Ep21 - Rethink: Are you a Fake Fiduciary? – Featuring Tom Hegna

Retirement income expert, economist, and best-selling author Tom Hegna joins Adam and Derek to challenge the industry's fee-versus-commission divide, arguing that too many self-described fiduciaries are 'fake fiduciaries' because they exclude annuities and insurance from otherwise sound retirement plans. He makes the case for a client-first, process-oriented approach that blends investments and guaranteed income products rather than treating them as competing camps. The conversation pushes advisors to rethink their own biases about commissions, fees, and what it truly means to act in a client's best interest.

• What makes someone a "fake fiduciary"
• The fee-versus-commission debate in financial services
• Blending annuities and investments in retirement portfolios
• Why the RIA and insurance sides of the industry stay divided
• Guaranteed lifetime income and longevity risk
• Action steps for advisors to become truly client-focused

Full timestamped transcript.

[00:00:00] H. Adam Holt: Welcome to Rethink the Financial Advisor podcast. My name is Adam Holt

[00:00:06] Derek Notman: And this is Derek Notman. We are your hosts, both veteran advisors and fintech CEOs who challenge the status quo, question everything, and have fun doing it. Hear honest commentary on the challenges facing advisors today And be part of a community where we can all rethink the profession.

Now on to our episode.

Adam, are you a fake fiduciary?

[00:00:33] H. Adam Holt: Wait, are, are you insulting me? I don't... What does that mean?

[00:00:36] Derek Notman: Well, I might be insulting you. I don't know. It depends how you answer the question.

[00:00:41] H. Adam Holt: I don't know. These days, I don't know if I'm a fiduciary. I'm just a generally good person trying to look out for people. That's what I try to do.

What about you?

[00:00:48] Derek Notman: Yeah, same thing, right? I think most of us are wired that way. Like, yeah, just do the right thing for people, right? But we've got all this, this stuff going on in the industry. You've got this bipolarization of, "Fee-only is the only way, and we're the best thing for our clients." And then you've got the insurance risk industry, which, "No, we're the best."

Well, where is the best? I, I don't know. I mean, and, and who's really a fiduciary?

[00:01:13] H. Adam Holt: I'm not sure we're gonna actually understand what a fiduciary is unless there's gonna be true regulation and, of course, legislation on this in a way that the courts can look at and say, "Yes, no, this really represented someone looking out for their client's best interest."

And I don't know how it's gonna shake out

[00:01:31] Derek Notman: Don't know how it's gonna shake out either, and there's a lot of politics involved, 'cause some industries don't want more of a fiduciary standard, some do. Uh, or parts of this, or of our industry I should say. But well, I mean, I'd rather talk to someone else about it.

[00:01:48] H. Adam Holt: Well, it's true. You know, we talk to a lot of financial professionals from all across the world. Now we've been really blessed to, to speak to people and get their perspective. It's interesting to see, Derek, how many people in other countries, including Australia, New Zealand, we've even, even seen standards in South Africa even exceed the United States in terms of what represents looking out for your client's best interest.

We had an opportunity to talk to Tom Hegna, and if you know Tom from the, we'll call it the inspirational speaking circuit, Tom has been an interesting person to follow, 'cause I've known him for years, had the opportunity to talk to him privately. He's the president of tomhegna.com. So check him out, I'm sure...

Have you seen him, Derek? Have you seen him speak?

[00:02:31] Derek Notman: I have. Yeah. I've actually like, like, and just like you, had private conversations and then like back in my New York Life days when he, he used to be there too for a while, like we were... I think we like, we ended up smoking cigars together on some- Wow ... boat down in Florida.

I don't know. It was a while ago.

[00:02:47] H. Adam Holt: Well, Tom is known for his essential, I think it's a salmon color or an orange shirt. I can't quite figure it out what it is. But I know- ... you, it's funny 'cause to see Michael Kitces also wears his blue shirts. Hegna started with his, with his orange shirt. He's, everything I've seen him ever in, he's got an orange

[00:03:03] Derek Notman: shirt.

It's just true. These guys are onto something. I think we gotta do that.

[00:03:06] H. Adam Holt: Right. Well, what, what would you just be? The white hair. That, that's what- That'll be your unique thing. You got white hair.

[00:03:11] Derek Notman: Dude, it's ash blonde, all right?

[00:03:13] H. Adam Holt: Sorry. It's... I'm just happy I have some hair. Now, Tom, if you don't know, he's a retirement expert.

He's an economist. He's a best-selling author, a public TV host, and an international speaker with a 30-year record. Consistent top performance in the financial services industry. He's lived it. He's done it. He's been in the field. He's also a retired US Army lieutenant colonel, so mad respect to him. He's done some great things in his lives, and he's really running out of, uh, Arizona these days, so if you do get a chance to see him, he's got great message and things that you can use in the field.

