Do you know what a PINO is? Not pinot, but P-I-N-O. An acronym coined by Chuck Failla, it distinguishes a “planner-in-name-only” salesperson from a fiduciary who is ethically bound to act in their clients’ best interests.
On this Elementality, Reese and Chuck Failla, of the Sovereign Financial Group, look back at the dawning of real advice-centric financial planning during the cowboy, cold-calling days of stock picking. A survivor of the “Wolf of Wall Street” era, when the marketplace centered around the stockbroker, Chuck talks about the changes to fiduciary-based planning he has seen—and what still needs to be done to educate consumers on the differences between a product-based salesperson and true financial planner who is paid for their advice.
Podcast Transcript
Chuck Failla:
The first prospect I had in my office when I was a newly minted CFP, and I remember this clearly, I was like, “Look, we are not beholden to the big banks, like the Merrill Lynch’s. We have no proprietary product,” which I was very proud of. “And we work on a fee basis, and we work as a fiduciary.” Meant nothing to them. Not a thing. Not a thing. I could just tell it was like going in one era out the other. Today, fast forward 27 years, one of the first questions I’m getting, probably 50% of my new prospect meetings is, “Are you a fiduciary?” And I think that’s huge.
Announcer:
Welcome to Elementality. Each episode, we will explore the challenges and the opportunities faced by financial advisors and how advisors can use elements to grow their business and serve their clients better. We hope you enjoy this episode.
Reese Harper:
Welcome to another episode of Elementality, everybody. I’m one of your many hosts I guess. Now we’ve had quite a few people chipping in, but I’m one of your hosts. My name’s Reese Harper, as you know, and I haven’t been on the air for a couple weeks. You’ve gotten used to Carl and Abby and Jordan and a lot of people that have been helping us keep this podcast flying off the shelves. We’ve got a real treat today for everybody. Someone who has been building an RIA for many years, grew up in New York as, from what I understand, a very traditional cold calling environment that kind of started your career there, toughened you up, I’m sure, to build the successful business you’ve built. And excited to talk about all of this, with Chuck Failla. Chuck, welcome to the show.
Chuck Failla:
Reese thanks a lot for having me. Been looking forward to doing this podcast and good to interact with you directly.
Reese Harper:
Thanks, man. Yeah, you’ve got a really interesting background and I just love these conversations. I always learn something and I always find the guests that I am lucky enough to interview to have such diverse, interesting life experience and to both what brought them into the industry and what they love about it. And I kinda wanna explore that with you today. One of the things that I picked up on when I was just doing a little bit of research prior to this interview is I saw an article, a bio on investment news where someone had talked about, the cold calling cowboy days, that life was back then. And I was like, “Man, that sounds very familiar to me.” I remember that being how I would’ve described my first year in the business. I wanted to hear that story from you. What was that experience? What was your foray into wealth management?
Chuck Failla:
Sure. I tell you what, it was… It started off in fundraising. That was my first real job out of college. Went to the University of Connecticut and right outta college I landed a job with a professional, a for-profit fundraising consulting firm that consulted to nonprofits.
Chuck Failla:
And it was a lot of fun. I traveled a ton, I consulted for the Metropolitan Opera, the Wharton School of Business. So pretty high profile clients. But then what happened is someone who I trained in that industry ended up going to Lehman Brothers.
Chuck Failla:
And this is back in the ’90s, and he just started making a ton of money. And I was like, well, that sounds interesting. And I’ve always liked the stock market and I was a finance major. I just fell into fundraising, just as Happenstance. And he said, “Why don’t you come down to the firm and, talk to some of the guys.” And it was just an electric environment. It was really exciting, like you see on some of these movies, right?
Reese Harper:
It’s like Boiler room.
Chuck Failla:
Boiler Room or Wolf of Wall Street. I’ll be honest with you.
Reese Harper:
Wolf of Wall Street.
Chuck Failla:
It was not very dissimilar. It really wasn’t.
Reese Harper:
Yeah.
Chuck Failla:
It’s funny I was watching that movie Wolf of Wall Street. I remember it clearly when it came out on Netflix or whatever on Pay-per-View. And I’m watching it in our bedroom, and my wife was down the hall in the home office. And I’m watching this, I’m like screaming like that is exactly what was happening. I was like, no one’s gonna believe this.
[laughter]
Chuck Failla:
People are gonna think this is Hollywood.
Reese Harper:
Yeah.
Chuck Failla:
I was like, that’s exactly what was going on…
Reese Harper:
Yeah. It interesting. It’s so interesting. At the time it was kind of electric and also exciting. I think that the marketplace really centered around the broker. I mean it was a different… You had a lot of power in those days. You were the access to purchasing securities. There really wasn’t.
Chuck Failla:
Sure.
Reese Harper:
It wasn’t a self-guided transaction market. Can you speak to that a little bit? What’s the dynamic that you can recall being different about.
Chuck Failla:
Sure.
Reese Harper:
That moment and the way the Internet was?
Chuck Failla:
Simple. For people that are advisors today, imagine your client calling you to see where a certain stock is trading at.
Reese Harper:
Yeah. Giving you the range, right?
Chuck Failla:
That would never happen. They would look on their phone, they look on their watch. That information is everywhere now, but that kind of wasn’t…
Reese Harper:
How would you describe that occurs today, Chuck? What’s that experience today that’s different? What does the client call and tell you about instead of asking for information? What do they usually say in your experience?
