Welcome to the 3rd episode of the Fiduciary U™ podcast. My guest today is Michael Kitces, who is a financial planner, speaker, blogger, educator and entrepreneur. He’s most well known in the private client or wealth management industry where he is viewed as the expert’s expert and the amount of content he creates is astounding. He’s done research on safe withdrawal rates, asset allocation glidepaths in retirement, and determining sustainable retirement income based on market valuation has been cited by The Wall Street Journal, The New York Times and Money (magazine). His blog, Nerd’s Eye View has over 40,000 subscribers. He is the host of two podcasts including the Financial Advisor Success Podcast which is the most popular podcast in the financial advisory industry. He also co-founded XY Planning Network which is the leading organization of fee-only financial advisors who are focused on working with Generation X and Generation Y clients, now with over 1,300 members. He also is a co-founder of AdvicePay which is the leading fee-payment-processing platform that provides advisors with a compliant way to bill for one-time and ongoing financial planning on a fee-for-service or subscription basis. And he recently became Head of Planning Strategy at Buckingham Wealth Partners, one of the largest registered investment advisors in the United States.
Michael and I have known each other for over 15 years and like many others in the industry, I have greatly benefited from his advice, insights, and technical guidance. In fact, being both a regular listener and a guest on his podcast is what helped inspire me to launch the Fiduciary U™ podcast. A big reason why I wanted to have him on the show is to broaden his exposure to the ERISA world, because I think his ideas are so valuable.
On today’s episode, Michael and I spend time discussing the importance of financial stress, financial wellness and financial planning, especially within the workplace. We talk about how and why employers should care about helping their employees improve their financial health and why the 401k industry might be the best mechanism to deliver financial planning to the masses. We discuss how the financial planning needs of the typical American are different from the traditional HNW client and how service models are evolving to meet these needs as well as how technology enables fee-for-service planning engagements. We cover the fascinating research he has done on rising equity glide paths in retirement, which flies in the face of the traditional approach the retirement industry takes with target date funds. And be sure to listen to the end where Michael shares his thoughts on how plan sponsors and employers should think about employee financial wellness as an investment in their business with real ROI on business metrics, and not just an expense, as well as his single best piece of advice for making ERISA fiduciaries smarter. And so with that introduction, I hope you enjoy the 3rd episode of the Fiduciary U™ podcast with Michael Kitces.
“If you can’t handle money issues, you can’t function and survive in modern society.” - Michael Kitces
“When you have a really low-trust industry, you have to work your butt off, one advisor at a time, to prove that you’re trustworthy.” - Michael Kitces
“If your business is primarily driven by assets under management, you give advice to people who have assets to manage.” - Michael Kitces
Josh Itzoe: All right. Michael Kitces, welcome to the Fiduciary U™ Podcast where we focus on making ERISA fiduciaries smarter. I'm so happy to have you here today, I can't wait for listeners to hear all the things you have to say and we're going to have a pretty wide ranging conversation today about things like financial planning and wellness and everything from retirement income and so on and so forth. So thanks for being here.
Michael Kitces: My pleasure. My pleasure. I appreciate the opportunity. Congratulations on getting underway with the new podcasts. I know we're just a couple episodes in and I get to hop in. So, welcome to the podcasting world, I'm flattered to be one of the early guests. So everybody years from now who goes back and listen to this successful podcast, you've got to hear this early episode with us.
Josh Itzoe: Yeah, I actually feel a lot of pressure today since your podcast is the most popular one in the financial services industry. So, I am actually a little nervous. I think I'm sweating here. I hope I do a good job.
Michael Kitces: I'm sure you'll be fine. You know your world better than I am. I am your guest in your house today.
Josh Itzoe: Awesome. Well, so let's start talking about... I'd love to talk about just financial planning in general and with your background and all the different things that you're doing and have done over the years. You are the experts expert in the industry from a planning standpoint. And planning is something that has been a great focus within the private client retail traditional way management world not something that's been a major focus in the ERISA world. That being said, over the past few years, this kind of concept or this phrase, financial wellness has become really popular. Unfortunately, even though it's a buzzword, it's really hard to define and pin down. So, maybe let's start. When you hear financial wellness, what comes to mind for you and how would you differentiate that from maybe financial well-being or financial planning as well?
Michael Kitces: Well, it's funny. I have to admit when I think about financial wellness my head goes to a financial well-being model, a holistic look at our well-being from a wellness lens. I guess strictly speaking, well-being is how we're doing and wellness is what we're trying to do to improve how we're doing. To me the nature of our financial wellness, I think it speaks to the holistic nature of just all the different pieces of what happens in our financial lives. Our industry, just the roots of our financial services industry, we're an industry of a zillion different products that are regulated by all the different product channels. And so insurance people talk about insurance stuff and investment people talk about investment stuff and people from the 401(k) world talk about 401(k) stuff. And I feel like the whole nature of the financial planning movement in general has been like, let's unify the channels and say we got to look at a whole person in all the domains of their financial life because it's not just about any one of those but literally how they fit together.
And I guess even in that context, I think of financial planning as the verb about crafting this wellness journey, wellness being the actions of trying to improve where we stand and well-being be the overall measure of just how are we doing in our financial selves and our financial whole. Just recognizing all the different pieces that go into that. Like, there's what's going on in my retirement accounts, there's what's going on all my investment accounts. There's what's going on my bank account, my cash flow and budgeting. Most people at the end of the day live and die not by what's in their retirement account, it's what's in their bank accounts and their ability to have their inflows at least cover their outflows every month. We have all sorts of challenges that come with the risks that impact our cash flow, the opportunities in our career to lift our cash flow and income, the trade offs that we make when our income goes up about whether we're going to save it or whether we're going to consume it more.
And if we're going to consume it, are we going to do it in a one time purchase or something that lifts our lifestyle or something where we borrow and take on debt, which burdens our earning power in the future? So, we got to earn that out. So many different choices and trade offs that tie into all the different pieces that ultimately say at the end of the day, am I comfortable with my financial state of health? When at the end of the day, if I am, I can go and be my productive self in the world and when I'm not, it's actually really hard to be productive with almost anything else because we get so focused and obsessed. Maybe obsessed is the wrong word because then it like implies to me some irrationality. We get focused on our financial challenges when we face financial challenges because the modern world we live in today money is subsistence level stuff, it's a survival thing at this point. In the past if I didn't have food, clothing and shelter, I couldn't survive because I was exposed to the elements.
Now, if I don't have money, I can't get those things and protect myself from the elements. So if you can't handle money issues, you can't survive and function in modern society. And so those who are challenged financially and stressed financially, it ripples into everything else which is both bad for our personal well-being and certainly in the context of the reality of 401(k) plans in the workplace. Your financially stressed employee is your non-productive employee, your high turnover employees, your absenteeism employees, all sorts of ripple effects that come that are way beyond just, "Do we have a 401(k) plan with prudent investment choices?" Not that that doesn't matter, but the stuff that ultimately impacts employee wellness goes way beyond only that retirement plan layer.
