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Elementality Podcast

Talking With Your Clients: The Power of Performance Comparisions

Looking to inspire clients to get on the right track with their personal finances? People get better at working towards financial goals when they learn from—and even mimic—others. Plus, when they know there are steps to follow, it can make it easier for them to reach what they set out to accomplish. That’s where benchmarking comes in.

On this episode of Elementality, Reese explains to the clients of his RIA how benchmarking helps push people to reach their potential. Elements was built on performance comparisons and using benchmarks can inspire clients to work harder. Whether it’s against their peers, or themselves, benchmarks motivate clients as they track their progress.

 


Podcast Transcript

Reese Harper:
We shouldn’t be saying things like let’s save up for a rainy day. We should be saying a rainy day is this, and save up means this. Are you below or above that benchmark or at it? And then we should be not okay with being below a minimum level of what we define as rainy day. [chuckle] And then we should manage to that benchmark as opposed to just being like, “Yeah, I don’t know, we told them like we said, save up for a rainy day.” It’s like we said, it’s raining, right?

Ryan Isaac:
And it’s raining.

[music]

Abby Morton:
Hey Elementality listeners, it’s Abby. To help you better understand Elements, we’ve chosen another episode from the podcast at Reese’s RIA, The Dentist Money Show. Elements was built on performance comparisons, and on this episode, Reese and his co-host Ryan Isaac, take another look at benchmarking and how using comparisons can inspire clients to work toward their financial goals. Enjoy.

[music]

Ryan Isaac:
We’re gonna be talking about the subject of benchmarking today, and how often we as humans, and then specifically for our listeners and our clients, people, dentists who want to know how do I compare in this area to my peers? It’s a really important thing to want to know. So first though, let’s just talk about this human need to compare. I think this… I mean, this isn’t a study, okay? It’s just my brain saying this, but I think probably more than any other time in history, we’re probably a more comparing species than we’ve ever been. We just have the tools to compare so easily now. So let’s start with the good side of comparing. I know we’ve never used a fitness analogy on the show before, but we’re gonna start one today. I wanna bring in a fitness analogy on the show today. I know I’ve never talked about CrossFit either, so this is the first in the 240 whatever episodes that we’ve done. So in CrossFit, when I go, I think about this all the time, when I do workouts on my own versus when I go to a gym.

Ryan Isaac:
When I show up to a gym, and I see a name and a time on a board, you know like there was a certain amount of work that had to be done for the workout that day, and then these people did it in these time ranges. And when I go to that board and I see the people that are close to me, maybe I’m a little bit better, maybe they’re better than me, I see the people that are close to me and I see their times, it makes me do more work better and faster. I’m more motivated to do better. If I’m working out next to somebody and they’re going just a little bit faster, I can… I’m willing to feel a little bit more pain to go a little bit faster, and work a little bit harder. Maybe running next to somebody, that kinda stuff. So the positive side of benchmarking and comparing, I’ve noticed in my life, I’m sure everyone’s got some examples like that, where there’s been a positive push, there’s someone close to you… It’s disheartening when someone’s way out in front of you, like you can never catch the person in some part of life. But when they’re close to you and it’s like a little bit motivating. So there is a positive side to this. And I’m just curious, what positive sides of benchmarking or comparing, not even benchmarking just comparing, have you noticed in your life?

Reese Harper:
Well, I think when people… I remember when I was at Northwestern Mutual when I started my career, I saw that they would… Every week, they would post the number of phone calls or outbound sales activity.

Ryan Isaac:
Oh yeah.

Reese Harper:
That every financial advisor would do each week and like how many appointments they had, all their statistics, okay. How many clients they got, they would just post that. And when I first saw it, I was like it’s just felt dirty. It’s like you guys are manipulating me. You’re making me feel bad. And over time I didn’t really feel like it was so bad anymore. I just started paying attention to it. And I saw how it affected what I thought was possible for myself.

Ryan Isaac:
Yeah, exactly.

Reese Harper:
The stock market is the ultimate example of that. If you think about the public stock market, you have thousands of companies that have visibility into the details of each other’s financial statements, the profitability, the sales targets, the growth rates, the industries are broken down and segmented, information technology compared to manufacturing, compared to industrials, compared to healthcare, hospitals compare themselves.

Ryan Isaac:
Energy, yeah. Right.

Reese Harper:
And it creates the highest returning investment in history, is because of the disclosures of performance statistics to your peer group. And everyone’s going, “Well, if Kaiser can do that, why can’t we do that in our hospital network?” Or if… And I just think it’s like you can’t ignore that. And when you isolate people from numbers, when you isolate them from performance, when you isolate them from that kind of information, I think everyone’s performance is worse off. That’s why I think… I feel so strongly about the way we do financial planning ’cause I think it helps both our advisors and our clients maybe have a better reference point for what’s possible.

