Why do so many financial advisers give lousy student loan advice? In this episode, the Student Loan Planner consultants — Travis Hornsby, Justin Harvey, Rob Bertman and Lauryn Williams — discuss what to look for in a financial adviser, what leads to this bad advice and why an experienced financial adviser is key.
In today’s episode, you’ll find out:
- What to look for in a good financial adviser
- Why financial advisers need to disclose all conflicts of interest
- Why Student Loan Planner isn’t a fiduciary investment adviser
- How Student Loan Planner can provide the best cash-back bonuses
- Why most financial advisers aren’t expert on niche topics
- What could lead a financial adviser to give poor advice
- Why paying a hefty fee for an adviser isn’t always a bad thing
- How good information lets you make good financial decisions
- Why you need to interview potential financial advisers
- How not having enough experience leads to bad advice
- Why student loan strategies are foreign for many advisers
- Why finding an experienced financial adviser is key
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Episode 44 Transcription
Travis Hornsby [00:00:00] Welcome to another episode of the Student Loan Planner Podcast. Another wonderful treat for you today. I’ve got Justin, Rob and Lauryn in the house — all three of our Student Loan Planner consultants. How y’all doing today?
Justin Harvey [00:00:09] Doing great.
Rob Bertman [00:00:10] Very good.
Lauryn Williams [00:00:11] I cannot complain at all.
Travis [00:00:12] Woo! So, today we’re going to talk about how to throw bombs at this huge, important slice of America: financial advisers. And we’re going to accuse them of giving lousy student loan advice. So I’m probably going to get some hate mail. And some of it’s going to be justified; some of it’s going to be not justified.
Travis [00:00:30] So, the epidemic that we’ve seen is that basically financial advisers — like, that’s gone on for a long time. Like, people have been advising people with money for a long, long time. But student loans have only gotten super complicated in maybe, like, the last 10 to 15 years. They’ve gotten really, really crazy. Financial advisers just really don’t know what to say, by and large, because it’s so complicated.
Travis [00:00:48] And what we see is some of the best advisers spend a lot of time in it, try to learn as best they can and have low volume. But then some advisers actively don’t know anything and pretend like they do, which is bad. And then some of them will just say that they know something when they don’t, and they’ll use it as basically a marketing pitch that they somehow know about student loans to try to get people to sign up for their lousy, high-fee products in the first place.
Travis [00:01:09] So, there’s this huge, wide range of people that I would love to get student loan advice from as a financial adviser, which is not super common. And then people who I would hate to get financial advice and student loan advice from as financial advisers.
What to look for in a good financial adviser
Travis [00:01:20] So let me start off with a question to each one of you, and we can just go down the list. What would you consider to be a good, consumer-friendly financial adviser in terms of what kind of — and maybe exclude student loans for second. Like, what kind of setup would they have, and what do they cost? And what kind of things are you supposed to look for?
Lauryn [00:01:37] Well, I would just start by saying they should be Certified Financial Planners (CFPs) because they come with an education and experience. Education requirement. Experience requirement. There’s a pretty hefty exam, and then there’s also a code of ethics that you need to adhere to. So, CFP. Fee-only, which means that they’re not collecting crappy commissions. You understand exactly what they’re earning. They talk about and disclose their costs. And then fiduciary, which means we need to do what’s in your best interests. If someone is not a fiduciary, you want to run the opposite way.
Lauryn [00:02:10] And it’s funny because I actually was sat on a call with a friend who was like, “I’m interviewing this guy, and he’s been reaching out to me quite a bit. And I just I feel really uncomfortable. Could you be on the call?” And I told him to ask, you know, if he’s a fiduciary, even though I knew this guy wasn’t.
Lauryn [00:02:24] And when he asked them, the guy said, “Oh, no. You don’t want one of those. That’s not the right —” He was just assuming that the guy was not going to know what fiduciary meant or what it was. And he said, “You want to steer clear of any fiduciary adviser.” And I’m just like, “Oh my goodness, this guy needs to be reported.”
