The Real Wolf of Wall St
Donald Trump: Today we are signing four principles for regulating the United States financial system.
David Scranton: There is no question about it there are wolves at every business. Unfortunately that goes to the financial services industry also as seen in the hit movie The Wolf of Wall Street. The United played a real life stock broker Jordan Belfort. Belfort was sentenced to prison in 1995 after being found guilty of bulking investors out of 100s of millions of dollars. He is also to pay back more than half that money to his victims. Naturally the vast majority of Brooklyn’s and Financial advisors are honest, qualified ethical professionals. Let’s face it many professional whether stakes are high regulation is an important terrific protecting consumers. But just how much regulation is enough and how much is too much. When does overregulation start to do more harm than good? If new regulatory proposes on the table for the financial services industry? Is a timely and important questions. It’s time now to tune out the hype and focus on the facts. Facts that matter to you the income generation.
David Scranton: Hi everyone and welcome to the Income Generation. I’m David Scranton your host. Regulation, the good, the bad and the unnecessary is our topic today. We are going to be breaking it down with the help of some highly qualified experts. We also get some insights later on from some of my fellow financial advisors who jump through regulatory hoops on a daily basis. First let’s talk about why this is such an important topic today. Hopefully you have never been a victim of a Jordan Belfort or Billy. We also hope your financial advisor is trustworthy and highly qualified and has all the other traits necessary to help you to protect and grow your money. The trouble is just one Jordan Belfort is one too many for the industry. Corrupt brokers and advisors not only destroy lives they tarnish our entire industry. You probably almost someone with a bias against some profession because here she formally believes we are just all alike. Luckily when you are talking about Doctors, Lawyers, Mechanics or Financial Advisors all of these industries are regulated to help prevent or read out illegal and unethical practices. FINRA is one of two agencies that regulates this industry on behalf of investors. The other has you probably know is the Security and Exchange Commission otherwise known as the SEC. Again FINRA and the SEC brokers and financial advisors to an extremely high ethical professional standard. Those who fail to live up to that standard run the risk of penalties that can include licenses, fines, lawsuits and of course imprisonment. I firmly believe it’s always a great idea to hold professionals at any industry to the highest possible standard. I also believe that the vast majority of professionals in my industry take it up on themselves as I do to serve their clients and customers with honesty and with a highest level of professionalism and integrity. It’s just good business. That said I also believe that like me the majority of honest ethical advisors are brokers in the industry welcome regulatory. Why? Because again it helps expose and eliminate the few wolfs who help create bias against the entire industry. Just when does regulation become an obstacle for the consumer. After all we have seen it happen in other industries. It’s an important question now for my industry. In light of a new regulatory proposal put forth by the Department of Labor. During Obama Administration known as the DOL for the share rule. This particular rule had been scheduled to go into effect on April 10th of this year. President Trump however ordered the review in early February that could delay the world’s implementation or eventually stop it outright. The way in which the rule is written is causing some concern in the news by individuals like myself. Press Secretary Shawn Spicer call the fiduciary rule a solution in search of a problem. Given the level of regulatory oversight that already exist. The rule 1023 pages of it seems just a bit excessive. That brings up another main concern which is that the rule in its current form could very well doing more harm for the people it supposedly intended to help. Everyday investors saving for retirement like you. It actually seems to be a recurring issue from time for the administrations. Laws and regulations created with ideology meant to protect or help the average Joe end up actually holding him because they aren’t thought through thoroughly enough. The implementation really becomes the issue. In some cases because these things are too politically motivated to be practical. Obama Care is an example that I would consider to be a very good one. I put it in the same camp as the [inaudible06:14] in that regard. But this fiduciary rule if it is eventually implemented in its current form could end up being another Obama Care. Again we’ve seen it happen in other industries in particular the medical industry. There are many parallels between the potential downside impacts of the rule and the negative effects of the current medical regulatory involvement which is being pushed on doctors and patients. We’ll talk about that much more later on in the show and we’ll also get some additional insights and perspectives from my financial advisors round table. Right now it’s time to welcome my first guest David Stockman. David tell me what do you feel is the right amount of regulation? There are a lot of free markets to operate while also policing the country corruption that could jeopardize the whole financial advisory role.
