Ep 69: Interview Questions To Ask A Financial Advisor

Ep 69: Interview Questions To Ask A Financial Advisor

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The Smart Take:

It’s not easy to hire a professional service provider. Even the most astute consumer only scratches the surface of truly understanding a profession they are not part of. The information gap is huge.

So how do you ensure you find a competent and trustworthy advisor?

Hear Kevin discuss nine questions to ask your advisor. He will unpack some of the industry gobbledygook, share disclosures from brand-name Wall Street firms that will surprise you, and help you become a more informed financial advice consumer.

Whether you currently have an advisor or are considering hiring one, this episode is a worthwhile listen.

Have questions?

Need help making sure your investments and retirement plan are on track? Click to schedule a free 15-minute call with one of True Wealth’s CFP® Professionals.



5:05 – Questions To Ask A Financial Advisor

11:13 – Are You A Fiduciary Legally Acting In My Best Interest 100% Of The Time?

15:49 – How Do You Get Paid?

25:19 – What Are Your Qualifications?

32:44 – Planning Process

34:21 – What’s Your Investment Philosophy?

39:45 – How Many Clients Do You Have?

43:32 – How Will Our Relationship Work?

48:06 – Will You Require Me To Sell All My Investments To Work With You?

49:36 – Who’s Your Custodian?


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The Host:

Kevin Kroskey – About – Contact

Intro:                                     Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to retire smarter.

Walter Storholt:                It’s time for another edition of Retire Smarter. Walter Storholt here alongside Kevin Kroskey, president and wealth advisor at True Wealth Design serving you throughout northeast Ohio, southwest Florida, and the greater Pittsburgh area. You can find us online at truewealthdesign.com. Click the, are we right for you button to schedule a 15-minute call with an experienced financial advisor on the True Wealth team.

Walter Storholt:                Kevin, great to be with you once again. How’s life treating you down in Florida?

Kevin Kroskey:                  Walter, it’s always my pleasure and life is good. I’m looking at a picture of myself, my seven-year old drew it.

Walter Storholt:                Oh okay. I was going to say, you just keep a nice framed picture of yourself.

Kevin Kroskey:                  No, my seven-year old brought it home from school yesterday. I mean, it just looks hilarious. I’m bald so it wasn’t maybe a difficult figurine to draw. This may be before your time, but do you remember Mr. Bill or have you seen Mr. Bill from Saturday Night Live?

Walter Storholt:                Mr. Bill, yeah.

Kevin Kroskey:                  I look like Mr. Bill in the picture, but thankfully I didn’t get squashed like Mr. Bill often did. It’s pretty funny looking. I guess I’m pretty funny looking.

Walter Storholt:                Mr. Bill. Hey, well, Mr. Bill wasn’t a full stick figure so there was a little bit of shaping happening there with Mr. Bill and so it sounds like there’s some advancement. I’m still a stick figures in my drawings so, it sounds like she’s ahead of the curve even at seven.

Kevin Kroskey:                  There you go. There you go.

Walter Storholt:                I found it fascinating. I’ve got a niece and nephew, I guess the niece is probably approaching the five, six-year old mark and then the nephew, a little bit behind her, but it was interesting in learning about how, and I guess, through large amounts of data collection. They have a really good expectation for where your child should be at different ages and how their drawings develop year by year. So it’s a sign if they are drawing fingers on the hands of their drawings and those kinds of things. They’ve advanced to a little bit different level and that they’re developing these other senses and better observatory skills and translating that to paper. The more detailed the paintings become, it should translate to certain ages, paintings and drawings, as they develop and get older. I thought that was fascinating. I never really thought about connecting those dots between the advancement of the drawings and where people… By about five, you should start seeing fingers or whatever the case is as they get older.

Kevin Kroskey:                  Yeah. And then by 10, if you see the fingers coming back off the hand, warning, warning.

Walter Storholt:                They’re reverting. Warning.

Kevin Kroskey:                  My mind was going. In our hometown, in Ohio, that’s the same town where Jeffrey Dahmer is from. Unfortunately, that’s where my mind diverted. But if you see a lot of red in the pictures that are being made and body parts are missing, yeah. Probably a little bit of alert.

Walter Storholt:                That’s a bit of a left turn. Yeah.

Kevin Kroskey:                  Yes. I’m sorry.

Walter Storholt:                Beware. Well, very good. Hopefully that doesn’t start cropping up in the pictures and [inaudible 00:03:43]. That’s great. Nothing beats kids’ art though. It’s too good. Still, one of the funniest things I’ve ever seen in my entire life. I don’t know. You probably got this on the internet years and years ago, back in the early days of the internet before social media and all that. Somebody sent us a website one year of a guy making fun of children’s art and it was just the most hilarious thing I think I’ve ever read. It was just the commentary on the kids’ art. Like just breaking down their artwork and their choices. It was just too good. I need to scour the internet. See if I can find that again. I’m sure it’s been done a 100 times over since then, but it’s just too funny.

Kevin Kroskey:                  We have a friend, I don’t know who the artist is. Apparently it’s pretty expensive art, but it looks like kids’ paintings, kids’ drawings, but then there’s a really satirical saying. So one of them, it’s titled one nightstand. But then there’s just a single nightstand that’s in the picture. And there’s all kinds of ones that are a little bit more racy than that, but it’s funny. So whenever we take the kids over there, they look at it and we’re just thankful that they can’t. Although my seven year old is reading sentences now. I still don’t think she will get some of the language, but we might not be getting her over there pretty soon, ever, yeah.

Walter Storholt:                Well, too good. Glad all is well in your world. And we’ve got a great show on tap today, talking about questions to ask a financial advisor and this piggybacks Kevin off of our conversation on the last episode, when we had Tyler Emrick from your team, join us to share a little bit about his professional journey. And I think we uncovered some really neat things, both about his background and your background and how you got to where you are today at True Wealth Design and the natural evolution of that is to let’s explore a little bit further what it looks like to interview a prospective financial advisor, or maybe even one that you’re currently working with.