Josh Itzoe: Yeah, I think that's a great point. And when you mentioned wellness and well-being, part of the way I think about wellness is really the steps, it's more process focused than action focused, the steps that you're taking to improve your overall financial health whereas five mental well-being is more of an emotional state that you're in. So for instance, if I pay off my credit cards every month, then I'm likely to have a higher level of financial well-being because I'm not going to be worried about my short term debt. And because I'm taking those healthy actions, if you will. But you bring up a really good point, financial wellness and financial wellness solutions have really exploded within the retirement industry because for most people, most Americans don't actually have access to a financial advisor. I would say in general, most what people have access to. And there's still a coverage issue within the 401(k) industry, but most Americans, they have some type of workplace retirement plan. And so, wellness... Again, that word has been hijacked in some ways within the industry and it's really hard to define what is it, is it just education?
It used to be for 20 or 30 years, a lot of education was focused on how do you teach people to be better investors, talk about asset allocation and risk and return and none of these things that actually moved the needle and the messaging is now gone is more around budgeting and debt management and saving and so on and so forth. But you bring up a really good point I think, which is... And our research bears this out, is that when employees are stressed... And by our research, we did a study last year, where we surveyed almost 1900 employees across our client base. We had about 50,000 employees. And so we got a really good response rate. But 45% of people said that they were financially stressed on a regular basis. And that had a huge impact like you said, on their alignment and on their engagement and on their productivity, but also their work products, people who were stressed were 17 times more likely to feel like that stress had impacted their work quality. So as companies, it makes sense to invest in financial wellness.
Michael Kitces: Your employees that have financial and debt issues mean they're not focused at work because they're distracted worrying about their debt issues, they're not focused at work because debt collectors might literally try and be contacting them at work or coming to find them at work or trying to garnish their wages at work. And so workplace becomes gobbled up in debt and financial issues. To me, there's all sorts of spillover effects that start cropping up into the workplace both because that's where we spend the bulk of our time while we're worried and stressed about whatever money issues are calling on our lives. And at the end of the day, if my money issues fundamentally I don't have enough coming in to handle what's going out, the primary focal point is work is where I hopefully make more stuff come in.
"Hey, I'm really unhappy with my job and I want a raise or a promotion now." It's like, "Well, no I'm totally fine with my job, but I'm really stressed at home and so I'm going to take it out at work by saying I really need this raise and I need this promotion right now." And we start building up the stuff in our head because it's not actually an employee engagement or management issue. It's a home financial wellness issue that's showing up in the workplace. And then when you can't meet that person's financial needs, then they end up leaving and taking a job somewhere else and searching and trying to get more and more dollars and more promotions and something else. And so this spills over into turnover and other issues, all stemming from... No, they really just need someone to help them make a couple of good financial decisions, so that they didn't get stuck in debt or could walk out of it, then we wouldn't have lost that employee for that promotion we couldn't give them, that they didn't actually really want. They just needed it because there was a financial stressor that they had to solve for.
Josh Itzoe: Right, right. And this was all pre COVID-19. I can only imagine we're getting ready to embark on the second version or your survey, I can only imagine what that stress level must be like now. One of the things I think is in the industry and I'd love your insights on this, that the industry has been able to deliver financial planning advice, comprehensive advice, really to that high net worth segment and there's lots of... You now work at Buckingham Wealth Partners, a really high-end registered investment advisor. I think our firm and assume there's a lot of really good firms out there, but a lot of those firms are not equipped really to come down market. Most high-end firms are focused on higher net worth people who have assets and can pay higher fees. And so I think in a lot of ways the industry has struggled to deliver really good, capable, comprehensive financial planning to the masses.
I'd be interested, why do you think that is and how are you seeing some things evolve? I know XY Planning Network, which is one of the companies that you co founded is really aimed at trying to address some of those issues. But maybe talk a little bit about why we haven't been able to deliver comprehensive financial planning to the masses in a cost effective, actionable, effective way.
Michael Kitces: I think ultimately, there's two things that drive the blocking point for the industry and in so struggling to expand the reach of financial advice. The first that's a reality for any advisor in the business, but we don't often really talk about it outside of the business, it's really hard to get a client. It's really hard to get a client. We did a study last year, across nearly 1000 advisors looking at their marketing and business development practices and said how many money do you spend on marketing, a marketing team, on advertising? How much of your time do you spend marketing? Because in the adviser world, as you know a lot of our marketing is networking meetings and events and other ways that we meet and get introduced to people in the first place, not just like, "I ran an advertising campaign." There's a lot of time intensive stuff in there as well. And so we added up, what's the cost of all the time? What's the cost of all the dollars, what's the cost of all the hard advertising costs?
How many clients do people get now you're across 1000 advisors? This is like a zillion new clients that people have taken on board. When we added it all up and said, "What do people spend in total? How many clients do they get in total?" What we found is the average advisor has a client acquisition cost of about $3300 per client.
Josh Itzoe: Wow!
Michael Kitces: $3,300 per client. Spent a couple 100 bucks on marketing, spent $1,000 on this event, spent 17 hours of my time in all these networking meetings and a follow up lunch to develop the relationship with the attorney that ultimately gave me the referral and I had to meet with three referrals before one of them worked out. You put all that together, aggregate the cost $3,300 in time and staff and labor costs to get a client. So when it cost you $3,300 to get a client, before you do dollar one of work to actually get paid for what you do for them, it's really hard to make any money on "downmarket clients," otherwise known as the average American, but relative to our industry, a down market client. And that's why I think it's no coincidence that you see advisory firms so often once they start to get any level of ongoing growth and traction, you start seeing them create minimums of two or $300,000 per client, because that's base, I don't think we always do the math, but that's about what it comes down to.
Two or $300,000 minimum typical advisory fees is a $300,000 minimum fee, which pretty much covers the cost of the time it takes to get the client. So, until we figure out how to bring client acquisition costs down, which frankly is heavily self imposed, our industry is so low trust we barely rank above Congress and Edelman Trust surveys most years. And so yeah, when you get a really low trust industry, you have to work your butt off, one advisor at a time to prove that you're trustworthy, particularly since notwithstanding our podcast name here, like most people who wear the advisor label are not fiduciaries, they literally don't have that obligation. So, no kidding. We have trust problems with the public. The more that-
Josh Itzoe: We come by those trust issues honestly as an industry in a lot of cases-
Michael Kitces: Yeah, unfortunately.
Josh Itzoe: The behavior that has taken place over the years.
Michael Kitces: But the lower the trust gets, two things happen, it gets harder to serve the masses because it gets so expensive to get a client. And if you are going to serve the masses, there's only one way that you make enough money off them. You sell them a really crappy high cost product that makes you a ton of money. And that's largely what our industry has done particularly in the mass market. So, there's really two issues I think that have blocked us from expanding access. Number one is this problem that it's so hard to get a client, this is a heavily self-inflicted wound because of the trust issues at least our industry in the aggregate has brought on ourselves. I think some of us on the fiduciary advocacy side are trying to change that, but that's not where the industry is in the aggregate. It's why you run the fiduciary podcast, it's why our business sued the SEC over regulation best interest for not being a fiduciary standard. We're trying to lift the bar for ourselves, but it's slow because there's a lot of self-interest from product firms to not see that bar get lifted.