David Stockman: For minimum negatives because I think you have to understand why the so called abuses happen especially this year that we had in 2008, 2009 with the crash. I think the problem is not that the SEC is not forceful enough enforcement but the Fed has created way too much money, way too much ease, low interest rates has propped up the stock market to such an extent and it’s become a wild west casino. When you hit a casino you are asking for trouble. I think the whole dub thing is a monstrosity 2000 pages rule makings, a lot of them not done yet. They are trying the financial system for no good reason. We ought to go to the source of the problem, have a house pleading at the Fed and the real regulatory problem we have today is the Fed regulates interest rates across the charity spectrum and that’s the height of the problem and speculations. I think Jane Yellen had to be in the process of what needs to happen here trying to manage. Not some broker trying to manage its clients.
David Scranton: David if you think about it even before Janet Yellen Fed Reserve it goes back to Ben Bernanke, it goes back to Greenspan really. It’s been 20-25 years from now that it’s been this flood of cheap money. Each time the low rates get lower each time each time they go up they don’t go up quite as far. It even goes beyond Janet Yellen. Am I correct?
David Stockman: Yes you are correct I think it started in 1987 of balance sheet and the Fed was 200 billion at the time and had taken 75 or 80 years to get there. Today it’s 4.5 trillion so we have a 22 fold increase in the balance sheet in the Fed. Now what did they do with that 22 fold increase. They bought binds, they bought securities handles with this, they flush, and cheap liquidity ended the market. They encourage a buildup of massive speculation. Of course when you get that kind of casino it’s not just Janet Yellen you are right it goes all the way back to 87. You are going to have bubbles that burst. You are going to have people that are hurt. Remember in the .com bus which I blame the Fed for 8 trillion dollars were lost by home gamers who got sucked into the speculation near the end. In 2007 and 8 when the mortgage bubble busted and ends the Wall Street went down another 10 or 11 trillion was lost.
David Scranton: It’s funny we talk about eternal values you probably heard before it’s like I call it economic steroids. They are like the kid on the playground that’s pushing the drug. With the adult in the playground that’s pushing the drug and what happens is we have created a country of individuals that have gotten used to that drug of economic steroids and now weaning off any addiction is always hard and I think that’s kind of what we are going through. Is it not?
David Stockman: Yes I think it is but we have to remember what that causes. It destroys discipline in financial markets. When you have markets that only go one way up, when you have people that learn year after year that you buy the dips and the markets going to go up tomorrow that there is really no downside risk and that the Fed is there to prop up things if a black swan should appear on the horizon then you get more and more reckless careless behavior and then the people who are the subject of these ridiculous deal fiduciary rules get sucked in over their head and they end up having their head handed to them that you don’t solve that by regulating tens of thousands of brokers in other financial intermediaries. You go to the 12 people sitting on the open market committee at the Fed who are causing the problem. I don’t know whether the Trump administration is going to get this right or not. They have taken one step.
David Scranton: You have to agree though it’s better than the previous administration we have a better shot under the Trump administration with any luck.
David Stockman: Yeah I agree with that but I hope they will turn their guns to the real target of the problem which is Federal Reserve and they have been quiet. They have got too many Goldman Sacks people in there who have had a career, made a living, a prosperous living riding the bubbles that have been created by the Fed. They are not likely to go front and center at the problem. They should be telling Janet Yellen you are done, you have created a huge mess.
David Scranton: I can’t imagine that actually happening but I can say I agree with you either but David I’m going to ask you to stick around we have to take a commercial break right now. We have a lot more to talk about. For our Income Generation viewers you stick around also we’ll be right back with more from David Stockman.
Ron Paul: We have repealed three regulations that would have cost the economy hundreds of millions of dollars and tens of thousands of job. We have already done that so we should get some credit for already repealing regulations. It’s the first time in 20 years we have repealed the regulation.