Kevin Kroskey:                  You got it. And if I go back and the whole preface of this, and I’ll use an analogy that I used in the last one, but some years ago, there was a story that the fish that was being sold in supermarkets throughout the US was mislabeled, intentionally mislabeled. So call it deceptive marketing. And rather than getting red snapper, you were getting tilefish, porgy, or something called a goldbanded jobfish. And-

Walter Storholt:                I looked up a picture of the goldbanded jobfish, by the way. It’s not too far off of red snapper from a look standpoint.

Kevin Kroskey:                  Okay. That’s good. But part of the issue is: one, I mean, it’s more profitable that they were doing this, they were substituting cheaper fish. Two, it was potentially harmful to some people because this fish had different food allergens and had a little bit more heavy metals, which could certainly cause some issues for people. And whenever people go out and if they have some retirement planning problems, they need to solve some investment problems, some tax problems, they’re going out to seek advice and there’s this big information asymmetry between the people that are providing the service and the people that are seeking to get the help. And it’s not uncommon that financial planning firm or whatever they call themselves A, B and C all look the same, but could be very, very different.

Kevin Kroskey:                  So if you listened to the interview that we did with Tyler, I mean, Tyler had been at, a few very large firms that everybody would be very familiar with. And he just talked about his journey, what he knew and what he didn’t know. And where we closed was, it was really difficult for Tyler who is an exceptional person with his intellect, his drive, his passion for this to really tell some of the differences, even after he’d been in the industry for 10 years. I mean, he had, I would say more than an inkling, but it was still fairly difficult. He didn’t know what he didn’t know, even after all that time spent studying, learning, working in the profession. So if it’s challenging for someone as exceptional as Tyler, I mean, I can only imagine what it must feel like for somebody else that’s coming into our conference room or having a conversation with us or with another advisor and picking one of those people.

Kevin Kroskey:                  The analogy that I often use Walter is, it’s like if you need to have surgery and you can read all you want online. You’re not going to have the years of training of school, of fellowship, of board certification of multiple surgeries that the surgeon is going to have. So in a sense, you want to be maybe a little bit informed, but really, you got to put your trust in somebody. And so you want to try to make a good decision about the person that you’re trusting, that they are competent, that they are trustworthy. And so, the last podcast I think is very helpful just to give a little bit more inside baseball, pull back the curtains a little bit about what it’s like to become a financial advisor and what the training programs or lack thereof are like. And some of the incentives that are there.

Kevin Kroskey:                  What I did was just pull it off some questions that I think would be good to ask whether it’s your current or potential financial advisor. And I’ll go through them today. So we don’t have to do any  David Letterman countdown, but we can just dive in and see where the conversation goes.

Walter Storholt:                I think that sounds like a plan. And I love the concept. We just went through this hiring a contractor to help us work on our kitchen. And it was, although on a different scale, similar. I don’t know everything there is to know about remodeling this kitchen. I know a little bit about it from having burst a couple of pipes from doing some bathroom work and breaking toilets and all sorts of different little household excursions. It’s given me enough armor to understand some of the questions I need to ask, but I’m really just looking for someone I can trust to tell me what I don’t know or, not even have to tell me what I don’t know, just take care of the things once they get into the thick of it to make the right choices and the right decisions.

Walter Storholt:                I’m really hiring the, I don’t want you to teach me how to do the kitchen, I’m trusting you to execute it. And I just need to make sure I find that right contractor through meeting with a couple of different people. But I’m sure the questions are a little bit more important and in depth, when we’re talking about your life savings and the financial and retirement side.

Kevin Kroskey:                  No. I mean, I think any service provider, there’s always this information asymmetry. We had an issue with our garage door recently. It was only two years old. Not the door itself, but the the motor what have you, the operator. And I was just talking with a guy a little bit and it came up that he had been doing this for 35 years and he obviously knew what he was doing after 35 years. And so I asked him, “What are my options here” And he gave me a couple and I’m like, “Wow.” I just could discern the price difference. I couldn’t tell anything further than that. I’m like, “Well, if it was your garage, what would you do?” And then he said, “Well, you’re not going to like the answer.” I’m like, “Well, what’s the answer?” And basically he said, “Well, this manufacturer is actually, it’s builder grade, it’s not good. I mean, I would just spend a little bit more money and replace both of them because you have two garages.” And I said, “Well, what’s that going to cost?”

Kevin Kroskey:                  And it was a few hundred dollars more, but I mean, the guy’s been there for 35 years. He didn’t even give me that option upfront. I had to pull it out of him. I’m like, “Well, let’s just do it right.” It’s worth a couple hundred dollars just to do it right. We’re going to be here. And I trust you and you didn’t try to sell this to me the way I listened to the information. So I felt pretty good about the decision.

Walter Storholt:                That’s a great point. So what’s question number one.

Kevin Kroskey:                  All right. So question number one, and I apologize, it uses a legal term, but it’s important. And so question number one is, are you a fiduciary legally acting in my best interest, 100% of the time? And it’s key. Don’t say just, are you a fiduciary? Our profession is intentionally confusing because large firms will use their deep pockets to lobby. So certain roles are constructed certain ways and maybe they’re not subject to certain regulations, but things are really in the gray, if you will. And they can make a lot of money in the gray.

Kevin Kroskey:                  Simply put a fiduciary as somebody that has to legally place your interests before their own. If you are a trustee for a trust, if you are an attorney, if you’re a doctor and you have that patient relationship, if you have that client relationship, you’re acting as a fiduciary on behalf of your client, you have to do what’s legally in their best interest. You would think that that would be a requirement. It’s not in the US when it comes to financial advising. If you go to the UK, if you go to Australia, it is. But with our lobbying system here, it’s just not that way. So if you are a registered investment advisor or RIA for short, you are required to act as a fiduciary for your clients.

