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CONSUELO MACK: This week on WealthTrack, how to get financial planning advice at a reasonable
cost. Two guests with two ways to deliver the goods: Sheryl Garrett and her national
network of financial planners offer their services on an hourly basis. Financial adviser
and planner Mark Cortazzo has created Flat Fee Portfolios. Find out more about financial
advice for small fry, next on Consuelo Mack WealthTrack.
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SPONSOR: The company keep is also the company we keep.
Together we'll provide lifetime guarantee income and investments solutions.
SPONSOR: Additional funding provided by: Loomis-Sayles - investors seeking the exceptional
opportunities globally. Research Affiliates - Efficient index foreign inefficient market.
The Wintergreen Fund - your home for global value.
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Hello and welcome to this Christmas weekend edition of WealthTrack. I’m Consuelo Mack.
We have a present for all of you this holiday weekend: some unusual financial planning options
for middle income investors. All of us could use financial advice in this complex, downright
scary world we live in. Most wealthy families have entrée to the best brains money can
buy to manage their investments and provide financial planning. But what about the middle
class? Where can they turn?
According to the research firm Cerulli Associates, more than 80% of financial planners defined
their core market as clients with investible assets of more than $250,000. Half of those
advisers focused on clients with more than a million dollars. Another study by Price
Metrix, a wealth management consulting firm, reported that a quarter of the advisers who
manage accounts for households with $250,000 to $500,000 in assets charge their clients
fees of 1.75% or more on the assets they oversee.
Now free financial advice is available from banks, insurance companies, brokerage houses
and mutual funds, but much of this advice is sales related from advisers who work on
commissions. So where can small fry get good, unbiased advice for modest fees? This week’s
guests offer two possibilities. The Garrett Planning Network based in the suburbs of Kansas
City, founded by financial planner Sheryl Garrett offers financial advice on an hourly
basis, as opposed to most financial planners who charge a percentage fee based on assets
under management. According to Garrett, most people don’t need ongoing financial planning
and investment management. And according to another Cerulli Associates survey, “investors
would rather pay commissions for financial advice they receive than a fee based on assets
under management.” Many members of the more than 300-strong Garrett Planning Network offer
two hour in-person planning sessions that typically cost from $400 to $600. Their hourly
fees range from $180 to $240.
Another entrant into the financial planning for the middle class arena is Flat Fee Portfolios,
recently introduced by Mark Cortazzo, head of MACRO Consulting Group, an award-winning
adviser to high-net-worth clients in Parsippany, New Jersey and a frequent guest on WealthTrack.
His Flat Fee Porfolios are aimed at people who don’t need complex financial planning
advice- just investing help at a reasonable price. For a monthly fee of $199 for accounts
of $250,000 or more or $129 a month for smaller accounts, a client gets to choose a model
portfolio based on his or her needs, a dedicated adviser and periodic portfolio reviews. According
to Cortazzo, as this chart shows, over a ten year period this flat fee, bare bones financial
advice could save tens of thousands of dollars in fees and dramatically boost investment
returns. In a recent interview, I asked Sheryl and Mark why they had departed from the traditional
financial planning fee structure.
SHERYL GARRETT: I was working at a wealth management partnership and our minimum fee
at that time for all clients was $4,000 a year. And you know, for many clients that
was very appropriate, but we were getting phone calls from people that I couldn’t
serve that I wanted to be able to work with. You know, regular folk like the folks I grew
up with, my neighbors, my friends. And I thought, you know, why in the world can financial planning,
financial consultation advice be rendered on an hourly basis like most consultant’s
work in this country? So I decided to charge by the hour.
CONSUELO MACK: Mark, what was the reason that you started the Flat Fee portfolio system?
MARK CORTAZZO: Well, our traditional business works with very high net worth individuals
and they tend to have very complex planning needs and we’ve had many referrals from
our clients, from the children or from neighbors who had smaller account sizes that didn’t
have complex planning needs. It was a very natural extension to what we’re doing for
our high end clients. You know, a modified version based on what we’re doing for higher
clients, but at a flat fee cost. You know, a very transparent, very easy to understand
pricing structure, which I don’t think the middle market gets access to.
CONSUELO MACK: So why are you two pioneers? I mean, Sheryl, why haven’t other financial
planners done this? And also, why hasn’t it really caught on? Because when I say you’re
pioneers, this is unusual for this kind of a service to be offered by financial planners.