David Scranton: Welcome back to the Income Generation you have just heard from Republican Senator Ron Paul discussing recent rollbacks in regulation which goes perfectly with the name of todays show Deregulating America. Now let’s bring in our guest again David Stockman. He is the author of Trumped! A Nation on the Brink of Ruin and how to bring it back. Thanks for sticking around David. I just don’t understand in your thesis here. It’s funny I have had so many guest on the show that agree with you that it’s been the Federal Reserve that’s really at fault. I can’t argue with anything you have said but tell me why the DOL. Like you said, I’m regulated by the SEC and I know they do a pretty good job of getting in my shorts during an audit and they can ensure that we are all buttoned up in doing the right thing for clients. How does a deal all come into left field and why?
David Stockman: I think that’s just congressional politics and I think it’s the result of being focused on the wrong target. As I said before if you want to deregulate America and it’s necessary if we are going to get growth going again and some real bread winner jobs which we haven’t really had any growth for a decade and a half then we have to stop regulating interest rates to 0 because what that’s doing and people don’t recognize it. It’s not only creating for some speculators on Wall Street that’s bad enough but it’s inducing cooperate America deceased weeds as I call them, the top executives in boards to raise trillions of dollars to buy back their own stock in creating monster companies that really do not help the economy and then they end up restructuring and closing plans and stores and we do so jobs and so forth.
David Scranton: Let me play devil’s advocate if I can. That’s all true and I agree 110% but how about the fact that right now there is no regulation. If an advisor wants to manage money they want to charge 3% a year or 5% a year because they are good enough sales people to sell the perspective client on it. In the last minute or so we have today I’d like to talk about that. Tell me is that ok or should there be some limits? Should there be more regulation that we currently have and what would that look like?
David Stockman: No I don’t think there should be any regulation at all. We should have a full market. After all the market for investment consist of consenting adults and the fact is markets work, consumers know learn how to shop. The investment product is really no different than anything else that could buy in on Amazon or all the other compares in shopping they do in every other walk of life. It’s just a paternalistic notion that comes out of Washington that people can’t be allowed to make their own decisions or that brokers and other investment advisors can’t be allowed to function as the market will permit. Remember sooner or later if you abuse people sooner or later if you don’t deliver a product we add a price for value the market will move away from you. There is nothing wrong with a free market. We ought to get rid of the DOL regulation and half of what the SEC does.
David Scranton: If you think about it David it’s kind of condescending to tell our loyal Income Generation viewers in a way that they are not smart enough to make their own decision. Bottom-line from David Stockman is simple, full disclosures. As long as we have enough regulation to ensure full disclosure then the free markets work. David thanks so much for joining us today I appreciate your time. And now let’s talk more about the Department of Labor fiduciary rule. The posed rule does in some ways have the potential to do more harm than good for everyday investors but what is the rule exactly. The Fiduciary rule expands the definition of investment advised fiduciary from employee retirement income security act of 1974 otherwise known as ERISA. Under this expanded definition all financial professionals who work with retirement plans or give retirement planning advice are elevated to the level of a fiduciary. A fiduciary simply put is someone who is legally bound to act in the best interest of his or her clients. Many professionals in this industry already have fiduciary status. A registered investment advisory firm such as Sound Income Strategies for example is required to operate as a fiduciary. Operating as a fiduciary is a higher level of accountability than what’s called the suitability standard that exist for non-fiduciary such as brokers, insurance agents, etc. who work with retirement plans. They operate under the suitability standard. Most work on a commission basis actually is under a suitability standard. Under the current rule, thy could face more challenges than fee based fiduciaries, challenges that would also hold them to a fiduciary standard but can also impact many day investors. In the meantime brokers and advisors not wanting to risk getting caught up in one of those law suits could start limiting their use of commission based investments. At the same time they could start becoming much more particular about taking on new clients deciding that those below a certain asset level are no longer worth the risk of litigation. Let me give an example. Let’s say we have an advisor who is not willing to take on clients with $50,000 into assets. If you were paid a 5% commission that nets in $2500 in revenue for helping this particular client but let’s say on the contrary that if the liberal courts decide that the reasonable compensation is only 1%. Now that same client just represents just $500 in revenue to that financial advisor. The question becomes, is handling that particular client still worth it from a business perspective for that advisor compared to the risk of litigation and for advisors who specialize in small to average size portfolios their entire practice may no longer be viable? This also creates a potential barrier for new advisors coming into the business because if someone coming out of college for example wants to specialize in working with smaller or average size investors here she may no longer have that option. Very possibly couldn’t support himself on a 1% commission and even if he could the risk probably wouldn’t be worth it. Only those new advisors coming in who have contacts to wealthy high end investors might be the only ones in the future that are not being barred from market entry. Not only do consumers end up getting priced out of the equation but the entire industry soon become smaller with less competition. As you know less competition is never good for free market. Board advisors like myself who already worked as judiciaries the Department of Labor will maybe harmful at other ways. The biggest concern is that it add a potentially crippling additional layer of legality to a process where many layers already exists. In other words fiduciaries might be forced to second guest for going certain decisions or certain recommendations because they have to be more focused on protecting themselves than serving you their clients.