The second issue at the end of the day, is that because advice historically has been so driven by the various industry product channels. The math gets really simple. If your business is primarily driven by assets under management, you give advice with people who have assets to manage. And if you just look at the market sizing research aggregate in the US, there's about 120 million households. 300 plus million people, but many of them are families, couples with children. 300 plus million people 120 million household units, only about a third of those have at least $100,000 of investible assets outside of their primary residence, otherwise known as prospects for ICERS. So, if we start with assets under management based model, you by definition have eliminated 70% of the marketplace before we've even started the exercise. Then we get through whose money is available to manage, they can move it from wherever it is, they're willing to delegate it to an advisor-
Josh Itzoe: It might be in a 401(k) plan where you can't-
Michael Kitces: And that's why I think our industry has spent so long focusing on retirement rollovers because the moment you retire and rollover, it's like this great unleashing of the assets is a new business opportunity our industry gloms onto rollovers all-
Josh Itzoe: Money in motion is what they called it when I started in the industry. Money in motion.
Michael Kitces: Money in motion. And so all of that builds up to we're low trust with high acquisition costs to get a client and our business models are mostly built to only serve people that have an asset base that's high enough to make the math work. And when you go throw that slicing, you end up with advisors basically focus on the top 10 to 15% of households. So, when you start trying to flip that around and say how do we get around that? To me, there are a couple of ways that you break through that and now we're starting to see emerge in the industry. So number one is When we start with a model that's built around the products, you only pursue the people who have the dollars available to buy your stuff. And so when we dissociate advice from products and we simply give advice for the sake of advice. So I broadly call this the category of fee for service financial advice. When you start, that could be hourly fees, ongoing subscription fees or retainer fees to standalone financial plans, pay me to do this analysis.
When you break into fee for service and you dissociate from all of the products and the assets and the rest, even though some people may have, product needs or asset, investment needs and the rest, you widen the marketplace. So, we founded a business to do this called XY Planning Network, we now have almost 1300 advisory firms across the country, all of whom do these fee for service models, no products, no asset minimums, just charge people for advice and let them pay for the advice they want. We particularly champion doing this on a monthly subscription basis. So you can work with an advisor in an ongoing relationship, but you don't have to buy products or move money or any of that. And sure enough, what we found going into that market from the advisor and we're seeing immense growth from the advisors, that's how we've added almost 1300 advisors in only six years.
But we're seeing from the perspective of the advisors serving clients, their businesses are growing tremendously because all they have to do is go and say, "Hey, I'll actually give you advice to just charge you for it. You don't have to buy anything or move anything." For a ton of Americans it's like, "This is what I've been looking for. I just wanted to pay someone to answer my nerd financial questions." And so what we're finding is when you change the model and you disassociate it from the investments and the products and you just let people pay for advice, more people show up to pay for advice. The second breakthrough that I think is coming with it as well and dovetails well to what you do Josh and what you're doing with this podcast, because one of the biggest blocking points is essentially advisors ability to reach clients in mass and not have prohibitive costs and marketing and advertising in order to do it and all the challenges that go with that because we're a low trust industry, distributing advice through 401(k) channels to me creates some really unique opportunities.
Businesses and 401(k) plans naturally have a one to many scale, they're 10s at least by and large to be a pretty good trust level between employees and the firm's. I really didn't trust leadership, I usually don't work there. We have a great fiduciary framework in place that generally ensures that 401(k) plans are even aligned to the plan participants and created in their interests and all the things that further tend to bolster trust in the first place. And so I see in particular a huge opportunity for expanding financial advice to a wider base through employer retirement plan and 401(k) channels because trust levels tend to be higher, reach tends to be higher, we can hit the ground running faster with one to many solutions that have a lower cost per client just to get them on board, then we start to figure out how to service them and deliver the value, but between the technology that's being built in employee wellness and just frankly, what you can do from the economics of an advisory firm, when you say, "Hey, I got a plan, it's got hundreds or thousands of participants.
I just literally need with smart CFPS who can sit at a desk and take phone calls and video calls and just be awesome in giving advice to people." That's actually not horribly expensive from an advisory firm perspective to staff and deliver at a reasonable cost. Some limitation is how cheap I can get, but way, way cheaper than what 98% of advices in the marketplace today. If I get to say I wave my magic wand there's a ton of people who want advice, we just need to staff to it. Well, I can staff to it pretty easily and in a 401(k) channel, I actually can wave my magic wand and make a whole lot of people appear, who have a lot of advice needs.
So I think there really is a unique opportunity in the employer channel around doing this with the interesting asterisks from the employer end like, "Oh, and by the way, not only is it just a good thing to do for the stewardship of your employees, you may decrease turnover, decrease absenteeism, have fewer problems with employee manager relationships where they want raises that they probably didn't deserve, but they need it because they got financial problems at home that if you solve their financial problems at home, they don't have these problems at work." All sorts of ancillary benefits that come from it, which means broader financial wellness employer channels can actually be a positive ROI for the firm and happens to align very well to the economics of just running an advisory business at scale serving the masses. And I think you're now starting to see even some of the big players move in that direction. Financial engines working with that financial power, working with personal capital and more and more independent advisors, they're starting to move this direction as well.
Josh Itzoe: Right. So, you bring up a good... I want to ask you a little bit about with XY planning network and I think every member has to... There's a number of things, one obviously being adhere to the fiduciary standard, but I think everybody has to be a CFP as well?
Michael Kitces: Yep. To be publicly facing on our website in our financial advisor portal, we do have a subset of members who are not CFP certificants, yet they're working towards it and we give them scholarships on CFP exams and discounts on training programs and job opportunities for experience and other stuff. But yeah, anyone that gets on the site as an XYPN member has to have their CFP certification done by the time they go public on our website.
Josh Itzoe: Got it. Okay. So, one of the things in talking about the needs and I think this is one of the challenges a lot of IRAs, especially that focus up market or with higher net worth clients, one of the things they struggle with is, it just is an interesting experience. Generally, in a lot of cases larger clients are easier to work with than smaller clients, their needs are less in some ways, but the scope of services as well, for somebody that may have one or two or three or $5 million is generally different than somebody that doesn't. So what are you seeing, I'm sure some of the XYPN members are working with some high net worth or ultra high net worth folks. Is it fair to say that most of the clientele of the advisors in the network may not fall into that high net worth category? And so if that's the case, what does the services look like for those types of folks? Is it very heavy asset management and traditional kind of what we see from tax and estate or is it something different because the needs of that target market are different?
Michael Kitces: It's different. It's different. When we look at what's happening in XY Planning Network, we do a lot of internal benchmarking studies with our members from the XYPN just to understand what's going on. As I view it, we're birthing the movement of a new business model in the industry. And so just being the nerd that I am, I'm like, "We're going to document this." Because I'm a data nerd research nerd at heart. So I'm like, "We're doing internal benchmarking studies and someday, 20 years from now people can look back at this research and see, here's how this model evolved." So here's what we're finding and seeing.