Kevin Kroskey:                  Here’s where it gets a little tricky. Some people can, they call it wearing two hats. So they may be dual registered as an RIA and under a broker dealer. And basically they are exempted from being a fiduciary when they’re wearing that broker dealer or hat. And I can virtually guarantee that anybody that has this type of advisor, that is dual registered, which is pretty common, very common, as a matter of fact. It never comes up like, “Okay, Mr and Mrs. Jones, I’m acting as a fiduciary under my RIA hat at the moment.” And then they flip over later in the conversation to sell a product and they don’t have to necessarily do what’s best for them.

Walter Storholt:                That would make following advice really easy, right? Like, when I’m wearing the green hat, I’m telling you things that are in your best interest. When I’m wearing the red, it may still be in your best interest, but it might not be. So take it with a grain of salt and then you have to switch hats throughout the meeting.

Kevin Kroskey:                  I may make a little bit more money on this recommendation. Yeah, that’s BS. Hopefully everybody sees it. Thank you for that. I wish it were that way. So then you have another type where you can be an RIA and they don’t have a broker dealer, but maybe they’re just insurance license and this is a growing portion where, maybe 50% or 70% of the revenues come from insurance commissions, which, they will say that it’s separate. Maybe there’s even one company or, one LLC for their RIA and then a separate company for the insurance. And they’re still doing both there. So the very similar approach, but those are things that you got to be mindful about.

Kevin Kroskey:                  I can speak first person here. We set up True Wealth, I set up True Wealth more than, well, 16 years ago or so. And we were always a fiduciary, we were always an RIA. We do provide some insurance services for clients. It’s only about 1% of our revenue per year. It’s a very small amount. Candidly, it’s really done as a convenience for our clients so we don’t have to send them down the road. And we stated in our disclosure documents that we’re still providing the insurance as a fiduciary. So we don’t have to do that. But I think it’s good that we do that. I mean, I would want that if I was sitting on the other side of the table. We disclose commissions on those things. Our advisors don’t get paid commissions on insurance products that they provide for clients.

Kevin Kroskey:                  So it’s really there for clients. And insurance, unfortunately, is still a commissionable product. It’s getting better, it’s getting cleaner, but clients still need it from time to time, particularly if they’re younger and working, they have kids, but when you get to retirement, maybe not so much. So that 100% of the time, are you a fiduciary legally acting in my best interest? A 100% of the time is important. And then if they say yes, ask them to put it in writing. Again, it’s in our agreements that way. But don’t just stand behind the words, but get them to put it in writing for you. I think it’s very, very important.

Walter Storholt:                I think the fiduciary word and concept is fantastic, but those loopholes are our big gaps if they’re not addressed and taken head on. And I don’t know of a whole lot of people that like to tackle that head on, because it takes that little explanation that we just went through. And I appreciate you being willing to open that, not can of worms, but to just peel back the curtain a little bit to understand that nuance behind the scenes.

Kevin Kroskey:                  Yes, absolutely. So somewhat related to the first question. The second one is, how do you get paid? And I think the key thing to remember here is incentives matter. So I pulled off just a couple disclosures available online. I mean, this is just on their public website. So this is Morgan Stanley it says, “Your financial advisor’s compensation is based primarily on the fees and commissions that you pay us. Different products have different compensation structures and accordingly our financial advisors get paid more or less depending on the product or service you choose.” So Walter, when I hear that, I’m like, ugh!

Walter Storholt:                Yeah. Well, it feels a little slimy, right?

Kevin Kroskey:                  Yeah. I mean, it’s a disclosure, it’s out there. I mean, they have to do it, which is, I’m glad it’s phrased that way. But I don’t know about you, but if I sit down, I don’t want that person, that advisor, who uses that term maybe a little loosely here. I don’t want them to have an incentive to recommend product A or strategy A over product or strategy B. I want them to get paid the same and do what’s in my best interest. If you have those incentives, I’m not saying that they’re always going to be taken advantage of. Maybe you have somebody that is truly a good person, but when you have those incentives, it does tend to guide behavior over time.

Walter Storholt:                We’re human. It’s going to impact our decision-making when those incentives exist. I mean, back to the kitchen example, “Hey, I need a new dishwasher along with this kitchen reno. Should I get the Bosch or the Samsung?” And they’re getting a 100 extra dollars kickback if they recommend the Samsung. How many times are they recommending the Bosch, do you think?

Kevin Kroskey:                  Oh, absolutely. And I’ll take it a step further. There’s some firms where… So here’s another one. And again, if anybody wants to see this document, I have a copy of it. But the CFP board came out in 2000, it was June of 2020. Basically anybody who is a CFP had to meet some additional criteria in terms of being a fiduciary and disclosing material, conflicts of interest and things like that. And it was a little bit short, I would say of maybe where it should have been, what the CFP board came up with, but it was certainly a step in the right direction. But Northwestern Mutual has, I don’t know if they still use it, but there’s a copy of this that was circulating. It was an eight-page disclosure document that came out in response to this. And I’ll just read you a little tidbit here.

Kevin Kroskey:                  So from the document and I’ll quote this. It was under my commitment to you as a CFP professional. So this was basically somebody that works at Northwestern Mutual who is an agent of Northwestern Mutual and who is a CFP. It goes on to say that, “CFP professionals are incentivized to sell Northwestern Mutual insurance products to a client often that they have a financial interest in selling permanent life insurance with higher initial premiums than term products. And that they’re encouraged to sell more expensive products and services, which will have the effect of increasing the CFP agents compensation.” And it goes on and on. I mean, it’s an eight-page disclosure document. Imagine the amount of people that actually read this thing that it’s delivered to is probably pretty small.

