you, because it kind of happens. Everyone, like Scott just said. He’s literally the CEO of BiggerPockets, and he’s like, “Wait a minute. Am I missing something here?” It’s tough. They’re-

Scott:
I was sucked in. I was sucked in. I was like, “Oh, maybe.” I’m like, “No. I do this. I know what’s going on here. I got to get out of this conversation.”

Jeremy:
If we are susceptible, what is the normal? But I mean, I think the interesting point here is the theme here is to look at how they’re getting paid, right? The insurance salesman is being paid when he sells insurance. The strip mall financial advisor is getting paid when they sell you the products.
Which leads us to the third-worst type of financial advisor, or second-best if you look at it a glass-half-full kind of person, which is what I call an assets under management advisor where they just take all of your money. They basically invest it on your behalf. And then instead of selling you individual products, they just take a percent of all the money you give them. So if you give them $1 million for example, and they take 1%, that is $10,000 a year. That’s a big example. And the reason I use a big example is one of the downsides of this business model, which is actually a better business model than the other two, because then at least they’re not just pushing individual products. They can more holistically invest your account for you.
But first of all, they only will deal with you if you have usually at least a $250,000 or so, because if you have $10,000, 1% of that isn’t enough. And so when you’re dealing with an assets under management financial advisor, they usually require very high minimums, and the long-term impact of those fees can add up. If it’s like a 1 to 2% fee over the course of an investing career, it can still erode half of your portfolio, and they still don’t really have incentive to give you advice. They have incentive to only give you enough advice so that you don’t take your money away. You can go somewhere else. But otherwise, just basically keep it under their management, which leads us to the fourth type of financial advisor.

Scott:
The least bad.

Jeremy:
The least bad, which I like to call the most good, is what’s called advice only. So advice-only financial advisors don’t manage your money. They don’t push any products. There’s no commissions. There’s no sales pitch. They literally just sit down next to you, share a screen. They can look at your Vanguard, Fidelity, Schwab account. They can look at your IRA, 401(k). They can basically give you advice, and their only incentive is to give you advice.
The downside I would say to this model is that you have to pay them, but at least you know what you’re paying them. What you pay them is all they get paid, and so they work hourly or project-based. So they might charge for an hour, they might charge for a project. And then that way, they’re not getting paid on the back end based on what they push. They’re not getting paid commissions. They’re not getting these compounding fees over the years. You’re just paying for the advice.
A good way to identify if you have an advice-only financial advisor is ask if you can pay your financial advisor with a credit card. If they get really uncomfortable or laugh or freak out or explain that it’s free or something like that, that’s not an advice-only financial advisor. That’s someone who’s getting paid through some other much more suspicious means, right?

Scott:
Jeremy, can you explain what a fee-based financial advisor is and why that is not the same as a fee-only financial advisor?

Jeremy:
These terms are very confusing, because they all sound similar and they’re misused by everyone. And so fee-based generally means strip mall financial advisor. That’s someone who gets paid a fee based on the products they sell you. Fee-only means they don’t get paid based on the products they sell you. They just charge you some other fee, either a percent of assets under management or advice only. So fee-only is better than fee-based, but advice only is kind of a subset of fee-based where there’s no assets under management either.
And that said, how can an individual consumer possibly try to sort through this? You might talk to an insurance salesman, and they might say, “Oh, yeah, we’re fee-only.” They might just lie, right? Knowing those terms isn’t always super helpful. So I like the, “Can I pay with the credit card?” Because then you find out if they were just charging you for the advice.

Mindy:
So I can see why people are … Falling for this, I don’t think is the right word. But the advice-only financial advisor is going to cost me money out of my pocket up front, whereas the assets under management is technically going to cost me money, but I’m not paying them. It’s costing me money before it comes to me, before it even gets to my pocket. They take it out of whatever gains I’ve had or however much is sitting in my account. The strip mall financial advisors and the salesmen, I’m sure they’re saying, “Oh, this doesn’t cost you anything,” because they’re getting paid by the company of the products that they’re representing.
So when you are first starting out, it can be daunting to pay for an advice-only financial advisor, it’s not like $100 dollars. It’s several thousand dollars. They’re looking at your financial situation and your goals, and that takes a bit of time to look at all you’ve got going on and see where you want to be and give you advice to get there. But that’s the end of what you’re paying, is the amount that they quote you. “Hey, that’ll be $2,000.” That’s where it stops. It’s not the, “Well, you’ve got $2 million this year, so I’m going to take a percentage of that, and then next year I’m going to take a percent again, and again, and again.” And it’s just that one-time fee, or however many times you see them, it’s you’re paying that once. But having the clarity, I think, is very helpful, and I didn’t even know these weren’t regulated terms, which is not helpful at all.