From the clients and it is a different kind of clientele. In part, because if you have a pile of assets, there's no shortage of advisors to work with in the first place, the advisors that grow in XY Planning Network, they're doing it in essence by perusing non-asset clients in the first place that frankly, no other advisor will take unless you buy a product from them. They're not ready to buy a product and hand over assets, it's hard to find anybody to work with you. And so that's who XY Planning Network is working with, which is actually like a bazillion Americans, but people who get rejected from almost every other financial-
Josh Itzoe: Well, at least 70% based on the number-
Michael Kitces: Yeah, at least 70% of the market.
Josh Itzoe: And if 30% have more than 100,000, most IRAs are going to have call it a half a million or a million or even higher minimum. So it's actually probably more than 70% of American-
Michael Kitces: Yeah, it tends to be about 85 to 90% from the market sizing math that we've done.
Josh Itzoe: So people do want to date to the problem but can't find anybody to take them basically.
Michael Kitces: Right, right. We talk to so many advisors in the network that grow from the clients that essentially say, "You're the fourth advisor I've talked to. I keep looking for fee only advisors that will Just give me advice, but the only ones I can find require half a million dollars, which is $490,000 more than I have. I'm so glad you work with me." Now, what we do find because almost by definition, these are folks that don't necessarily have piles of assets, they pay from income. Now, it does mean we find by and large, at least so far XY Planning Network is generally working with people of above average household incomes in the US because you still need some financial wherewithal to pay for the advice. While this model solves one part, which is we don't need someone who brings piles of money to buy the advice because we're dissociating the product part. It's still hard to get a client.
And the costs of that are better when you work with the 90% that no one else is taking in our industry, but it is still costly to get clients. And so we're generally seeing advisors work with, I'll call it above average clients, but not necessarily ultra high net worth unless they decide to specialize there. Now, in terms of the advice, the advice looks very different. And at the most basic level, the fundamental difference that changes in these kind of alternatives to working with different clients is the industry at the end of the day has what I would call a balance sheet centric approach to advice. We talk about your assets, generally how they're invested, where they're invested, tax status, the account types, let me show you IRAs and Roth IRAs and 529 Plans and HSAs and all the different things I can do with your assets to move them around and how are they invested? How are they allocated? It's very focused on your balance sheet. When you work with frankly, the other 70, 90% of the country-
Josh Itzoe: Not your P&L basically.
Michael Kitces: Yeah.
Josh Itzoe: It's not focused on your P&L.
Michael Kitces: Yeah. We're out of your balance sheet and we're into your household P&L. We're in your household income state, cash in cash out is the whole focus. And so some of that's budgeting, I know budgeting is a bad word to some people depending on your context. So I just broadly say it's focused on your cash flow, what money is going in, what money is going out? Is your upkeep greater than your outflows? Which means we got some problems. Is your money aligned to what's actually important to you? There're some very deep conversations that come from what's really important to you or you and your spouse or your family. Like, "Okay, let's look at where your money goes."
Josh Itzoe: So, some life planning, call it goals planning, but life planning kind of-
Michael Kitces: Yeah, yeah. To me it's not necessarily goals planning, goals is very distant. It's much more... I'd call it values alignment and helping people recognize. You say your kids are really important, you really want to invest in their future but you're not saving for their college. Let's just talk about what's going on there. Well-
Josh Itzoe: There's a disconnect.
Michael Kitces: Yeah, it's like just we're... No judgments, where's the money going? Okay, so it's going really heavily into current kids activities. Okay, that's cool. But if you want to also invest in your kids future, let's talk about how do we balance swim lessons, gymnastics and karate against also supporting their college in the future. And I'm not here to tell you what's right or wrong, you set the values of what's the priority, but I can at least help you look at where are the dollars going, does that actually line up with what you say is really important to you. And of course, because our lives change and income changes and expenses change and demands change. Those numbers move all the time, which means meeting with an advisor on a regular basis actually becomes very helpful. The biggest essence to it is, it's anchored around the P&L more than the balance. And so, one of my earning income career decisions for a lot of people, the single biggest thing you can do to change their entire life trajectory and financial future, help them understand how to ask for a raise when they're actually deserving of one.
Josh Itzoe: So, there's a human capital generally speaking when people start working. When you're young, you've got low financial capital, you've got high human capital and that relationship changes over time-
Michael Kitces: Yeah, it changes over time. At some point when we're in later stretch of our career, not a lot of earnings years left, but hopefully at least we've built up some financial savings, but in the early years helping you take $2,000 to invest into some designation that gets you $1,000 raise next year, is literally worth like 20X, getting you to actually even put the $2,000 in your 401(k) plan or your Roth IRA in the first place. $1,000 raise in your 20s, 20X the value of getting tax free growth in a Roth account for the rest of your life. The math isn’t even vaguely close when you do earnings, raises, 40 years of earnings power, the compounding on top of that, and then you get to save that money every year going forward for the next 39 years. So, everything around human capital and earning power, which isn't even on the table of the discussion when we talk about traditional asset based retirement planning, because it assumes money's already there.
Where's our spending going? Cash flow, budgeting, alignment of spending to values and what's actually important to you. Then there's making good tax decisions, making good employee benefits decisions, buying the right level of insurance, that's enough, but not too much, but not too little. So much that goes on and what happens with the cash in cash out for our households, that getting better at that starts really dialing back so many other stresses. And there's a whole additional domain to this, that cause With people who've got some existing debt. One set of issues if we've got credit card debt issues, another set of issues if we've got giant student loans which have some different dynamics, but that's a whole additional financial stressor that requires some unique planning to engage with and address but massively can change someone's life trajectory as well as again, things like their focus and efficacy at work when they're not constantly stressed out about the debt overhang.
Josh Itzoe: So this is just an interesting skill set and the focus and probably I would imagine that some of the technology tools as well that are being utilized different for this segment of the market and thinking about from an employer perspective, a plan sponsor perspective, I think if you ask most companies, they want to try to provide, I would say wellness or Planning for their employees. They don't want to pay for it necessarily or historically they may not have wanted to pay for it. And at the same time, I think some other issues, sometimes they're fearful.
When I started for a large brokerage firm, started my career, it was funny I would get phone calls as a rookie from advisors that were in other parts of the country that manage 401(k) plans for big companies that had an office in Maryland, where I was based and it was like, "Hey, if you'll just go meet with employees and provide some education, you're not going to get paid for it. But anything you get, any clients, they'll be yours." And so it was really this distribution mechanism. And as an advisor, I didn't really have any clients and I was all for it. "Great, this is a great way for me to get in front of maybe 30 or 40 or 50 people."
Michael Kitces: Yeah, I was trained early in my career similarly like you. You give free financial advice and 401(k) plans because you might get one or two of the biggest prospects at the company to work with you.
Josh Itzoe: Right.
Michael Kitces: Not a bad model if you're trying to go down that road, but really to me it gets back to the earlier discussion. So at the end of the day, if we think about this just from a business perspective, I'm delivering hours and hours of collective financial advice to a broad range of employees, because I'm trying to get one or two of them as clients. This is why we spend thousands of dollars per client to get a client because we have to go through these indirect tactics that are very time consuming and labor intensive because we're still struggling just to get the original client and unfortunately means our hearts not necessarily actually in all the rest of stuff that we're doing because it's a means to an end.