SHERYL GARRETT: It truly is unusual. I think part of it is this isn’t where the big money
is for financial advisors, but there is so much work to be done, so much good to be done
and you can make a professional living working with people whether they’re beginning, middle
income, validators. There are a lot of do-it-yourselfers out there that would like a second opinion.
They’re willing to pay a professional for that kind of guidance.
CONSUELO MACK: And so how does the Garrett Planning Network work?
SHERYL GARRETT: Wow, that’s a big question.
CONSUELO MACK: Well, you have, what, 315 financial planners who are signed up who are willing
to, basically, render their services at an hourly basis.
SHERYL GARRETT: That’s correct, yes. And I head up the network. It started out as kind
of an offshoot of my individual practice. A lot of financial planners were approaching
me saying, “I really like the way you work with your clientele. Teach me what you’re
doing. How are you doing this and making a sustainable practice, a viable practice out
of the way you’re charging on an hourly basis? I love the concept, but I hear it can’t
be done.”
CONSUELO MACK: I know you have retired from financial planning because you are running
this in another educational organization. So how do you make this work financially?
Mark wants to know.
SHERYL GARRETT: Well, one of the things we really have to recognize is that when you’re
a solo practitioner, a small planning firm, you really have to align yourself with like-minded
individuals and pool your talents, and resources, and energies so that you can access the great
talent like compliance consulting, legal experts, productivity experts, technology experts.
So instead of each of us going out independently and securing those kinds of services that
we would need to run a very effective practice, we come together as a group, share our ideas.
We have a private internet discussion board so we can talk about issues. Of course, not
revealing client personal data, but we might talk about a specific client situation and
say, “Here’s what I’m thinking about how I’d handle this case. What am I missing?”
And then you’ve got ten, 30 responses of likeminded individuals saying, “I’m coming
at it from this angle and I might want to also suggest this.” Or, “Oh, Sheryl, you’re
doing a great job on this area, but have you thought about...” So you’re getting the
collective wisdom of the group without the extra cost. So it enables solo entrepreneurs
or small planning firms to really be able to bring a lot more talent to the table rather
than having this large firm behind them.
CONSUELO MACK: And the hourly fees or the range is?
SHERYL GARRETT: Most typically between about $180 and $240 to $300 an hour depending on
the market you’re in.
CONSUELO MACK: And Mark, I was kind of kidding when I said that, because you do have a very
different model with the Flat Fee Portfolio. And as you said early, and we know you have
a thriving business advising high net worth individuals at Macro Consulting. So given
that, it’s interesting that you started this new service. So you told us what the
motivation was, how does it work and how is it working?
MARK CORTAZZO: It’s working. We’re getting a lot of interest in it. The conversion process
is a slow one because it is a new concept so we’re educating people. We have over
50 different models for people to choose from, so making sure that they’re in the right
model. I think why this hasn’t caught on or other people haven’t done this is, it’s
not profitable business if you had to run this stand alone. We have 25 staff. We have
eight certified financial planners, two CFAs on staff, so we already have people doing
trading. We have people doing performance reporting. We’re already doing analytics
on underlying investments for our multimillion dollar clients. We’ve got the heavy lifting
part done; now it’s just executing it in a little bit more uniform environment where
we can bring this down to a more moderate level client. And I grew up in a, you know,
I’ll round up and say average income household and I know the quality of advice that they
get and what they’re paying for that. And you know, it’s at a much higher price point
than what high net worth individuals get and I think everyone should have access to good
quality, unconflicted investment management.
CONSUELO MACK: So let me ask you about the Flat Fee, however. So tell us what your rate
structure is and what you get for that annual fee?
MARK CORTAZZO: The beauty of this is it’s not just a web based solution. You have a
dedicated financial advisor who is a certified financial planner who has a decade, you know,
the person who is running this right now has a decade of experience as an advisor. This
is someone who knows your situation. You get the models built and managed for you. You
have a semiannual review with that advisor. They do an outreach and give you updates.
You get quarterly performance reports and it is a comprehensive solution for your investment
management. It’s not clicking on a box and here’s a pie chart with a model. It’s
a traditional relationship you would have with a financial advisor that’s augmented
with technology to make it run more efficiently. We have two different levels. We have accounts
that are over a quarter of a million dollars are $199 a month, flat cost regardless of
what model you use or size, and then we have an emerging investor program which is really
nice for accounts under $250. It’s only one review a year, but it’s $129 a month
and a little bit scaled down version of the models.
