Compared to other professions financial planning is in its infancy. While financial products have been around since the first insurance contracts were written centuries ago, the fiduciary-based planning industry is only a few decades old. As advice itself becomes the product, a need for minimum functional standards is paramount. But where do you start? And what do you base those standards on?
On this episode of Elementality, Reese Harper and Chad Jardine talk about the past, present, and future of financial services. To move the industry beyond ethical standards and positively raise our clientele’s perception of advisors (while adding to the efficiency of planning itself), they contend that functional requirements and quantitative measures are sorely needed right now.
Podcast Transcript
Reese Harper:
To get to where we’re at today, we’re even asking the questions about standards, it’s because we’re only a few decades into any kind of consistent practice. I mean, we’ve had hundreds of years of sales, a few decades of services around advice, and the only set of standards that have been developed are ethical standards, and they’re not advice standards, they’re just ethical standards, like you shouldn’t sell someone something without disclosing it, that kind of a thing.
Jordan Haines:
Welcome to season two of Elementality, I’m Jordan Haines, financial planning specialist at Element. In this episode of Elementality, Reese and Chad talk about the current state of standards in our industry, and how moving beyond just ethical standards toward more broad standards of advice will ultimately move our industry in a positive direction. As you listen, consider how establishing standards of advice may impact your client’s perception of you, and affect the overall efficiency of your business. Enjoy this episode.
Reese Harper:
Hey everybody, welcome to Elementality, I’m your host Reese Harper, and I’m introducing my cohost on this show for the first time. After many episodes, the people have spoken and decided who they would like the consistent cohost of the show to be. And I have given him a nickname that may or may not be understood by everyone here. I would like to welcome and introduce the nickname that I will refer to him as, Chad the dad Jardine. Chad, I want you to go ahead and respond to that, and share your thoughts on this nickname before we jump in, and let me know why you may or may not be willing to accept that title.
Chad Jardine:
So, thank you, I’m stoked to be here. This is a really exciting, and we’ve exciting things to talk about, and when it comes to the nickname-
Reese Harper:
Yes. Yes. Let me give you the background and compliment this nickname before we go into the show. Okay, so we have a bunch of 20 somethings running around the office, some late maturing people in their 30s, even. Some people in their 40s, some in their 50s are still maturing, and we needed to bring in a more senior figure. Now, Chad’s probably in his 30s, he looks like he’s in his 30s, but he feels mature.
Chad Jardine:
That’s cleaning living. That’s what does it to you.
Reese Harper:
Clean living does it, makes him age very slowly. But we needed someone a little more mature. Now what’s been happening is, everyone’s kind of referring … they go to Chad for when they need advice or questions. They stopped going to me because I started going to Chad for advice, and then all of a sudden Chad became the main advice person, which I’ve really liked. And consequently, we were thinking of what nickname rhymes with Chad, and there was only one word that came to mind really quickly. So let’s just see how it sticks, we may change the nickname. He was wanting it to be something a little more sexy, a little bit more prestigious-
Chad Jardine:
Like maybe Buck Rogers or something.
Reese Harper:
Yeah. Something that had a little bit more excitement to it. But you know, for our audience, we’ll see. I think what better respectful title than Chad the dad Jardine. So Chad, the exciting thing about this show that’s been different than the ones … or the show that we did at Dennis Advisors, the Dennis Money Show, for me is that I get to talk about a topic that I’m intimately interested in. Like something I’m very, very interested in. We’re talking to dentists for as long as me and Ryan did it, there’s a lot of things I loved about that, but the audience was not me, right? The audience was someone I was having to translate to, a little bit, and break things down, where this audience just feels like people that I can feel their pain, I understand their struggles, I love talking to them and love hearing from Jordan, and all their stories.
Reese Harper:
And so, we thought that the way we would kind of start carving the show up is to take questions from our sales and marketing initiatives that are really almost questions that are given to us by advisors. Things they’re asking, problems they’re facing, in their practice, and turn that into the way that we carve up the show. And basically give people something substantive to take each week into their practice, and kind of learn from.
Reese Harper:
So what’s the topic that you’ve thought of this week? And decided to kind of cover?
Chad Jardine:
Yeah, so I’ve got a good one.