Josh Itzoe: Right. But one of the things that was interesting that you had brought up that you and I had talked about prior. So, one of the things I appreciate about you is you were into all kinds of stuff. Speaking and writing and podcasts and heading up planning for one of the largest IRAs in the country and co founding XY Planning Network and you guys maybe you joint ventured with somebody else, I don't know if it's the same thing. But you've got this solution called AdvicePay, which is essentially a... Correct me if I'm wrong. I don't want to dumb this down too much. But it's like Stripe, if you will, for financial planning or PayPal for fun. It's a way for advisors to essentially get paid advisory fees not having to build against assets or through some type of product.
But AdvicePay in one of the things you had mentioned is you're finding some advisors that are starting to use that to be able to go to companies to say, "Hey, you don't even have to be part of this equation, but being able to offer advice to 401(k) participants that may not have assets to invest in a product or an account to generate fees, but now I can deliver advice to employees of a company without having to essentially custody or touch the assets within the plan in using AdvicePay as a platform to enable the payment for those services." Is that fair? And maybe talk a little bit about what that looks like. That's a model that actually could bring planning to a lot of 401(k) participants that don't get access to it now.
Michael Kitces: Yeah, it's been fascinating to see this evolve. So, AdvicePay has gone through probably four different stages. We... So, I think you described it well. AdvicePay, I'm one that just names my companies very literally, like XY Planning Network was to do financial planning for Gen X and Gen Y. AdvicePay is because we facilitate pay for advice. The purpose of AdvicePay is just to handle payments for financial advice. There's a whole bunch of regulatory issues that crop up in our industry, if I've got direct access to someone's bank account to build them for advice piece, it means I've direct access to their bank account, which creates a whole bunch of what are called custody rules in our industry, about who has access to the money and what protections do you have and how are you ensuring no one steals the money and how do we know that you're not going to steal the money?
If you can bill your clients on a regular basis, what's to stop you from changing their monthly fees from $100 a month to $10,000 a month, bill them all on December 30th and by January 3rd, when they get back and look at their bank account, you've disappeared with a million dollars of your clients money. All sorts of issues. And so we built AdvicePay to solve for all of that. You can't change the fee unilaterally to steal your clients money, a whole bunch of just basic consumer protocols comply with the industry. We built it originally, frankly, for XY Planning Network. When our members started joining and doing these models, where we charge people ongoing fees outside of no product sales, no assets, it's like, "Wait, this is really cool and people are willing to pay?" But you do this for a whole bunch of clients at once and you get buried. Literally, you get buried in avalanche of checks that show up in massive envelopes every month. Just the administration of billing becomes-
Josh Itzoe: If you're going to get buried, checks aren't the worst things to get buried in.
Michael Kitces: Not the worst thing, but they just slow down the efficiency of the business when they are terribly large checks and you need them all to add up in order to make the business work. So we built AdvicePay just to automate that. Automate advice fees, one time fees, especially recurring fees, so you can bill clients on ongoing monthly basis. In the working world, our whole lives we get our paychecques every two to four weeks, we pay most of our bills on a monthly basis and so just solving for pay for financial advice on a monthly basis like every other bill that you have, was a big thing that we found grew adoption for financial planning to the masses in XY Planning Network, but it really needed technology to facilitate it.
So version 1.0, we built AdvicePay for XY Planning Network and a bunch of other advisory firms came along and said, "We're not actually an XY Planning Network, we're not trying to bring advice down market, if you will, to the masses, we serve more affluent baby boomers, but we actually just want to do this with our retired clients as well. We also like the model for some of our retired clients." So we said cool. So, we separate AdvicePay out, we made a version for other advisory firms to use with their clients. Then large enterprises started showing up, particularly hybrid brokerage firms that do advise-
Josh Itzoe: I think LPL, did I read it?
Michael Kitces: Yeah. So-
Josh Itzoe: Did I read LPL? I think it was-
Michael Kitces: LPL, a couple other really big brokerage firms that said, "Hey, we have this problem. We have it at scale." Because technically if you're in a large firm like LPL, every advisor is under the LPL compliance umbrella and LPL has to manage all the dollars that move through which means at LPL, some poor soul or some whole department of poor souls, get checks from all the clients of 17,000 advisors across the company and have to process a bazillion checks. And in our industry, as you know Josh, individual advisors are not allowed to hold checks for clients, it's deemed custody because you might do something improper with it. So anytime you get a check from a client, you have to overnight it. Well, when you have 17,000 advisors and you could be taking in thousands of checks every month and you're paying 5, 10, 15, $20 to overnight it depending on where you are, you could be writing six figure checks in postage.
Josh Itzoe: Right.
Michael Kitces: Just to handle the payments. Nevermind all the-
Josh Itzoe: Not to mention the compliance nightmare.
Michael Kitces: Compliance and processing the checks and matching to the client, the bill, the invoice, was the plan delivered? How do we reconcile remits back to the correct advisor across them all? So version 3.0 and what we've been spending a ton of time on AdvicePay over the past year, is solving all of that for enterprises, which we've largely solved, which is why we have big firms like LPL, Cetera and a number of others that are onboarding right now. So we're seeing advice grow there. The new channel now that we're just starting to get picked up on, Cetera actually did a version of this with their 401(k) advisors and we're now getting other advisors coming along doing as well. They're saying, "Look, I've always wanted to do advice for the plan participants and I even have a team to help deliver the advice. So we've got a centralized team, we can answer the phone, we can give them advice, we can systematize it a bit. I don't have a way to get the money.
The plan sponsor would like to pay but just we haven't convinced them to pay across all the employees that adds up to a lot, I'm limited into my ability to build a 401(k) plan directly because of all of the rules about exactly what you can build from 401(k) plan and the broader the financial advice gets, the harder it is legally to actually be able to build a 401(k) plan. But they had no way to bill individual participants at scale. I knew one advisory firm that actually did this with significant size, they billed plan participants, was $150 a quarter, because they couldn't even do it on a monthly basis. It was too many checks. And the truth was, they had never actually done a follow up invoice for anybody in five years of this program because they figured out any level of collections for the people who didn't pay their invoices, it cost them more to chase the bill down than it did to just walk away from it.
So, something like 10 or 15% of their people just don't pay and they don't even try to follow up on it because it wasn't cost effective to even pursue the money. It's like a pay on faith system. And they just assume losses and slippage. And so what we're seeing now, are a wave of 401(k) providers saying, "I actually want to implement AdvicePay on our 401(k) offering." So, we'll give plan participants the option or may even mandate it. Most of them do as an option to pay a very moderate monthly fee because it's easier to do this monthly. We'll give them the option to pay a very moderate monthly fee to have access to our financial advisors. It is in essence, a version of the prepaid legal model where massive participants should have a very small price per person every month or every quarter or every year because you know across all the people it will average out. Some years they don't have any problems, some years they have more.