Chuck Failla:
Well, in my personal experience, it’s all about planning stuff.
Reese Harper:
Okay.
Chuck Failla:
There’s been a life change, or, and this happened today. My child’s getting divorced. We need to talk about how that impacts my plans ’cause we’re gonna help them. And…
Reese Harper:
You’ve positioned that way. Obviously we’ll talk about that, we’ll get to that transition. But the early days of getting information from a broker versus today even in a broker environment, I still feel like I have some clients that want to call and talk deals with me. I have some clients like that, even though I’m a planning focused advisor. Sometimes they’ll have like, “What do you think about this?” But they always bring a perspective already. They bring a perspective that they’re pretty convinced they have an answer sometimes and they want to float it by me and socialize it to sort of validate. And usually I’m not agreeing with this perspective, or sometimes I might, but it just is a very different dynamic I feel like today than it was then. And I feel like the…
Reese Harper:
The tension of today is different at, like, it’s a little bit more difficult to kind of sit in tension with people where I feel back at that time it was exciting. It was just fun. It was like the clients would call with a rush of ideas or want to get in on something or move. It was a totally different energy, at least for me and in my career, that I feel like that’s kind of shifted to a place where now stock… Talking about stocks or talking about investment opportunities or products is almost, it’s almost a… It’s like therapy or like psychology more now. Like, why are you asking about this? And back then it was more of let’s just talk about the fame.
Chuck Failla:
Yeah…
Reese Harper:
You talk about that a little bit. I’m just curious what your experience was?
Chuck Failla:
Yeah, I think it’s a matter of two things. It’s a matter of a different time, right? So back then, I think people were much more in general product oriented or investment oriented.
Reese Harper:
Yeah.
Chuck Failla:
Like, what is this investment doing? What is that investment doing? Should I be in this investment or that investment? But it was also self-selecting because I was a stockbroker, right?
Reese Harper:
Yeah.
Chuck Failla:
I certainly. This is probably the best way to explain this, when I was a stockbroker, my clientele loved talking about stocks, but it was a self-selecting group. So if it was a family or an individual that didn’t want to talk about stocks.
Reese Harper:
They opted out or…
Chuck Failla:
Well, that would’ve been one of the 299 calls of the 300 I made that day, that would’ve just hung up.
Reese Harper:
Yeah.
Chuck Failla:
Right? ‘Cause I was talking about stocks. But here, this, I think… We’ll get to your point… When I made that transition from being a stock jockey to, and I went cold turkey, like cold turkey. So one day I was a broker selling individual stocks, recommending individual stocks, and then I got my CFP within like four or five months, a relatively short period of time, and then opened up an independent branch of Raymond James, and overnight went fee-based, overnight.
Reese Harper:
Yeah.
Chuck Failla:
So out of my book of business, how many clients do you, do you think I took with me?
Reese Harper:
Like 10? I don’t know. You’re probably brought hand… Had none?
Chuck Failla:
Not one.
Reese Harper:
Okay.
Chuck Failla:
Literally not one.
Reese Harper:
Interesting. Why do you think that was?
Chuck Failla:
Because it was a self-selecting group of people that wanted to buy and sell stocks and instant gratification and like this. So when I said, look, we’re going to…
Reese Harper:
You’re just like, it’s just a different, just a totally different audience. Yeah.
Chuck Failla:
Really different audience. And so those people, when I said, look, we’re gonna go onto a fee basis, we’re going to use NaviPlan, which I’m not sure if you used NaviPlan 25 years ago.
Reese Harper:
Yeah. I used it. I was at Northwestern Mutual as my first job, and so selling stocks, they wanted me to sell insurance and…
Chuck Failla:
Yep.
Reese Harper:
Call it a financial plan… What…
Chuck Failla:
That sounds like, that sounds like an insurance place. Yeah.
Reese Harper:
But it was very, I mean, I learned a lot there, and I don’t want to be too dismissive of that life experience. It was quite formative for me and pretty, at least in terms of developing a sense of grit and a sales acumen that got me through the great recession and helped me sort of build a pretty substantial, several businesses now that I have enjoyed. I do have some gratitude for those years, but it was, I started feeling unethical… I just started feeling unethical at some point. And I’m not sure when exactly that happened. It was a slow process. I was there for a few years, but I got into the business thinking I was gonna help people with their money. And my point of view, or my experience at least, was I was sold a story that didn’t actually exist. I wasn’t helping people with their money. I was just selling insurance, and there was minimums to meet, and I had to hit certain target thresholds of product types even, so it was like, it didn’t feel like a financial advisor. I just couldn’t ethically like show up to a meeting and have a chat and…
Chuck Failla:
Sure.
Reese Harper:
Let my like, advice wisdom take me wherever I wanted it to go. I knew I had to take the conversation down a particular track.
Chuck Failla:
Yeah.
Reese Harper:
And it just… At some point I just was, I can’t do this anymore. I’m curious what your experience was in the transition. Like what made you know that it was gonna be a better fit on the other side of a jump?
