Let’s discuss how retirement plans can provide tax benefits and serve as a retention tool for employees. We’ll also explore the role of financial advisors in helping entrepreneurs optimize benefit packages and the importance of understanding the scope of their services. Discover how Littlejohn Financial’s unique approach sets them apart in the industry, with a focus on providing compassionate guidance and personalized solutions tailored specifically for entrepreneurs.

Episode Highlights:

• 
  
• Understanding the importance of planning for family businesses
  
• Leveraging retirement plans for tax benefits and employee retention
  
• Navigating the differences between fiduciary and suitability obligations
  
• Evaluating investment performance in context and the impact of managed products
  

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  TRANSCRIPT

00:00:00 They do some common things in their business, but then a lot of things are not common, right? So, everybody’s kind of running their own business within a business. And so you don’t get the consistency of result by going from player to player. Some practitioners are really good and some are less so.

00:00:23 All right, it is that time of the week. It is your favorite Tuesday of How to All Week, and it is time for the True Wealth Radio Show. I’m your host, Dave Littlejohn, in studio with me today. 

00:00:34  Matt Dickson. 

00:00:35 Okay, Matt. 

00:00:35 Yes. 

00:00:37 Thank you for doing the prep work for the show today by not letting me see the prep work for the show today. 

00:00:43 I know, I only printed one copy, so it’s like. Maybe it’s the interview Dave show. 

00:00:48 It’s the, let’s see how well Dave does on his toes day. Should be fun. 

00:00:54 I’ll walk you through it. How about that? 

00:00:57 I love it. What is the theme that’s developing today?

00:01:04 I think a lot of people kind of have questions around, you know, what maybe does a financial advisor even do, right? We know they deal with money in some fashion or another. But more than just that, it’s talking, I think today, about business owners or people that have a company or an entrepreneur of some sort. Look at this and they’re like, how do I invest outside of my business? Most of the time, you know, people that have a business and are good at running a business, they know that landscape really well. But they might not know maybe some ways that they can save on taxes or you know, invest in ways that allow the business to continue to grow, but also to put some potential money in their own pocket and employees pockets. So I want to talk a little bit today to business owners and people who are even thinking about starting a business in the future.

00:01:57 So, business owners and entrepreneurs. And what I heard sneaking between the lines of everything you just said was some people want to invest a lot of people,  the business is their investment. But what if you could reposition some money out of the IRS’s account and back into your own? 

00:02:20 Yeah. Especially, yeah. I mean, talking about what are some of the benefits of maybe opening a retirement account. We could kind of start there in really generic language and say, is a retirement plan a good idea? And—

00:02:32 Yes. Okay, next question. 

00:02:34 So could you talk to me maybe about some of the choices that are out there for someone who does have their own business and how those work. 

00:02:43 Yes, I feel like just for those listening to kind of help out though a little bit, first consider, you know, maybe you’re not a business owner. This probably is still interesting to you in that, if you understand how the business made a decision, it may help you as an employee to kind of figure out like why are they doing this? What’s in it for me?

00:03:06 I think we should talk about the flip side of this. If you’re the employee and you’re being offered this menu to choose from like, hey, I’m allowed to open this type of retirement account. That doesn’t necessarily mean you can’t open another type of retirement account on your own.

00:03:21 So again, backdrop for everybody here, because I don’t assume that everybody knows what we’re talking about yet, right? The challenge of living in the financial world is that we do this all the time. And I know you guys listening, not everybody does this all the time. Right? So if you own a business, one of the things that now the state of Oregon pushes this to, right? They’re saying we want to help people save. Right? And so they’re encouraging businesses to open up or in certain cases, requiring businesses to create retirement plans. Okay. Which is kind of a weird thing. It doesn’t mean that the employer has to contribute to them.

00:03:57 But it means that the employer is expected to create an environment where they exist. That’s Oregon law, but I don’t know what, if you’re listening in a different state, it may be different where you’re at. But the point is, for entrepreneurs, first of all, a lot of the time we’re trying to figure out ways to save on taxes. A lot of people don’t understand that one of the things a business can do is create a benefit package for its employees, and you’re able to expense that from the business.

00:04:26 So it can be a retention tool for good employees. So creating benefits is a business expense, but it’s also sort of an investment in your employees as an entrepreneur, right? And now if you’re the employee, you’re like, huh, I guess maybe the boss is trying to keep me around by putting some things in place that are good for employees. Right? And the number one thing that we most often hear about is what?

00:04:56 Like an IRA of some sort?

00:04:57 I think it’s probably health insurance. I think that’s what most people think of when they think of business benefits. They think of health insurance and maybe retirement plans. But small businesses in particular oftentimes don’t offer health insurance because it is really expensive and doesn’t scale particularly well. So, if you have a business that’s got a couple hundred employees, there’s a lot of revenue running through that business because it’s employing a lot of people. 