So opportunity that Derek and I had was to interview Tom and ask him our core questions of what he sees happening in the space, and he brought up this idea of a fake fiduciary. So you gotta listen to this and see where this resonates. We'll have an opportunity to debrief this after this. You ready, Derek?

[00:04:04] Derek Notman: Let's jump in and do it, man. I love what To- Tom has to say

[00:04:06] H. Adam Holt: here. All right, here we go. Tell us how, what's your, what's your perspective right now on the financial advice market?

[00:04:13] Tom Hegna: Well, I think it's kind of bifurcated. You know, you've got the insurance side, and they're still kind of selling products, and then you've got the, you know, RIA side, and they're, they're, they're on their process and everything.

And I just think it needs... I think everybody needs to be more process-oriented. Instead of pushing products, they need to be solving problems. But you got two different sides, and somehow in this whole thing, commissions were bad and fees are good. I don't get that. I don't understand that. It's ridiculous. A commission is paid by the insurance company.

Doesn't come out of the client's account. A fee comes out of the client's account. But fees are good and commissions are bad. I don't know how it devolved to that, but that's kind of how it devolved.

[00:04:51] Derek Notman: That, that's really interesting perspective. I've never thought about it that way. But we're totally gonna rip that up for the full, the full episode.

[00:04:59] Tom Hegna: Yeah.

[00:05:00] Derek Notman: Um, that's interesting. So if, if, if we're looking at this almost like, you know, bipolar situation of, of a, of an industry, I guess, one, how do you fix it? And two, like, what's the missing opportunity or challenge that advisors aren't addressing because of it?

[00:05:16] Tom Hegna: Well, I think you fix it by focusing on the client, not on the product.

Everything should be client-focused. It should be, what is in the best interest of that client? Now, you got fiduciaries out there who claim to be fiduciaries, but they're not using annuities for re- the retirement portfolios. Well, you can't do that. That's not in your client's best interest. They're not using long-term care products.

They're not using life insurance. So these, I call them fake fiduciaries, are out there saying that they're in the client's best interest, but they're really not. And then you've got the insurance people who have a best interest standard or whatever and, and, you know, most of them are doing good things, but there are some bad people out there selling bad products.

And so we've gotta get it to where it's client-focused, truly in their best interest, not pushing only investments, not pushing only insurance. It shouldn't be investments or annuities. It should be investments and annuities and life insurance and long-term care. They all need to be in the mix. And right now you've got one side that that's all they do.

They don't really do investments. They just do insurance products. And then you got one side, all they do is investments, and they don't do insurance products. Both of them are wrong, and we've gotta find a pl- way to get them in the middle and focus on what's in the best, truly in the best interest of the clients.

[00:06:26] H. Adam Holt: So that's a really interesting take. Now, I'm curious because we have seen that also. We have seen this bipolarization, uh, and basically ignorance and bias that really comes into this. But when the compensation comes up all the time, because we've had this conversation with other professionals, how do you fix that?

Do you move towards... Do you make commissions now a fee? Well- And do you basically make... I, I mean, what do you... Can you, can you imagine what would fix this?

[00:06:53] Tom Hegna: Well, and, and annuities now are fee, there are fee-based annuities. So, so they no longer, the RIAs no longer have an excuse that they can't sell annuities 'cause they can't make commissions.

Okay, there are annuities now that fit your model. So get your act together and start incorporating annuities into retirement portfolios. You know, and I don't know what's gonna happen on the insurance side because the farther they move to this fiduciary standard, I really don't know. I mean, is everybody gonna have to be a fiduciary?

Is everybody gonna have to be an advisor and, and do all that? I think there is a need for some people to just get, you know, a product. I do think that, that there are people out there, like the, let's say the lower third of America, they're not gonna hire a financial advisor. They're just not going to. They, they, they can't afford it.

But, but maybe they need annuity. Maybe they need life insurance. Maybe they need a mutual fund. And so that is, I think, the dilemma is that everybody, you know, everybody in the RIA side wants to go for the high net worth person, but there are insurance people that are servicing the lower end market, and I think we gotta realize that reality.

And I'm glad I'm at the end of my career, not at the beginning. I'll let, I'll let you young guys figure out how to solve that. But that's the way I see it

[00:08:01] Derek Notman: It's fascinating to think about it this way. I think this is gonna definitely cause some, some people to let the, their, their hair stand up on the neck a little bit.

But I... Could you see, like, it all moving to just, like, a fee-based model even for products? 'Cause I agree with you. As a CFP, I think we should be comprehensive in our, in nature and process-oriented and including all the products we've talked about. But you've got the compensation issue, right? And for, uh, a so-called insurance agent advisor, you know, that can't charge fees, now they have to get paid on the commission.

If we take the commission away, what happens?

[00:08:37] Tom Hegna: Yeah. I don't know how commissions got to be a bad thing. I don't know, I don't know how. I mean, uh, the, it's paid for by the insurance company. Client puts 100,000 in annuity, their whole 100,000 goes in the annuity. The insurance company pays the person the commission.