Justin [00:02:40] Yeah, I actually — I don’t — I think the fiduciary thing just confuses people. I think maybe a couple of years ago this would have been more helpful. And the environment is changing right now. So, I’ve been in arguments with commission salespeople about their fiduciary status where they claimed in front of my client that they were fiduciary, and they had sold them some products that I was advising my client to get out of. Other than saying, like, “You’re not. You sold these things. You earned a commission on it. There’s an inherent financial conflict.” And it just gets technically confusing about well, you might have a fiduciary when they were rendering advice, but not when they were selling product. I don’t even like to go there.
Justin [00:03:14] So, the bright-line test that I encourage people to use is the fee-only test. So, if you’re getting paid on any commission — which, by the way, is not wrong. There [are] a lot of products out there you can’t access unless a commissioned salesperson sells it to you, like disability or life insurance in many cases or other products. And that’s OK. But getting access to those through a fee-only planner who can look at your financial situation and recommend those — and in so doing, they’re doing it free of any financial conflict — in my opinion, that’s the best way to get — to interact in the context of an advisory relationship.
Rob [00:03:47] Yeah, I mean, just kind of breaking it down to more commonsense stuff: I think they have to be kind, right? They have to be helpful. They have come from a helpful place, and they have to be knowledgeable. The barrier of entry to become a financial adviser is really, really low, considering the responsibility that advisers get. That’s why, you know, having someone who’s taken extra steps like getting a CFP is really, really important because it shows they’re dedicated to helping people. They’re dedicated to continuing to learn, and they have the competency to help with any number of different areas of financial planning.
Rob [00:04:20] What happens is the financial industry tends to attract people who are looking to make money because it can be very profitable. And there’s nothing wrong with that at all. But we have to be careful of when that conflict comes in direct opposition from the advice that they’re trying to give for clients, and it’s really easy to tell.
Rob [00:04:39] I think what’s important is when people are selecting advisers is to go in not thinking, “This person knows more than me, and so they’re going to tell me what to do.” But more like, “They need to be able to help me learn because I want to learn this stuff. And if they can’t help me learn or if I feel like they’re not being transparent when I ask them direct questions, then what else would they be hiding from me? If I don’t have a full understanding, if they can’t explain it to me, then they can really hide from me a lot of other stuff that they’re doing.”
Rob [00:05:04] But beyond that, I mean, I was in the financial industry. I mean, I’m 40. Right? So I’ve been in the financial industry for nearly 20 years in general, and 15 of that was as an adviser and planner. So I’ve seen a whole bunch of stuff, and I have friends who are still in the business — good, kind-hearted people. But sometimes when people are with the firm for too long of a time, they start drinking the Kool-Aid, and they don’t know what else is out there — unless they have friends and they try to stay networked.
Rob [00:05:25] So, anyway: kind, knowledgeable, helpful and can bring you along are, like, super important. And they need to be able to explain their fees. They need to be fully transparent about what they make — not only in terms of the fee that they charge you directly, but any type of investment products or insurance products, they should be able to explain to you what their commission is off of that.
Justin [00:05:44] Yeah, I really like the way that you took that Rob. And one thing I would add to that would be that they shouldn’t make you feel dumb. If you feel like you ask a question and you feel a little sheepish and then they’re kind of, like, putting you down or poo pooing you as they’re explaining or perhaps not explaining something that you don’t understand — I mean, this probably goes without saying, but you don’t need to pay somebody money to make you feel dumb. You can find plenty of people who are going to be helpful in teaching and explaining and helping you understand the context for important decisions without putting you down.
Why financial advisers need to disclose all conflicts of interest
Travis [00:06:15] So, this is where I kind of confess and do a full-disclosure moment here. So in terms of talking about conflict of interest, another good thing to look for is somebody that’s going be a financial adviser is somebody that’s going to be fully transparent about any and all conflicts that could potentially exist and to explain how those could or cannot impact their decisions. Right?