Ryan Isaac:
Yeah, I think it’s perfect. You just highlighted the exact reasons why, or the benefits of comparing ourselves. Seeing what’s possible and then realize that you can push a little harder, you can go a little faster, you can do a little bit more, you can be a little bit more uncomfortable for longer to achieve something because you saw someone pull it off. And I think that’s a perfect segue. I mean the whole point of today is we get that question a lot. I mean, that’s something dentists wanna know all the time. We’ve built an entire system of financial planning around the idea of benchmarks, not just against other people, but against yourself and your past self as a benchmark, which we’ll get into. So the whole idea for today is how to use benchmarks in a positive way to make you motivated, to keep you going because there is a downside to this whole comparison thing that we’ve become as humans too. I mean with the era of social media, we probably…

Reese Harper:
Dude, I was just gonna say… Yeah, man.

Ryan Isaac:
We’ve probably never been more depressed comparing ourselves to other people. So let’s talk first about… Let’s get into a little bit and share some of how we have built a system of benchmarking and comparison, and it is of course something that people want to know all the time. Dentists want to know how they compare to other people and how they’re doing in different categories. And we’ll talk about the limitations of benchmarks. I mean we have discussions internally all the time. Every month when we send reports out and we have a new benchmark that gets updated, we discuss like, “Man, here’s the limitations of this number. One number of a benchmark does not tell a whole story.” But let’s walk through some categories first. That’s what I wanted to do is maybe Reese, let everyone know what are the categories of benchmarks we do, of the different… There’s age and occupation, that kinda stuff.

Reese Harper:
Yeah, we… Well, in our practice today, we benchmark very specific key indicators of financial health. Those key indicators are savings, spending, debt, taxes, liquidity, retirement accounts, real estate, practice value, your overall retirement readiness, and then insurance policies, investments. And we’re starting to bench… We also benchmark profitability. And then we’re starting to benchmark a couple of other things as well and creating a couple of new categories in our system that we’re pretty excited about. But when we look at these different categories for example, you have to decide with savings, am I gonna compare people by age?

Reese Harper:
Am I gonna compare people by the size of their practice? Am I gonna compare people based on their income level? Or maybe how much money they’ve made in their life, what their income is. And you gotta be pretty thoughtful about like how would I grade, how would, if someone calls me and says, “Am I doing okay?” I don’t wanna make them feel bad if they really are doing good. And if they were really doing good, I wanna keep encouraging them. But if they’re struggling or maybe they’re spending too much, or maybe they have a habit of building up liquidity, but then it just gets used in the practice all the time for large expenses. Or maybe their practice equity just isn’t increasing, they’re constantly struggling with a similar practice value and they’re not building up a net worth outside of their practice. There’s all these things that are deeper signs of financial, we’ll call it un-wellness, you’re… People that are struggling with their money, could be any of these categories that I mentioned earlier.

Ryan Isaac:
I think about some of the benchmarks that cause some of the most chatter. For example, tax rate’s a big one. When we send out our report that shows what percentage of your total gross income went to all of your taxes, which is different than what showing on your personal tax return, it’s… And we show a benchmark. Average person in your category’s paid 27% of their gross income. That one’s like it’s always a big up. And here’s what happens, we’ve heard this story a lot. Someone will say, “Well my friend makes the same amount of money as me and she doesn’t pay any taxes, she didn’t pay any taxes. We made the same amount of money last year. She paid nothing.” And there’s so many things under the surface of why, if that’s even true, first of all. Which I guess this is the public service announcement, to take a break and say be careful of buying into too much of what other people… You hear in passing from friends or colleagues, like, “Yeah, this was my return on this investment or this is how much I paid on taxes.” Chances are they might not be calculating it accurately themselves before they relay the information that you’re comparing yourself against and then feeling bad about. So that’s just my PSA for that real quick.

Reese Harper:
People tend to exaggerate the positive and they tend to exaggerate the negative. So people tend to describe their lives worse than they are or better than they are depending on how they feel about the thing they’re describing. So people will tend to beat themselves up about their body image way worse than it really is. And they’ll tend to exaggerate their investment returns much more than they really have gone up if they’re positive. Similarly on the investment return side, sometimes if people have had a bad investment, they will exaggerate the outcome of that. Sometimes even more than it was as well. I’ve had people say, “Last year was so bad, my accounts were just down so much.” I’d be like, “Well, how far down were they?” Like, “Uh, no, I think I lost five grand or something.” I’m like, “Well, how big were your accounts?” “Oh, I have $250,000. So 2%, or we talking… ”

Ryan Isaac:
Yo, what’s the actual math?