Kevin Kroskey:                  But when you hear things like that, I mean, it’s just not good. I mean, you can still have a good person, but again, those incentives matter. I’m also aware, I don’t know if this is still going on, but when I first came in the industry, if you were working at maybe not at Northwestern Mutual, there’s a another company I won’t name. But if you didn’t sell them a certain amount of their own company, insurance products, you could sell other companies, but you had to sell at least a certain amount of their own. And if you didn’t do that then your health insurance was 100% on you. So they basically did not pay for that anymore. And they took away your 401k match plus they paid you more if you sold their products versus somebody else’s product. So those kinds of compensation structures are just, I think they’re ridiculous. So you have to be mindful of that.

Kevin Kroskey:                  We talked about in the last question about being in an RIA or RIA and then a BD and wearing those two hats or maybe RIA and then getting insurance commissions. I mean, how you get paid really matters. Is a fee most the industry on the RIA side, under the fiduciary side works for an asset management fee. But some firms that may only do investment management for that, we do investment management, we do very robust financial planning. We do tax planning and tax preparation, all for that one fee. So you need to understand how somebody is getting paid. Just because somebody makes a commission doesn’t mean that it’s bad or that they’re bad. But there’s more potential for a conflict there that they are selling a product that’s with a higher commission that’s going to pay them more and give you less.

Walter Storholt:                It’s even, just to take it a step further Kevin, and maybe this comes up in another question, but not even just on the commission or the fees and the incentive side of things, but it’s even a question of level of access. Some of the, I don’t know if manipulation is the right word, but some of the strategy behind the scenes of some of these companies. I shared on the last episode, how I got my own insurance license, just for fun. So I could get a little bit more peek behind the scenes at some of the financial stuff out there.

Walter Storholt:                And it was interesting when I then took that next step of what it would look like to get contracted with various companies out there. I quickly learned that with one particular company and I’m sure it’s the same in other structures as well, I couldn’t even get access to certain products to sell to a potential client that would have been totally better for them. Better rates, better return, less costs and fees and all those kinds of things. But I couldn’t get access to sell that unless I sold X amount of this company’s lower-level products that had the higher commissions and fees and those. I couldn’t get access to the, whatever it was, the gold plan or the gold product to be able to sell.

Walter Storholt:                So right off the bat, I’m meeting with someone across the table from me, I would have to either tell them, “Hey, now, technically since I’m a new guy I can’t sell you this really good thing over here that this company has. You can only choose from this very limited menu.” Or I have to immediately hide that from the person I’m meeting with and not tell them that, “Hey, you could have access if you went to somebody more seasoned. You could have access to this gold plan.” Or whatever the thing was called. I mean, right there, I was just like, “This is insane. This doesn’t make any sense.”

Kevin Kroskey:                  No, I haven’t heard of that. I did get an email yesterday from, and I try to filter all these out, so they don’t even end up in my inbox. But one made it through the filtering system. And basically it was high commissions on indexed annuities, earn up to, I think it was 8.5 or 8.75%. And we’ve done past podcasts talking about some of the issues with annuities, but just for comparison purposes, if we looked at our last quarterly billing and our fees are right on the website. We have a page under who we are, and it says, our difference, our firm, our fees and our team. You can go see that information right there if you’re interested. But if you add up that asset management fee for all the work that we do, and you look at the fees and divide it by the total assets, it’s less than 1% that clients on average pay us per year.

Kevin Kroskey:                  Compare that to the insurance salesperson, that’s making more than 8% on a sale. And then, they’re not incentivized to go ahead and service that person, they’re incentivized to go out and get another new sale for 8% plus commission. Whereas if we ever get a client and we have to work probably eight years to make a similar amount of money. And there’s no backend render fees or anything like that. If we’re not doing a good job or if our client’s not happy for any reason, they shouldn’t be a client anymore and they terminate the relationship. Now, that doesn’t happen very often, but that’s, I think you look at it less than 1% versus more than 8% upfront in year one. I mean, just a huge difference.

Walter Storholt:                Is that one of your nine questions today? Can I fire you? Or what happens if I’m not happy and want to end the relationship? Because that seems like that’d be an important one to add.

Kevin Kroskey:                  No. But hey, round numbers are good. So you just-

Walter Storholt:                Bonus question.

Kevin Kroskey:                  Bonus question to 10. Yeah, I mean, for some of these products, particularly the annuities or there’s some commissionable products that you can get if a client is working with a broker dealer advisor. There could be lock up periods or backend surrender charges, or other junk fees that candidly could be stuck. Certainly we don’t have any of that stuff, but it’s good to ask that question for sure. So how do you get paid? How much will I be paying? Or, how do I terminate? We’ll all lump that together.

Walter Storholt:                Sounds like a plan. All right. Two good wins down.

Kevin Kroskey:                  So question number three. So what are your qualifications? We talked about earlier, Tyler and just how do you pick somebody who’s hopefully going to be trustworthy. And how it’s difficult for even somebody who’s knowledgeable and smart and is experienced, they had more than a decade experience, how do you actually… He was making a decision three years ago when he joined us about how do I pick the right firm to spend my career with? And it’s still challenging because there’s a lot that he didn’t know. So it’s difficult here too, and even more so for a consumer to pick an advisor.

Kevin Kroskey:                  I would say a bare minimum, find a CFP. CFPs are about 30% of the industry. Certified Financial Planner is what CFP stands for. And the key thing here is, it’s a minimum competency. It doesn’t mean it’s a gold standard or anything. To me, it means you’re minimally competent to call yourself a professional. If you have a doctor, hopefully, you don’t want a doctor that has some medical school, right? You don’t see that. “I don’t actually have my license, but I have some medical school. So, yeah. I can take great care of you.”

Walter Storholt:                A few years completed.