Reese Harper:
Okay.
Chad Jardine:
And before I share it with you, I just want to also thank you for the kind introduction, and mention that part of my role here is the exact opposite of being the go-to for advice. I’m actually here because I don’t have a background in financial planning. And so my role is to kind of leverage my naivety about the industry. Around the office, I can talk shop about business and things I’ve done over my career, but this space and this industry, which is super exciting, is new to me. And so I’m excited about the opportunity to actually kind of sit at the feet of a more experienced financial advisor, and learn about the industry from you, Reese.
Reese Harper:
Well, and I’m excited, and I think people should probably know that from a business perspective and a marketing perspective, one of the reasons that I connected so well with Chad is during my master’s degree, he was actually teaching the venture capital course at the University of Utah, and that’s where I first came into contact with Chad, and saw some really interesting things about his personality. He had a really thoughtful, kind of humble approach to the way he delivered his messages. His brevity was very kind of refreshing to me, because he’s very substantive over a short period of time, and he also let other people talk a lot. He listened a lot. I just thought I’d share that with you guys.
Reese Harper:
I know that I may be the expert in the personal finance side, but I look to Chad in a way that is my superior when it comes to a lot of areas of business. And so it’s been fun to kind of have this collaboration, we’re excited to explore all these topics together.
Chad Jardine:
One of the things that we talk about a lot around the office, and that is a topic of conversation with advisors as they explore what it is that we’re doing, and as they talk about the challenges and whatnot that they face, is the idea of standards. So we talk about standards, and what I’m kind of interested in is your take on maybe past, present, and future of standards in financial planning around financial health. Kind of how did we get to where we are, which I don’t think is drowning in standards. There’s a lot of standards probably that are being forged kind of as we speak, and then also what you think the future of standards in financial planning, and around client financial health is.
Reese Harper:
The first thing I thought of is how did we get here, and I don’t want to go back too far, but I think it’s important to kind of note that prior to a standard, or any kind of set of standards that we’re going to try to operate on as an industry for advice delivery, there just was a bunch of product distribution. Insurance companies were like the first financial institution in the US to really interact directly with a consumer. They even, most of them, many of them predate the stock market, they predate mutual funds, they predate banking to some degree.
Reese Harper:
Insurance companies are some of the oldest financial institutions in the US, and the product distribution of that industry had a huge effect on the next several hundred years of services evolution, because you have an agent that sells a product, and you can kind of see that evolution going from the insurance company to the early stages of stock market brokering and distribution, to the mutual fund industry, and it was just product after product after product was being invented to then be distributed to the public for a commission. But there was never any … advice wasn’t part of the framework. This was a sales industry. And probably until the ’70s, there really wasn’t any precedent for advice delivery as a service.
Reese Harper:
And you look at the legal profession or the tax profession, or any longstanding profession, accounting’s been around since Macedonia. So when advice becomes a product, then questions of standards start to arise. Because if there wasn’t any advice as a service, then services … there was no service, there was just insurance, or mutual funds, or stocks. Now you’ve got the public, multiple generations of families being trained that the financial industry’s just selling you stuff, and they don’t know there’s a service out there that’s advice, that’s an advice based industry. And so I think it’s going to take, to get to where we’re at today, we’re even asking the questions about standards, it’s because we’re only a few decades into any kind of consistent practice. I mean, we’ve had hundreds of years of sales, a few decades of services around advice, and no … the only set of standards that have been developed are ethical standards. And they’re not advice standards, they’re just like ethical standards, like you shouldn’t sell someone something without disclosing it, that kind of thing.
Reese Harper:
A big challenge for advisors is delivering a consistent, ongoing financial planning experience to clients. Knowing what to do initially with a client is easy, but how do you consistently add ongoing value to strengthen that new relationship? The Elements financial planning system is centered on key indicators of a client’s financial health, and it gives you the structure you need to deliver ongoing value through financial planning. Start by evaluating key client financial data, then deliver timely insights that are both valuable and appreciated. To learn more, schedule time to talk with us today by going to getelements.com/meet.
Chad Jardine:
Maybe it would be best for us to leave the ethical and regulatory-
Reese Harper:
Behind.
