June 2025
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Ep. 143 Reckoning with $36 Trillion: Debt, Growth & Market Impacts
Ep. 142 Stock Options & Strategy: Build Wealth Through Equity Compensation
Kevin, how many people do you think really know the different ways that they can hire an advisor for advice or investment management? What do you think?
We're talking fees?
Yeah, we're talking fees. How their advisor gets paid.
Oh, everybody loves talking fees. I, I don't know. I think there's a lot of ambiguity out there. So I think we should talk about it.
Yeah. So from my perspective, there's, you know the old way where was commission-based. You know, you're selling a product. There's now this AUM relationship kind of like what we have. There are some advisors that are charging maybe an hour or a flat fee type, you know, arrangement. Let's talk a little bit about the history of Morton.
I love the way that you tell that story. You've been here for ten years now. Like, what do we do here?
Yeah, it's one of the reasons why I actually came here was the way that our firm is just... We're pioneers. Right? Lon Morton was a trailblazer in our industry. And, one of the main reasons was he didn't want to get paid a different amount for the advice that he gave by selling different products. And so, you know, back in the 70s and before, you would push product and if you sold A or B, you made a different amount of money, and that was a conflict of interest.
So he led into one of the first fee-only advisory shops, meaning our clients can pay us a fee based on the assets we manage. So you'll hear the term AUM, right? So the assets under management and that bases the fee off of, you know, a set amount. And it doesn't matter if you go into investment A, B or C.
And what I love is, you know, unfortunately, Lon has passed on. But carrying on his legacy, we're now at a place in the world where AUM doesn't fit everybody. There are different needs or different models. And so a lot of clients out there saying, well, what if I just pay a flat fee for advice versus, you know, assets under management?
So we're actually kind of keeping that trailblazing mentality at the forefront and leading into that with our flat fee offerings. So it's kind of you've gone from stockbrokers picking investments, getting paid commissions to fees based on advice and the AUM amount. And now we're going into that flat fee model.
Yeah, I've worked in a few different places in the industry. You know, one large brokerage firm. Not going to say it out loud. But in that situation, I mean, in many of the things that we did for the advice that we gave, it was a commission-type service. We did have an AUM model. Then I transitioned from there to another very large institution.
I won't pick on them and name their name, but, you know, oftentimes they would say, oh, you can go meet with your financial consultant for free and it doesn't cost you anything. Right. And so we would be meeting with these clients of this company and giving them advice. But we were still incentivized to help them get their money invested in product A, B or C.
That would, that would generate our bonuses. And so even though the clients felt like, oh, I get to go meet with that person for free, I don't think they often realize at times that conflicts of interest that were there. And so I've been here with Morton for about eight years now, and I absolutely love the structure that we have, where our main structure is that percentage of assets under management, we're there to give advice and handle the investment management day to day.
For clients that are just looking for financial planning advice and they're doing the investment management on their own, maybe an hourly fee or a fixed fee makes sense for them? I don't know. There are a number of different ways that people can go about it. What are your thoughts about some of the other new ways that advisors are charging, fees these days?
Fees are a part of this business. It's a part of any business, right? When you're providing a service, you're providing some type of support. You should get paid for that. And I don't think one is better than another. I what is the right fit for each individual. So you know, the term like fees shouldn't matter if they only matter in the absence of value, right?
So if you're getting the value out of a relationship for what you're paying, then the fee should be worth it. And to answer your question, I think understanding what you're getting paid and then again, what you're getting for that fee is the most important part. We're moving into a place where, again, going back to stock-picking those advisors.
Those brokers were analyzing each individual stock. So to make a commission made sense back in that day. Then we moved into where you're paying the AUM fee. And I think that made a lot of sense because it removed the conflict of interest. But what I think clients are seeing is their advisors just putting them in a model portfolio.
So they're taking their million dollars or clicking a couple of buttons and it doesn't matter. They're going into the moderate or the balance or whatnot. And they're like, well, why am I paying a larger amount if I give them 3 million or 5 million than a million if they're clicking the same buttons? So I think that's where the pressure has become.
Okay. Well, where do you add value as an advisor? And it made sense. We did a lot of financial planning in the industry. There's now you know just here, we have helped support with an estate, with tax, with insurance. So we're adding value beyond just that portfolio. And now the new way of okay well I don't necessarily need the investment advice.
I just need that second piece. The flat fee really comes into play. And I really like that clients have that option. And as you know, there's a lot of distrust in the industry. So if I give somebody my portfolio and I'm paying an AUM, kind of just... I'm kind of stuck there. But what if I dip my toe in the water?