Kevin Kroskey:                  A few years. Yeah. But you want a doctor and all doctors aren’t the same, there are some that are more exceptional than others or attorneys or what have you. But if I’m choosing a doctor, I want somebody that not only is a doctor but maybe has gone on for additional training in their fellowship. They are board certified, they’re continuing to learn and see what’s being innovated within the space, but knowing what is currently working and what have you, and somebody that can communicate too. Those things, if you have a, at least a CFP, I think that’s a good starting point. But again, to me, it’s a bare minimum.

Kevin Kroskey:                  I think you also need to have some people that they have experienced in solving problems like those that you have. So most of the clients that come to us tend to come to us, in their 50s or so when they get really serious about retirement and they’ve been earning money and saving and we’ve become really good over the years at helping them pull it all together, get a really clear plan for retirement, help manage those transitions, get their assets aligned well to support the lifestyle that they want and make sure that they get on track and stay on track. And there’s a lot of people that may do a little bit of this, do a little bit of that, but you want somebody that has that firsthand experience in solving those problems and guiding you through life’s transitions. I mean, a lot of those decisions that you’re going to have to make are revocable. You don’t get a do over necessarily. So you want to make sure that you get them done right.

Walter Storholt:                Life changes very quickly, both as individuals and the financial landscape can change on a dime. And so I think that’s important that you guys embrace this philosophy of always learning, always trying to innovate, or at least understand what’s happening in the world around you. So you don’t view your education or your qualifications as a, okay, once I get it, I’ve got it. You subscribe to that same mentality of the doctor profession or, “My dad works in pest control and he’s going to conferences and trainings every three or four months trying to learn about the best ways to always be fighting termites or this new bug is  cropping up in the state and here’s how to combat it and stay ahead of the curve. And what are the best practices on capturing this animal now?” And just always trying to stay ahead of the curve.

Walter Storholt:                You can still do things the way it was done 25 years ago, but how much better will his clients be served by his advanced knowledge? And so I think in any industry, the fact that that’s an important thing to embrace that continuing education, always getting better, always striving for something more. And I thought Tyler hit that beautifully where he’s like, “I probably will never get to where I’m the nine out of 10 on the egghead scale.” Right? Of financial knowledge. But if I’m always striving for it, then I’m doing well.

Kevin Kroskey:                  Yeah. Somewhat related to this too is, when you’re a financial advisor… I mean, we have to be generalists in a lot of ways. I mean, we have to deal with investments with taxes, with retirement planning and all things that fall under there from Medicare, social security, life expectancy. I mean, you really have to be pretty broad, I think, to be a good advisor. But then you may have some areas that you specialize in and go much deeper. And then, if we can have some different key people, like myself, I prefer to focus in a couple of areas. Tyler has passion for a couple of other areas. That way as a generalist, I know I got this, but if it gets a little bit deeper, I may need to pull Tyler in on this just so we can put our heads together and get the best result for the client.

Kevin Kroskey:                  So I think that’s really important to know. I mean, you get some people that are just really, I would say, cookie cutter. And you really need to have that broad understanding because most of these things are interrelated. It’s not just about tax or you’re not just going to go to an estate attorney. I mean, all these different things. Sometimes you’ll hear quarterback, it’s overused, which is why I don’t like using it so much. But you really do need to… I’ll give you an example.

Kevin Kroskey:                  So I was talking with a new client yesterday. They’re looking to move from California to Florida. They’re retiring in their late 50s. Mid, late 50s. We got their lenders telling them one thing about, “Hey, how they’re not going to qualify necessarily because this is going to be a second home.” And the husband’s business was a little down a little bit last year because of COVID and, “Oh my gosh, what are we going to do? And if we actually wait till when we retire.” The wife is a teacher. Then, “We’re not going to have that income, so we’re not going to be able to qualify.” And I was able to walk them through. I’m like, “Well, those are all valid concerns, but they’re not really relevant. And here’s how we’re going to be able to maneuver through that.”

Kevin Kroskey:                  I was able to take my knowledge about how the retirement accounts work and I have a fair amount of lending knowledge, and this is something that we help with clients all the time. I’m like, “We’re going to be able to do this with your 403B and we’re going to take these distributions and it’s going to count as income. And it’s got to stay in the 403B because you’re only 57. And if you roll this over into an IRA, you’re going to get a 10% penalty on distribution. But if you leave it there, because you’re over 55 and separated from service, you’re going to be fine.”

Kevin Kroskey:                  I talked through this and some people were probably feeling right now like, “Holy [inaudible 00:31:58].” But I was able to pull all that information and synthesize it. And this client had a real life problem. Like, how are we going to solve this? So you have to have that depth as well as the breadth. The breadth is really important, but then you’re going to go deeper in certain areas. Lending is an area that I’m strong and I’m really strong and individual income tax, really strong in retirement planning. Tyler’s really, really strong in investments. He’s really good at cashflow and he continues to build up his knowledge in some of the other areas.

Kevin Kroskey:                  Collectively, when you put that together and you have a few key people that have a lot of experience in those areas, you can solve a lot of problems to make sure that you’re identifying the issues or the opportunities that somebody has and then making smart decisions to capitalize or avoid them.

Walter Storholt:                All right, Kevin. Good so far. We’ve talked about being fiduciary 100% of the way. Fiduciary with some of those caveats in there. How you get paid, qualifications. What’s another item on the list?

Kevin Kroskey:                  Sure. I’ll use the surgeon example again, but if you’re going in for surgery, you want to know what to expect, right? You want to have that surgeon that has experience and has a plan for how they’re going to do their surgery. You don’t want somebody to say, “Well, I don’t know. I mean, I’ll cut you open and we’ll figure it out when we get in there.” To me, that just doesn’t sound too reassuring. So you need to have a planning process. You need to have, this is the tried and true method that we go through and handle situations like yours.

Kevin Kroskey:                  We’ve done a whole podcast episode on something called our retire smarter solution. And basically we just looked into the work that we always have to do for a new client that’s coming in and getting serious about retirement and wants to make sure that they’re making the most of what they have and managing those life transitions. And we put this one pager together just to help make it more concrete for people to see what that process is, to partly demonstrate that, “Hey, we’ve been here before and we’ve done this and we’ve done it successfully and we can help you too. And here are the steps that we need to take in that process.”