Chuck Failla:
Yeah. I’ll tell you exactly how. So I was one of those brokers that really, really did a lot of homework. Like, I love doing the research. I subscribed to, I’m not even sure if they’re still around, but the august 13 D filings where they showed you insider buying. So I would insider trading, which stocks had the light greatest deal of insider buying, and then we would do some deeper dives. And that brought us to companies like PerkinElmer, WR Grace, Dial Corporation, British Petroleum, Suncor. And what happened was after a few years, and I worked equally hard researching every single stock I recommended, some did great, some did poorly.
Reese Harper:
Yeah.
Chuck Failla:
And I was like, this is going nowhere. Right. It’s, you’re really spinning your wheels. And that was the…
Reese Harper:
That, is that hindsight 2020 or did you feel that at the time too?
Chuck Failla:
I felt it at the time…
Reese Harper:
Okay. At the time you saw it wasn’t effective?
Chuck Failla:
You saw… My performance reports.
Reese Harper:
You are just like, I’m struggling. What.
Chuck Failla:
Here’s how it would work.
Reese Harper:
Okay.
Chuck Failla:
So in those days, you would open up a relationship on a stock idea. Not a portfolio, but a stock idea. And then if that first stock idea worked, you get to sell them another stock. But the goal of trying to get at least 5 or 6 stocks so you have some semblance of a portfolio, but it’s almost like a sequence or return risk, right. If your first pick was bad, guess what? You’re probably not getting that second trade. You’re certainly not getting the third trade. So unless you were lucky enough in this particular new relationship where the first stock was good, you’ll never build the portfolio.
Reese Harper:
Which one outta three you’ll probably have a little, a little excitement with and… A certain number of customers like that experience of excitement and rush.
Chuck Failla:
Right.
Reese Harper:
And they probably don’t… At sometimes I think Chuck that people that really enjoy the rush of investing…
Reese Harper:
Which I don’t personally, but I know a lot of people that do, and I am friends with a lot of people that do. I get, I get demotivated sometimes by the drama of how much energy it takes to keep up with the names that I want to follow and the kind of just emotional energy it takes from the rest of my life. But that’s, beside the point here when you were meeting with people, it’s probably, my, I’m curious if they really analyzed performance that much, or if they just liked talking [0:13:37.5] ____.
Chuck Failla:
No, they did. They did. But this particular group, if they were using stockbrokers, we would be one of probably five or six different stockbrokers. So the client actually had a portfolio ultimately but they had one or two or three or five with me. They had one or two or three or five with someone else, and that’s how they worked. But the real question I think is were they tracking their overall holdings? They were not.
Reese Harper:
Just your…
Chuck Failla:
That’s the problem.
Reese Harper:
They were comparing you maybe to another broker and just trying to find the right broker.
Chuck Failla:
Right. And it was a rotating door. And I had conversations with clients saying, look, let’s consolidate, or at least let’s track everything in aggregate. And they were like, no, no. If you pick good stocks, we’ll buy more. And…
Reese Harper:
See that my thesis I think about the market and consumer segments, and I think there is, this, there’s a validator segment that I think makes up like 25% or 30% of the market, at least according to, I’m referencing Forrester’s name here. When I say validator, Forrester did like a consumer segmentation thing. Delegators make up 25 or 30% of consumers, and only delegators and validators are looking for professional support, the self-directed investors. And then some they call, I don’t know, disenfranchised or like disappeared or like they’re hiding group. It’s a small group, but, they’re like super private. About half the market’s gonna do stuff on their own and half, right. Is gonna look for some human support. But in a stockbroker environment, it’s usually not a delegator type. I feel like it’s a validator type. They’re more like they’re involved more. Right.
Chuck Failla:
For sure. And I would bet dollars to donuts, if any of them, which I think none of them did, certainly very few. But if any of them looked at their overall performance, if they took the real performance of this broker, that broker, that broker, put it all together, I’d be shocked if it came close to the, just the S&P 500.
Reese Harper:
Yeah I would agree with that. Yes. And this audience, obviously most of this audience is they’re fee-based or fee only, or they’re pretty progressive group. I, I’m not anti commission. I think there’s some good financial advice still being delivered by life insurance agents out there. And it’s not great. It’s not the model’s not great. I’m not, I don’t love the business model, but like, good people can exist in any bad compensation system, but I just think that…
Chuck Failla:
I think they have a hard time doing what they need to do, but.
Reese Harper:
Exactly. That’s what’s hard about it. It like forces them to like, have to make tough trade-offs that I don’t think are healthy. But I just don’t wanna be too negative on all. There’s a lot of people listening to this that are still trying to get to a better place. I think they know that they’re not in an ideal scenario, but it’s hard to just cold turkey shift like you and I did and move.
Chuck Failla:
Well, here’s the thing I. Here’s the advantage I had right when I made that cold turkey shift, and I did. And literally one day I was a broker. The next day I was a fee based financial planner, CFP writing plans, now plan the whole deal. But the advantage I had is I didn’t have any dependences other than literally a street cat that followed me into my apartment in New York City.
Reese Harper:
And you let him stay…
Chuck Failla:
What’s that?
Reese Harper:
You let him stay?
Chuck Failla:
Absolutely. That was the, one of the best animals. I’m a huge animal lover.
Reese Harper:
Me too. Yeah.
Chuck Failla:
And this cat was a tough, tough, awesome cat. And it was one of those cats. And I have dogs, I have hunting dogs that I’ve trained and hunted with. I love dogs. But I tell you what, this cat was as close to a dog as you’re gonna find.