That’s especially troubling for businesses like my own Sound Income Strategies which don’t rely on cookie cutter, investment plans or solutions, or limit their clients to a narrow field of stock market based investment option. We work with clients who are retired or close to retirement, Income Generation members on an individual bases to custom bald, to tailor make a plan that suits your specific needs and goals. We need them to be able to use as many different tools and strategies as possible. Think about onto a rule that could greatly increase the fiduciaries vulnerability to lawsuits that fiduciary may just be more up to give the client what I call a vanilla recommendation. Never mind that he knows a more specialize tailor made custom built recommendation that better suits for the client’s needs. He might still be force to give that vanilla recommendation to cover his own real. Of course discover yourself mentality already existence industry to a large extent under existing regulations. Things like mutual funds or outsourcing management to third party managers. These are ways to distant themselves from their own work and decrease their own liability. This could only get worse under the new DOL fiduciary rule. In fact I could easily think of recommendations that I have made for clients in the past that these clients still love and are very happy with years later. Then I might not have been able to make with the DOL in place. Again laws and rules intended to help the little guy that ended up doing it seem to be the specialty of liberal politicians. It’s not surprising that this Department of Labor fiduciary rule that’s put forth under President Obama. It’s also not surprising that Trump has delayed its implementation and send it back to the Department of Labor for review. So the question becomes where will it go from here? Most importantly how can everyday investors like yourselves be sure that they are working with a reputable and qualified financial advisor under the laws and regulations that exist today. Coming up on the show I am going to go head to head with a couple of fellow financial advisors and talk more about regulation, the good, the bad and the unnecessary. Before that however John Bachman is going to breakdown some of today’s most important financial headlines. So stay tuned you are watching the Income Generation.
John Bachman: Welcome back to the Income Generation I am John Bachman. Here’s your Newsman finance update, a quick recap of the stories that move the market since wee. Profits at London based bank HSBC slumped according to reports last year. Analyst at the bank said the year will be remembered for unexpected economic and political events. Chancellor Angela Merkel has called the Chief executive of PSA to discuss the automakers potential takeover of General Motors German subsidiary in that country. Walmart stock jump 3% after the company sets its online business serge in the 4th quarter of 2016 but its profit fell as it spent more money on its ecommerce operation and in stores. Wells Fargo Board Directors foreign force senior managers as part of its investigation into the banks sales practices scandal. The Board also deny any 2016 bonuses to executives and they will forfeit any unvested stock options. Back to you David.
David Scranton: Thanks John. Now that you are all up to date let’s hear from some other advisors in the field and get their insights on the benefits, limitations and yes the potential dangers of regulation. Let’s bring in our guest. First is Doug Ferris. Doug is the corner and cofounder of Key Advisors Group in Dover Delaware. He entered the business in 1992 and that successful career is about New York life and credential before starting his independent practice with Eddy Ghabour in 2000. Our second guest is Eddie Gabor. He was the other co-owner of Key Advisors group in Louis Delaware and he has been in the financial planning industry now for nearly 20 years. Eddy focuses primarily on retirement and a state planning strategies and specializes in money management. Last but certainly not least is David Wright who is the owner of Wright Financial Group in Toledo Ohio. He specialize in educating clients about asset education, asset allocation, wealth preservation and especially in those critical years just before and during retirement. Thanks for joining us today gentleman.