What if I pay a flat fee, build trust, and recognize that over time they're going to be able to provide more value than I can do on my own? That flat fee is kind of a safe-to-try mentality and allows, again, kind of more of a customization of what that specific client's need is. So I'm really a fan of clients having that option.
Yeah, it is interesting. I mean, when you mentioned that, you know, some firms or advisors might have that generic portfolio of mutual funds or ETFs and they're charging a fee for it, you know, they better be adding a lot of value in other areas. I think about even just the way that we do it, I mean, we're giving people access to some alternatives, whether it's real estate, some private lending, other types of things that they wouldn't be able to get access to on their own.
And so part of our fee offering is not only the advice, access to the estate planning, the insurance, the tax, but it's also access to a very customized, unique portfolio that you really can't get anywhere else. And so we're even looking at the services and investment products that we have available for our clients to justify the portfolio, because we're not just buying the S&P 500 and, you know, sitting on our hands.
Yeah. And then we also... I mean to point out some of the downsides that, you know, we have to work through as well. Aren't some of these customized portfolios expensive? Right. It could be cheaper. So there's the management fee. But then there are also the specific individual investment managers who have their own fee. And if you go into mutual funds or ETFs those fees can be a fraction of a percent.
Or if you go into a more customized alternative, those fees can be a little bit higher. And, you know, oftentimes our clients are like, wait, so we're you're paying a fee to the manager, then we're paying a fee to you. There are these layers of fees. What we do when we spend a lot of time on this is okay, what are you getting for that fee?
Going back to the value, if you have somebody that is sourcing, you know, food lending opportunities, that's just not something you can go on and do a little bit of research. You have to have deep expertise and a long history of experience to understand how to run these food businesses, how to create a relationship with the government. The Farm Credit.
So all of those things go into their expertise. The fee might be higher than a mutual fund, but what are you getting? What's the net benefit like? So what are you getting in your pocket after paying those fees and all of those things start making sense of, okay, does that fee justify access? You know, diversification, cash flow, all of these other pieces that the answer's no.
If that manager is sitting on the couch making money, then the fee is not worth it. So that's where we spend a lot of time value for that fee and making sure that we're providing those solutions to our clients.
It also reminds me of the conversation that we've had many times. You own an apartment building.
Yes.
Unfortunately.
And many times you're like, I just want to get rid of this. And then go in with a group that specializes in it. They can get the phone call at 2:00 in the morning saying that they need to fix, you know, the faucet or the toilet or, you know, the washer/dryer. You don't want to have to deal with the remodeling, the evictions, the repairs.
It's just become a mess. And so you're willing to pay a fee to kind of get out of one structure for another.
Yeah. And think about the diversification. I own one building in one city, in one state versus maybe nine, 10 or 12 different properties across the country and different assets of real estate, self-storage, multifamily, like it. There is a potential upside to that concentration, but it comes with a lot of work and it comes with a lot of risk. So at some point, exactly what you're saying, I'd much rather pay that fee.
Have experts produce typically a higher return with less work. Like to me, it doesn't matter what the fee is at that point. If I'm making more and doing less than that, it's worth it.
One of the challenges that I have with, these advisors that are just charging the hourly or the flat fixed fee is that you're just getting paid for the financial planning advice, right? Then the portfolio management is on, you know, the client or the person because they're typically not, you know, say, hey, pay me an hourly fee or flat fee and I will manage a very customized, you know, great investment solution that provides access to unique investments.
They're typically not doing that as well. And so what I found over the years and working with clients is that they rarely sell their winners to take some chips off the table to then buy their losers. Yeah. Instead, they look at, you know, investment A, investment B and they're like, all right. Which one did well?
I'm going to sell investment B and buy more investment A, which is sort of the exact opposite of what you want to do to maintain diversification and buy things at opportunistic prices.
Yeah. So if I was to sum all of this up with like, why do you pay an advisor a fee? One it's to do what you just said. It's to take that emotion out of it and help make sure that, I mean, investing 101, right. You want to buy low and sell high, but that's not how most of us act without guidance and support.
And then the other piece to that too is the accountability. So most people know what they need to do, but then their life happens. So if you pay someone a fee for advice and they give you that advice and you have to act on it on your own, the likelihood of you following through with all of those things in a timely manner is actually pretty low.