Reese Harper:
That’s cool.
Chuck Failla:
She was awesome. Yeah.
Reese Harper:
That’s cool.
Chuck Failla:
So she literally followed me into my apartment, New York City a walk up, and she was the best. The reason why I bring her up, her name was Stretch by the way, is because I had no responsibility. You could make that type of major risk. So if there’s someone…
Reese Harper:
It’s hard for people, yeah. It’s tough. Tough.
Chuck Failla:
Yeah. If there’s someone that’s kind of stuck, and a lot of these people are stuck in that insurance hamster wheel, right? It’s hard to break away. And I sympathize and if they have mouths to feed more than just a, a street cat, it’s hard to make that change. But I think it’s gonna be harder and harder for these, especially if you are a younger advisor still in the insurance model. Get out while you can before those golden handcuffs get too big.
Reese Harper:
That’s what’s tough, man. I have a lot of friends that have been in that business for many, many years since I was there. Some of ’em stayed. I at Northwestern just met, made, met a lot of great people, and I’m sure a lot of financial advisors have good experiences with, wherever they were. There’s always great people inside of every organization.
Chuck Failla:
Without question.
Reese Harper:
And not every organization is healthy as an organization. Some organizations need to…
Chuck Failla:
Without question.
Reese Harper:
Get their shit together.
Chuck Failla:
That’s right.
Reese Harper:
And my experience for me was then that’s what I wanna ask you about. I felt like I had mouse, I had a couple kids, at the time and or one child and another one on the way… I’m gonna have to like not be quoted on this, anyone. Okay. It’s like right in that range. My wife’s probably gonna be like, you don’t remember how many kids it was? One or two or one. We…
Chuck Failla:
They try to have one or two kids. Hold on.
Reese Harper:
Yeah. There was something like that at that time.
Chuck Failla:
It was around a couple. Give or take.
Reese Harper:
Yeah.
Chuck Failla:
Yeah.
Reese Harper:
One. Give me a break. But… And I just remember she was working and I was like trying to get ramped up at Northwestern, but then when we were gonna have this baby, our son, she was wanting to be done and working for a while. And I was like, okay, I gotta start like really cranking. But I had to make the choice to start cranking in the bad model I was in. ‘Cause I had been there and been pretty successful for a couple years. Made the most money I’d ever made. ‘Cause I followed the sales playbook. I wasn’t comfortable selling the insurance that made me the most commission. It was mostly like term and DI ’cause I couldn’t make sense of the whole life thing.
Chuck Failla:
Neither can I.
Reese Harper:
I tried man, I tried real hard. It would’ve made a lot of money if I could have made sense of it. But to my manager, he is like, Reese, you’re overthinking this. I’m like, all right dude. That’s when I know I gotta go. If someone tells me I’m overthinking basic mathematics and simple entries…
Chuck Failla:
That’s right.
Reese Harper:
I’m gonna have to move on. But I left and at significant expense to myself and I racked up a $100,000 plus in debt to start an RIA or start a not an RIA at the time I was in part of a hybrid BD like Raymond James. I was with Woodbury Financial, but it was tough man. I was buried there for a while. And how do you charge 150 bucks an hour and like, somehow, like make enough to make a living when you don’t have any clients and you’re starting from scratch and…
Chuck Failla:
It’s hard. Yeah.
Reese Harper:
It was just tough. And so I just did what I could. But it resulted in eventually a very successful firm, but a lot of pain. And I just don’t know if I can ask everyone. I’m not sure everyone’s risk tolerance is that high.
Chuck Failla:
It is. And again, depends on what their obligations are, right? And I fully understand that if you’re an advisor that has, two or three kids or even one child and a family to support and a mortgage to go cold turkey the way I did, that’d be hard to do. I mean, I was renting, a 400 square foot apartment in New York City and like I said, had just a feed stretch and that was it. And I had a few bucks in the bank. ‘Cause it took about two years to get back up to an income that would support any reasonable lifestyle. It was hard to do, but what I would say, especially for the young advisors out there, get out while you can because it gets harder and harder and harder to do.
Reese Harper:
It does. It does. And it just, the math starts becoming like impossible after a while. It’s like you can’t…
Chuck Failla:
Absolutely.
Reese Harper:
You got like a pension plan that’s like bigger than my current income. It’s a very lucrative industry right now. But those pensions are also pipe dreams that are built on the backs of like, products that are like dead. So…
Chuck Failla:
Sounds right.
Reese Harper:
I, you gotta decide, like, do you want to trust like an unsustainable balance sheet, with your retirement or you wanna trust your own conversational skills, your own love for a client and just bet on yourself. It’s just a hard…
Chuck Failla:
And know something that’s sustainable.
Reese Harper:
Yes. That…
Chuck Failla:
It’s like that movie, A Bronx Tale. Did you ever see the movie A Bronx Tale, that famous scene where the bikers come into the bar. And then the head mafia guy.
Reese Harper:
Play it out. Yeah. I don’t know this.
Chuck Failla:
Oh my gosh. Have you seen the movie? It’s a great movie.
Reese Harper:
For some reason, I’m not recalling it, but the name sounds super familiar, so I’m gonna have to look…
Chuck Failla:
A Bronx Tale. So it has, Robert De Niro who plays sort of a secondary role. The main character who’s sort of the main mafia guy is, I believe his name is Chazz Palminteri. Something like this.