Travis [00:06:31] So for one, you all should know that Lauryn and Justin are actually registered investment advisers. They actually have their own firms. They do a lot of work for us at Student Loan Planner, but they also have these side businesses. So feel free to, you know, Google search “Justin Harvey and Lauryn Williams financial planner,” and you’ll find their firms. And, you know, feel free to use them if they’re a good fit. Right? But you should know that.
Travis [00:06:52] So, that’s maybe a potential bias that exists — right? – for Rob. You know, Rob does a great job doing budget planning. Rob actually is the founder of Family Budget Expert, in addition to his Student Loan Planner kind of help that he gives us. And so he consults with — He basically specializes in getting people that fly private planes to not fly them as much. Is that fair, Rob?
Rob [00:07:12] Not exactly.
Travis [00:07:13] I’m totally joking. So basically, Rob just helps people save, like, thousands and thousands of dollars a year by just knowing how to identify where the value is in their spending, basically. So, you know, obviously, Rob Bertman — you could look him up, too. And so that’s kind of Rob’s angle. But Rob has been in the profession before as an investment adviser for many years.
Travis [00:07:33] So I’m actually the only one that’s never actually been a licensed registered investment adviser. Although actually, I was licensed back when I was doing bond trading. You know, I had to have all the securities registrations and everything.
Why Student Loan Planner isn’t a fiduciary investment adviser
Travis [00:07:45] But a couple of points about the fiduciary thing. So, Student Loan Planner is actually not a fiduciary investment adviser. OK? And there [are] reasons for that. So, the main reason — And then the fee-only thing, I agree with. If you’re going to have somebody be your full-time financial planner that you’re paying them a monthly fee to, they’re supposed to be the quarterback for everything, you know, you don’t want that person incentivized by, you know, various different products. Right?
Travis [00:08:09] That said, in our case, this is the reason I said Student Loan Planner up the way that I did. We’re giving transactional, one-time help and sometimes recurring help but on an as-needed basis. But we’re doing that at volume. We’re doing massive amounts of volume. Right? So, to be able to deliver that at a low cost, we also have can’t have massive amounts of regulations that we have to comply with — otherwise we’d have to charge a lot more. And that’s not something that I want to do. I want to make sure that a lot of people get that help.
Travis [00:08:36] So we always, always do try to act in the best interest of people. That’s what I tell everybody. That’s the only thing that would make me really, really upset with someone on our team is if we ever didn’t act in their best interest. Right? That said, like — So, you know, again, we’re not giving investment advice. And so that’s kind of what that fiduciary thing kind of applies to. So if somebody is giving you advice about what to do with your money in terms of how to invest it, that’s where that fiduciary thing comes into play.
Travis [00:09:04] The student loan world is the Wild West. There [are] no regulations, really. Like, I’ve read this Wall Street Journal article yesterday even about a firm that had $16 million dollars of revenue and $2,000 in their corporate bank account.
Rob [00:09:16] Whoa.
Travis [00:09:17] You know? And so what that tells you is there’s all these scam financial firms out there pretending to help people with their student loans, and they’re funneling literally all the money out to their owners’, like, offshore accounts so that when the when they declare bankruptcy — it’s not when; it’s not if; it’s when they declare bankruptcy — the courts will have absolutely nothing to seize because they just funneled everything into their own bank accounts. And it’s despicable, and these guys are jerks. You know, it is mostly guys by the way, too. They’re doing this mostly in Southern California, South Florida, places like that where your every financial scam seems to originate it seems like. But they’re, you know, they’re just pumping money out to benefit themselves. Right?
Travis [00:09:55] So I did want to explain that because sometimes we get this question. Like, we do such a good job of educating people about “are you a fiduciary?” And Student Loan Planner is not set up that way because we’re in the student loan space where it’s the Wild West. And also, we obviously make money from refinancing.