00:05:23 But the small mom and pop shop that’s got maybe 2 to 10 employees, that can be very expensive for a small business. So it’s not uncommon for those not to be offered. It’s much more common to see retirement plans offered in small businesses and certainly in bigger businesses. So with that as a backdrop, let me ask you the question, Matt. Why might a business owner want, besides the employee retention concept, why might they want a retirement plan? 

00:05:52 I mean, they might want to be able. I mean, say, you know, the owner of the business is getting hammered on taxes, right? They’re just paying a ton. They have a lot of income. They might want to defer some of those taxes in order to not have to pay so much to the government in a given year. 

00:06:14 It’s true. We talk a little bit about taxes on this program, but not a ton. 

00:06:18 No.

00:06:19 Right? And that comes down to the fact that we’re not legally tax advisers, but we can still talk about what taxes do and how they operate, right? Taxes are a progressive thing. The more you earn, the higher your income tax goes. Okay? So, essentially, the retirement plan, if you will, is a way to shift money and expense it out of the business and put it into some kind of retirement vehicle that defers taxes.

00:06:50 If it’s not a Roth, right? If we’re talking about like regular retirement accounts, traditional IRAs, or 401Ks, they’re really the one that we’re kind of thinking of, but there’s other types of retirement plans, but they walk and talk similar to 401Ks. The idea is that the business can then expense out and rather than taking the income and paying taxes on it, you could put that income into a retirement plan and you don’t pay the taxes until later. Why is that a big deal? 

00:07:21 Well, it’s a big deal because you’re saving for your future self while also getting a little bit of a tax break today. 

00:07:28 You’re saving on the taxes now that money that’s not, that didn’t go away to taxes can now grow, right? So it’s part of the investment too. You’re not having to invest with what’s left after the taxes. You get the whole thing before the taxes and then you get to let that grow over time and as it grows, you don’t pay taxes on the growth, right? So you’re not experiencing capital gains, you’re not paying dividend taxes or any of those things as you’re accumulating. When do you pay the tax? 

00:07:59 In retirement, when you go to pull the money out. 

00:08:03 Right, and we assume retirement. 

00:08:05 I mean, you could pull it early.

00:08:09 And what happens if you pull it too soon? 

00:08:11 Well, depending on what type of account, most of the time there’s a 10% tax penalty.

00:08:16 Or more.

00:08:17 Or more. There’s ways that it can go higher than that. But then you also pay that as income. So if you had $70,000 of income for the year, but then you pulled $30,000 out of that retirement account, ooh, now you have $100,000 of income for the year and you paid the 10% penalty or higher on the 30. 

00:08:36 Right, on the withdrawal. So there are some gotchas to it, but the benefit would be, especially if you’re working today and you have a bunch of income, Right? That you have more money, or a higher tax rate now, and then later on in the future, you expect a lower tax rate. 

00:08:57 Me too. 

00:08:59 So the lower tax rate in the future is what we’re literally trying to shift things toward. 

00:09:06 I love you too, Amber. 

00:09:07 Hi, Amber. We have a visitor in studio. Oh yes, we’re live.

00:09:15 That was awesome. 

00:09:18 So now you know, right? So at any rate, you know, back to the train of thought, right? The whole purpose is like, hey, if I’m in a high tax bracket a day, but in my retirement, I’m not going to be earning as much and things are paid for. And I don’t have to take all of my money out all at once. I can shift money into a lower tax bracket in the future. So I’m getting several benefits at once, right? Lowering my immediate tax rate, increasing the amount that I’m saving and growing into the future, and I’m pushing into the future in a lower tax rate. 

00:09:47 Well, and here’s something that that business owner might not be thinking about. Here’s a couple of things. One, it might not cost you as much as you think to have employees be part of that plan, right? So say you set it up to where they’re getting 3% of their pay. It might not cost you as much as you think. 

00:10:06 Number one, you could potentially have it set up to where they’re not eligible, for that retirement plan for a certain period of time. So, before they even start getting contributions, well, you know, they’ve got to wait a little bit. So, that might incentivize that person to also stay there longer and be with the company. Less turnover potentially. 

00:10:28 Sometimes golden handcuffs are a useful thing.

00:10:32 Wow, yeah. But, and you know, you don’t have to have a business full of employees, right? If you have your own business and it’s a business of one, there’s still options out there for you, even if you’re the only person in the business. 

00:10:48 So that’s an interesting one, because a lot of people don’t realize that as the business owner, you get to wear two hats. You’re the employe-er and the employee, right? I think most folks that work for somebody else, they’re used to wearing the employee hat. And so, they’re sort of presented with the terms as to what they’re going to get, right? You know, here’s the types of benefits that we have or don’t have. Here’s the pay structure that you have. Here’s sort of what the assigned work is and this is how we get it done. And there’s a structure to that employment. The employer though, they have to figure out what is the right structure. Right. What can the business bear? What does it need? How does it, you know, how is it going to utilize this tool? Oftentimes it’s driven by the needs of the business owner, but not exclusively. And especially the larger the business, the more that it’s driven by the needs of the employees.