How is that bad? And, and yes, it's priced in the product, I get that. But you can shop amongst all the other insurance companies, so they can't just be pricing things terrible or nobody would buy their stuff.

[00:09:01] H. Adam Holt: Sure.

[00:09:01] Tom Hegna: So I, I just don't understand how, how commissions are bad and fees are good. I, I... That to me is just mind-boggling.

[00:09:08] H. Adam Holt: Yeah. It's the perception of transparency, that who's paying it and, and, and it's hidden or something like this. I, I tend to agree with you. Uh, we tend to, we tend to debate all the time whether we're gonna move to levelized comp for insurance. Uh, does that actually serve the advisor? Does it maybe, you know, promote more customer service on the insurance side if they actually know that they have, uh, they've their lifetime value of compensation that's at risk as opposed to heap comp.

It, it's been talked about for years. It's, we've never gotten to it. So, you know, it's hard to understand where that whole industry is gonna change.

[00:09:36] Tom Hegna: I, I, I personally like levelized comp. Um, when I was an advisor I liked that. But you gotta understand 85% of people don't make it five years in the business.

So if you annualize their comp, then the only one that gets rich is the insurance companies because the people aren't getting paid for what they did and then they leave, you know? They, and, and that's the age-old thing. I mean, that's a big problem in the industry is retention.

[00:09:59] H. Adam Holt: Totally. Huge problem.

Completely true. You know, we're curious. What action steps do you think professionals should be taking now? And what should they be, what should they be doing?

[00:10:09] Tom Hegna: Well, I think number one, you really need to know your stuff, all right? Now is a time when, when you need to know your product inside and out, and maybe know your top competitor's product inside and out, okay?

And know what's guaranteed, what's not guaranteed, what the fees are, how the products work. Because I have seen a lot of financial professionals out there who think they know what the product is and does, but they don't, and they're, they're m- they're literally misrepresenting things every day. So I think you gotta know your stuff, but then you need to learn how to communicate that.

You know, I, I, I got in a heated debate with somebody who I really respect. I posted on one of my LinkedIn that, you know, this is no longer a knowledge business. This is a words, language, questions, stories business. And he literally attacked me on LinkedIn saying, "Oh, this is ridiculous. Of course it's a knowledge..."

And I said, "I'm not saying knowledge isn't important. I just told you you need to know your stuff." But too many people know their stuff, but they don't know how to communicate it to their, to their clients and prospects. So you gotta learn words and language to communicate and tell more stories. Ask more questions.

Focus on asking questions and, you know, the, the client will literally tell you what they need if you ask the right questions

[00:11:16] Derek Notman: Orange Kinder said the same thing, right? And you're, you're spot on with that. It's like, you know, what, what client wants to read a prospectus, right? They don't. They're not going to do that.

They need you to filter that out and tell it to them in simple terms, right, that they get through the stories, through understanding them, all of that. So spot on, I agree. Anything else you think that advisors should be really paying attention to right now? Uh, and maybe even for earlier advisors. Like, I mean, you said, you know, you're on the tail end, you're, you're glad you're not a new advisor anymore.

What are the... what, what should the young bucks coming up be thinking about?

[00:11:53] Tom Hegna: Well, I mean, we still have 78 million baby boomers out there that need to retire, and they're living longer, and longevity risk is the number one risk to, to retirees, along with market risk and sequence of returns risk. There's a lot of risk, and that's why you have to incorporate an annuity into your retirement plans.

If, if you're, if you're not incorporating an annuity for at least, you know, 20% to 40%. Nobody's saying put all the money. That- that's what kills me, you know. If somebody's against annuities, they, "Oh, I'm not gonna put my clients' all their money in annuity." Of course not. 20% to 40%, use it as a bond substitute.

But that would be one thing, that you've really gotta take this longevity risk and sequence of returns risk. David Mackie just wrote a great article on timing risk. He calls it timing risk instead of sequence of returns risk. And he lays out 10, 10 different people, identical financially. They have the same financial portfolio.

They have the same advisor doing the same things. The only difference is they retire 90 days apart, these 10 people. One of them goes dead broke. One of them gets all their money, plus it grows to 2.6 million. It shows all these different scenarios for these 10 people, and he says, "What's the difference between these 10 people?"

It was just the luck of when they retired. And if you're an IRA, are you really gonna subject your clients to bad luck? I mean, that's all it is. That's all sequence of returns risk is, is bad luck, and you can't do that. And so that would be one thing. And then the second thing is they've got to, they've got to take action on the, on long-term care.

Long-term care is the one thing that most retirees forget about that can wipe out their entire life's work. So I would say they've gotta protect against longevity risk, market risk, sequence of returns risk. They've gotta protect against, uh, long-term care risk. And then for millennials, I, I did my first millennial presentation, I came up with it this last year, uh, where I'm teaching millennials, Generation X, Y, and Z how to become millionaires.