How Student Loan Planner can provide the best cash-back bonuses
Travis [00:10:10] One of the reasons I set up the cash-back bonuses in the way that I did was to make sure that we don’t get the full commission like other firms get for refinancing because we can negotiate better deals by giving up a significant chunk of that incentive bonus back to the end user as a cash-back bonus.
Travis [00:10:25] So imagine buying disability insurance. Like Justin said, you’re required to use somebody, basically, that charges a commission because the disability insurance companies all do that. But none of them have the option to take part of that commission and rebate it back to the client to compete on price. And the insurance companies don’t want to compete on price. They don’t want that environment. Neither do the insurance agents, probably.
Travis [00:10:46] So that’s the goal of the way I’ve structured it, is yes, we make fees from refinancing. But they’re the best deals you’ll get. And they’re better than if you go direct. And the way we have it set up — avoiding having to register in 50 states, that saves a ton of money on what we’re able to charge.
Travis [00:11:02] So, I like to think that we’re an exception. I don’t know. I’d love to hear y’all’s thoughts on that in terms of how Student Loan Planner is set up, just not as a registered investment adviser but as a kind of a financial coaching service.
Rob [00:11:15] Well, technically, to be an investment adviser, you have to give investment advice. So as long as — You know, we’re not in the business here at Student Loan Planner of recommending specific investments or picking stocks or anything like that. So we are exempt from that, even though we provide sort of this — I don’t know if you call it coaching. I guess whatever you want to call it: consulting, coaching that is outside of the realm of the investment world. Sure, we’ll tell people, you know, what they need to do in terms of a dollar amount that they should save for the taxes owed or, you know, help them with their savings rate or talk to them about the importance of contributing to pretax retirement plans if they’re on an income-driven repayment plan.
Rob [00:11:48] But I mean, you know, it’s always a good sign — That’s one of the things I really respect about you, Travis, and why I love working here is, I mean, you know, the calls where you’d be like, “Rob, I got great news. I was able to negotiate a higher cash-back refi bonus.” You know, as opposed to saying something like, “Oh, good news. You know, they’re upping our percentage of the refinancing loan balance.” Like, it’s always what can we keep doing in the best interests of the people that actually visit our site. Refinance through the links. You know, have consulting services. And that to me is pretty obvious.
Lauryn [00:12:17] Yeah, I would say that, though we don’t meet the terms as a company of fiduciary, that we all take very serious the fiduciary responsibility and what it means to be a fiduciary. And so we’re always as people doing what’s in the best interest of the people that are around us, the people that we’re serving.
Lauryn [00:12:37] And that’s just something that can’t be taught or degrees in things or, you know, forced on somebody. It’s great that the CFP comes with that requirement, but that’s a life value for each of us — doing the right thing for others. And that’s why I really like working here. That’s why I like working with you all, and I think that has a lot of value.
Rob [00:12:56] I was just going to say one more thing about that, that you reminded me Lauryn, is that — So Lauryn — you, Justin and I have — we have CFPS. And Travis, you and I have the CFA (Chartered Financial Analyst). These are really rigorous exams with really rigorous ethics components to them that if we don’t meet, we can lose our licensing. Regardless of whether we’re working in an advisory capacity, we still need to abide by that code of standards.
Rob [00:13:16] So the fact that Travis — that you put an emphasis on having these advanced designations for financial professionals to be a part of the consultant team really shows [and] speaks to the commitment of Student Loan Planner. Even though technically the company is not a fiduciary, we all have our own set of code of conduct that we personally abide to, but also the ethics that we’re bound to also by nature of having the designations we have.