If you've got enough people, these things average out reasonably well. That's the whole foundation of prepaid legal services. They're essentially doing the same thing with financial advice and they're using AdvicePay to facilitate it because we automate the whole payment process. Billing, collection, reminder notices if the payments don't come in, although if you actually just billed a direct payment fee to their credit card or bank account, there's almost no payment fails because you've automated it to a place that can collect money. And so we're now finding this is like the fourth version of AdvicePay, it started for XYPN, then firms using it for retirees, then hybrid broker dealers and enterprises using it to expand advice at scale. And now we're seeing it come into the 401(k) channel and we're starting to build some of the additional tools in technology because obviously, onboarding a whole a 401(k) plan is a different process than an advisor getting one client at a time. And so we're building out some of those-
Josh Itzoe: Building with the batch onboarding of-
Michael Kitces: Yeah, batching of onboarding, batching of agreements, we have integrations to contracting and document management system, so you can do advisory agreements in mass for participants. So, we're building all those pieces out to be able to do it, but we've seen how this plays out in the other three versions already, so I know what happens from here, which is once it gets really easy to handle the payments and get paid, advisors tend to step up and give more advice. Once I can-
Josh Itzoe: It's nice to get paid for what-
Michael Kitces: It nice to get paid-
Josh Itzoe: ... for what you do.
Michael Kitces: Yeah. And the challenge is at the end of the day, if you want to do this for a high volume of people paying a fairly modest amount, I think we sometimes underestimated the sheer problems that come from, "I just don't have an efficient way to actually get paid for this." It's literally just a billing problem. But it's a big one if you want to do this for hundreds of plan participants or thousands of plan participants at once. And so, once you automate that, now it just comes down to, okay, if you have hundreds at once, can you put a person in a room with a phone and a video webcam who's competent to give advice and help these people? The answer is, well, actually yeah. That's not that hard to solve for in our industry.
Josh Itzoe: It's interesting too, that it potentially solves a number of issues. Obviously, if a plan sponsor, plan fiduciary they're going to have to vet, it's still pretty uncommon for advisors, though it's increasing, but to provide... It's kind of table stakes in the retirement industry to provide plan level fiduciary advice as an ERISA 338 or 321, where you're consulting to the plan. It's still, I would say the minority of advisors that actually will sign on and be a fiduciary to give advice to plan participants. A lot will say, "Hey, we're not going to give advice but we'll give education or whatnot." Obviously getting compensated it's going to-
Michael Kitces: Yeah. We didn't have a lot of interest to go beyond that, just at the end of the day like, "So, let me get this straight, you'll pay me to give the plan participants advice and you'll also pay me to not give the plan participants advice. So, why again would I give the plan participants... I want to be nice, I got be competitive in the marketplace. If other people are giving a little, I got to give a little." Most advisory firms didn't come to that as excited for growth than to deliver more advice. Because they did have a good way to get paid for it. And-
Josh Itzoe: It also creates too, the possibility as well as some continuity, if you're giving access to advice now and people and you have turnover within companies, which at times you do and somebody then leaves, this may provide access to, they'll be working with a fiduciary advisor, whether that advisor is able to take on that client on an ongoing basis, maybe they have assets now and maybe that goes into a more of a traditional model or maybe there's a way to at least create some kind of continuity as somebody leaves. So, there's definitely some interesting elements to that in being able at the end of the day, when money's locked inside a 401(k) plan and advisors can't get paid on it, like you said, they're not going to give much advice. But if you can create a mechanism where there can be a reasonable level of compensation for a scope of services and there's a way to technologically deliver that, that's going to create opportunities for additional advice. I want to transition and I want to ask you about something that I find really fascinating and then we can wrap up.
But the retirement industry has become just with the Pension Protection Act, 15 years ago or so and the Congress green lighting if you will, things like automatic enrollment, automatic escalation, I would argue that the retirement industry has harnessed the power of behavioral finance probably better than the traditional private client side with things like automatic enrollment and automatic escalation. This idea of a qualified default investment alternative or a QDIA being a target date fund. And so we've seen because 401(k) plans because they get funded every pay period, are just a beautiful distribution model for mutual fund companies and target date funds have captured so much of the assets within plans and the traditional target date fund, just the model and the conventional wisdom is this idea of a target date fund that when you've got high human capital and low financial capital, you can take on a lot more risk and so it starts at a really high equity sleeve and then as you get older and as your financial capital grows, but your human capital goes down, the target date fund ratchets down and becomes more conservative over time until the target date.
You and Wade Pfau, who's a PhD and a researcher around retirement income, you guys wrote a white paper a number of years ago called Reducing Retirement Risk With a Rising Equity Glide Path. And I think it factored in some things like sequence of return risk, but this idea that actually for many investors, especially to solve not the target date funds that become less more conservative over time, deal with what I would call volatility risk, but they may not deal with longevity risk. And so some of the research you did was this idea that a rising equity glide path after retirement had a positive impact on actually longevity risk. Could you talk a little bit about that? That's like sacrilege in the retirement industry.
Michael Kitces: Yes, I understood it. I know it is. We got a lot of feedback when we published that research a couple of years ago. So, here's the essence of it. This really is a story about what happens once you start taking distributions out of retirement portfolios, specifically I got a pool of dollars, I'm no longer saving and putting money in, I'm drawing money out. So, ultimately is overgeneralizing a little. There's two things that determine whether my withdrawals from my portfolio actually make it to the end of my retirement time horizon. Number one is, I need a certain level of returns and growth in order to make it work. Obviously, the higher I withdraw, the more growth I need the lower withdrawal. And that's growth that I need, but I know some level of growth, particularly because stuff gets more expensive over time, otherwise known as inflation.
So, I need some level of growth to deal with the fact that I got a long time horizon and stuff is going to get more expensive over time. So, I take a moderate growth rate and I invest in a moderate growth portfolio at least classically in our industry 50 or 60% in stocks, something to that effect. And as you noted, as time goes on, my time rising gets shorter, I don't need as much growth of the stuff anymore, so I can get more conservative. And that risk level tends to dial down as we get older. Now, the problem is, that's only one of the two factors that drives the outcome. One is, do I get the growth that I need over my time horizon, shorter the time horizon, less growth I may need.
The second is the sequence by which the returns occur in the first place. Because if I'm taking ongoing withdrawals and I get a wonderful long term growth rate, but I get it by having 10 to 15 years of horrible returns, like I retire in the Great Depression or the 1970s or something, I can have a wonderful 30 year growth rate. Unfortunately, I'm flat broke after the first 10, so it doesn't matter how good the years are. If I retire in the late 1960s, the 30 year growth rate from 1969 to 1999 was amazing. You got 11.5% on a balanced portfolio for 30 years, actual historical numbers. 11.5% on a balanced portfolio for 30 years, from 1969 to 1999. Unfortunately, you did that by having 10 years of zero negative returns, followed by 20 years of mid teens, when we got the huge boom of the 1980s and 1990s. So, if you're-
Josh Itzoe: And interest rates falling as well during that time and whatnot. Yeah, but-
Michael Kitces: So, if you're just chugging along taking five or 6% a year, over 30 years, this is glorious. Unfortunately, you're broke in the first 10 because you got the wrong sequence.