CONSUELO MACK: And so the 250 plus, is there a limit at which point--
MARK CORTAZZO: At about $2 million. These are for retail investors.
CONSUELO MACK: So who is the Garrett Planning Network appropriate for where I’m paying
for hourly financial advice?
SHERYL GARRETT: The three biggest groups, I would say, are beginners. You know, people
that are just saying, “I’ve never sat down with a financial planning professional,
what do I need to be doing? You know? Give me a pulse on where I’m at and what can
I do to make my situation better or how am I standing?
CONSUELO MACK: What should you typically allocate for that? Two hours, Sheryl, at a minimum?
SHERYL GARRETT: Very likely it could be a two hour session. We do al lot of real time
planning sessions with people getting started and if someone has a fairly straight forward
middle income or truly what we think of as a beginner- maybe in their twenties, thirties,
maybe even forties- their situation is probably pretty straightforward and we can do a lot
of good value in a couple of hours together. With five hours, we could cover a whole lot.
Really, we want to piece it out and I only mentioned one of the groups, beginners. Middle
income clients, you know, this is a whole area for the most part the financial services
world, at least the fee only part of the financial services world has basically been unable to
serve.
CONSUELO MACK: Unable and or unwilling to serve.
SHERYL GARRETT: Exactly. And the third group is also a group that a lot of financial services
professionals aren’t interested in working with and that’s the do-it-yourselfer. And
I actually very much enjoy the do-it-yourselfer because they’re into the subject matter,
they want the education, they’re looking for a second opinion on how they’re doing
or maybe they have another advisor and they’d like a second opinion on something else. Maybe
they’re working with Flat Fee Portfolios or doing their own portfolio management and
there are some other areas in their personal financial life that they need to have some
feedback on. So that’s what we specialize on.
MARK CORTAZZO: One of the interesting things that we saw with this is we’re getting a
lot of do-it-yourselfers reaching out to us that might have a larger portfolio, maybe
have an $800,000 portfolio and they’ve got some stocks that they like and some funds
that they’ve bought, you know, some of the great guests you have on the show, they want
to buy some of those investments, but they’re hiring us to build the foundation, the core
part of the portfolio. So maybe they give us $600,000 of it and they tinker around with
the things that are of interest to them with the $200,000. So they have a professional
advisor and manager.
And we’re not doing financial planning. We’re doing asset management. So we’ve
had plenty of opportunities that people have reached out to us on the investment management
side that have complex planning needs that we’ve called up Sheryl’s group and been
able to refer them to someone who was able to talk to them about some of the debt issues
and insurance issues that we don’t do at Flat Fee Portfolios. It’s asset management.
Many firms bake into the cake financial planning and asset management. They’re two different
functions and I think if you break those down into the two different functions and pay for
what you use you can really get a great value.
SHERYL GARRETT: I completely agree.
CONSUELO MACK: So who is the traditional structure appropriate for? So if a client came to you
and asked for your advice, you know, who shouldn’t be using this hourly financial planning service
that you offer, Sheryl?
SHERYL GARRETT: Probably the most cost effective solution for someone who needs to delegate
all of their affairs to a professional and say, “You take care of this for me,” would
be a retainer. You know, pay someone an annual fee to do whatever it is that you need to
have handled rather than an hourly fee. So an hourly fee works very well if you are more
self-directed. If you’re willing to do some legwork, but you need some professional guidance
in certain areas or maybe a full overview periodically, but if you need on-going continual
advice, a retainer makes probably more sense.
CONSUELO MACK: And let me ask you each about the fees that are charged. I mean, how transparent
should we ask our financial advisors to be?
MARK CORTAZZO: I think that sometimes you’re getting things in addition to asset management
for that fee, but you have some people who have complex planning needs that might be
getting a good deal and some people who have more simplistic needs that are subsidizing
those others and the financial advisor might not know going in how complicated it is. And
so they mark it up and if you’re less maintenance and less complicated, then you’re just more
profitable for them. I think have a clear-- know exactly what you’re paying and understand
what you’re getting for that.
I think one of the things people have come to us with is they see how much the asset
management piece should cost. They can compare it to what they’re currently paying and
see if the added value that they’re getting is worth the incremental cost and at least
make an educated decision. We’re not going to be the best solution for everyone. Sheryl’s
group is not going to be the best solution for everyone. I think it’s people understanding
what they’re getting and what they’re paying for it so they can see. is it is a
good value for their individual situation? Because the message both of us are trying
to get out is, do you know what you’re paying and is it reasonable?