Travis [00:13:38] One time, I went to actually to this conference. I had a conversation with somebody else that does something sort of similar to us — because there [are] actually several groups that actually do something kind of similar to what Student Loan Planner does, but they have different kind of approaches. So, some places, you know, hire advisers. Some places hire people that used to work in the financial aid industry. Some people hire more, like, customer service kind of people that are really, really good in talking to people. Right? And so there [are] definitely companies out there that don’t really care about that — about the professional credential, about the experience.
Travis [00:14:06] And I’ve always had the approach that I want to be known as being the highest-quality advice. You know, in the student loan space, I want to be known for that. Because, you know, honestly, if you pay $100 for advice but it was lousy advice, then that was extremely expensive. Whereas if you — whatever price you pay, if it was amazing advice, that was probably worth it because of how complex student loans are.
Travis [00:14:29] So that is why I take the approach, why I wanted to make sure that Justin and Lauryn and Rob all had, you know, a lot of experience and also the right credentials to give advice. But I did want to make that disclosure because again, I think that’s important for anybody to be able to just be honest about disclosures. What conflicts exist? How could this influence me? How does this matter to you? And if that answer is satisfactory, you know, cool. That means you can trust that person. You can have a trusting relationship versus you have no idea what somebody’s angle is. Right?
Why most financial advisers aren’t expert on niche topics
Travis [00:14:56] To kind of move on to the next part, I was interested — maybe we can pitch this one to Justin. So financial advisers a lot of times are generalists. And financial advisers frankly have to spend a lot of their time selling and pitching their services. Right? So what kind of impact do you think that has on the ability of a financial planner to become an expert in a niche topic?
Justin [00:15:14] Good question. It’s true that nobody knows everything. And a good adviser is going to know — They’re going to know what they know, and they’re going to know the limitations to their own knowledge. And a good adviser is also going to know where they can go to get answers. So when I have, like, very advanced, like, tax planning or estate planning questions that I don’t know the answers to — like, there’s a reason that tax planner slash CPAs and estate attorneys make a lot of money doing what they do. And it would be stupid for me to try to answer a question that I don’t know the answer to when I can get a really great answer from someone who’s incredibly qualified to answer it.
Justin [00:15:46] And student loan falls squarely into this category where frankly — like you said, Travis — it’s a little bit more the Wild West. And especially in what I’ll call “the establishment” of the financial planning services, like, the designations that we mentioned — the CFP, CFA and others. I mean, I’ve got a whole alphabet soup after my name, and none of it has at any time had anything to do with student loans.
Justin [00:16:10] You could very easily go to somebody with a bunch of letters and think, “Well, this person looks smart. They’ve been in the finance industry a long time. They can probably answer my loan questions.” And the fact is, just by virtue of the fact that they’ve been around a long time, that I would venture to say that that’s probably, like, an inverse indicator. Like, the longer you’ve been working in finance, the less likely it is that you know a ton about loans.
Justin [00:16:28] And there’s a few out there, obviously. But most of the advisers and people that I know are probably, like, 45 or under who are really loan savvy. And I think a lot of times it’s because they do a lot of planning with younger professionals who need this help. But it requires you to dig in a little bit to understand the nature of somebody’s expertise with loans. And you can’t just assume that, out of the box, somebody is going to know how to handle student loans appropriately just because they have these other designations.
What could lead a financial adviser to give poor advice
Travis [00:16:55] That was a good one. I got one for Rob here. Rob sometimes will do an analysis of, like, whole life policies for, you know, for people to figure out whether or not it makes sense to keep it. I had this case early on when I was starting Student Loan Planner where this veterinarian had about — you know, loans that needed to be refinanced, basically. So, she had like $150,000 or something and was making a good income.
Travis [00:17:14] And she had [gone] to this financial adviser — or somebody who was holding himself out as that — and he sold her one whole life insurance policy. And then she said that she had just bought a second one from him about two years after the first one for — And so she was paying, I think, close to $1,000 a month on her whole life insurance policies. So, Rob, what kind of incentive structure do you think led that person to do that?