00:11:41 And there’s different types of retirement plans out there too. So one might not be the perfect fit, but then you explore another option and you’re like, hey, this one sounds like it really might work for me. There’s so many different options anymore. 

00:11:54 Exactly. And there’s so many more nuances to the benefits too. For the sake of not boring our listeners to death. Here’s here’s kind of the key takeaway. Businesses can expense business benefits and those benefits because they’re being expensed becomes more tax-efficient and you then have opportunities to work with this is what a lot of financial planners are working with. A lot of financial consultants. Even insurance folks what they’re trying to do is try to reposition money within the business to be more tax efficient. 

00:12:32 Can you kind of talk about what that tax efficiency looks like? Like how, like, so yeah, they’re giving some money to employees to their retirement account. How does that really affect their taxes? Do we want to get into the weeds on that? 

00:12:45 So let’s discuss after this important profit break. Stick around, we’ll be right back. I’m Dave Littlejohn.

00:12:53 And Matt Dickson.

00:12:54 And you got True Wealth on News Radio, 90.3 FM at 1240 KQEN.

00:12:59 Hey, welcome back to the True Wealth Radio Show. I’m your host, Dave Littlejohn in studio with-

00:13:03 Matt Dickson. 

00:13:04 And if you were just joining us, you have missed out on the first incredibly important segment for business owners and entrepreneurs. Which is, you know, sort of step one of understanding how businesses can expense certain benefits to the benefit of the employer and employee. So grab our podcast.

00:13:23 Do it. 

00:13:24 So go to littlejohnfs.com and you can catch the podcast. Subscribe to the YouTube channel and you get it in little bits and pieces because that’s how we do it, right? And it’s also a great chance, if you have questions or things that you would like us to answer live, then it’s a great source of content for us is what is it that you would like to hear about? And so send us an email, info@littlejohnfs.com and we can uncover some more fun. 

00:13:50 Matt, I understand today, a lot of what we’re trying to do, it’s helped folks kind of understand, like, why do I necessarily work with a financial advisor, and what are some of the things? And so we start with this entrepreneur concept of, advisors help custom design. That’s one of the things we do as planners. We work with entrepreneurs to help them design benefit packages in some cases and optimize them for their business. 

00:14:14 That’s a big piece. Some other stuff that I kind of wanted us to chat about too. And you just mentioned it. What is it that a financial advisor can do or bring to the table? And what are some of those circumstances where it’s like, maybe at this juncture, I should seek out some help? Because when you hear financial advisor, that doesn’t mean a whole lot, right? Inherently. 

00:14:36 Maybe before we jump down that path, I’m gonna Shanghai it for a second and ask you a couple of questions. There’s a lot of folks out there that refer to themselves as financial consultant, financial advisor. What do you think goes into this? Like, there’s this spectrum. What, who are the people that are calling themselves financial advisors? What do you need to know? 

00:14:58 I think that’s one of the problems in the industry right now, right? Like a lot of people might kind of claim that they’re a financial advisor, but you don’t really know what service set that they’re offering. Maybe someone just manages assets. So they sit there and they say, oh, you want to invest? All right, we can do that. Hand some money over and I’m gonna just do stuff with it. 

00:15:18 And you’re like, okay. Well, maybe that person wants more, right? Like maybe they have an estate, so they have a house and retirement accounts and a pension and social security. And they’ve got a lot of different pieces going on, and they’re like, I need to know how all of these work with each other, and how do I manage this whole thing, not just manage this money? 

00:15:41 So let me sum this up for you in a word. Scope. Okay, no, not the mouthwash. I mean, scope like, what is the spectrum of services that an advisor is offering? Because I think you just correctly identified in there sort of a question that people should ask is, what does my financial advisor do? And what am I looking for them to do? 

00:16:06 Exactly. It’s a really loaded question, right? Because I heard an advertisement on the radio the other day, and, you know, it was a bank talking about how they’re a fiduciary. And if you want them to actually take authority over your assets when you pass, they can step in and actually become the trustee for your trust. Which that’s a whole different scope of management. So there’s so many different avenues that a financial advisor or a fiduciary can take, which is just a fancy way of saying, an advisor who is legally obligated to work in the best interest of the client. Which I think that’s important, right? Because not everyone carries that standard. They can do things that are in the best interest of them. 