Chad Jardine:
Rabbit hole for another time. I know our industry is regulated by the SEC, by FINRA, we have state regulators to deal with. We could tie that up and address it maybe another time, but let’s dive in, I’m really curious about more of the functional standards.
Reese Harper:
Yeah, and I think the reason I brought the industry and ethics in as a precursor is I think it plays into the fact of why functional standards do not exist, why they weren’t around. Like if you’re just selling product, and advice isn’t your product, then there’s no reason to sit down and document how to improve the quality of advice delivery. So let me give you an example yesterday-
Chad Jardine:
Yeah, that makes sense.
Reese Harper:
Of a conversation where functional standards could really help in a practice. So yesterday I’m talking to one of my friends, who’s also a client, and he’s going through a debate right now between which career path to kind of go down, right? And he’s talking to … one of his friends is telling him … so this person has exited a company, they have some liquidity, maybe not enough to be financially independent for life, but they’re in a good spot. They don’t have to work for many, many years, but they’re trying to figure out what’s the next stage of my life, right? Still young enough to want to keep working, still ambitious enough to want to do something new and exciting. There’s a lot of competing pieces of advice that are coming into his life now.
Reese Harper:
One of the pieces of advice is take all your money, start trying to grow it rapidly. So we have not enough wealth to be financially independent, but enough to have some meaningful liquidity. So one strategy would be to take all of that capital and grow it really aggressively, right? Do a little bit of speculation, maybe take some of your money, and hope that you’re getting 20 or 30% a year on it over a short period of time, as opposed to maybe a long term investment strategy of 8% a year, indexing.
Reese Harper:
So that’s the choice now that is really in front of this person. In addition to which career should I take, which job should I take, which salary level should I pick, which equity package should I pick, right, there’s all of these choices that are now facing this person. And some standards that … each person, this client, this friend, has been talking to four or five different advisors in his life, I’m just one of many people, right? And one person’s saying, “You should take half of your capital and put it in these 10 securities.” Another person says, “You should do this startup with me and put this money into this venture.” Another person says, “You shouldn’t save any of your money, you should go get an executive job at this nice public company that’s offering you this great package, and just start saving money and not speculate it, because you need a better lifestyle kind of than you have right now, and your health isn’t going to hold up.”
Reese Harper:
So you’ve these really difficult choices, and I’m the only one that actually has some objective metrics to give this person advice from. I know his exact liquidity position, I know his personal spending, I know his savings rate, I know his behavioral characteristics, I know his values. I know all of the factors that are driving him broadly across four or five different choices, and for me, if every one of these five people were operating with the same set of information and the same standards that I was using, because I wouldn’t be willing to give advice to someone until I had this information. For example, the amount of personal spending someone requires on a monthly basis. The amount of liquidity they have. The duration that that liquidity will last, given that monthly spending. The real estate equity they have that may or may not be in a primary residence. It might be in a secondary residence, or a vacation property. Any depreciating assets that they might have that are very significant costs, boats, and time shares, and lots of things that could be liquidated, potentially, in order to provide more liquidity.
Chad Jardine:
So as you’re talking with this client, how much are you sharing the metrics you’re using to give advice? Like is that something where you’re teaching him to have command of the metrics in his life-
Reese Harper:
Yes.
Chad Jardine:
Or is it something where he’s relying on you to do the work of that, and-
Reese Harper:
No, I have to reference these standards for him to know why my advice differs from all the other people he’s hearing, right? So I’m saying, Hey, I know you got that advice here, but that person doesn’t know that you have this much liquidity, not that much liquidity. Like have you disclosed to them your full personal financial statement and your liquidity position? No, you haven’t. And consequently, they may give you different advice, had they had that piece of information, right? Or do they know what you experience when you are in a startup environment, and it’s a high pressure environment? Do they know the emotional kind of circumstances that are challenging for someone in a startup? Because they don’t know, this person who’s just telling you to do this with your money doesn’t understand that about your profile, right?
Chad Jardine:
Got it. And when you’re talking about the metrics that you’re using, this is the collection of things that we use at Elements.
Reese Harper:
Yes.