All: Thank you David. Thanks for having us.
David Scranton: Talk to me the DOL rule in solution in search of a problem or no is it needed?
Eddie Ghabour: I think it’s needed. I really do. I know in our industry when you talk about regulation some people cringe but I’m a big believer in holding everyone to the high fiduciary standard that are much to be held accountable to now. With that being said I do believe there are some unintended consequences, negative consequences that could happen with the way the bill is now. Although I believe in the fiduciary standard I think there are some negatives that could come in place with the way it stands currently.
David Scranton: Some of the negatives we talked about earlier on the show absolutely.
Doug Ferris: I definitely agree with that. As far as the fiduciary responsibility is concern I think we all should be willing to take that responsibility far as the entire DOL rule I definitely think it’s problematic as it will have some adverse effects on to be specific maybe the modest investor as well too. With some of the new generation coming into our business as well.
David Scranton: As business partners I guess I’m glad you see that you agreed. That’s always good news. Next David what are your thoughts on this? What do you think about the rule? Hopefully disagree with them I want to create some excitement here today.
David Wright: Having been in the business for over 30 years I would like to say most of my clients have looked at me as a fiduciary and only recently have changed with fiduciary stats and I can tell you that the rule is well intended but with over a 1000 pages of implementation I’m not sure how it’s going to be monitored or regulated.
David Scranton: But you can overregulate anything gentleman. If you think about it there’s a few bad apples in every industry so you can overregulate. Is it really necessary though? Don’t you feel though most financial advisors are people that we see when we go to conferences or we talk to on regular basis? Aren’t thy well intention? Is this really necessary that they got many bad apples?
Eddie Ghabour: I don’t think that there’s that many bad apples but I think….
David Scranton: Then why write thousands of pages of rules and regulations if there aren’t that many?
Eddie Ghabour: That’s part of the unintended consequences is they make it too complex. I think you need to have a level playing where everybody follows the fiduciary standard but they need to simplify.
Doug Ferris: I agree and then again the overregulation we see that has an adverse effect on other industries as well too. So now we have the SEC, we have our local insurance agencies as well as local insurance commissioners and now we are going to have DOL. There is definitely some complication there and I’m not sure every advisor even understands that as well.
David Scranton: You have heard other advisors. Im trying to eggy on but you are not playing with me so that’s ok. There are other advisors out there that think the rule is just crazy. They think it’s ok if they charge a client 1 1/2% in a fee. They think its ok then if the client pays the secondary fee because the advisor gets lazy and the advisor outsources all that business. There’s advisors out there that are charging fees in excess of 2 or even 3% a year. They are claiming that there is no need for this regulation.
Eddie Ghabour: If they bring that value or they are charging that fee which I am sure they are they wouldn’t charge it as long as it’s properly disclosed.
David Scranton: Over 2 or over 3% how anybody could had that kind of value.
Eddie Ghabour: That’s why this DOL rule is important.
David Wright: I don’t mine disclosing with my clients what I make in fees. It’s all about education. Getting to know that client, getting to know what their situation is and I’ll disclose any fees upfront as long as the client is understanding and on the game plan.
Doug Ferris: I think Dave said it right. If we can justify your fee and you bring value to your client truly really all the client should be concerned is their bottom line and if that value is there then fine.
David Scranton: What do you think is reasonable bond? What do you think is a reasonable fee where you start to get over a certain limit? There’s got to be a max and there’s got to be a cap when you say wow. Somebody a good enough sales person that they can talk their perspective client into paying that fee. There has to be some kind of limit. What do you think is the side, the either maximum limit on this a reasonable asset management fee?
Eddie Ghabour: The reason I took the tough question is we are not a cookie cutter business, at least our practice is not.
David Scranton: Come on give me an answer. Dave come on give me a number. I want an answer. There’s got to be a number.
David Wright: There isn’t an exact number.