00:16:59 I’ll be careful with that one, right? And just because I do want to defend the profession at large here, right? Fiduciary is a legal standard, okay? And so when you’re working with fiduciaries, there’s a legal obligation to put the client’s best interest first. Now, when you talk about financial advisors that maybe don’t have a legal obligation to be a fiduciary, many still act as if they are. And so, they are still attempting to operate in the best interest of their customer. The question is whether or not they have the legal obligation to, because there is a difference in terms of the standard of care associated, right? Do you have a fiduciary obligation or do you have a suitability obligation? That’s actually, they sound similar, but they’re not the same thing. 

00:17:49 Can you talk about that a little bit? 

00:17:51 Well, suitability means that it’s acceptable for the client, right? The example that this is always in extreme, right? But let’s say that you had two scenarios that were otherwise identical, but one pays a commission to a financial professional, the other one does not. And the long-term difference is that the commissionable product has higher internal fees.

00:18:14 You would expect over time that those higher internal fees would erode the customer’s performance experience. And so when given the ability to sell a lower fee structure or the higher fee structure, both would be suitable for the customer and that neither is going to harm them. One would be considered more suitable from a fiduciary perspective, but they’re not obligated to select the more suitable, they’re obligated to select the suitable one, which can mean that there are times that there could be financial incentives that would otherwise, perhaps cloud the judgment of the financial professional. 

00:18:53 I think it’s important that you talk about this though, right? 

00:18:55 Oh, you should, right? And I’m also really quick to defend, just because somebody operates under a suitability standard doesn’t mean they are not choosing what they believe genuinely to be in the best interest of their client. I think that the lion’s share of practitioners are trying to serve their clients well. I just don’t think all of them are. That’s the problem with any industry, right? Is that it only takes a handful of bad actors to tarnish the reputation of an entire industry. 

00:19:25 And that’s why the regulations these days are so tight and so stringent. 

00:19:35 So yeah, I think these are questions that people should ask. So what is my financial advisor? What is the scope of the engagement? What can I expect? I’m really convinced that the industry is not pinned down what expectations are. It’s really ambiguous. There’s sort of a minimum expectation that we have to give them statements. There’s certain reporting that has to happen. But in terms of how businesses operate, there’s a tremendous amount of difference from business to business in terms of how they engage with their customers.

00:20:03 I’m going to interview you for a second. So you said that there’s a lot of variation in this field. What are, you know, you set this company up and you’ve designed it to be and feel a certain way. What really, maybe not separates, but what are some things that you kind of think are unique to Little John Financial that might be maybe, I know this is going to sound like you’re bragging on air for a second, but kind of sets you apart where you feel like you might differentiate yourself from a more generic company that is just gonna manage the finances. 

00:20:36 Sure, well, maybe to answer that, and you know, I get bashful about this stuff, right? We’ve been doing this radio show for a long time, and we try not to turn it into a sales pitch, right? My take on this has always been that good education for our listeners is exactly that, and if the needs of our customer aligns with what we offer, then it’s a good fit.

00:20:59 But I just wanna help teach people to do this because I’m convinced you can do this yourself. It’s just a lot of people don’t, won’t, can’t, there’s lots of reasons for it. So then you need somebody that you can trust. So with that as the backdrop, right? Then why was this firm created? 

00:21:17 First was because having operated in some other firms, I found that there were a lot of internal rules that were designed to protect the business more so than the customer. And I just felt like that was a little bit misaligned. Second, I find that a lot of other firms are designed to accumulate lots of representatives of the firm, but all of those representatives, they do some common things in their business, but then a lot of things are not common, right? So everybody’s kind of running their own business within a business. And so you don’t get the consistency of result.

00:21:52 But by going from player to player. Some practitioners are really good and some are less so. And so I think, what I was shooting for with our firm, with Little John Financial was a more consistent experience for the customer. And the biggie for me was I didn’t want internal competition for customers. Okay. I felt like that was a disservice to the client was to create a your client, my client environment where people were competing for the same customer. 

00:22:24 So we built a team practice. And I think that was a huge differentiator in philosophy that says, well, whenever a customer calls, they are who we exist to serve. So that was just the first and foremost is, well, let’s know who our customer is. Let’s know what brings the register for us. Next it was, let’s make sure that we, as closely as we can align our incentives so that we win because our customer wins, right? As opposed to we win regardless of whether or not our customer wins. That didn’t seem like the right alignment. 

00:23:01 So that’s why we are, primarily, when it comes to our asset management, we’re a fee only firm. Can’t say we’re fee only because we have an insurance branch as well that can offer insurance to customers. We don’t do it a whole lot, but it’s available. And because that’s a regulated product, there’s a commission structure to it.

00:23:18 We can’t really strip that out in many cases. So, we can’t say that we’re fee only because if we do insurance and you do a handful of contracts a year, then, you know, it means that we’re in conflict with that. So we are fee based. But our asset management, when we say fee only. Think of it this way, right? We charge a percentage of the total account that we’re managing for our customer.

00:23:45 And rather than having a transactional expense associated, so whenever we buy or sell something, we get a commission for it, it doesn’t, we don’t get it in any kind of compensation for buying and selling. 