And I teach them how to make more money, how to spend less money, and, and, and how to build wealth. And, and that's, that's really what it's about for them. They've gotta build wealth, and then what we've gotta do is distribute the wealth that the baby boomers have in the most efficient manner possible.

[00:13:57] H. Adam Holt: A- and I, I think there was some really fun stuff.

Let's, let's talk about what did you hear in what Tom shared that's either debatable or we should be rethinking?

[00:14:08] Derek Notman: Well, I love the, the ongoing debate about RIA fee-only versus insurance industry, and, like, how the two are always butting heads, and he says they're both wrong. And you know what? It's hard to argue with that because the sweet spot really is when the two come together and solve the problems for our clients, right?

[00:14:31] H. Adam Holt: So

[00:14:31] Derek Notman: true. I don't know, what do you think?

[00:14:32] H. Adam Holt: Well, I... Look, in our practice, we always had a financial planning/insurance professional, right? 'Cause the planners tend to- tended to come from, "Do I understand the family? What are they doing? What do they care about? Can I protect them?" Right? And so that was that kind of protective voice.

And then we had the investment advisor who would also join, whether it was with our firm or not, and they would, they would give the context on the how we're gonna execute it, and, w- you know, stay unemotional and stay not planning. I, I needed them to deliver returns on a risk-adjusted basis. That's their job.

My job as the planner was always to think about, well, why does it matter? What... How do we structure it? What is the legal tax? What do I need to bring in? So it's interesting 'cause we always bifurcated that st- And we, we kinda thought of them as two separate collaborative roles that added value. Now, I think we have a lot of financial advisors that are doing everything.

Here's the problem, Derek. The positioning to the consumer is that, "Oh, I'm a holistic financial planner," when the truth is that's just a sales job to say that, "I wanna manage your money and charge you an asset management fee." Now, granted, I don't say that disparagingly to those of you that are doing asset management, and you claim to do financial planning and do all that stuff.

But I still know a great number of you, I won't call you out, that really when you, when you talk about how does a pension work or how does an annuity work or how does life insurance work, and you literally see their face turn, like, red. It's like... It's, it's like, it's like the devil products. And I, uh... And I'm thinking to myself, I know plenty of families that didn't lose their house because they were smart enough to buy life insurance.

I know people who literally lived way longer than they were supposed to, and they're still getting a check. So I, I don't know, I've seen the other side of this.

[00:16:14] Derek Notman: Yeah. I don't know why they're getting red in the face. It's like they're embarrassed to talk about it, and they shouldn't be.

[00:16:19] H. Adam Holt: They hate

[00:16:19] Derek Notman: it. But, but- They hate it, right?

But I think maybe part of it, and this goes to our next point, is this, this, this bad perception around comp, and commissions, and fees, and are you really a fiduciary or are you just a fake one? And I think that's really interesting, and Tom makes a great point. Like, how did commissions all of a sudden become bad?

And you made a statement earlier, like, it's a transparency thing, I think part of it, at least in part. And I would just argue that, like, advisors really need to be ... Man, I don't know. Like, that's a tough one. Like, I- some products have commissions. That's just the way they are. But not- That's right ... well, even Thompson now too, like, not even all of them have that.

Like, the- are- those fee-only guys can start doing stuff that's fee but still product.

[00:17:03] H. Adam Holt: That's right. Well, we have seen ... Look, we have seen permanent life insurances attempt to go to levelized compensation to try to make it look more like an asset management fee. It just really hasn't taken off that well. So I think if there's any re-education that needs to happen, it's, it's the consumer doesn't really understand it.

It's a black box. Insurance and annuities, they don't understand where the compensation's coming from, and they also, when they ... I think if for most consumers, if you heard what the compensation number was, you might be a little taken back, and I think that's really the thing that's, that's the real big pain point.

Do you remember when we switched from C shares to advisory shares with a waved load A share, right? With a lower back or no back end and a lower 12B1 or ... Right? Do you remember when we went from that? Yeah. Most of us were making 2% upfront. In some cases, based upon your payout, you were getting as much as 4% upfront depending upon your loads.

Some cases we know there were five, 5.75s And then when we went to a 1%, 1%, wow, that seems fair. That seems fair. Oh, oh boy, but it's forever, okay, first of all. So and now we're talking about, you know, fees that are in the, you know, basis points, and I think people are more and more conscious at each generation on the fee.

The challenge with, I think, the insurance community has been there's such a, there's such obscurity around a conversation that's being happened at, at that level that they don't know how to relate it to this, "I know what I'm paying supposedly in an advisory environment. I'm paying basis points."

[00:18:35] Derek Notman: Yeah. "

[00:18:35] H. Adam Holt: I'm paying for the cost.