David Scranton: Eddie should run for politics he is talking around the answer.
David Wright: I just feel that based on what we are trying to help the client achieve whether it be an insured product, whether it be an asset based product or an income based product the fee is all relative to what the product is, what it’s trying to solve for that client.
David Scranton: Ok great we have another politician, future politician. Bail me out Doug. There’s got to be some maximum number in your mind that if it’s the most aggressive strategy that requires the most active management where you say I just can’t justify anything about that.
Doug Ferris: I think surely too much is always too much in any industry itself. I believe what Eddie was saying which really does make sense, every client is basically needing a lot of different services. So if a client is somebody that you are going to pay a lot of attention to on a regular basis as a monthly basis again maybe they are going to get charged a little bit more than somebody that maybe you are going to see 3-4 times a year. That’s why it’s really a difficult. I don’t think he is avoiding the question. I think it’s a difficult answer to come up with.
Eddie Ghabour: Tell you what I’ll make you happy. I’ll give you an answer. 100% per year I think is you are asking about a maxim. I’m sure there is going to be sometimes where a little bit more value and a little bit less is. From a maximum on average I think if an individual is paying 2% per year or less as long as they are getting service that they need I believe that’s fair.
David Scranton: Thank you I appreciate getting another. Let’s think about this for a second. There is advisors out there and we all met these advisors that charge a client 1 1/2. They have got another intermediary, maybe a parent firm. We all own our own practices but maybe a parent firm which has to take a little nick of that fee and then you also have money being outsourced with third party money manager where we have seen some of these fees get really close if not exceed 3%. Could you gentlemen ever justify a fee anywhere near 3% per year to a client?
Doug Ferris: No I feel personally that’s excessive. That’s an excessive fee 3%.
Eddie Ghabour: Do the math what do you need the average. If you are conserve as investor and you are charging them 3% a year, what do they need to earn on their investment to net what their goal is. It’s just an unrealistic boogie to have to it.
David Scranton: So if you had them in the riskiest investment or you were managing let’s say pork belly future or you are managing stocks and you are writing covered towels and you are rolling up your sleeves and you are doing all that work still 2% seems to be kind of a reasonable maximum number wouldn’t you think?
David Wright: I would think I mean most of the portfolios we would manage would be less active, a little bit more income based and probably a lot less than that.
David Scranton: My number by the way my number was going to be between 1 1/2 and 1.75. That was going to be my maximum number just for regular Income Generation viewers that I know are wondering what was going on in my mind. So gentlemen if you can stick around that would be great. We are going to come right back with more talk about this DOL fiduciary rule so stay with us.
David Scranton: Welcome back to the Income Generation I am David Scranton your host. Now it’s time to bring back our financial advisor roundtable. Rejoining us we have Eddie Ghabour, Doug Ferris and David Wright. Thanks for sticking around gentlemen.
All: Thank you David.
David Scranton: I’m going to ask you to think back a ways because you gentleman have been around for a long time in the business here, very successful. I don’t want to say money is no object but the financial success of your business is secondary at this point of your careers to the financial success of your clients. Think back to the early days in the business. Remember the pressures when he came into the business and how tough it was when we had to think about I got this thing over here that’s really good. Its one thing that’s really good for my client and it makes me some money. There’s this other thing that is ok for my clients but makes me a lot of money. How do you wrestle with that decision early on and how do we create this rule in such a way that protects investors from that especially with new advisors in the field when they be feeling those same pressures?
Eddie Ghabour: I think we all started off in the business on a commission basis. To be honest there’s no way we could have survived financially on a fee based practice.
David Scranton: Of course is my concern as you saw earlier in the show is the fact that what happens if they change that now. Is that a barrier to entering in the business because all of a sudden people no longer afford to get in the business if there’s no commissions?
Eddie Ghabour: That’s a big dilemma and that’s where it is. Soothe fiduciary as much as I believe in it I do feel for the new people coming into our industry, how are they going to survive because our client fit the net worth that the judiciary standard in the business is perfect for them.