Reese Harper:
Okay.
Chuck Failla:
So anyway, these bikers come into his local bar and they start kind of messing up the bar. And so then Chazz very calmly goes to the door, locks it and says, now you just can’t leave. And then of course all hell breaks loose. It’s an awesome scene.
Reese Harper:
That’s cool.
Chuck Failla:
You could Google it. It’s one of those things that I’m sure is a snippet on YouTube. It’s one of the best scenes I think in one of those types of movies. But it’s what I think about with these younger advisors, they get locked into these products and it just creates a cycle. And then they’re depending on the trails, and then to get their payout high, they have to sell more insurance. It’s just a horrible way to live your life, honestly, is just how I see it.
Reese Harper:
That’s what made me leave. I just couldn’t… The pain I was feeling of like not being able to do my job the way I wanted to do my job. The control that I felt like over my shoulder was just affecting my enjoyment of the people and the job and the advice. I couldn’t really enjoy the advice business when I had to worry about some someone over my shoulder defining what that meant. It was…
Chuck Failla:
But you weren’t in any advice business…
Reese Harper:
I wasn’t, yeah I just think what was the pain that made you finally bounce then? Was it conflicts of interest? Was it I…
Chuck Failla:
No, I honestly, I felt really good about everything I was doing it just, I realized that I was researching the stocks and some went up, some went down and I did not have the opportunity to build a portfolio. Now these advisors, if these clients let me give them 15 different stocks, I think we would’ve done pretty well. ‘Cause most of my picks did at least as well as the S&P give or take some really much better, some worse and some in between. And I think we would’ve had a good run. But the model of selling one investment at a time, it’s like selling a car. Alright, here’s your tire next week, come back. If you like the tire, I’m gonna sell you the other tire. It just doesn’t make any sense.
Reese Harper:
So you were doing this, like, this is just like a more, I mean, you’re a finance major, you went into this industry ’cause it looked like a great way to make a living.
Chuck Failla:
Absolutely. Yeah.
Reese Harper:
You enjoyed finance and then…
Chuck Failla:
Absolutely.
Reese Harper:
You hit a point where you’re like, this is not the right way to manage a portfolio. It just doesn’t make sense. Like as a strategy.
Chuck Failla:
Yeah.
Reese Harper:
And so…
Chuck Failla:
And unless you wanna…
Reese Harper:
Why Raymond James?
Chuck Failla:
I’ll tell you why Raymond James. But just to kind of put a period on that, I love the idea, but I realize that that individual one at a time stock model would preclude me from ever getting a portfolio that would be sustainable. Ah. So that means you had to get 10 new clients every month. And that made no sense. It’s…
Reese Harper:
Too much sales grind constantly for the rest of your career.
Chuck Failla:
Absolutely. And I love the research side. I did love putting together portfolios. I really enjoyed that a lot. And our portfolios were good, but very few of my clients had portfolios because unless the first three stocks worked, I didn’t have a chance to put together a portfolio. But let me tell you why Raymond James and it’s a really… It came down to Ray J and a few other, the usual suspects. And literally it was because Raymond James had and still has a football stadium.
Reese Harper:
And you were like, I’ll be able to like what? Go to games.
Chuck Failla:
No.
Reese Harper:
It’s good brand recognition. And I people are gonna say…
Chuck Failla:
Brand recognition.
Reese Harper:
Okay.
Chuck Failla:
‘Cause back then, I mean…
Reese Harper:
A big deal back then.
Chuck Failla:
Even back then, most advisors did not know Raymond James the way they know it today.
Reese Harper:
Today.
Chuck Failla:
Certainly. And this is what, 27 years ago, right. A lot of clients, they all knew Merrill Lynch back then, Smith Barney and so on and so forth. Paine Webber, which obviously is no longer around.
Reese Harper:
Yeah.
Chuck Failla:
Now in UBS, I guess, but not many clients or prospects knew Raymond James. But I do feel…
Reese Harper:
At that time that was a really important decision to make as a broker, as an advisor. I mean, it’s you, your the client. I think the culture at that time had a lot more respect and sort of valued institutions differently than I feel like it meant something then. Then it, today it’s almost like gimme craft local. Give me…
Chuck Failla:
That’s right.
Reese Harper:
You know, give me small business local. Then it was like, give me safety and security. I’ve been burned. I’m still like in pain from the Great Depression or whatever. It was like a cultural thing too.
Chuck Failla:
Yeah. The first prospect I had in my office when I was a newly minted CFP, and I remember this clearly, I was like, look, you know, we are not beholden to the big banks, you know, like the Merrill Lynch’s. We have no proprietary product, which I was very proud of. And we work on a fee basis and we work as a fiduciary meant nothing to them. Not a thing. Not a thing. I could just tell it was like going in one era out the other. Today, fast forward 27 years, one of the first questions I’m getting, probably 50% of my new prospect meetings is, are you a fiduciary? And I think that’s huge.
Reese Harper:
Yeah.
Chuck Failla:
And I think it’s really important.