Now it's all broken out. I know I'm not paying for trading anymore. I'm paying for custody. Okay, that makes sense. I'll pay for custody." So I think the real thing our industry has to do is we have to be transparent, and we have to be transparent to the consumer, and that really kind of takes us to I think what he's saying.

Well, actually, can I

[00:18:52] Derek Notman: stop you on there- Of course ... on one second? Yeah, please do. I've got a really e- I love what you're saying. I've got a quick story I wanna share. So I wrote a rather large life, g- uh, permanent life insurance whole life contract back when I slid my insurance licenses on a client.

[00:19:07] H. Adam Holt: Mm-hmm.

[00:19:08] Derek Notman: And it was, it was a great sale. It was the right product for the right situation. But a few years in, that customer came back to me and is like, "Derek, I think I'm gonna cancel it." I'm like, "Why?" And he's like, "Well, one of my friends said that you got paid X on it, and it's just not right for me, and blah, blah, blah."

And so I actu- what I actually ended up doing is I went and pulled my electronic ledger for that product, and to the penny I showed him exactly what my comp had been on that product from the day I sold it through with renewals and everything. And when he saw that, he's like, "Wow, that's a lot less than I thought you got."

Hmm. And he ended up keeping the contract because of it, and it's now actually helped him in a number of situations. He's a business owner. Yeah. And that, I tell you, like it was an epiphany to be able to be that transparent with my comp on this product that typically we never share at all. Hmm. And the advisor really appreciated it, and the business stayed on the books.

So, like, it just goes to your transparency thing. I think that we can really do a better job with that.

[00:20:06] H. Adam Holt: You know, I, for years, I, and I, I have never been really successful at this one, but I, I throw it out here because we have this pulpit to a degree, and we can share this. I, I talked to a group that was in South Africa several years ago.

They're a very large family office. Uh, and the way that they handled it is that they charged, you know, a significant amount of money to manage tens of millions of dollars for their clients, and eventually, occasionally, because it's comprehensive, they needed insurance products. And when they would place these insurance products, because a predominance of the products are all publicly, uh, delivered products, it wasn't a private placement, they could shop the market.

They figured out what was the best price. They got the underwriting done. They came up with the best product based upon credit rating and all that other fun stuff. They promote this to the client. The client buys $100 million of life insurance. They get this, you know, $400,000 compensation check, right? And they were telling me this story, and I said, "So what do you do in that situation?

Aren't you acting theoretically under the premise that you work for a set fee?" He says, "Yeah, we would normally have charged that client half a million dollars. We just got paid $400,000. We're only billing them 100 grand this year for their asset management." Okay, interesting. That's

[00:21:14] Derek Notman: awesome.

[00:21:14] H. Adam Holt: That's awesome.

So they actually had the capacity to effectively rebate, which has been a no-no in the States. In fact, it's illegal in almost all states of the United States to rebate that commission if you're getting compensated elsewhere. Now, why is that? I'm not exactly sure, but it seems to me from an equalization standpoint If you're setting the expectation that a client is paying you an X fee, in the moments when that all of a sudden gets out of whack, we should have the capacity to fix it.

And if they've underpaid us this year, well, we're gonna bill them, right? So I think we need to get to a place where the total revenue for a customer is at least known to the client, as opposed to a back-end deal that effectively I'm making more money because your needs change. And they will throughout your entire financial life.

[00:22:01] Derek Notman: Great example, and I think that's... I'd, I'd love to see the US actually take a closer look at that. I mean, I know rebating's there for a reason, the issues around it, but there seems to be a clear way to fix it, too, from what you're sharing. But that's a whole nother topic. Let's jump in. Let's go here. What, what are our takeaways?

[00:22:17] H. Adam Holt: Well, why don't you tell us first? 'Cause you're ready.

[00:22:20] Derek Notman: Well, obviously, like, I, I think we need to focus on comprehensive planning. Even if you can't, don't offer it. I think it needs to be on your radar, whether you are in the RIA camp, the insurance camp, or something like that. We need just to be helping our clients.

That's where it all makes the most sense. And I will do a plug. Like, so I love Asset-Map. I am an Asset-Map user, and when I'm using that with my clients, I get to talk about everything. Mm-hmm. And we get to look at it, and it's a way for me to be comprehensive and show all the things that need to be done and discussed and changed and all that stuff.

So, like, it's a great way to do that. So this is just an example of using tech to solve a bigger problem that we're talking about with Tom today. Um, further on that, I think advisors really need to be great storytellers. Ask more questions, like George Kinder even said. Like, just be a... Sit there and listen.

Ask great questions, listen, tell great stories, and simplify the complex. Don't read from a prospectus, please, or a product brochure. Tell them what it is in terms that they understand. And more specifically, come on, folks, be open to annuities. Be open to solving for longevity risk and all these other things that happen 'cause they are real.

Get out of one camp and maybe put your foot in the other one for a little bit, see how it feels. I don't know. Adam, what do you think? What are your, some of your takeaways?