David Scranton: I agree. I want new people to come in. I want competition in the industry, it’s good for every industry including ours. However remember that the end of the day what’s more important than their survival is your survival is that you are having the absolute best thing done for you. So how do you do it? Think back again you member early on in your career how did you make those tough decisions when maybe you’re a little more in than now in terms of your revenues.
Doug Ferris: I would say that we made those decision based on the client to client basis. I think the proof is in the putting. I’ve been in this business 24 years. I have always felt like I was doing the right thing for the client. Again it comes back on you. Right now our business is based on a referral base business and I think you can only survive that way if you are truly doing the right thing for the client.
David Scranton: That’s absolutely tree. I just wish all financial advisor saw it the way you gentlemen see it. I know for me what I did David is I lived in home. I live with mom and me bartended 3-4 nights a week to make extra money. It was the bartending, it was where one of my sleeves is doing truly hard work that allowed me to pay my bills so I never once had to feel that dilemma when meeting with new perspective client where I can look at that client and say let’s do the right thing for them even if I made less. How did you deal with that early on Dave?
David Wright: I dealt with it by being a church choir director. My wife as well and I sold a lot in the early years. I sold my couch, I sold my chair. Just kidding here. All kidding aside it was a challenge in the early years and you have those ethical dilemmas when you are first getting into the business and meeting with clients but if you always stick with the client needs and the education of that client you make the right calls. Even though this new rule could pose problems for the newer reps coming into the business there’s going to be a lot more interning going on perhaps people coming into practices where there is more assets that they can kind of wean themselves into the business that way.
David Scranton: You could at least empathize. Did any of us come into the business working with affluent individual’s day one?
Eddie Ghabour: Absolutely not.
David Scranton: No at the end of the day we all come into the business working with mom pop, working with the average investor and trying to help people grow so they can become affluent. I was just on the phone the other day with somebody who is a regular viewer of the Income Generation. It was interesting because I was able to show him how just in a few more years just by conservative investing he is actually going to have a net worth of about a million dollars. He never thought he’d have a million dollar net worth and he is there just because it was good saving, good investing sound financial planning from day one. That’s what the business is about is it not?
Eddie Ghabour: Absolutely that’s a gratifying part when you are able to help someone achieve goals that they didn’t think were attainable. It’s just like anything in life. It all comes down to discipline right.
David Scranton: Self disciplining but the problem is you can’t have a client come in and put you in a lie detector test and say ok I am going to give you a polygraph. You tell me if you are going to make the best decision for me or you are going to be financially motivated. As ethical as everybody is still wouldn’t if someone came in with a polygraph machine wouldn’t you probably tell them to go home right. People can’t do that. That’s the only way they can know for sure what’s going on in your head is it not?
Doug Ferris: I think our clients today are a lot more educated financially as well too. I would rather work with a client who has a little bit more knowledge about the business, about the industry as well too. I think that’s important to. Let’s face it back in the day when we just started sometimes it was just a leap of faith that we are doing the right thing for the client and it will all come out for us in the end and it truly has.
David Scranton: Not to mention the fact that the 80s and 90s are the best stock market in US history you can do virtually anything and you look like a hero. You always look like you are doing the right thing but over the last couple of year since the year 2000 it’s been tougher. Gentlemen I need you to stick around just a little bit longer pleas if it’s ok. I love to hear more. I’m sure you also would love to hear more from our financial advisor roundtable so stay with us we’ll be right back we have a lot more to discuss.
David Scranton: Welcome back to the Income Generation I’m David Scranton. Now let’s bring back our financial advisor roundtable and we are to focus now on the inside minute we are to do a little early this week because we have some interesting questions to ask on how they affect ethics in the DOL rule. Of course we have Doug Ferris, we have Eddie Ghabour and we have David Wright rejoining us. Gentleman the financial advisor quiz the inside minute here we go. How do you do your research? I’m going to ask both of you. I know you are partners, its’ a similar answer but how do you do your research Doug?
Doug Ferris: Well I think we have to keep abreast to every sector of the market and do a lot of reading in the research ourselves. Also keep in mind that we do outsource a lot of our assets to professional money managers which and the purpose behind that is a lot of resource to deliver the service and advice to our clients. We really feel that is the best of both worlds.