00:23:55 And a lot of, would you say there’s still, you know, definitely a handful of firms out there that operate that way? 

00:24:01 It still exists because a lot of mutual funds are still built that way. They’re designed to pay some kind of commission structure. And then there’s a residual fee that’s paid sort of in later months or years. 

00:24:14 Back to the firm that. 

00:24:17 Essentially to the representative, it’s to service accounts, right? So there’s a reduced fee on the back end that comes back. It’s called a CDSC or a contingent. Well, the contingent of sales charges, a sale penalty if you get out early. But they have what they call 12B1 fees. 12B1 fees are those residual fees that are collected out of the operating expense of the fund and they’re paid to the-

00:24:39 And you’re saying that’s not something that Little John really- 

00:24:42 We don’t charge trail fees on anything because we’re not buying with commissions, right? We’re buying it wholesale. We do charge a fee for service, but that’s to stay aligned, right? And here’s, let’s just kind of use easy math. These are not necessarily real numbers, but he let’s just use your easy math. Let’s say a client has half a million dollars that we’re managing for them. And just to keep the math easy, let’s say that we charge 1% per year. 

00:25:08 So 1% of a half a million dollars, it’s $5,000. If we can grow the account to a million dollars, then we would win with the customer. They have twice as much money. We’re getting paid twice as much too now because we have 1% of a million dollars instead of half a million dollars. So our interests are aligned. If the account shrinks, you don’t wanna stop paying. This is a really hard one, by the way. 

00:25:35 People think, well, why don’t I only pay, if they’re making me money. Okay, this is actually a super important question. I’m looking at the clock. I want all of you guys listening to stick around for the answer to this question, which is, should I pay my advisor when the markets are going down? Very important answer to that might surprise you. I’ll tell you right after this break. Stick around, I’m Dave Littlejohn. 

00:26:02 And Matt Dickson. 

00:26:02 And you got True Wealth on News Radio, 93.9 FM and 1240 KQEN.

00:26:07 All right, welcome back to the True Wealth Radio Show. Dave Littlejohn in studio with- 

00:26:12 Matt Dickson. 

00:26:12 And I promised we would answer a really interesting question. You should catch the podcast if you’re just joining us today. We’re talking a little bit about fee structure. We’re specifically talking about what makes Littlejohn Financial a little bit different, which I don’t normally talk about because I’m not too into, like, major promo of our firm. I get it-

00:26:33 So I don’t even think it’s a promo. I think it’s just informing people, hey, you know, we might be a little bit different than the next guy. And you need to know that because we might not be the right fit for you. But then again, maybe it is perfect. 

00:26:46 And by the way, there are other fee based or feel the advisors around. So we’re not it. Right? But we have our way of doing things and we like it, but nevertheless. 

00:26:58 And if you don’t like it, kick rocks now. 

00:27:01 And find somebody you do like, you know, that’s how that goes, and kick rocks. All right, why, the question, very loaded question is, in a fee only or a fee-based asset management scenario where you’re getting a percentage, like I said, the advisor is charging a percentage of the assets they’re managing. 

00:27:22 It is often asked to me, why should I, as a customer, pay the advisor if the account is going down? Right? I understand that the account makes money. We both profit because you know, hey, I made money, so you should make money too. But if I’m losing money, a lot of people say then shouldn’t you be losing money? And what I would suggest is the advisor is being paid less. So they feel the impact. The business is very aware of this impact. But what could potentially go wrong if you only paid your advisor when you made profits? 

00:28:00 Well, I’ll ask this question. Wouldn’t the advisor just wanna take on more and more risk? Because if you’re not getting paid when you’re losing, wouldn’t you just wanna ratchet up the risk and try and get super high returns? 

00:28:13 And I don’t know, like want or not, but wouldn’t that be the incentive, right? Because you’re like, well, look, if I guess wrong and you don’t make money, okay, I don’t make money anyway, but if I guess right and you make some money I get paid right so you kind of, disincentivize risk management. 

00:28:33 It’s like telling a baseball player in the major leagues, you know. Basically, you’re only gonna get paid if you hit home runs. Well, he’s gonna swing like crazy every time he steps up to the plate, he’s gonna only he’s gonna swing it almost everything.

00:28:47 If it could be a home run ball man as well. Because if there’s no penalty, it’s like, look, it’d be different if you’re going to get paid for home runs. But you’re not, you know, and you’ll get paid for base hits too. Like, it’s kind of what those things are-

00:29:02 You lose your entire paycheck if it’s a walk. 