[00:23:41] H. Adam Holt: You know, it's funny listening to you say that stuff. I might've said like, well, interestingly, Derek, here's an RIA. You're an RIA, right?

[00:23:49] Derek Notman: Yeah.

[00:23:49] H. Adam Holt: You're independent now. Yep. You have a history there, and here you are telling somebody to look at annuities. And I, and I know you're not... I know it sounds like that we might be, be pushing annuity. No. No. We're saying stop being biased, right?

[00:24:01] Derek Notman: Stop being biased. We're saying- We've talked about that too.

[00:24:03] H. Adam Holt: Walk in... Yeah, right. Walk into this thing with an open mind and saying there's things that you can do that you haven't been telling your clients. Um, and of course, there's probably things beyond what you know already that they could do too, right? Why aren't people talking about crypto? Why aren't advisors talking about private equity?

Why are their, the, their idea of alts is a, is a non-traded REIT? Like, there are so many opportunities that if you're really in the best interest of your clients, that you could be promoting and talking about. Forget the legal and the tax structures and all the other stuff that many advisors don't even talk about 'cause they're so busy talking about which custodian their performance.

And I, and I think that it's hilarious that we're still talking about this, and yet best interest is a discussion. So what are my takeaways? You know, the compensation came up a couple times. So let's, let's be straight. You wanna be transparent with your people? Ask your clients how they feel about how they should compensate you.

Do you think they actually care? I would argue that most clients, if you gave them an option, say, "Listen, I, you, I charge you a flat fee, it's gonna be X, or I'm gonna get paid by all these different products and you're not gonna actually have to write me a check." I don't... I think clients are gonna say, "Well, what would you prefer?"

Right? 'Cause it's a relationship, right?

[00:25:16] Derek Notman: Exactly.

[00:25:16] H. Adam Holt: What's gonna put us on the same page? Well, I, I'm, I'm agnostic. You could do either one. I... Either way, I will... Why don't we tell our clients how much we made for them this year? I have a client who still, because I've stayed involved with him, he keeps reminding me is that, that he pays me and my firm $100,000 a year in compensation.

I didn't even know. I don't... 'Cause I don't look at it. I never look at it. I, as a business owner, I'm pathetic in that regard. I just believe long-term, if you can stay with me relationship, I will somehow make money, and that's good enough for me. I never look at it. Whatever's fair for the client, that's... And if I feel like I like the person, that's good enough for me.

So, and just tell them, ask them. The other thing was, I thought interesting- Professionals have stopped being students of the business. In other words, we used to have to really learn these products, understand them in and out. I think a lot of professionals are relying upon their wholesalers or their outlets or, you know, the Google simple answer.

They're not really looking at the prospectus anymore. They're not going into the product to find the nuances, and the devil's in the details. And I think that's a miss because we're supposed to be acting in clients' best interests and we don't even... We don't, you know, we're choosing the product that's comfortable, the name that we recognize.

We've done this business with this company before, let's just do it again. I think we have to get back and, and be competent about this, uh, and so forth. So, and I think the last thing is, here's my comment on annuities. Advisors will not be working likely at the tail end of their client's retirement, and I think advisors are being really, really selfish here.

You're thinking that you probably are going to be there for your clients during the journey of their retirement in their later years when they're older, and I'm telling you most of you will be retired and you will not be looking after them in the same way. And they will be working with the next generation in your firm or maybe not even with your firm.

And if you haven't set them up to survive retirement in a graceful way, I'm not sure you've done your job or you're acting in your best interest. And that's about sequence of returns. That's about making sure that the sustainability of someone's retirement portfolio has been thought of from day one, not when you're in the middle of it.

Okay? You can't, you know, be in the middle of the desert and be like, "Hey, honey, did you bring the water?" "I didn't bring the water. You didn't bring the water?" Oh, whoops. "Well, the tire pressure's looking low right now and we're running out of gas and I... You don't have water? Did, did John our advisor tell us to bring more water?"

"No, he forgot. He's all retired and he's in, you know, Florida." So I, I think the point is this: think beyond your timeline Think about the client's whole timeline even when you're not gonna be there, and that means you need to think about sustainability and longevity. That's my, that's my rant on it. I'm done.

[00:27:54] Derek Notman: I love it. I love it. Advisors actually have their own longevity risk.

[00:27:58] H. Adam Holt: Yeah.

[00:27:59] Derek Notman: Right?

[00:27:59] H. Adam Holt: Relat- yeah, right.

[00:28:01] Derek Notman: That's great. All right, so we're gonna switch it up here a little bit, folks. Instead of doing a guest question and answer today, we wanted to give you guys a little bit more insight into who the heck are Derek and Adam.

So, you know, our podcast has grown a ton, and we just wanted to share some stuff. So what we thought- Yeah ... would be like, hey, what's a m- what's a mistake as an advisor that we've made? 'Cause I think, Adam, we, collectively we've got, what, 40-ish years in the industry now?