Kevin Kroskey:                  It’s not like you’re buying a car where you can go and test drive it and you can look under the hood or, whatever it is. You’re buying a tangible service. You’re buying somebody’s experience and knowledge and wisdom. And I think having that process and being able to demonstrate how you’re going to help them to me is really, really key.

Walter Storholt:                I think that’s important. And we’ve talked about process on so many episodes of Retire Smarter. I can’t pick just one to send people back to listen to Kevin because it’s been pretty pervasive throughout all of our conversations, but just underline and put that one in bold for sure.

Kevin Kroskey:                  You got it. Yeah. The process matters more than outcomes. Outcomes, you can get some weird results in the short term or medium term, but if you have a good process, the results tend to take care of themselves over time. So absolutely. So the next question, what’s your investment philosophy? So this one, it may sound a little wonky. But I left it on here. I think it’s important, not just because this is what I do for a living, but there’s different ways. So let’s just say that you went through this planning process and you have this beautifully constructed financial plan. Now you’re going to have to implement it. And inevitably there’s going to be some investment decisions that you’re going to have to make to hopefully tie back those investments and align them with your retirement plan.

Kevin Kroskey:                  There’s different ways to do that. Some people may believe in just going out and picking 10 stocks. Some people may just go and pick a certain basket of mutual funds, but really how are they getting to those recommendations? There is a certain investment philosophy that your advisor has, or you should have, if you’re doing this yourself, and you should be very clear on what that is. And again, for us, it’s more of a science-based process. We believe in deep diversification, we want to keep costs low and stay very tax efficient. That’s a very high-level piece to it. There’s a little bit more to it, but we’ve talked about our investment process in prior episodes, if you want to go back and listen.

Kevin Kroskey:                  But I’ve had experiences when people are sitting in our conference room, prospective client and the meeting is seemingly going pretty well, at least from my perspective. And then, I don’t ask them something like this. Maybe they have a question or, what have you done investing wise? What’s worked well? What hasn’t? I’ll also ask them, “What  return do you expect?” I just had a conversation like this about two weeks ago. And the gentleman, very successful younger guy just sold business for a very large dollar amount. And he said, “Well, I’d expect about 10% per year.” And Walter when you hear that 10%, you probably are saying like, “Whoa, hey, that’s what everybody says, because that’s what the historical average is for the US market.”

Kevin Kroskey:                  But that average almost never happens. There’s always more ups and downs. And we’ve talked about this over the course of the last couple of years, but your prices have gotten a lot higher for many, many assets. And I told him, I said, “Look,” And he was introduced to me by a current client. So he was referred to us, but I said, “Look, I think you really got a temper those expectations. Even if you’re an all equity investor, there’s a lot of asset prices that are pretty high now, which means that you’re probably not going to be able to get those sorts of returns with any reasonable confidence moving forward for a period of time.” I’m still not saying it’s always going to be that way, but I think it’s partly the market that we’re in.

Kevin Kroskey:                  Certainly some assets are priced a little bit more favorably, but if that’s really what he was expecting and if that’s all that he was really going to go for, candidly, we would have been a good fit to work together because I’m not going to blow smoke. And I also cautioned him that, if you are talking to people, there are certainly people out there that will go ahead and portend that they can deliver that for you. And usually you’re going to end up pretty disappointed with that.

Kevin Kroskey:                  I had another situation where clients or prospective clients were very conservative. You can tell that from the things that they were telling me from how they were currently allocated, and I said, “Well, what  return do you expect?” And they said, “6%.” And I said, “Here interest rates are near zero today. So if you’re investing in those kinds of securities, bonds and things like that, I don’t know how you can get the 6%.” And I walked them through that similarly to what I just described. And they said, “Well, I guess that’s one way to look at it, but you always get higher returns.” I’m like, “Okay.” I’m not going to say that… We’re not a good fit, basically. It’s what we came to, but you need to have I think reasonable expectations. And going back to the question, you need to have that investment philosophy or that investment process that is consistent.

Kevin Kroskey:                  Most of our clients, they’ve never thought about, “Well, what’s my investment philosophy?” Maybe they read about index investing or something like that, but this is tends to be more of a financial advisor thing. But I think it is still really important that the client understands what the process is and then what expectations that they should have. It’s possible to be disappointed with the outcome. Nobody likes it when markets go down, but inevitably they will, but you shouldn’t necessarily be surprised by the outcome. And I think that’s an important distinction, but there’s a lot of different ways to implement. I think you have to make sure that you find something that is consistent with your own beliefs. And if you don’t have those beliefs, we have a lot of clients that have been open to being educated. And we’ll just walk them through the science based evidence as far as what we believe on why and what we’re doing for them. And that’s proved to be very successful over the years.

Walter Storholt:                You can see how all these questions start to go hand in hand and build off of one another to give you a deeper understanding of who you’re going to be working with or who you are working with, if you’re currently working with a financial advisor and these things are peeling back the layers of that onion to learn a little bit more about the person and the company that you’re interacting with. A couple more questions on that list Kevin?

Kevin Kroskey:                  Yeah, we just got a couple more here. So how many clients do you have? This is an important one because I think he gets into relationship expectations. I had a get together with another financial advisor friend last week and good guy. And I asked him, I was like, “How many clients do you have these days?” And at first he said, “Oh, a 100 or 200.” Which was a pretty big variance in my mind. I’m like, “That’s a pretty big range.” He’s like, “Well, now that you mention it, I don’t really know.” I’m like, “Well, when we spoke a few years ago, you told me you had five or 600.” He’s like, “Well, I have a 100 to 200 that I see regularly, but then I have these other people that-

Walter Storholt:                There’s that 400 customers.