Chad Jardine:
This is what you’re kind of wanting to share with other advisors, is here’s a bag of metrics that I’ve used, and here’s how I use it in order to make this process more objective, I don’t know-
Reese Harper:
And here’s how I get clients to start to understand these metrics so that when they are hearing advice on big life choices, big strategic life choices, these are the million dollar decisions, right? This is where I earn my 1% over 25 years, in this moment, like five choices someone’s going to make in their lifetime. Like if I can influence the trajectory of their life in a positive way right now, they’ll never be able to pay me enough. And so-
Chad Jardine:
That’s really helpful, and it underscores for me, I want to now change a little bit how I ask the last question, because obviously part of what we hope the future is, as a company, is that the standards that we’re using and we’re evangelizing spread.
Reese Harper:
Yeah.
Chad Jardine:
So let’s take … but that’s a really subjective view of the future. Let’s set that aside, and tell me what you think the future is of standards across the industry, even regardless of the impact that Elements has in this space?
Reese Harper:
Well, I think philosophically, I hope where people get is that they are more curious and ask more questions before they start spouting off advice. Like that’s what I hope. I hope we get to a place where when someone asks a question, we don’t just assume we know the answer, but we ask a follow up question. We say, well, if somebody says, “What should I do between two choices?” I hope we say, “Well, tell me a little bit more about this. Tell me a little bit more about this. Tell me a little bit more about that. And then maybe I’ll know how to best guide you.” Rather than, okay, I’m presented with A and B, run the math in my head, I think then B’s the right answer, right? So we just say the answer.
Reese Harper:
I think that we, as an industry, need to do a better job of listening, a better job of asking more questions, and not just asking generic questions that expose qualitative kind of things, but get quantitative information in front of us to balance whatever qualitative things the client is expressing. So we shouldn’t give advice without knowing certain baseline criteria, because the more we know about someone, the more responsible our advice can be. And we have a responsibility, like we’re changing the trajectory of someone’s life. Money will change their relationships, it’ll change their overall satisfaction in life, their presentness, their centeredness, it affects everything. And so we have to take each piece of advice seriously, whether it’s a kid’s college plan, or whether it’s putting together the ideal retirement accumulation plan. These are not trivial decisions.
Chad Jardine:
Yeah, and what I hear you saying is that to the extent that as an industry, we have, at a minimum, we consider what might be a part of a set of standards for where the client is in their financial health-
Reese Harper:
Yeah.
Chad Jardine:
But as that becomes more common, the kind of minimum level of information that’s required to give informed advice goes up, and that as an industry, clients everywhere get better advice because some standards become more widespread.
Reese Harper:
Yep, and advisors are in their community, networking with one another, and they want to say, “What would you do in this situation?” Well, instead of just saying qualitatively and describing it, if you could say, “This person’s savings rate is 6.4%, and their burn rate is 53, their debt to income ratio is 41, and their liquid term is a 0.7, now answer the question.” I just got so much more data so fast, and I’m going to either ask another question, or I’ll probably have an answer. And so I just feel like that is a really critical way to advance the knowledge, and training, and development of our industry, by starting to get more data in front of us that’s comparable, that we all kind of speak the same language.
Chad Jardine:
Well, that’s super helpful for me. I listen to the banter around the office, and I feel like after taking a few minutes to talk about this, I understand it better.
Reese Harper:
Yeah.
Chad Jardine:
So thank you.
Reese Harper:
Well, thanks man, this has been a blast. I appreciate everyone listening and tuning in today, so look forward to catching up with you next week.
Jordan Haines:
Next week on Elementality.
Reese Harper:
All of this behavior that seems irrational, when you know someone’s full story, there’s always a reason. Nobody gets out of bed in the morning to try and be difficult, or to make you angry, or make your life hard. If people are doing something that seems irrational, there’s always a reason, if you hear their story long enough. So keep digging, stop pushing them, stop showing them charts, and dig for that story. And once they feel understood, I think more times than not, they’ll make the right decision.
Jordan Haines:
You can learn more about the Elements financial planning system at getelements.com/meet, and schedule a time to meet with me or one of our friendly financial planning experts. Elementality’s executive creators are Reese Harper and Chad Jardine. Elementality is produced by Abbey Morton, and directed by Jordan Haines.