Reese Harper:
Yeah. It’s interesting how it shifted. I mean, it definitely has. I mean, I, my RIA is called Dentist Advisors and, I’m surprised at how many of the new consultations convert based on that rationale. Like, I was looking for a dental specific, so that was like, but there’s a few dental specific firms now, and it, I did this a lot a long time ago, and that used to be like the big differentiator, but now, like, specialization’s starting to kind of like be a real thought for service providers. And I think that’s great. But like, they’re still persistently saying, I’m looking for a feel need fiduciary, like, or I’m looking for a fiduciary, or I want…
Chuck Failla:
I think that’s good.
Reese Harper:
They like know, they know this now. And I think that’s like, it’s just gonna take time but it’s good for, good for the industry and good for consumers. And yet I’m still concerned about how little access to advice is really available to the majority of people that like, don’t meet minimums or like, can’t, find the right person. Or they only need like an hour of advice. There’s like a, like it’s good that it’s getting better for a part of the market that has plenty of income and resources and that’s a good step. And I’m a little concerned that it just continues to become an industry that’s like for fewer and fewer and fewer people. I want you to kind of like, tell me what your thoughts are about that.
Chuck Failla:
Yeah. One of my biggest concerns is actually how hard it is for consumers to be able to discern a real planner from what I like to call PINO. Right. Not a PINO Noir. You know what a PINO is? P-I-N-O?
Reese Harper:
Yeah. No, but I know, I mean the, no, I don’t.
Chuck Failla:
I just coined it.
Reese Harper:
Okay.
Chuck Failla:
About three weeks ago. [laughter] I’m seeing it hasn’t caught on yet.
Reese Harper:
So I almost said yes, but, and then I realized you weren’t putting a T on the end, so.
Chuck Failla:
PINO.
Reese Harper:
Got it.
Chuck Failla:
So PINO is an acronym I love acronyms Planner In Name Only.
Reese Harper:
Okay. Yeah.
Chuck Failla:
And you got a lot of those guys where at those insurance shops.
Reese Harper:
My, I think that, I mean my title at the beginning of my career, my first business card with two weeks of training was not life insurance salesman.
Chuck Failla:
Of course not.
Reese Harper:
It was financial representative, I think.
Chuck Failla:
Right.
Reese Harper:
And then financial advisor. And, but it was always something that wasn’t what it really was. It was like, I, and that’s, that’s troublesome. That’s very troubling. You know, and it’s hard for young consumers to distinguish the difference.
Chuck Failla:
And the old ones…
Reese Harper:
Still…
Chuck Failla:
How do these people know? How do they know if someone’s really a planner or a PINO? How would they know that? Because you can even be a fiduciary.
Reese Harper:
Yeah, especially when they’re delegators, especially when they’re delegators, that don’t actually, they’re not energized or interested in doing research at all. Like, they’re just like, find me a name and I will probably go with the first person I talk to ’cause anyone I talk to seems like they’re better than what I was doing. [laughter] And then you’re like 2, 3, 4, 5 years in, they’ve developed all these like, weird ideas about money that like, are driven by this self-interested person that had incentives that weren’t aligned. And then you’re, I feel like I’m unwinding. Like if I pick up a client that converts to me from an existing advisor, and they’re like, if they’re in their mid 40s or even late 40s or 50s or early 40s even, and they’ve had years of time with a commission-based rep. Man, I’m unwinding all kinds of stuff for like the first two or three years.
Chuck Failla:
Absolutely.
Reese Harper:
I don’t even get a chance to start from scratch. I don’t get to set the stage. I don’t…
Chuck Failla:
Right.
Reese Harper:
stuff and you’re telling me it wasn’t ideal because I shouldn’t have this giant life insurance policy, but he told me that I should have it. So can I trust you? Like, how long does it take me to trust you?
Chuck Failla:
All of the money?
Reese Harper:
Oh geez. You know.
Chuck Failla:
All of the money.
Reese Harper:
Even though you might have the perfect intellectual story for them, the delegator is not buying the left-brained information you’re giving them. They’re just buying a feeling and they’re like, I think I trust you more. And what you’re saying feels better. But I still have all these stories that I heard from this person that I’m like trying to decide, can I trust you or should I, are you not, are you gonna do the same thing to me in five years? And it, there’s a, it’s very complicated and I think a reason why regulation, and industry, you know, knowledge, it is important that someone can distinguish between a product salesperson and someone who’s getting paid for advice. They’re very different.
Chuck Failla:
I think it goes to the commission look and I am not absolutely anti-commission, but I do believe if there’s a commission that does make some sense. And I don’t have an insurance license. I don’t have a seven. I am, I’m not fee based. I am fee-only, period. Full stop. And I don’t wanna necessarily be like the holier-than-thou type of thing. Right? But if there’s a commission, here’s how this could help. And I’ve talked to some other people. Do you know, Knut Rostad over at the Fiduciary Institute?
Reese Harper:
Not well, but I do know who he is. Yeah.
Chuck Failla:
So I’ve had the opportunity to moderate a few panels with him. He’s a character. You should get him on this.
Reese Harper:
Okay, cool.
Chuck Failla:
Because he is fire and brimstone, man. He’s a lot of fun to have. [laughter] So he’s put together something called True Fiduciary, which I think is a step in the right direction. ’cause we have the word fiduciary. But you could have someone, anyone with a CFP should be a fiduciary, right? That’s my understanding. There are a lot of CFPs at Northwest Mutual selling a lot of whole life insurance.