[00:28:27] H. Adam Holt: Something like that.

[00:28:28] Derek Notman: Makes me feel old.

[00:28:29] H. Adam Holt: Um- Well, when you say 40, yeah, it definitely makes

[00:28:32] Derek Notman: you feel

[00:28:32] H. Adam Holt: old. Yeah, geez. Right? Especially since I have three years and you have the rest. I'm just kidding.

[00:28:37] Derek Notman: Which is weird, 'cause I'm younger than you are. I don't know how that math works, but,

[00:28:42] H. Adam Holt: Well, that goes into what, you know, what I did wrong. You know, what I, when you asked me this question, I had to really think hard because I, you know, according to my family, I'm, I'm never wrong.

No, actually- ... no, that's, that's, that's myself, actually.

[00:28:53] Derek Notman: That's yourself. Um- That's your internal dialogue.

[00:28:56] H. Adam Holt: Every test I've ever taken, I walked away thinking I got 100%, by the way. I have a lot of confidence, but I, I wasn't right all the time, so I take that as good feedback. You know, what did, what did I... I didn't take my advice that I was giving early enough.

I was giving this great advice: asset allocation, savings. Uh, instead what I did is I super concentrated, to- took on super risk, and I told everybody else that they should diversify, and I did not. And in the early years, um, of course through 2000 and 2008, I don't have a lot to show from those years because I blew it.

I did not take the advice I was giving, and I ha- took a long time to learn that, even to the point today where I don't manage my own funds. I have this huge team that manages over a billion dollars, and they don't manage my money. 'Cause I had to completely separate myself from my bias to go with reactions and try to time and then know that this is not the right time to do this, and I literally did the opposite, and I watched my own clients perform better than myself.

And so that was the, that was the mistake I made, is you have to really, I believe, eat your, and serve and eat your own cooking.

[00:30:14] Derek Notman: That's great. I appreciate you sharing that. That's... I, I have a similar background. I, that I, instead of putting up a picture about paying myself first and investing, I put up a picture of buying a sports car that I ended up getting rid of.

Hmm. So, um-

[00:30:27] H. Adam Holt: What kind

[00:30:27] Derek Notman: of car was it? It was an Audi Roadster.

[00:30:30] H. Adam Holt: Oh.

[00:30:31] Derek Notman: It was fun, man. It was like, I, I s- you know, I s- you know, I just... It was a gift to myself for selling products.

[00:30:38] H. Adam Holt: So you used all your savings to buy a car. Depreciate

[00:30:40] Derek Notman: that. I did, yeah. And I was like, "Wow, this looks cool. I can drive it six months a year."

But, uh, yeah, it, it, yeah, wasn't a... And that, that's not even the mistake I was gonna share. That just came out of nowhere. It was a fun car, but it was stupid. One thing I actually did, and this like, I feel bad about it, but when in my early days as a quote, unquote advisor, 'cause I was not an advisor, I was a product pusher, as Hagna, uh, refers to them, and I was running around selling whole life like hotcakes, right?

Everyone's gotta have it. I don't care who you are, what you need, what you don't need, you're gonna buy it from me. And I met with this guy at this auto shop, cold call, walked in unannounced, and I got him right there on the spot to sign an app to dump 50 grand. Wow. So he had 50 grand in his business checking account, right?

Wow. And I'm like, "Oh," like, "Well, what's that doing there?" He's like, "Well, I don't really need it. It just sits there. It's like an extra savings account for my business, you know? I..." Whatever. I'm like, "Oh, then we, we should put that in whole life." He's not married, didn't have kids. So I did, I took the app and we're gonna put it on there, and then, and then anyways, the whole case blew up, went away, and it's because, like, it wasn't right for the guy.

He had some time to think about it. There was no planning involved, and I ended up getting a reversal.

[00:31:51] Announcer: Hmm.

[00:31:52] Derek Notman: So, like, I think the s- the, the, the message there is like, man, take a step back, stop forcing product, lead with advice. And I mean, I was guilty of that. That's, but that's why I was... Unfortunately, I think I was somewhat led down that path or trained as well as a very young advisor.

I just didn't know any better.

[00:32:11] H. Adam Holt: You know, we forget sometimes how we get into this business. And, and it's, it's hard. I, I appreciate what you're sharing, you know? Because the first thing I thought of when you said you threw a $50,000 into a whole life contract was that, wow, you just made a lot of money.

[00:32:22] Derek Notman: Yeah.

[00:32:23] H. Adam Holt: Right? Because I grew up in that space too, and I understand 'cause I needed mo- I have mouths to feed, and- Yeah ... it was a business. It was my job. Just like many people out there on the whole planet, if they have a job and they're lucky enough, they get paid because they create revenue from some kind of action they do, and that's why their company pays them, right?

Some- there's a revenue. It's a, it's a business.