SHERYL GARRETT: I’d like to add onto that, if I might. You know, we were talking about
the 1.5 percent and you’re getting a comprehensive financial plan and money management. That
may be very appropriate for certain people. Oftentimes the first year is when the overwhelming
majority of the labor is involved.
CONSUELO MACK: The work is done.
SHERYL GARRETT: But the fee doesn’t change in subsequent years. And so, you know, keeping
that client on for many, many years is where the huge profit opportunity is for the advisor.
The client is overpaying for the value that they’re getting for that relationship.
MARK CORTAZZO: And the financial planning advice that you get can be very conflicted.
CONSUELO MACK: Meaning?
MARK CORTAZZO: If have a half-a-million dollar portfolio with me and we’re charging you
1.5 percent a year, and you call me up and say, “Mark, I’m thinking about paying
off my mortgage. I have $100,000 balance, what do you think?” Well, if I say, “Yes,
Consuelo, pay off your mortgage,” that’s going to cost me $1,500 a year for the rest
of our relationship.
CONSUELO MACK: It’s taking the money away from you, right.
MARK CORTAZZO: That’s an asset based pricing. If it’s a flat fee relationship whether
it’s a $400,000 account or a $500,000 account, it’s the same flat fee. We can give you
purer advice. If you’re paying somebody an hourly fee to do that analysis, they can
look at the tax benefits and what your expected rate of return is and at least give you a--
We may both come to the same conclusion. The person who is charging you 1.5 percent and
what we do or what Sheryl’s group does, we all may come to the same conclusion, but
you know that the basis behind that conclusion was purer with our type of execution versus
somebody who is getting paid a percentage of assets under management.
SHERYL GARRETT: I had a situation where an individual had read a quote that I said about
a defined benefit plan. I had recommended or suggested that most average Americans would
be best served by taking their monthly pension paycheck from their defined benefit pension
plan rather than the lump sum distribution that might be available or is available. He
said, “Are you kidding? Is this really what you feel like?” He’s a securities attorney
and works on situations where an advisor has provided inappropriate advice.
CONSUELO MACK: Right.
SHERYL GARRETT: And he wanted to find out what I really felt about that issue after
that quote. He said, “You’re the first advisor I’ve ever heard of that said people
would be typically best served by,” I’m talking typical Americans, “would be best
served taking their monthly pension paycheck rather than that lump sum distribution.”
CONSUELO MACK: And the reason is?
SHERYL GARRETT: I’m probably the only one you ever met that gets paid regardless of
what the activity is so I’m going to make the recommendation based on what I think is
right for the individual. Most other advisors only get paid if that distribution comes out.
It makes a huge difference.
CONSUELO MACK: So let’s get to the One Investment, Sheryl Garrett. What would you recommend?
What’s the one thing that we either all should do on a regular basis from a financial
planning perspective or that we should have in our portfolio? However you want to answer
that.
SHERYL GARRETT: Ah. If I had one thing, I would want everyone to have an annual financial
physical. Whether they do it themselves, whether they work with a professional, but sit down
and spend a concerted effort reviewing your finances, the whole thing, on an annual basis
at least and we’re going to be so much better off as a society.
CONSUELO MACK: And is that something that you could also do with your accountant or
your estate planning lawyer? Or you’re talking about something even more?
SHERYL GARRETT: I want a comprehensive review. You know, looking at your debt, your cash
flow, your tax situation. Are you saving enough for retirement? Are you invested in the right
places? How is your asset allocation? How’s the family? What kind of things are going
on with you? So looking at a certified financial planner to get a very holistic view of what’s
going on in your life and get a good update. Make sure that we’re not missing anything
that could completely throw the whole financial plan and your future off the rail.
CONSUELO MACK: And that sounds like that needs some educated questions as well, which is
your point. Mark, what would yours be? What’s the One Investment?
MARK CORTAZZO: Well, to build off of that, I’m also going to give a homework assignment
instead of an investment idea, and that is to review the fees that you’re paying. If
you’re working with a financial advisor, it’s well within your right to ask them
to disclose for you in dollars, “What am I paying in expenses on the underlying funds
that I’m in and what am I paying you on an annual basis for that investment advice?”
And have them calculate in terms of dollars so you can see- I’m paying 6,000 dollars
a year for someone to build this model and rebalance it for me and meet with me once
a year. Is that a good value? So just assess where you are. Look at the costs. Not only
hard dollar costs, but the underlying costs and calculate it so you can look dollars to
dollars, and I think that would be a very surprising exercise for many people. The Division
of Labor is going to start requiring this next year on 401Ks.