So that's the other thing that I kind of... you run into with just the flat fee or the hourly rates, there's still work on your shoulders. And as we know, life happens. So having someone who can help you every 30, 60, 90 days, make sure that things are getting done. That's where active management actually does help.
The rebalancing is happening. Happening regularly. We're trimming and selling and moving. So again there's a fee to that. But that value may outpace your performance, may outpace you doing it on your own.
One of the hidden values that I see working inside this organization that, you know, many clients and people probably don't realize is that in a lot of other institutions, your advisor is your person. They might work for a big institution with a lot of other team members, but they're rarely collaborating on behalf of you. It's really just that one person or that one team that you're working with.
We have an internal zoom channel where our team members put random questions or needs in that channel, and all of our team members chip in to help out. I mean, it could be anything from does anybody have a good contractor because somebody is remodeling a bathroom to I have a client that needs to buy a car. Does anybody have, you know, a car broker to a CPA in a different state or an estate planning attorney?
I mean, clients should realize that if they have a decision that they're making in their life, how much they can leverage us, and the resources that we have at scale across a thousand clients, it's pretty impressive to me. Yeah.
I think if you ask most of my clients like, hey, who's your advisor? Very few are like, oh, Kevin, I think most are... Morton, because you've sat in on a meeting and helped them with their executive compensation. Or we pulled in a planner to help talk about tax or, you know, one of the one of our, analysts who talk about a specific investment.
And so the beautiful thing here is you are getting the collaborative knowledge of everybody at Morton, whether it be the CEO, CIO, you know, even, you know, people that help with event planning, like we've you had clients ask us, where did you get that lunch order? And they say it's silly things, but it really does add a ton of value and hopefully justify the fee beyond just the customized portfolio and everything else.
Right.
So let's say that somebody is going to engage in a relationship, whether they're paying an hourly fee, a fixed fee or an AUM fee. What are some key considerations? One of the things that always stands out is something called this fiduciary standard. Why is that so important versus the best-interest contract that other brokerage firms sort of operate in?
Yeah, it's to me, this is actually probably the most important thing. So the fiduciary standard is you need to act in your client's best interests in all situations and at all times, versus more of that suitability, where it's that decision needs to be pretty much in line with what they're looking for at the moment. The decisions made. But it also leaves a lot of gray area for, you know, sometimes other firms can do what's makes them makes them more money.
As long as it's suitable for that client, they can pick the one that makes them more money. It's not in the client's best interests at all times. So I think that's really important when people are seeking advice, to know that there are advisors out there, that legally their obligation is they have to do the best interest of that client at all times so that they share your standards.
So if you're a registered investment advisor, RIA for short, which we are, you have to act in that fiduciary standard. If you're with a big brokerage house or brokerage firm, it's that suitability contract. It's like, is this suitable? Is this in the best interest of the client? But there's some gray area there.
And then on the other piece, I'm looking at the fees. There's fee only and there's fee-based. Right. So the fee only is you don't collect commissions, you don't get paid any other way other than from your client directly. So for us, we collect an AUM fee based on assets under management. But it doesn't matter what investment we go into, what professionals we recommend, any of these planning things.
We don't collect additional compensation on, you know, from making those recommendations where the fee-based you might have the portfolio only, but then you're selling insurance and doing other types of, you know, financial planning and commission-based, you know, strategies.
That's a good point between the fee-only or fee-based. I mean, I think what clients are more looking for is that transparency. And to better understand the complexity of life that lives that they have and the cost that it's going to be to them for the time savings, the investment management, the returns, the advice. I mean, oftentimes the biggest cost to people is how they react to their investments or their investment strategy during good or bad times.
That can be the biggest cost. I know in times of extreme volatility, there are some clients to take. I want to I want to sell out of everything and just go to cash. Or how and when do you get back in? Sometimes that's a big cost that you can pay over time. Sure.
Yeah. So if I'm seeking an advisor from my perspective, how do you get paid? What are your conflicts of interest? Are you acting in my best interest? And then what? That fee is about approximately going to be. Am I getting enough value? Am I getting the support and the access and the things that I need in my life today to support my family and our goals and protect us from some pitfalls?
So that's kind of as basic as you can get. But just again, the transparency is really important.
I love the way that you summarize that. Kevin, thank you so much for joining me today.
Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. Morton Wealth is an SEC registered investment adviser; however, such registration does not imply any level of skill or knowledge. There is risk of loss investing in securities, including the loss of principal amount invested. Past performance is no guarantee of future results. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.