Reese Harper:
Yeah. Tons. Yeah.
Chuck Failla:
So how do you really discern that I need to do some college planning savings? Oh, you need some whole life insurance. I need to plan for this…
Reese Harper:
I literally had a my client tell me that he had a college plan he wanted me to look at, and it was a whole life policy. He handed me. He said, I want you to take a look at my plan.
Chuck Failla:
I’m I making this up. No.
Reese Harper:
It was like a whole life policy. I’m like…
Chuck Failla:
Right.
Reese Harper:
My goodness.
Chuck Failla:
How can that person have a CFP that’s supposed to be for fiduciaries only and use whole life insurance for college funding? How could you do that? But my point of bringing up Knut, number one, he is a great interview. He is fantastic, but he’s using this idea of a true fiduciary as another level of standards that you’re subjecting yourself to. And he and I have some intellectual differences on how to define that, but I like the concept, but I think we need something to allow clients to know when they’re dealing with a real planner versus a PINO. And look, acronyms are great because it helps people instantly identify what you’re talking about, planner in name only. Well, you get an idea of what that means. So if you follow the money right? And understand where your advice or your advisor is getting compensated, if there’s a commission and there’s a whole life insurance policy that’s generating a $40,000 one-time commission, maybe that’s gonna give you reason to be, maybe I get a second opinion from a fee-only advisor and see what that person says about this.
Reese Harper:
Yeah.
Chuck Failla:
And then it becomes an analysis. But to your point, if you have someone that’s a delegator and Hey, I like this guy or this woman, and I’m gonna just go with what they say, then they’re doomed as maybe which is why they do not…
Reese Harper:
I think that’s what’s tricky man. Yeah. I think that’s what’s tricky about it, because, I really do like Forrester’s article last year, they published, you know, really, it reminded me of the differences between people that want to work with financial advisors that like it’s a spectrum of people that do not do research and people that do, there are people that naturally do research, and then there are people that don’t. And if you don’t do research, and that makes up the vast majority of the customers that choose to work with a financial advisor, then, because they don’t want to do that work of figuring out the money thing. They’re artists, they’re professionals, they’re the people that are high income, but like low financial IQ. Like there’s a, it’s not just those people, but it makes up a large percentage of the customer base of the industry.
Reese Harper:
And so once they have an emotional connection around money with a human being, they’re done making decisions. Like they made the decision to hire the human. They don’t really care if the human’s in a bad compensation model or not. They like that person. So I struggle with like I see right now on Twitter, it’s like, now it’s not good enough to be fee only. You gotta be advice only. I now, it is not be good enough to be a fiduciary. You gotta be a true fiduciary. And maybe there’ll be a level Chuck where like all of this, like nomenclature finally clarifies things. But my gut is telling me the reason it’s been so hard is ’cause this consumer that’s buying from this professional on average does not actually do any research. And so and that’s why they’re hiring someone.
Chuck Failla:
Yeah.
Reese Harper:
So it is a regulatory issue in that you can’t just say, Hey, consumers, get ready to learn about who is a good advisor ’cause a third of the population, 25% of the populations, it’s probably gonna go, like, I don’t do that kind of research. Like, I don’t, that’s my guy does that [laughter] like, and/or, and so I, that’s the concern for me. And I’m not saying we have to have a resolution today, but I think that’s where the tension is. And it’s you can clarify it deeper and it will help, but there’s a segment that it just sounds like gibberish to them. And they don’t, they actually don’t want to know. That’s why they’re hiring someone. So…
Chuck Failla:
That’s gonna be social Darwinism at work then, right? It just is what it is.
Reese Harper:
Yes. I mean that’s top the reason I like, started getting really interested in technology. ‘Cause I’m like, well, at least if I could find a way to help technology sort of like, improve the quality of advice that’s being delivered regardless of the financial professional, then maybe, even in a broken business model a blind squirrel may find a nut, you know?
Chuck Failla:
That’s right.
Reese Harper:
But then they use your technology to do all kinds of crazy stuff too sometimes. And you’re like, what in the world are you doing to prove that you need to sell this? You know? I’m like…
Chuck Failla:
I can imagine.
Reese Harper:
There’s no ways to hide Chuck from the insanity.
Chuck Failla:
Yeah. A lot of people putting together one of those one page plans, which we’re a fan of, and say, you know what this one page plan is telling you, buy some whole life insurance.
Reese Harper:
Buy some insurance. I just noticed you just really need to buy insurance. I’m like, all right. Like [laughter] there’s no way to hide. You just have to do your best. Look try to be reasonable.
Chuck Failla:
If someone’s gonna be unethical, they’re gonna be unethical.
Reese Harper:
Yeah. I think it… Yeah, go ahead.
Chuck Failla:
One of the best things I think that could help, and I know that the FPA is working on this financial planning association is, the concept of title protection, right? So in other words, and it’s kinda like what Knut’s working on, he’s doing it with a trademarked true fiduciary. The FPA is going down a little bit of a harder road, which could be great if it works. I think it’s gonna be hard for them to pull it off where you have to meet a certain level of standard to be called a financial planner.
Reese Harper:
Nice one.
Chuck Failla:
Because you do, if you want to call yourself a lawyer, you do. If you want to call yourself a doctor, you do if you wanna call yourself a CPA.