David Scranton: So Eddie what do you do when you outsource? Do you charge the client extra because you are outsourcing the money management?
Eddie Ghabour: No we don’t. We are a believer as you are as good as the people around you. One of the biggest benefits with the contacts that we have is the resources they provide us in addition to the other research that we do. There is countless of hours spent behind the scenes when we are not with clients looking into this data to try to make as good of a decision as possible for our clients. After all that’s what they are paying us for. They trust us to try to make as good educated decisions as possible with their net worth so it’s not having a big ego and pretending like we have all the answers. We are choosing all the resources that we have available, reading lots of information and coming up as a team to our conclusion after hearing a lot of different opinions an reading a lot of different competitions.
David Scranton: You make an important point. It’s funny if you think about it when you meet with your financial advisor and assume your financial advisor is successful as these gentleman on the show today you go in their office and you may have to wait a few minutes and then the client before you is leaving as you are waiting and then when you are ready to leave you are done with the meeting, the next person is sitting in the lobby. You have to ask yourself if they are spending all that time with you educating you and helping you how is that advisory do all of his or her research alone. But gentleman you got to get with the times, you got to become modern day financial advisors here. You know a modern day financial advisors is you do nothing. You outsource everything, you do nothing, you don’t even stay current, basically you sit back and you collect big fat pay checks. You don’t do any research at all. So why are you guys still doing research? I mean you don’t have to.
Eddie Ghabour: If you have that mentality you aren’t going to last ok. We are going to take market share from you if that’s a mentality that you take.
David Scranton: The good thing I don’t practice in Delaware.
Doug Ferris: We meet up with those financial advisors as a matter a fact but again s Eddie did say it is important that we use all the resources around us and that actually could include CPAs, a state planning attorneys and anything that our client may need. So we want to provide a service and advice to our clients.
David Scranton: It’s incredible. It’s so true that I find in Connecticut where my practice it’s a little bigger state than Delaware, not much just a little bit but I find 70% of the people who come in have advisors that take the lazy route they really do nothing and they just outsource everything and they build the second fee back to their clients. Stay with us we’ll be right back. These gentleman are sticking around more with the inside minute.
David Scranton: Welcome back to the Income Generation I am David Scranton your host. Now let’s bring back our panel members rejoining us today. We have Doug Ferris, we have Eddie Ghabour and lastly but certainly not least we have David Wright. So David tell me how do you determine what kind of asset allocation somebody should have. I assume you are the risk tolerance here that most advisors use to get questions answered so you can determine what their risk tolerance level is.
David Wright: Maybe earlier in my career but not anymore. I think a client needs to go through a couple of market down to really know deeply what their risk tolerance is. We go through a confidential fact questionnaire and find out where their assets are located. They really through questioning we can find out what their tolerances are.
David Scranton: So you don’t give them this questionnaire how do you cover your rear end? I thought all financial advisors are taught to cover their rear end.
David Wright: We are not here to cover my rear end we are here to cover their rear end in their retirement, their future financial security. So risk tolerance as kind of been throwing out the window and we just look at the assets.
David Scranton: Think about it the reality is that if you go into a doctor and say well you have a blockage, you want open heart surgery, you want stance what do you want? How do you know he is the cardiologist not you so again Eddie Ghabour, Doug Ferris, David Wright thank you for joining us today. Obviously it’s hard to be wrong when you are right. Before we go I’d like to thank all of our guests and also to thank all yawl our new and returning viewers. If I like you to take anything away from today’s show is the understanding that rules and regulations supposedly intended to help and protect the average Joe sometimes end up having just the opposite effect. When you hear politicians and you hear opponents blasting Trump for delaying the deal of fiduciary rule. Be aware that the criticism is probably mostly politically based. Odds are that most of these critics don’t really even understand the details in the rule or its potential to harm the very people that it’s intended to help and that means you. Please be aware this industry is already strictly regulated and that many of us in it are already fiduciaries legally and ethically bound to serve in our clients best interest and happy to do so. Thank you for watching.