Jeremy:
You’re totally right, Mindy. But I give a little bit of credit to society, because I think we’re wisening up to the, “Oh, it’s free. It doesn’t cost you anything. I get paid by my employer. We make money when you make money,” whatever they say. I think that the consumer is figuring out that there’s some strings attached.
And you asked a second ago what Nectarine was, because this is the question that I always have gotten, which is “Okay.” I kind of walk through this pitch. It’s like, “You want advice-only for the reasons we talked about.” And so then the next question out of the individual investor’s mouth is, “Okay, how do I find an advice-only financial advisor?” And my answer has always been, “Oh, I have no idea. They’re very hard to find,” or whatever, which is suddenly very unhelpful. And so a year ago, my team and I set out to fix this, and we launched Nectarine, which is an advice-only financial advisor marketplace where you just put in your state, you say what you’re looking for, and then you can review all the profiles. You can read the reviews.
And you said a second ago it’s not like 100 bucks, but actually I have to disagree with you on that one, Mindy, because at Nectarine it’s 150 bucks. It’s 150 bucks for an hour. All of our advisors have agreed to that price. There’s no strings attached. There’s no sales pitch. There’s no commissions. There’s no recurring payments. There’s nothing. You just get on a Zoom call, share a screen with a licensed fiduciary financial advisor whose only incentive is to give you the best advice, maybe get a good review for them so that they can do more of these meetings, and that’s the end of it. And it’s available at hellonectarine.com. Thanks for the pitch there. Thanks for the plug.

Scott:
This is awesome. I don’t think there is a place where you can find true fee-only financial advisors exclusively on the internet right now that don’t charge any AUM fees or have other services that they’re providing. And I love that every first call is 150 bucks. I imagine that after that, if there’s an ongoing relationship, there can be some negotiation for fees with the advisors after that?

Jeremy:
Currently, no. Every call is $150.

Scott:
Oh, wow.

Jeremy:
Yeah, that’s our only product. That’s not like an intro offer. That’s just the rate that you pay for an hour. Right now, about 20% of our clients are rebooking. We’ve only been live for six months or so, and so I think it’ll be common to come in once a year or so for 150 bucks. If you look at a 1% fee over the course of investing career, it can be millions of dollars. It can add up to be crazy amounts, and so 150 bucks times any number of years is going to be dramatically cheaper than that. We might offer additional products in the future where people want a bigger, complete financial plan that involves a bigger deep dive or something like that for a different fixed price, but right now we’ve kept it brutally simple. One price, flat fee, book whenever you want.

Scott:
Now, one other thing I’ll call out on the fee side of things is there’s another insidious problem, not just how much that those fees add up to, but the incentive for a financial planner in that situation where they’re making AUM fees is to reduce volatility, not maximize long-term earnings. Because if you’re reducing volatility, people are less likely to take their funds out. So you’re compounding on top of the fee issue a long-term incentive to be a little bit more cautious perhaps than best practice and index fund investing, for example.

Jeremy:
That’s totally true. That kind of comes down to when you’re asking what is a good financial advisor, you just kind of have to follow the money. How are they getting paid? And if they’re getting paid assets under management, yeah, they have different incentive. Their incentive isn’t to provide you advice. Their incentive is to not have you quit, and maybe not having you quit is you being in a really conservative investment. And by the time you realize what happened, you were maybe getting 5% for 10 or 15 years when you could have been getting 10%. You might be 100s of thousands of dollars behind where you would’ve been otherwise.

Scott:
This is a nuanced question here. There’s a small percentage of people out there, especially in real estate, who could use a whole life insurance product, a whole or universal, one of those types of products, and benefit from it from an investing perspective. I am not one of those. I am outside of that box. I’m not a fan of it in a general sense. If you’re someone who’s interested in that kind of stuff but want to avoid the, what was it, the strip mall or the insurance salesman component of this, where would you go to get advice on that? Do fee-only financial advisors provide that advice and are experts in that category too?

Jeremy:
My general answer to that, at least my opinion. I’ll tell you my opinion, then I’ll tell you how to get advice. My opinion is a permanent life insurance is part of a solid financial plan in the same way that meth is a part of a balanced breakfast. May be technically true. If you have a banana and a-

Scott:
Really jump starts your plan, right? It energizes.

Jeremy:
You could make an argument that your macros are still right on if meth is in there, but you could take out the meth and you’d still have a balanced breakfast, right? And so I don’t look for a way to make permanent life insurance work. It usually doesn’t work. I’m a millionaire. I have lots of friends who are millionaires. None of us got there by buying life insurance. None of us use life insurance as some sort of wealth building tool. Those of us who have life insurance have term life insurance because we have kids, and just if we die when we have young kids, we want to be covered. Otherwise, we’re investing in index funds and real estate like all the other millionaires we know, right? And so no, I don’t look for a reason to make it work.
That said, I don’t know where to go other than Nectarine, because we have former insurance salesmen on Nectarine who’ve had a philosophical problem with that business model, and they’ve since got their CFP, and they do it right. They can walk you through all the fees. They can walk you through those strings attached. They can walk you through the participation rates and the floors and the caps, and all the carnival games that these insurance companies set up to make it seem like a good deal, and why it’s not probably a good deal. Obviously, I have my perspective on this. But generally, talking to someone who doesn’t earn a commission from selling it to you is who you need to talk to.