00:29:05 I was going to say like, you don’t get paid if you strike out. That would be the better one. Right? A walk actually still gets you on base. That’s playing it smart. Right? But if you. What’s the difference? You only get paid to make home runs or you don’t get paid if you strike out. There’s a difference. One of them is gonna be more defensive in nature. They’re gonna go for high percentage shots. And that’s the thing about investing. It’s like a lot of folks, you know, there’s different philosophies. Like, well, look, I’m gonna take 20 bets and one of them is gonna be a home run and it’s gonna make up for the 19 losers. We don’t prescribe to that theory, just so you guys are aware.

00:29:40 It is about long-term diversification value and there’s a lot of risk management strategies associated. And you know why? Easy answer. Like, why should you manage risk? Because sometimes clients need to take money out and you don’t want your account to be way down when you need to access money. 

00:30:00 That is so true. 

00:30:03 Sometimes you need the money and so if you are-

00:30:05 Wouldn’t you rather take money out when the markets are up? 

00:30:09 I mean, for sure. You definitely don’t want to wait until, like, you know, the most recent example, like 2019 going into 2020, March of 2020, markets fall like 30 something percent in weeks, right? Two, three weeks, everything just collapses. What if you had to move and you had to take a big withdrawal from your investment accounts once you get 30% less purchasing power at that moment? 

00:30:34 Well, and I think I’m glad you brought this up because I actually hear this question all the time. People like, is it a good time for me to take some money? And I do often say, hey, let’s take a look at, you know, where is the account? And oh my goodness, you’re up $50,000 this year. Go ahead and take $20,000 out. 

00:30:52 Unless you like have 500 million and be like, well, you’re barely making anything, right? Remember, numbers should always have context. That’s another one that I would tell you. If you have any financial advisors out there, it’s like make sure the numbers have context because there’s three kinds of lies in the world, right? There’s lies, damn lies, and statistics. 

00:31:14 You’re not wrong. I’ve seen that, you know, where someone’s like, hey, you know, I’m down $100,000. And it’s like you have a $3 million account. Like that’s a normal couple months. 

00:31:23 We call that Tuesday. It’s just, it’s a percentage-wise, it’s not significant to the total volume of the account. It’s like, you know, if the diving board is six inches long, you know, it doesn’t move much. But when it’s 60 feet long, a one degree move, translates to a big fluctuation on the end of that board, right? And that’s what big accounts look like, is they just, it’s bigger moves.

00:31:46 And then it’s always funny too, and that person’s like, well, you know, my account’s up 12%, but the S&P is up 13. And it’s like, it’s a 1% difference, but-

00:31:59 Well, it does add up over time, but this again is one of those, the idea that-

00:32:04 Well, it’s when people aren’t measuring the same way each time. It’s like, oh, I’m looking at this loss. Well, that’s half a percent. And then they go, and then they change it and then they start looking at percentages when it’s time to evaluate performance instead of dollar amounts. You’re up $1 million this year. Well, I really wanted to be up 1.1. And it’s like, I-

00:32:25 It’s the tyranny of absolute versus relative return, right? Like on an absolute basis, here’s the dollars that I gained or lost. On a percentage basis or relative basis, I’m up this much or I’m this percentage or that percentage or down that percentage. 

00:32:37 Well, it all is based on when you’re measuring it too. I was looking at some performance numbers today and it absolutely blew me away. I changed the calendar dates by like 20 something days. And the percent return on this one thing I was looking at went from like seven to ten. And I’m like, so if you had measured, you know, 20 days into the cycle past, when it started, your numbers wouldn’t look that great, but you add the last couple weeks of that in there and it’s like, now it looks awesome. So you can really manipulate the numbers by changing the dates. And that’s the thing.

00:33:13It’s, it’s hard to do also. Like I don’t see performance reporting done this way. I’ve worked in some softwares that does this a little bit, but it’s interesting if you were to take a rolling average return in an account. We do this a lot in the advisory landscape. When you’re doing investment research, you might say, well, I wanna see a 200-day moving average of the price of a stock. And what you’re doing is just saying, well, here’s the average price for the last 200 days. And tomorrow, I’m gonna take the oldest day off and I’m at the new day in, and I’m gonna take a new average.

00:33:44 And I’m going to plot that over time. And it sort of smooths out the ups and the downs. And so a 200 day price average, you can see, well, here’s the current price compared to the last 200 days. We call that a 200 day moving average or maybe a 50 day moving average or a 10 day moving average. But it’s a way to get a sense of how is the stock moving, not moment to moment, but over a period of time. But you don’t see people measure their performance that way very often.

00:34:11 They typically look at a calendar year and say, well, show me January 1 to December 31 and show me that snapshot. And that’s how I decide if it’s working or not. That’s largely what the mutual fund industry does. And it’s where a term called window dressing comes from. 

00:34:25 Tell me about window dressing.

00:34:26 Window dressing is essentially trying to set the system up so that the numbers look good for a calendar basis. And so you see shuffling things around late November, early December to try to position, so that, a mutual fund number looks good at the end. 