Kevin Kroskey:                  Customers, yes. Client versus customer. There you go. And amen to that. So if you have somebody like that, it doesn’t mean this is a good person. I like this guy a lot. I mean, he cares, but pragmatically, you can’t really spend a lot of time with five or 600 people. Tyler talked about the same thing in the last episode when he was at a large firm, he had about 500 plus clients. So what you’ll commonly see, and it depends. If you have Uber wealthy people that have really complex problems, maybe you have 40 clients or something. If you have a lot of clients that we serve, everybody’s unique, has their own, you got to make sure that you understand the person, but a lot of the problems are pretty similar. And we’ve been able to build efficient processes to make sure that we can solve those problems and make sure that they stay on track.

Kevin Kroskey:                  So you can have a 100 or 150 clients, again, depending on complexity and what have you. And also, I mean, some people just work faster than others. I don’t know about you Walter, but when I was going through school, I was always the first or second person that was done with the test. And yet I always performed well, I didn’t need all the time to go back and double check and do this and that. And I just didn’t do it. I was just able to work more efficiently than some other people. Not that there’s anything wrong with being slower and maybe trying to be more precise, but it wasn’t something that I needed to do to be precise and get the right answer.

Walter Storholt:                Yeah. I can’t identify with that. I was probably always one of the last ones to turn in my test because, and this is no joke. I used to like to commentate and broadcast in my head the final results of the test. So I would look at how many As and how many Bs and Cs and Ds there were and tally them up. And then I would do a post game show in my head of who won A, B, C or D. And I would look at who maybe had a rally toward the… I would go and look about halfway through and see who was leading at the halftime of the test and then who was making a run at the end and who became the MVP. And then sometimes I would say, “Wow, C rattled off five victories in a row there, about three quarters of the way through the test. Hmm, maybe we should go back and look at this because that seems suspicious that there’d be five straight C answers.”

Kevin Kroskey:                  That is an interesting looking inside the mind of Walter Storholt. Thank you for that. On behalf of all the listeners, that was pretty cool.

Walter Storholt:                I was actually a relatively good test taker, but I would take a little extra time to then broadcast the tests. So, yeah. I was never in a rush to turn mine in. I was in a rush to finish so that I had time to then do the broadcasting.

Kevin Kroskey:                  Very cool. So after the, how many clients do you have, how will our relationship work? So this is again, not only having proper expectations as far as the investment process but also proper expectations about the relationship. How many times are we going to meet? What’s the communication going to look like? Am I going to be meeting with you or is there more of a team service model? And what does that look like? I mean, these are all really important questions. The basic principle, candidly in operating a service business is, you got to meet or exceed the expectations. And if you do that, you tell people what you’re going to do, and then you do it. They tend to be pretty happy because they signed up knowing what you told them, and then you actually do what you told them. And that tends to get some pretty good satisfaction.

Kevin Kroskey:                  But we certainly do that. We reach out proactively. We have a couple of different service models that we can work with clients under. So we just don’t have to work with Uber wealthy people. We can work with people that have a few hundred thousand dollars and still serve them well. And everything works out between everybody. For the clients have a little bit more complex needs and we need to do a little bit more tax planning, things like that. We reach out an additional time proactively and do that fourth quarter work for them. And we’re always here, if a question or a concern comes up in between those meetings that we set and proactively reach out for. So I think you have to set those relationship expectations. Who’s doing what, what frequency, what have you. Or candidly, if I go back to my buddy that, I had five or 600, I don’t want to say clients, but some clients and a lot of customers or Tyler had a lot of customers, it’s all reactive.

Kevin Kroskey:                  And people actually have to reach out, which in my experience, I don’t think it’s necessarily a good way to have a relationship, but also if you do it that way, the downside of that is the person, the client or the customer, depending on how they’re being served has to really self identify when there’s a need which defeats the purpose. Take the flip side. It’s like even when you feel healthy, you should still go into the medical doctor and get your physical. You should still get the diagnostics test run, because you may be able identify something where now that you have identified and maybe identified earlier, your treatment options are probably going to be much better to resolve the issue than if you just went on undiagnosed for a while. So you need to have that relationship, you need to understand the person. But I think a good advisor can ask them questions where though there may be a problem or opportunity that the client didn’t know that they had, but we can identify it. And then we can work to go ahead and capitalize or avoid it.

Walter Storholt:                I just find it really interesting that the entire tail end of your list here of questions to ask an advisor all really revolved around expectations. That’s pretty telling.

Kevin Kroskey:                  No, it’s a good observation. I think it’s really important. The process is certainly important, but the process helps explain the expectations. We had an [inaudible 00:46:34] podcast a couple months ago talking about standard deviation. And I mentioned, I hadn’t used that phrase in a meeting for, I don’t know, probably more than a decade once I actually learned that that was something that you shouldn’t say in a client meeting, but it really helped inform some expectations as far as the variability of your investment returns over time. So I would talk about the variability in investment returns and help set those expectations, but I wouldn’t use the wonky terms, standard deviation, but some of our Retire Smarter listenership, I think appreciates that. So we will inter intermix it in this longer format that we have here. But you’re right Walter. I mean, expectations are really important.

Kevin Kroskey:                  I was waiting on a contract recently from somebody and he told me I’d have it on Friday. And this was Friday for more than four weeks ago. And I just got it yesterday and I’m like, “Wow!” When I got it, I had already written the guy off and now here came back and I mean, candidly, that’s not a good thing. I mean, the contract involves me investing a fair amount of money through the service contract. And I don’t feel very good about trusting this person with those dollars now. So if you set those expectations, one, if you have somebody with unreasonable expectations, then they’re not a good fit for us, we’re not going to be able to meet those. But if we have reasonable expectations, then we will do our very best to go ahead and meet those. And we will proactively reach out to do it over time. But I think the expectations are definitely key to this, for sure.