Reese Harper:
Yes.
Chuck Failla:
So at least there’s some level of protection. And I would hope that if this works, the idea of title protection, that one of the things is if you’re gonna use a commission product, and I would lean toward no commission. If you’re giving advice, give advice. What lawyer has a commission product? What doctor?
Reese Harper:
Yeah. It’s not a profession…
Chuck Failla:
Imagine a doctor that I’m gonna push some Viagra today ’cause they’re… I’m getting double commission on Viagra. Everyone’s getting diagnosed with Viagra today.
Reese Harper:
I used that with my dental clients. I’d always just say like, “Imagine if I didn’t pay you, but you got paid from Dentrix when you gave me a composite filling instead of an amalgam filling, you got paid more money for a particular type of filling material and you didn’t tell me about any of this.” [chuckle]
Chuck Failla:
I know. What profession gets paid a commission? Car salesmen get paid a commission. Thank God doctors don’t get paid a commission. Lawyers don’t get paid. Well, they work on contingency, but at least that’s fully disclosed. It doesn’t make sense why financial planners the only one that could work on commission?
Reese Harper:
I think that’s probably the most elegant solution eventually is clarifying and the making the professional have to pick which track do you want to be on. We can’t have a medical industry that is paid on product distributions and have it evolve and the educational institutions can’t do research when… It’s just like the whole system’s gonna be broken until you really clearly tell… Make the advisor say, “I am selling stuff, therefore I need to call myself this,” and…
Chuck Failla:
[0:41:56.9] ____ A salesperson.
Reese Harper:
Yeah. You’re a salesperson and that’s okay. We need salespeople in our markets.
Chuck Failla:
Absolutely.
Reese Harper:
We need salespeople that sell life insurance to meet with people, have no money and to use the little commission that they might’ve gotten to try to do a budgeting session with someone. Like all of that stuff could still be… You could still argue there’s a place for it, but the consumer needs to know that they’re not actually meeting with someone that knows how to budget. They’re meeting with someone who is selling insurance, is gonna do a free budgeting session with them as a side benefit of this transaction. And that’s… I just think it’s just fair to just be transparent with that and it’ll help. It’ll help a lot and this is particularly concerning to me at the lower income levels where most of the brokerage and commission-based world is thriving. They’re not thriving in the ultra high net worth market. They’re thriving in the place where people have the least amount of information about their choices available to them.
Chuck Failla:
Yep.
Reese Harper:
That’s heartbreaking to me.
Chuck Failla:
It it is. And until there is some way for the… I don’t even wanna say average consumer, for all consumers to easily discern a real planner from a PINO, planner in name only, the problem will continue. If you wanna sell insurance, that’s cool. Do not call yourself a financial planner.
Chuck Failla:
I like it. I like it, man. And we could go down a rabbit’s hole of 15 different topics. This is all the time, unfortunately we have for today. But I think this concept for me just is one that I’ve always been passionate about. I can see that it’s, you’re passionate about it. You’ve been able to have a big influence, a lot of different stages, of your career and I just, I admire the work that you’re doing right now. It seems you’re always involved in a new board and a new initiative and, I’ll let you have the last one. But I just really have enjoyed this conversation and look forward to doing it again.
Chuck Failla:
No, I appreciate that and, I appreciate you having me on and I love talking about this stuff, so, anytime you want me back, I’d be happy to, love to get you onto one of our podcasts as well with investment news. I think that could be a lot of fun. And I think you’re covering a lot of good territory with what we discussed here today. And the term democratization is being used a lot. It may be too much, but I like a lot of what you’re doing with the technology end of things to help advisors democratize, that delivery of advice, not product, but advice in a way that makes it possible for an advisor to deliver to those smaller clients. And I think that’s really good and I applaud that for sure. It’s, needed.
Reese Harper:
No, thanks Chuck.
Chuck Failla:
And, I think it’s just a really good thing, so.
Reese Harper:
No, thanks.
Chuck Failla:
Happy to come back. ‘Cause there’s a lot more we can talk about, I’m sure.
Reese Harper:
Yeah. I got 10 topics and we got through one of them, so it was great. I tend to be more in depth on one thing and less shotgun. And so thanks for, being patient while you probably had 50 other stories to tell and we’ll make sure and do it again soon. Thanks Chuck. And we’ll look forward to having you back on.
Chuck Failla:
Reese that sounds good. Thanks for having me.
Abby Morton:
Next time on Elementality.
Kent Owings:
All three of us will meet with clients in one meeting, and especially if the clients drive two hours from Sun Valley and they just sit down with all of their planners in there. And I act as the quarterback, even though they’re doing most of the work, but they value me just being the quarterback, passing the ball and staying organized on it for everybody. And CPA loves it. The attorney loves it. The clients absolutely love it, that they don’t have to, talk to all these people in a separate conversations and try to translate that we can, professionally talk on their behalf.
Abby Morton:
Totally.
Kent Owings:
Them with their, and that. And so it’s added huge value, to my clients. And it makes them sticky too ’cause if they leave one professional, they feel like they have to leave all three. So.
[laughter]
Abby Morton:
To find out more about Elements, go to getelements.com/demo. Elementality’s executive producers are Reese Harper and Carl Richards. Element mentality is produced by Tad Henderson and directed by Abby Morton. Have a good one.