Josh Itzoe: Which you have no control... Which you obviously have unlike planning, where you can control certain things, you have no control over the sequence of return.
Michael Kitces: I can't control the sequence. Now, the sequence goes the other way, things are really good early on, your growth so outpaces your spending that you actually get so far ahead with compounding, you don't even matter how bad it is in your later years because you get so far ahead. So there's a good sequence and a bad sequence. But that's largely the point. That means, if I retire in 1969 and start drawing six or 7% a year, on average it runs 30 years, in real life, I'm flat broke in less than 10. And if I had the exact same returns from '69 to '99, but I ran them in reverse, so I got the good 1990s and '80s at the beginning and the bad 1970s at the end, instead of being broken 10 years, you die with eight times your original wealth leftover on top of lifetime spending.
So, these ludicrously large returns, same average return just the difference between living from "69 and "99 or '99 and '69 is the difference between flat broke before you make it to the edge of retirement and leaving your kids octuple your original nest egg. All leftover on the side. So, when you think about in these terms, where this sequence matters, over generalizing a little. This basically goes one of two ways. Markets go up and then down or they go down to then up. We know they go up-down, up-down, up-down over time, little more up and down, which is why they tend to grow over the long term. But we don't know if it's going to be an up-down sequence or a down-up sequence. So, if you think about the traditional approach of glide paths, we get more conservative as we go. So, if I get the sequence up-down the good sequence, it doesn't actually matter.
I get so far ahead, the truth is it doesn't even matter whether I was overweight or underweight in my later years, I'm going to be fine. But if I get a bad sequence, let's say I retire in the late 1960s. So the first half of my retirement when all the bad stuff happens, I own a lot of equities and I get clobbered. Then when finally the 1980 show up in the second half of our time, it's like, "Thank goodness, finally time for the good returns." It doesn't matter because I got rid of most of my equity. So, you bear all the pain in the bad years and lose all the benefit of the recovery that eventually comes. So basically, in the good sequence, the traditional approach doesn't help you. And the bad sequence, you bear all the pain on the recovery and fail faster, which basically means heads it doesn't help and tails you lose worse, which is not a good trade off. So if I now turn this around, I say "Well, what if we do it the other way? What if I get conservative at the beginning requirements and aggressive later?"
So, if I get a good sequence it turns out it doesn't matter. I just die with a less large extra inheritance. If you get far enough ahead in the early years, frankly, you can go 100% in equities, your time horizon at the end isn't long enough for anything to go that badly because you're so far ahead. But if I get the bad sequence, like I retire in the 70s, well, if I get the bad returns early on, it doesn't matter because I was more conservative early on. And when-
Josh Itzoe: I had less equity risk exposure, so I was preserving capital early on.
Michael Kitces: And then when the recovery comes, I'm dialing up my risk exposure and I participate in the recovery. So now we get the heads I win, tails I wasn't losing anyways. And so what we found in this research as we put it out is that when you look at how often you actually fail across all the different sequences, the traditional approach actually makes your success rates worse, because it makes bad sequences worse and it doesn't help in good ones, whereas the rising equity glide path improves outcomes because it saves you in the bad sequences and the good ones actually still don't matter.
Josh Itzoe: So this is fascinating when you think about it and again it flies in the face of the conventional wisdom. So, the question I have is, in light of this, it sounds like you got a lot of feedback. Have you seen any, whether it be the development of products or solutions or have you seen anybody with the courage to actually construct portfolios in the way that you're talking about?
Michael Kitces: We've seen some advisory firms start doing this on an individual basis with clients. Now, in the advisory firm context, we tend to... You explain it a little bit differently to people because if I say, "Hey, we're going to get you more conservative early on and buy a bunch of stocks in your later years." It's so counterintuitive. You go like, "Whoa, whoa, what!" And even if we point out just to be clear, we're not talking about take your 80 year old to 90% in equities. This can be as simple as if someone was comfortable with a balanced portfolio of 60:40, dial them down to 30% in stocks early on and then drift them back to the 60 they were going to own in the first place. We don't have to over risk people. The point is just we deliberately under risk them in the first part of retirement. But the other way to view this, so rather than thinking about it in terms of your stocks, you can think about it in terms of your box. 100 minus stocks equals bonds. Anyway is in the traditional asset allocation.
So, if you think about this in bonds, here's how it goes. In the early part of your retirement, when you're most exposed to sequence risk, we're going to build up some extra bonds as a reserve. And then in the first part of retirement, we're going to spend down your bond reserve to get you back to what you were originally. So you can mention, "We're going to make you a little safety tent out of bonds, you're going to go hide inside of your bond tent for the first 10 years and you're going to spend the bond tent down from around you and 10 years in, either things are good and your tent is gone, but now you're cruising well, or things were horrible, your bond tent sheltered you and now that you're out of your tent, you can go and participate in the growth engine again."
So if I build up an extra bond reserve and then I spend down the extra bond reserve, my bond allocation starts out higher and gets lower, which means my stock allocation starts lower and gets higher. So, we're doing it but in practice for people, it connects a little bit more intuitively to say, "Look, we're just building up an extra reserve of bonds in fixed income and then we're going to whittle it down once you don't need it."
Josh Itzoe: You're going to spend down first basically effectively. And by that you're going to synthesize by that getting to an equity an allocation.
Michael Kitces: That you wouldn't have been at in the first-
Josh Itzoe: That you wouldn't have been at at the beginning.
Michael Kitces: I'm not going to over risk you relative to what you're comfortable with, but take what your baseline would have been, carve out a portion of the stocks to buy extra bonds as a reserve, build your bond safety tent, hide in your tent for the first 10 years, whittle down your tents as you go, at the end of 10 years, you're now out of your tents and either things have gone well and everything's okay or things have gone badly and you took shelter with safety and now you're ready for the growth.
Josh Itzoe: And if it went well, you're going to have a little bit less money than you would have otherwise, but it's not gonna matter because you're still going to have a plan.
Michael Kitces: Right.
Josh Itzoe: But if it went bad-
Michael Kitces: Hey, the markets have gone amazing, I'm really sorry, as a result of this strategy, you might only leave your kids three times your retirement nest egg, when you might have always left them four times your retirement nest egg, but you avoided going broke.
Josh Itzoe: Right. You avoided moving in with them and then them going broke because they had to take care of you as well.
Michael Kitces: And to me, the whole essence of risk management at the end of the day is I give up some of the upside and good scenarios to protect the horrible ones.
Josh Itzoe: The downside.
Michael Kitces: Which is literally exactly what this does.
Josh Itzoe: That's great insight and fascinating research. So, as we wrap up, I just want to ask you a couple of quick questions and then we can wrap, but one of the questions I like to ask is, how do you think... We ask all guests is, how do you think in your case retirement and financial planning is going to change or evolve over the next five to 10 years? What do you think the next five to 10 years in the industry and ultimately for clients is going to look like?