Reese Harper:
So what was bad? What was bad? And so I think that’s a really good point. Don’t over-index on vague descriptions. One of the main things that people are really hungry for, even in the financial advisor community is how do I grade performance in a standardized way across my clients so that I can actually give advice that’s more helpful, more behavioral oriented instead of just managing people’s investments. And how do I know when something’s bad or good? How do I know when something is just okay? Financial advisors, they spend a lot of time helping you save money, but they don’t quantify a lot of the time whether what you’re saving is the appropriate amount of money for your income level.

Ryan Isaac:
Yeah, good or bad. Yeah.

Reese Harper:
Is that good or bad what you’re doing? Or is it just fine and you’re doing great? Anyway, it was surprising to me to see how many financial advisors are really… They’re really struggling with the same question, like what do I do? I literally had one text about three days ago. It was like is it okay if I just download everything off your website and just use it? ‘Cause I need help with this really. I need help to do this. Can I call… Can I use your system? And so anyway, we’re working on trying to help other financial advisors have a solution right now, but this isn’t something that clients struggle with just purely. This is something financial planners struggle with. So if you’re feeling like man, I don’t really have… I don’t really do this kinda stuff. It’s like it’s not really common. And it’s because financial planning really hasn’t evolved very much as an industry. Right now, it’s… As one advisor I talked to that called me, he put it, he said, “I like your process because it helps me shift more towards science and away from art.”

Ryan Isaac:
Yeah, cool.

Reese Harper:
And I thought that was interesting, ’cause it’s not like he was saying he doesn’t want financial planning to have some art in it. The art is the human connection side, but it’s like a little less art, little more science, little less Rembrandt.

Ryan Isaac:
Right?

[chuckle]

Reese Harper:
And maybe…

Ryan Isaac:
A little more Sir Isaac Newton.

Reese Harper:
Yeah, a little more…

Ryan Isaac:
Da Vinci.

Reese Harper:
Yeah, Da Vinci, a little more concreteness here.

Ryan Isaac:
I like that.

Reese Harper:
And it’s like yeah, we shouldn’t be saying things like let’s save up for a rainy day. We should be saying a rainy day is this and save up means this. Are you below or above that benchmark or at it? And then we should be like not okay with being below a minimum level of what we define as rainy day. [chuckle] And then we should manage to that benchmark as opposed to just being like, “Yeah, I don’t know. We told him, like we said save up for rainy day.” Like we said it’s raining, right?

Ryan Isaac:
It’s raining, and it’s raining. [chuckle]

Reese Harper:
Did you know? It’s like, okay, is rainy day COVID? Is rainy day more like great recession? Is rainy day more like Great Depression? What kind of definition are you… And so a little more science, a little less art. I think that’s kind of the beauty.

Ryan Isaac:
Man, that’s cool. Let’s talk about one more type of benchmark that, I don’t know, I was gonna say gets overlooked. I’m not sure if that’s true or not. I’m not sure, but I just don’t know if it gets enough attention. And that’s the benchmark of your current self versus your past self. So for example, someone might say, “I saved a lot of money this year.” And the natural tendency is to wanna know how does that compare to other dentists? And we just got done talking about how that might compare across age ranges or income or specialties or lifetime earnings. But the other way to think about this is if you saved a lot of money this year, how did that compare to last year? And how did that compare to five years ago? And then there’s almost this derivative of that, that’s also how does that compare not only to last year, but compared to last year’s income and last year’s spending?

Ryan Isaac:
There’s multiple levels. It’s not just what did I save, it’s what did I save compared to X? And where was it compared to X a year ago? So let’s just talk about that for a second. What are the advantages and what have you seen in practice? We’ve implemented, this is a big part of the way we do financial planning. What have you seen in this personal benchmark?

Reese Harper:
Well, I think it really anchors… I mean your own personal benchmark is kind of the one that you can’t really run away from. You can discount other people’s… You can say like, “Well, I’m in a bad market,” or “I got started late,” or “I used to be a painter and now I’m a dentist. And so I get a pass ’cause I’d started my career way later than other people.” But when it comes to your own behavior over time, that’s something you just can’t hide from. It’s something that’s just staring at you in the face. And I did this yesterday with a very successful client, and we were walking through his savings deposits over the last nine years. And he saw his savings rate, and I was showing him how much money he had put away. Then I showed him the last two years. I said, “The last two years, you have pulled out more money out of your accounts than you’ve saved by far.

Ryan Isaac:
Interesting.