00:34:46 So you’re saying like, as an example, maybe a mutual fund manager is in November and they’re way above the target where they wanted to hit for the year. They’re like- 

00:34:55 Or to get a bonus perhaps. Maybe they are there are bonus against how they perform against a benchmark. 

00:34:59 And so if they’re crushing the benchmark, they could in theory, basically, you know, if the agreements of the mutual fund allow for it, they could reposition assets around to lower their risk exposure and try and lock in that gain. 

00:35:16 They could potentially. Or here’s another one. Let’s suppose that they’re not going to hit their bonuses. 

00:35:22 They take on more risk? 

00:35:23 Well, they don’t necessarily, but they can do things like they can distribute a bunch of their adverse capital gains just to get it out of the way. Right? Because, there’s an interesting thing about the way mutual funds operate where they can choose when they declare their capital gains or losses, right? So they don’t declare a loss. They’re never gonna make a loss. 

00:35:42 Oh, so you’re saying if they’re gonna end up missing it? 

00:35:43 They’ll just say, I’m gonna just, yeah, I’m gonna miss anyway, then let’s get this toxic stuff off the books to set up a better next year. 

00:35:50 Oh, so they might liquidate it. 

00:35:51 It’s possible. It’s possible that something like that could happen. You’d have to look at the prospectus. But if you’ve got a whole bunch of embedded capital gains, and you’re not going to hit stuff anyway, then you just rip the band aid off and set yourself up so that the next year can look better. It’s potential out there. 

00:36:11 And then maybe even re-buy it if it’s a position that they still like. 

00:36:14 Sure, they could potentially change their basis and do tax management within the fund. It doesn’t happen often. I don’t think this is an abused scenario, but it’s not impossible. And so, those are just elements that happen when you’re in a managed product like that. It’s that a capital gain distribution could occur and it’s outside of your ability to control the timing. 

00:36:38 And that’s not to say that all managed products are bad. Right? 

00:36:40 No, no, we’re not. It’s just a feature of management. There’s other features of managed product that are kind of handy. Like you could, you know, you have your own capital gain of when you buy or sell it, but they may never distribute a gain to you. So you could have some tax efficiency because they’re taking in new cash. And so they’re rebalancing their portfolio with the new cash from new investors. Which means that you may actually experience increased tax efficiency in some scenarios. 

00:37:03 Oh, double-edged sword. 

00:37:05 So it can work out nicely in that respect. But all of this to get back to the idea that when you’re, well, I think I kind of even lost some of the original idea. We just started going down the mutual fund path so much. Oh, the moving average, that’s really what it came down to. It’s like, well, if you’re looking at how well your returns are, I think you’re better off saying, well, here was my January to January, February to February, March to March, April to April, and then take a look at how that evolves over time. 

00:37:36 That gives you a sense of how stable your portfolio is and what your actual rolling return looks like. And again, not common to do. Most people just take a 12 month snapshot of what they were doing previously and maybe a three year snapshot and kind of go, well, here’s the trend and here’s how we’re looking. 

00:37:52 You know one thing we didn’t do? We didn’t talk to our listeners kind of some of the stuff that we do internally that might be different than other places. We promised it. 

00:38:07 All right. So Matt’s gonna tell us more after our last break. 

00:38:13 All right. 

00:38:13 Okay. Stick around. If you wanna know what Mace, like these guys on the radio, they got an investment firm. I’m kinda curious. 

00:38:21 What do they do?

00:38:22  What do they do and how are they different? Just a little bit more when we come back. Stick around, I’m Dave Littlejohn. 

00:38:26 And Matt Dickson. 

00:38:27 And you got True Wealth? Yeah, we’ll do that. News Radio, 93.9 FM at 1240 KQEN. 

00:38:34 And we are back. Welcome back to the True Wealth Radio Show. Dave Littlejohn in studio with. 

00:38:39 Matt Dickson.

00:38:40 Matt, what did you, you promised our listeners. Okay, lay it on me. 

00:38:47 Okay, so, when we left off at the break, we were talking about what are some ways that Little John financial kind of specializes in? What are some of those avenues where it’s like, that’s kind of an area where they’re really comfortable and familiar with. And so-

00:39:02 Diet sodas.

00:39:05 Unfortunately. But I won’t drink them. I can’t. I can’t do it. I love my real sugar Pepsis, as David will know. But no. Okay, getting back on track. So, David, do you want to start us off? Just give me one short little thing where, cause I’m actually, I’m gonna throw you on the spot. What’s something that you think we do well? 

00:39:27 Something I think that we do well. I think we’re pretty high touch with our customers. Like we don’t even have a phone tree. Like if you call, you either get a person or you get a voicemail that like we all get harassed by and you get called back usually within moments. So you almost always get a live person to answer the phone and we don’t do phone tree on purpose.