Michael Kitces: So, I think the biggest shift that's happening just broadly industry wide is, we're in this meta shift of the whole industry away from financial advice as a way to gather assets and sell products into a world where we actually give advice for the sake of advice and the value that gets created by advice. And there's a whole lot of really important secondary effects that come with that shift that you're going to see play out over the next decade. Advice gets more fiduciary because the whole... Once you're only judging advice for advices’ sake, we've always only ever regulated that on a fiduciary basis. More fiduciary advice leads to fewer trust issues, higher quality advice, it leads to advisors investing more in their education and their quality to deliver better advice. So we're seeing accelerating growth in CFP certification, advanced designations like AIF, all focus on how do we give better advice. It expands the market of who gets access to advice as we talked about earlier.
When advices narrow down to people who can allocate assets or buy a product, it's actually very limiting as to who has disposable dollars available and money in motion to do that, when you just let people buy advice for the sake of advice, you expand the market of who can participate in advice in the first place. That opportunity creates all sorts of scenarios where we can do this in new channels we haven't done historically. And to me the opportunity for advice in the 401(k) channel is a particularly powerful one. You live in a world of scale, most advisors don't, you have broad access to help people, most advisors don't. They're marketing to clients one at a time. I think we're still learning the economics of how poor financial wellness adversely impact companies and how good financial wellness creates an ROI for companies. We're now starting to learn where to look on this. It's things like turnover rates, absenteeism, job satisfaction, as expressed by money satisfaction.
And so as we learn those, at the end of the day I'm not an altruist, I'm a pragmatist. It's going to grow because advice actually gets people to better outcomes and when there's an economic interest to make this work, we figure out how to do it. So when we solve for payment systems, more people do advice. When businesses see that facilitating advice gives them better business outcomes, they bring more dollars to the table to figure out how to make this happen. And when you get the alignment of business provider interests and buyer interests, you see a lot of growth in advice happening. So I see it as a particularly unique channel there, but it ultimately comes down to just we're in this shift from advice for the sake of product sales and asset gathering into advice for the sake of advice.
And the fundamental alignment that creates around quality advice, better advice, more accountable advice and seeking new opportunities to bring advice to the marketplace, I think creates really powerful value for both the people in need of advice, the people who provide advice and the stakeholders who can benefit from better financial advice being delivered in the first place. And I'll give a shout out for all the technology providers who then can help facilitate that and make it happen because obviously advice particularly in a 401(k) channel, is still more of a scale business than traditional advice has historically been, which I don't think means technology replaces the human advisors because if I could solve all my problems with technology alone, like I'd solved the world's obesity problem. I'd just make a website that would say eat less, exercise more. It takes more than that.
If technology alone solved it, there would be no personal trainers, we'd just all watch YouTube videos on how to use exercise equipment, but it takes more than that. There's something very powerful in a human to human connection. But human to humans augmented by technology just works better and more efficiently. And so I think we're already beginning to see new forms of technology providers in the FinTech space step up to figure out how to solve and support this and a wave of advice into the 401(k) world, to bring a wave of technology into it to help make it more efficient to do as well. I think our AdvicePay offering maybe wind up playing a small part of that. But billing is just one part of the equation to solve in doing this efficiently.
Josh Itzoe: And traditionally, FinTech is interesting. Most of the spin has been on more of the retail solutions, the 401(k) industry, quite frankly as an advisor, we're lagging way behind when it comes to technology tools. So, last question and you may have just shared it, but what would be your single best piece of advice to make ERISA fiduciary smarter? That's what this whole podcast is about. What would you to a plan sponsor, to an employer, what would be your single best piece of advice to make them smarter as they look to meet the needs of their people?
Michael Kitces: So, to me it just comes down to a few core elements. Investing in yourself and your expertise to make sure you know what you need to know to make good decisions in the first place, finding good experts that you can rely on to help support that decisions. No one learns everything there is to learn all by themselves, good people rely on experts and figure out how to vet the right experts to bring the requisite expertise to the table. And just really understanding the people that you serve and what they need in the first place. Again, I'm a really strong advocate for advice and the power of advice, but I don't pound the table for just saying everybody should buy advice, because I happen to believe it's a good thing for everybody to do, businesses and people have to find their own ROI and why this benefits them.
I think there's a unique opportunity in the employer space and for plan sponsor fiduciary, is to say, "Hey, what would it look like in my corporate environment if I got to show how this thing that we do in HR and plan benefits is not a cost to the business to be managed? It's a net positive ROI that we're contributing to the business." So I know for so many that live in the HR realm, everything you do is cost to be controlled and manage. Everything is like, you bear all the burden of the cost and you don't get any of the credit for the benefit. This to me becomes a really unique area where you can take challenging business metrics like absenteeism and turnover and turn them into something that says, "Here's what I'm bringing to the table as the plan sponsor fiduciary, we're not just managing costs, we're contributing to the net positive good of the business because we found a way to facilitate financial wellness of employees that are going to turn down these key business wide HR metrics in a positive manner."
And that starts with just really understanding for your employee base, where are their challenges and issues in the first place? Maybe that's debt issues, maybe if you've got young employees, it's a lot of student loan issues. Maybe there's different dynamics wherever you are, some places it's all about housing issues. Whatever it is, understand what their pain points are in trying to facilitate the advice and the wellness around that and watching the positive effects that it has on the business and understanding hopefully by listening to this. And I know Josh, the kind of research that you've put out, figuring out what the metrics are so that you can prove up the line that what you're doing is not just a cost to be managed but a net positive to the company.
Josh Itzoe: That's great.
Michael Kitces: When you get the metrics you can prove your point and make your case.
Josh Itzoe: That's awesome. Well, where can people go to connect with you or follow what you're up to? We'll put all of it in the show notes. But what's the best way for people to-
Michael Kitces: Kitces.com is the best way to track us down. That's just my name Michael Kitces, we launched the blog at Kitces.com, that's got our information, our research there, if people want to look more on rising equity glide paths, we've got some connections out to places like XY Planning Network and AdvicePay that you can go there directly. Xyplanningnetwork.com, advicepay.com, I'm a big fan of keeping it simple and naming what it is. But I hope that's helpful for all your listeners, just thinking about how do they move forward and what are the opportunities from here?
Josh Itzoe: That's awesome. Well, thank you so much for being a guest. I know I learned a lot. I'm sure all the listeners will learn a ton as well. So, thank you. It's been a lot of fun and I really appreciate it.
Michael Kitces: Absolutely. My pleasure. Thank you.
Josh Itzoe: Thanks for listening to today's episode with Michael Kitces. I hope you enjoyed our discussion, have a better understanding about financial planning and financial wellness in the workplace and it helped make you a smarter ERISA fiduciary.
If you'd like more information, or you'd like to connect and learn more, please go to fiduciaryu.com. I've got some great resources there for you, including each episode along with show notes, articles, free tools and online courses. And if you've got questions you'd like me to answer, topics you'd like me to discuss, guests you think would be a good fit for the show or any other feedback, I'd love to hear from you.
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Greenspring Advisors is a registered investment advisor. The opinions I express on the show are my own and do not reflect the opinions of my guests or the companies they work for. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. The information and content presented on the show is for educational purposes only, and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk, and unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation, or objectives, and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment advisor to determine whether any information presented may be suitable for their specific situation. And past performance is not indicative of future performance.