Reese Harper:
Almost 30% more than you’ve saved. And you think that you haven’t… You think you’re saving the same. But whatever has happened in the last two years, you’ve had these three withdrawals that you took out. This one was a large lump sum, then nine months later, there was another large lump sum and another large lump sum six months later.” So I showed him these withdrawals and he’s just like, “Man, I forgot that I even did that. I forgot that I even pulled money out of my accounts. I remember now what that was for. That was for this and this was for this.” And they were all consumption items. They were all big major purchases that he’d made and I think that…

Ryan Isaac:
Human nature is just to not even remember that either, to just discount it.

Reese Harper:
Yeah, and it was just… It was interesting ’cause when I showed him that data, we walked through it, he reduced the amount that he wanted to take out. The whole point that I… He had called to want to do a withdrawal for a consumption item. This person’s late in their career and they’ve done a really good job accumulating, but they wanted to take some more money out. And I just wanted to show them how much they’d been taken out for the last two years and how different that was for the last nine. And if they kept going on the pace they’re at right now, they’d literally bleed themselves dry and wouldn’t have near the security in retirement. And it was hugely motivating ’cause they just turned back around and said, “Okay, I don’t need that much out, then I’m only gonna take this much.” And they reduced the withdrawal.

Ryan Isaac:
I was gonna ask if they changed behavior. Interesting.

Reese Harper:
Yeah, they didn’t withdraw. They withdrew, I don’t know, 50% of the amount that they were going to. And I think it’s powerful. It does…

Ryan Isaac:
Well, man, think of… Think about…

Reese Harper:
Looking at your own behavior in the past, it really does question… Help you question what you’re doing.

Ryan Isaac:
Wow, man, totally. And think about the power of the accountability that that just had. If that situation has multiplied a bunch of times over that person’s life and career, which it totally does happen like that, where an accountability partner, another human who has the data to look back over your own history and just call out the math, bring in the science, less art, less emotion. That person will end up in a drastically different situation than they would have on their own. Clearly on their own, they’ve done a good job being a dentist and making money and putting money away but…

Reese Harper:
I don’t think they would have saved hardly any money though either.

Ryan Isaac:
Interesting.

Reese Harper:
I think saving money was part of this accountability. It’s been hard. Some people really struggle to… Even though they earn a lot, they are successful in their career. They know how to earn money. They just don’t accumulate it very well. They don’t… They’re not good at saying no, and they’re not good at knowing when enough’s enough or when they can’t afford stuff. That is just as simple as that.

Ryan Isaac:
Yeah, it’s a big deal. So if you recap some of this stuff then, when someone’s asking what is a benchmark, what’s the utility of one, there’s the obvious one, which is how do I compare to other people? Subcategories of that are how do I compare to other people in age or income ranges or specialty or opportunity. There’s the category of how do I compare to my past self? How does this year’s savings compare to last year’s?

Ryan Isaac:
And then there’s the subcategory of benchmarks on benchmarks. [chuckle] It’s like savings versus spending, savings versus collection, savings versus production, savings versus investment growth, or savings versus net worth size. There’s a lot of different ways, and I think the point is benchmarks can be extremely helpful like we talked about in the beginning, they can be motivating, they can push us harder, make us go faster, make better decisions, but they’re usually best used in situations where another human being has a really clear view of all the data so it’s presented in a mathematical, scientific way. And they probably not do much good unless there’s accountability with it too, ’cause that client yesterday, maybe they could have had a spreadsheet that showed them that information that got emailed to them from their investment provider, here’s your savings and here’s your withdrawals, but if there’s not another human calling that to attention, it probably doesn’t affect behavior.

[music]

Abby Morton: Next time on Elementality.

Reese Harper:
With this moment when you have a business that’s finally healthy enough and you finally arrive and you’re like but it’s so safe and stable. I finally have enough money to finally go to the grocery store and not worry about my budget. I can get in the car and go on a vacation. And it’s like well, you got two options. And that’s what I wanna work on in the Growth Foundry that we’re working on is there’s three or four ways to… You can feel the pain by reducing your income and hiring someone. You can feel the pain through credit and debt. You can feel the pain by getting a partner. You can feel the pain by merging. But all of those options have different pros and cons. I’ve had pain with all of them and none of them are perfect. But man, each person, depending on your values and what energizes you, that will determine the way to finance your growth.

Abby Morton:
You can learn more about the Elements Financial Monitoring System at getelements.com/demo and schedule a time to talk with one of our friendly financial planning experts. Elementality’s executive creators are Reese Harper and Carl Richards. Elementality is produced by Abby Morton and directed by Jordan Haynes. Have a good one.

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