00:39:50  I don’t even know that that is a good one. That’s not really where my brain was at. More of like some of the areas where it’s like when we’re doing business, it’s like, hey, that’s something or that’s a person that we tend to help. Right? So like, I’m looking at this and saying- 

00:40:06 Matt, what’s the answer you’re looking for? 

00:40:08 Okay, I’ll give you one. I’m gonna give you one and see if you can keep this going. 

00:40:11 He’s trying to lead the way to something going, well, go ahead, just go for it. 

00:40:15 Okay, so I think one of the areas where I think we do well, you have a spouse that’s passed away, right? And you didn’t really know maybe kind of how everything was invested. It just wasn’t your area of expertise. I think we do inherently a pretty good job of bringing that person in and saying, hey, you know, we don’t want to talk over you. We want to be able to get you kind of up to snuff with what it is that we do why we do it. And does that make sense for your journey? 

00:40:46 Because sometimes it doesn’t and it’s like hey, this isn’t a good fit. But I think we do a good job communicating and coming up with ideas of how to help that person who has gone through a tragedy. Need to plan, need someone that they feel comfortable with and kind of walking that person through what the next steps are.

00:41:04 Sadly, I think you’re right. And sad only because when folks are going through challenging times like that, I think a lot of it just comes down to, again, it’s pretty personal. And our culture is not big mega business right now. It’s very personable. And so because we try to know all of our customers really well. 

00:41:24 Like by name. It’s like you’re not just a number. We know who you are. 

00:41:28 And so, I mean, it’s interesting too, because not everybody qualifies to be a client.

00:41:33 No.

00:41:34 Right? And that’s not because we’re trying to be uppity about things. It’s because the people that we’ve made commitments to, our first obligation is to them. So before we take on new obligations, we have to make sure we can meet the existing obligations. But yeah, I mean, we spend a great deal of time. I think there’s a compassionate side to us, but there’s also a lot of education. So people will come in and they don’t have a good knowledge base. And so we try to build that knowledge base up so they can be confident in what we’re doing. And then we work together on it. 

00:42:03 I mean, speaking about the education piece, the other area I think, you know, we kind of dive into a little bit is for the person who has maybe multiple income sources and is getting close to retirement. And they’re trying to look at all the different pieces of the puzzle and say, how do they all fit together? And they need someone that can analyze what are all the different pieces that I’ve got going on in my life. 

00:42:28 And then what is the plan moving forward? Can I retire right now? Where should I start accessing money from in retirement? A lot of people don’t know. They have maybe five or six different areas where they could access money, but they don’t know what the most tax efficient way to access money is. And so they show up and they say, hey, walk me through this. 

00:42:50 I would say that is, it goes into strategic planning. These are terms that get tossed around a lot, but strategic plans, you need a strategy to be efficient. And so the idea is, well, let’s look at all the moving parts that you’re working with and then let’s figure out an optimized way to deal with them, right? And that’s just highly personal. You can’t kind of give that advice on the radio because everybody’s circumstance is unique and their needs are unique. But the idea would be that you sync up by understanding what they’re working with and what their goals are.

00:43:23 And then developing a strategy to optimize what they’re trying to do. So, and it generically falls under the term planning, right? But planning is pretty nondescript. So that’s my frustration. Our industry, because of regulation, waters a lot of terms down. What are we really trying to do for our customers? Look, you work really hard to scratch together what you have over a lifetime. Let’s not screw this up. So let’s not unnecessarily give it to the government. 

00:43:52 Let’s not, like, mischaracterize the way we manage our taxes and overpay where we don’t need to. I think I just said the same thing twice. Let’s not, I guess, be frivolous and accidentally make an unforced error that costs us. That’s one of the things that we see a lot. And so there’s just a lot of things that come down to efficiency. And in the Plan B stuff, right? 

00:44:18 You know, hey, we got to make sure that we got. If it’s not going to me, where does it go? And how do we do that stuff the right way? So I just think that there’s so much. I mean, at the end of the day, it’s funny, but the money management, that is secondary to the planning for us. It’s the thing that wags the dog at the end of the day. But if you have a lousy plan, you know, you blow up a whole lot of money in a hurry. So you got to start with the good fundamentals. I think that’s just where we’re at.

00:44:49 Well, there was so much more on the list, David, but I don’t know that we’ve got time for it.

00:44:53 No, we got like 18 seconds or something. So let’s just leave it at this. How do folks reach us if they have any? 

00:45:02 It’s super easy to go to littlejohnfinancial.com. So, littlejohnfs.com and chat us, give us a call. We’re easy to find. 

00:45:12 It’s true, all the best. So give us a chat when you can. And also, you know, consults are free. So if we can help or we can get your point in the right direction, that’s what we want to do. But we’re out of time for now. So until next time, I’m Dave Littlejohn.

00:45:24 And Matt Dickson.

00:45:25 You’ve been listening to True Wealth on News Radio 93.9 FM at 1240 KQEN.