CONSUELO MACK: 401Ks.
MARK CORTAZZO: You’re going to see a statement that says exactly what you’re paying in
dollars for the money that’s being managed in your 401K and I think that’s going to
be a very eye opening experience for people that will cause them to question other investment
strategies that they’re employing.
CONSUELO MACK: So you know, it’s very interesting. So there is going to be a sticker shock on
our 401Ks when we see it. So instead of the 1.5 percent on my assets, you’re going to
see, they can actually break out all the fees that every mutual fund you invest in?
SHERYL GARRETT: The actual dollars.
CONSUELO MACK: The actual dollars?
MARK CORTAZZO: Yes.
CONSUELO MACK: And so my question to each of you in the financial planning industry
is, do we have anything to compare it to? So we might be shocked that we’re paying
$7,000 or whatever it is, but does that necessarily mean that we’re paying too much? What’s
the context?
MARK CORTAZZO: If you come to a firm like ours or you go to any other financial advisor,
you can see what are their total costs going to be and you can do a side by side comparison.
Maybe there’s additional value adds or services that you’re getting for that higher fee
and that’s wonderful. For some people, a Honda Accord is going to be a great, reliable,
great value, and for some people they want an S-Class Mercedes or something because it
meets their needs, but are you getting what you’re paying for? And it gives you a basis
to compare on an apples to apples situation.
SHERYL GARRETT: Yeah. I think one of the major reasons why we don’t have more practitioners
working on an hourly basis or charging flat fees or project fees is because it’s really
painful to write a check to pay for this fee. I mean, $199 a month is real money, but some,
you know, point zero something percent seems like virtually nothing. But you apply that
to a large portfolio and it could be multi times whatever we’re talking about on an
hourly basis. We really need to convert them into real dollars so real people can deal
with, you know, “What am I talking about here?” And be able to evaluate whether or
not they’re getting what they feel is value for the money spent.
MARK CORTAZZO: We saw someone who got a proposal sent to them that was describing the fee as
a .375 percent per quarter of their assets under management.”
CONSUELO MACK: Sounds really cheap.
SHERYL GARRETT: Sounds really low.
MARK CORTAZZO: That’s a one and half percent a year fee, which is triple what it would
be for a program like ours, but as a fraction of one percent per quarter, it sounds like
a very, very inexpensive proposition. And I think showing in dollar terms, it’s very
easy to compare. You don’t have to do any math. Just look at the numbers. Which one
is bigger?
CONSUELO MACK: Ah, transparency. Well, thank you both so much for being on WealthTrack,
and for being the pioneers that you are and offering these really low cost, reasonable
choices to Middle America because there is a real dearth of these services and we desperately
need them. So thank you both very much. Sheryl Garrett and Mark Cortazzo, it’s always lovely
to have you on WealthTrack.
MARK CORTAZZO: Thank you.
SHERYL GARRETT: Thank you.
CONSUELO MACK: At the conclusion of every WealthTrack, we give you one suggestion to
help you build and protect your wealth over the long term. We’ve just been talking about
the need ordinary folks have for low fees for financial advice. The same holds true
for investing in mutual funds and ETFs. This week’s Action Point: with few exceptions,
choose low fee and low-turnover funds. Former guests Burton Malkiel of Princeton and Vanguard
founder Jack Bogle have been preaching this gospel for decades for a reason. There is
a body of research that shows that fees are the one, sure, long term predictor of fund
performance. Higher fees really take their toll on performance over time.
Next week, we’ll sit down with one of the very few professional money managers who truly
understood how weak the global economy would be and how strongly U.S. treasury bonds would
perform as a result. Robert Kessler has made money with minimum risk for his clients over
the last decade. He’ll tell us why he is still a believer.
For those of you who want to see our WealthTrack interviews ahead of the pack, we have a new
opportunity for you. Subscribers can now see our program 48 hours in advance on our website
along with timely interviews exclusive to WealthTrack web subscribers. To sign up, go
to our website, wealthtrack.com. Thank you for watching. Have a wonderful Christmas holiday
with your loved ones, and make the week ahead a profitable and a productive one.
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SPONSOR: Additional funding provided by: Loomis-Sayles - investors seeking the exceptional
opportunities globally. Research Affiliates - Efficient index foreign inefficient market.
The Wintergreen Fund - your home for global value.
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