Walter Storholt:                That’s very important. Very true Kevin. Any final questions that we haven’t covered yet to ask a financial advisor?

Kevin Kroskey:                  Yeah. Two quick ones. So if you’re working with somebody new, will you, here’s the question, will you require me to sell all my investments to work with you? So if all of your money’s in an IRA account and there’s no tax consequence in reallocating. Certainly you’re hiring the advisor. You want them to buy what they think is best for you, and you don’t want them to get paid any more or less to recommend product A, B or C. You just want them to do what’s in your best interest. But maybe you have a joint account with your spouse or a trust account, and you have some mutual funds that have grown in value or stocks that have grown in value. And you’re going to take a big tax bite to go ahead and sell out of those.

Kevin Kroskey:                  Well, I can tell you, what we do in those situations. We evaluate the tax costs versus, the opportunity cost of staying in that investment. And we have several clients where we just call it a substitute or legacy security, and we’re holding it maybe forever, depending on what we see in the investment and the tax consequences, but maybe for a period of time when they’re in a lower tax year and we can more tax efficiently get out of the investment. I would say that we’re in the minority of doing it that way. Certainly it adds some complexity to the work that we do on behalf of clients, but most firms will just require you to sell out of everything and then start fresh with them. And that could cost you a lot of money if you have money in those taxable accounts.

Kevin Kroskey:                  And then lastly, who’s your custodian? So custodians are really important. I’ll use Bernie Madoff here. Everybody’s heard of him, but he did not have a custodian. A custodian is like Schwab, TD Ameritrade Pershing. These are all global financial institutions or large financial institutions that really, it’s like at your checkbook register. This analogy is going away. I don’t know who bounces our checkbook anymore Walter, but I know there’s some people that listen, they still do. But they tell you what went in and what went out and how much you have. That’s what the custodian does. They’re the safe keeper of your assets. Bernie Madoff, on the other hand, did not have a custodian. He just had Bernie Madoff’s piggy bank and we all know how that played out.

Kevin Kroskey:                  So whether it’s Schwab, TD Ameritrade, Fidelity, Pershing, they’re all very large financial institutions. When you work with an advisor, you’re just giving that advisor basically limited authority to go ahead and buy and sell securities on your behalf, as well as to debit their advisory fee from your account. Really nothing more than that. So it’s important that the advisor… It’s a requirement, it’s not important. It’s a requirement that they have a custodian and preferably a large one. We work with all those Schwab, TD and Pershing. So certain custodians are better for certain clients for certain reasons, but it’s a commodity at the same time too. You just want some big, very safe financial institution that’s going to hold your money and isn’t going to go out of business. That’s it.

Walter Storholt:                Yeah, that’s a big one. That was a lot Kevin, a lot of important topics on the show today.

Kevin Kroskey:                  Walter, I must confess. I thought this was going to be a normal podcast episode. And though I’m not keeping track of time. I know it extended. So hopefully it’s been helpful. Some of the stories, again, we started this whole series here, just helping people understand really how to hire a financial advisor, some of the differences between financial advisors, making sure that you’re not getting the goldbanded jobfish, but you’re getting the red snapper or whatever it is that you’re hoping and trying to buy. But there’s a lot that goes into it, but hopefully, whether you’re looking for an advisor, whether you’re a client of True Wealth or you have your own advisor, all these things matter. They matter a great deal.

Kevin Kroskey:                  Us being inside of the industry and knowing these things, we can see why these things matter, we have stories behind why the matters. Some of them we shared through these last couple of episodes, but it is really important. It’s a tough decision, but there are good advisors that are out there, that are trustworthy, that are competent, that do have clear incentive structures or compensation methods, I should say. That are fiduciaries for you. But you really need to go through and go through a good thinking process and interview process to find them. So hopefully this is helpful in that regard.

Walter Storholt:                I think it definitely is. My big takeaway really is just, this is important and there’s a lot of layers and there are so many different people that call themselves a financial professional and just grasp through the last stories that we shared on the previous episode. And through some of the things we explored this episode, that there’s a dramatic difference from advisor to advisor and firm to firm in the way that they do business, the way that they make money, what those fees and commissions look like, the processes that they use and the expectations that they set understand that there are those great differences. And so just take the time and attention to research, interview, and do that due diligence. It’s your life savings that we’re ultimately really talking about in most cases that you’re going to be investing and saving as you prepare for your retirement and financial future.

Walter Storholt:                Do that due diligence, do the research, don’t just go with the, “This person seems nice. So we’ll work with them.” Dig a little deeper, I think is the encouragement from today’s show. And it’s probably not a message that the Retire Smarter crew that listens into each episode here Kevin needs to hear because they’re doing their due diligence by listening to this show and this podcast and getting to know you a little bit more, but maybe they can share this episode with somebody who is thinking of working with an advisor or is working with an advisor, who doesn’t go to these depths and these levels to make sure that their clients are taken care of. And if it can be helpful in that way, please share it with anybody who might benefit from hearing this way and these questions to ask to a financial advisor, to dig a little bit deeper.

Walter Storholt:                If you have any questions for Kevin and the team at True Wealth Design, it’s very easy to get in touch. You can call 855 TWD plan that’s, 855-893-7526, or go online to truewealthdesign.com and click on the, are we right for you button to schedule a 15-minute call with the experienced financial advisor on the True Wealth team and to start a conversation about some of these questions plus more.

Walter Storholt:                Kevin, thanks for the help. And I know it was a long episode, but packed full of good stuff. And we’ll look forward to another one with you soon.

Kevin Kroskey:                  Thank you, Walter.

Walter Storholt:                All right. Take care. That’s Kevin Kroskey. I’m Walter Storholt. We’ll talk to you next time. Right back here on Retire Smarter.

Disclaimer:                          Information provided is for informational purposes only and does not constitute investment tax or legal advice. Information is obtained from sources that are deemed to be reliable, but they’re accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.