Rob [00:17:39] Oh, man. OK, well, I’ve done a lot of digging in life insurance because I have three kids. And so my wife and I have a need for life insurance, and we’ve had it. And I’ve talked with many, many different life insurance advisers, and I can tell you that most of these people are good, kind people. But a lot of them — especially people who are, I’d say, 30 and younger, maybe 35 and younger — they don’t really understand how these policies really work, and they’re kind of drinking the Kool-Aid.
Rob [00:18:07] Like, for example, OK, when I was first looking at life insurance, my guy was trying to sell me whole life insurance. I really didn’t understand it. I heard it was bad, but I didn’t really understand it. So I was asking these questions. He actually could not answer the questions for me. And so then he brought in his supervisor, and his supervisor didn’t even know enough to answer the questions for me. So then I talked to an even higher-up, and I talked to a couple others. And I finally understand how this works.
Rob [00:18:32] Anytime you buy life insurance, whether it’s a term policy or a whole life policy — now, different firms are a little bit different, but approximately, they’re all in this range — 100%t of the first year premium is commission, and 50% of the second year premium is commission. And then it trails off over five years until it’s, like, in the 3% to 5% range. So basically, you’re paying, like, a 3% to 5% load after five years on the investments that are within the cash value.
Rob [00:18:56] Anecdotally, I’ve analyzed a bunch of whole life policies over the years, and I can tell you that with very rare exception have I seen someone who, after 10 years with a policy, have more in cash value in the life insurance than they actually have put in, in terms of the premiums that they put in over the years. So, that means that they would have been better off just putting it under their mattress than putting it in these whole life policies, and the main reason is the commission.
Rob [00:19:20] So, like, let’s say for example that someone needs $250,000 coverage. And let’s just say that the term policy costs $25 a month, and the whole life policy costs $250 a month. If the salesperson convinces them to buy the whole life policy, that person just made – the company just made $4,500 in commission over the next two years. If they buy the term policy for the same death benefit and coverage, then the commission was $450. So it’s literally 10x, and a lot of times it’s 20x.
Rob [00:19:51] So these people mean well. A lot of times, they’re young. They’re not really financially equipped. They haven’t been through it. But then there’s a whole thing about the fallacy of how cash value works and how you can take it out, which I won’t go into here. The incentives strongly recommend and strongly are weighted towards getting people into these expensive whole life policies, even when it’s not in their best interests.
Travis [00:20:10] Yeah. So I actually asked the client, “Did this guy know that you had 8% student loans, like, when he sold this thing that gave a projected return of 4% to you?” And she said, “Yeah. You know, he said that I needed to focus on saving for my future, and I really needed to start putting money away and save also, even though I had this big debt.”
Travis [00:20:27] And so I knew at that point — because of what Rob just mentioned about the commission structure — that the commission basically goes away after year two, and he hit her up to try to get that extra commission. And because he knew about the student loan debt, at the very minimum, he knew that he was locking her in on a negative 4% arbitrage on her situation. And there was no tax deduction or anything like that on a whole life policy upfront, either. So this guy was really just out for money and just did not give a you know what.
Travis [00:20:54] Man, I got into angry Travis mode, and I sent him probably one of the most aggressive emails I’ve ever sent to him. And like, the first one was kind of, like, you know, “Can you explain how you thought this was a good idea?” Like, I was a little not jerky in the first one. And then he’s like, “How dare you? I’ve been in this business for, you know, 40 years, and I always recommend things that are, you know, suitable for my client.”
Travis [00:21:13] Notice how he said the “suitable” word, which just means that they pass the bare minimum of, like, “did you commit a crime?” basically. You know, I’m not saying that about all those advisers who do suitability standard. I’m not saying that, in case somebody’s listening [who does] suitability standard. I don’t hate you at all. Please don’t hear that. OK? I’m just saying that he was very careful the way he worded it so it wouldn’t come back and bite him because it was just a [totally] inappropriate sale.