[00:32:43] Derek Notman: Exactly, yeah. It's a business.

[00:32:44] H. Adam Holt: And, and I think what's happened is that you, you don't go to the car salesman and say, "Listen, now you gotta act in the best interest of your clients. If they come in and they want a bicycle, you're gonna sell them bicy- you're not g- you're gonna charge them a fee so that they can ride their electric bicycle."

Like, wait, I sell cars. You're trying to ask me to do something that's not in the job description. And so we really can't be p- you know, dropping dirt on people who are in the business of distributing a financial services product and expecting them to act and think completely differently. We have to change the mindset, Derek- Right

about what the role of financial service is about So that we free people up to actually act in the best interest of people, right? And I think if compensation is the thing that's gonna really a- make people act not in the best interest, then we gotta fix that, right? We just gotta fix it. And I think the way to fix it, it is to make it transparent because there's nothing like market factors that will correct it if it's disproportionately benefiting one over the others.

Totally. Just tell people.

[00:33:54] Derek Notman: Totally. Well, just tell people. It's, it's funny you've got these best interest contracts- Mm-hmm ... with all these disclosures, but where's the fee disclosure? Where's the compensation disclo- as an RIA, I have to disclose my, my fees, right? Yeah. So, but I never had to do that as an insurance agent, so I don't know.

I, I agree. I think there's, there's

[00:34:11] H. Adam Holt: some work to be done there. But it takes guts, right? It takes guts. Well, I mean, 'cause there's no one who's telling you to do it. Why don't you just do it? And what are you afraid of? You afraid of people won't value it? They'll think you're just, you're taking too much?

This is why I really think we need to get to levelized comp on insurance. I understand that's gonna really hurt the guys in the beginning, in the early years, 'cause you need to make that one sale so you can survive so that you can be there five years from now to act in their best interest, but that shouldn't be the reason how you survive, right?

Yeah. Like y- we need to find a better way for the insurance companies, I think, to support the growth and the development of the next generation of best interest advisors that happen to sell the right products .

[00:34:51] Derek Notman: 100%. Yeah, they do, and they want that. I think the insurance companies want that too. Like, they're, they actively want to do that.

They, it's expensive to them for you to come in as a new agent and then wash out within a few years. That's really expensive. Very expensive. It's not good for anybody.

[00:35:04] H. Adam Holt: It's very expensive. Ah, well. Well, hopefully this has been valuable to all of you and, and if you have comments, and I'm sure you probably do, I hope you're keeping them not to yourself, but you're going on LinkedIn right now and you're commenting on our, on our Rethink, uh, uh, page and saying, "No, we totally agree," or, "You guys are crazy," or, "No, we love what you're saying."

Either way, we wanna engage with you, and we wanna have that conversation openly so that it doesn't just end with an audio file and a send-off, Derek.

[00:35:31] Derek Notman: Yeah, and I, well, here's my sendoff for all you folks today, if we're wrapping this thing up, Adam, I'm gonna try something a little different here, so- Ooh ... so run with me.

All right?

[00:35:38] H. Adam Holt: Okay.

[00:35:39] Derek Notman: So what should advisors do right now, right? We always have our action steps, so I think the one final action step is if, if you have not subscribed to this podcast, subscribe. All right? Just go click the subscription button, go do it, and listen to some of the other episodes. All right? Check out Adam's company, Asset-Map, right?

He supports many thousands of advisors. You gotta check 'em out. Check out my company, Connectr, please. It's like how to... It's the best training course out there for advisors, especially ones getting started. And if you're thinking about a podcast, check out ProudMouth, please. They're the ones that help us do this thing.

We've gotten a ton of value out of them. So those are the things you should go do right now after you engage with this post on LinkedIn. Thank you.

[00:36:19] H. Adam Holt: That was great. Thanks, man. Is that good? I appreciate that. No, that was a honest and fair shout-out, and by the way, we actually, we actually use each other's stuff.

We subscribe. We believe in this stuff, so-

[00:36:28] Derek Notman: Exactly. 100% ...

[00:36:28] H. Adam Holt: I think it's, uh, we're, you know, it's, it's what, it's in your best interest in actually what we're creating 'cause we're, like, going way beyond, I think, what most other, uh, providers do 'cause we really are passionate about the industry. Derek, as always, a pleasure working with you.

Thank you, of course, to Tom Hegna. Just great, uh, contributions to our industry, creating more controversy, wearing his awesome orange shirts, and of course, traveling around to make advisors better.

[00:36:52] Derek Notman: Love it. Thank you, Adam. Great conversation, and to all our listeners, thanks a ton. We'll talk to you next time

[00:37:04] Announcer: Thank you for listening to Rethink, the Financial Advisor Podcast with Holt and Knottman. Be sure to subscribe now and join the ongoing conversation. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Asset-Map or Connecture.

The content has been made available to you by Asset-Map for informational and educational purposes only.