Scott:
Let’s do math, not meth. I love it.
Yeah, we just have a small but, I think, vocal part of the BiggerPockets money community who do have these products and feel that they’re valuable. That’s always been a challenge. I think I share your views in a general sense, but there are some smart people out there who disagree. I just feel like it’s so hard to parse that out, because all the advice seems to come from people who have already have the product and feel … You wonder if there’s like a buyer’s … You got to really like it if you’ve got it, and then there’s the salespeople. I’m wondering if there’s a neutral party. It sounds like the reformed financial planners that do math now on your platform are a good place to go and get that.

Jeremy:
And they don’t hate insurance, right? They’re not reformed in that they’re like now insurance haters. They just don’t earn commissions from selling anymore. That seems like a bare minimum you should ask from an advisor, which is, “You’re not getting paid on the back end based on the advice you give, right?”
Every time I dig into people who are pro insurance as a way to build wealth, something’s not right deep below. I mean, I’m sure they’re out there. So if you’re hearing this and you’re punching a hole in the wall, then I apologize. But it’s usually people who are selling insurance or you want to prove that they’re right by buying it or whatever.

Scott:
Yeah. And we did a good deep dive into this with The White Coat Investor. You can tell that he spent a good chunk of time really thinking through every in and out of whole life insurance and, “Okay, conceded, here are a few use cases for it,” but all of these are the reasons why they are typically sold. They’re not good ones.
So I think that this discussion is so important in the context of fee-only financial advisors because of the problem of the commissions. This is the main source of income for the folks in that insurance and strip mall category, I believe, and I think it’s a huge problem for folks that really intimidates them. You’re right. It is dying out, but it is not dead yet. And it’s something that we try to fight here at BiggerPockets, I think.

Jeremy:
Oh, it’s not even close to dead yet. I mean, the insurance salesmen are alive and well. The strip mall financial advisors are alive and well. But I do think consumers are wisening up, too. They walk out of these meetings and they’re like, “Something wasn’t right there.” And so I think that hopefully we’re on the right side of history and giving people a better option.

Mindy:
Well, I just wanted to say I think that life insurance has its place. And I don’t think that anybody here is saying that life insurance is completely worthless 100% of the time, but I also don’t think that anybody is saying that whole life is the way to go in almost any situation. So definitely, when you are considering life insurance, which absolutely has its benefits, look into what those benefits are and how they benefit you, and whole life is probably not going to be the savior that you think it is.
And we did a deep dive about life insurance in general all the way back on episode something with Joe Saul-Sehy, Episode 139, where we dove deep into how life insurance is billed. And when Joe first started this episode, I was like, “Joe, where are you going with this?” But actually, it builds on how you can decide what kind of plan is right for you. And in some cases, whole life is the right plan. That percentage is like 0.1 or something. It’s very, very small that whole life would be the right path for you, but it’s not necessarily the wrong path. You just need to know. Make an informed decision. Don’t make a decision based on Bob at the strip mall telling you, “Oh, yeah, you need whole life.” Yeah, you need whole life for him because he gets a bigger commission.

Scott:
Well, Jeremy, can you tell us where people can find out more about you?

Jeremy:
My Instagram is where I do most of my personal finance education, @personalfinanceclub.

Scott:
Thank you so much. Really appreciate it and hope to chat again soon.

Jeremy:
Thanks so much, guys. This was a blast.

Mindy:
Scott, that was such a fun episode. And also, don’t follow Jeremy’s advice for breakfast.

Scott:
Yeah, let’s not do that. But yeah, it’s hard to find fee-only financial advisors. Some of the places even that I had looked as recently as a couple years ago, a lot of the fee-only financial advisors also charge AUM fees, which is not fee-only. And so I love the fact that his Hello Nectarine is truly fee-only, and really admire what he’s building there.

Mindy:
Yes, you can find it at hellonectarine.com. To be clear, it’s advice only, and it is fee. They charge a flat fee for a one-hour consultation. And I’m super excited to go and test it out, because I have been looking for somebody to just take a peek at what we’re doing, make sure that we are not missing something. I don’t want to get 10 more years down the road and have somebody say, “Oh. Well, 10 years ago, if you would’ve done this, you would’ve saved yourself RMDs,” or whatever else. You don’t know what you don’t know. And even though I know a lot, it would be nice to have a separate set of eyes.

Scott:
Yeah. And just to reiterate that while we like Jeremy, really enjoyed the interview and all these kinds of things, there is no financial affiliation. We’re just excited about the product, and neither Mindy or I have tried it at this point, but we love the concept and hope it takes off.

Mindy:
Yep. Absolutely. Thanks for that disclaimer, Scott. I appreciate that. All right. Should we get out of here?

Scott:
Let’s do it.

Mindy:
That wraps up this episode of the BiggerPockets Money Podcast. He, of course, is Scott Trench. I am Mindy Jensen saying good day, sunray.

Scott:
If you enjoyed today’s episode, please give us a five-star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.

Mindy:
BiggerPockets Money was created by Mindy Jensen and Scott Trench, produced by Kailyn Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.