Travis [00:21:34] It’s just interesting, you know? So there’s definitely a lot of advisers out there that are, like, worse than used-car salespeople. They want to make the commission. They want to make their money. And this actually true: There [are] a lot of fiduciary advisers out there, too, that are like this. Like, I’ve heard some podcasts of people that, they talk about why it makes sense to — for people to pay them 2% of their assets under management per year. Then they try to justify it about how they have such deep relationships and all these things. And no, just be honest.
Travis [00:21:57] And now, I will say this: If you have a really low, low asset client that has not a lot of savings, OK, that might make some sense. Right? But if you’re charging 2% of someone’s assets when they have significant assets with you, you just like money. Just admit that. Like, you like money, and that’s your No. 1 thing.
Travis [00:22:12] And for me, like, we could profit maximize this thing a lot more, but we’d help a lot fewer people. And I think that would be bad. Now obviously, we’re also not charging $50 a console, either. Right? So I mean, we’re not angels. But we’re trying to be as good as we can, and we’re trying to do the right thing. And so that’s kind of the key, I think, is just trying to find somebody that, yeah, they charge for value. They charge for their time, and they’re not cheap. But they’re also not jerks.
Why paying a hefty fee for an adviser isn’t always a bad thing
Justin [00:22:36] And this is where Travis and I have sparred a little bit over this — this question. And I remember having this discussion about the guy who charges 2%, and frankly, here’s my opinion: I don’t begrudge the guy who charges 2%. What I think is that if you have a willing buyer and a willing seller, and everybody has all the information and all the cards are on the table and conflicts of interest are disclosed, an adviser who charges 2% on my assets — and if I have a million, I’m going to pay him $20,000 grand a year.
Justin [00:22:58] If I see that and know that and I can compare the $20,000 grand adviser to the $10,000 grand adviser and I like him more than twice as much, then I should be able to go to the $20,000 grand adviser and feel great about it. And maybe I do get two or three or 10 times as much value. And I — Personally, I believe that there are advisers out there like that, and I think it’s important to acknowledge that.
Travis [00:23:17] I respect different opinions. And Lauryn, what’s yours?
Lauryn [00:23:19] I was just going to say I think that the key is people having the right information. And I think that’s the thing that happens most frequently in the financial industry, is that someone doesn’t have the right information. So, in that kind of crappy, sales-y world that we don’t belong to, we don’t — All of us don’t agree with, is someone is actually reaching out to you. And you’re sitting there minding your own business in a coffee shop, and someone walks up to you and tries to sell you something. And they only give you the information that’s going to sound good to you and try to get you to get something that you want.
Lauryn [00:23:47] Whereas in this situation you’re describing, Justin, someone has done quite a bit of research. You know, they’ve got a million dollars. They’re probably a pretty hard worker. They came across this million dollars however they did. They’re going to do a lot of research before they hire someone. So then they’re going to have the information and the resources to be able to do a thorough interview with, you know, $10k advisor versus $20k adviser and make a decision.
How good information lets you make sound financial decisions
Lauryn [00:24:08] I think the really big and the really hard thing that we’re fighting in this industry is people having access to good information to be able to make an educated decision. And that’s what’s really important — because there [are] a lot of do-it-yourself options as well. And when it’s appropriate, when I talk to someone and they don’t seem to fit where I’m going, you know, what I’m charging and what I’m doing in order to be able to make a living, I send them somewhere else. There [are] not a lot of advisers that are much cheaper than me in the industry because I really value doing it at a low cost in a way that’s going to be affordable to various things.
Lauryn [00:24:41] But there are robo-advisers. There are do-it-yourself options. There are books, you know. There’s a library that you can go through.
Justin [00:24:47] That’s right. There’s a library.
Lauryn [00:24:48] Yeah. But you know, you’ve got to do what’s right, and you’ve got to have the information to make a good decision. And I think that’s the thing that really people get missed out on. They get information or — what’s it? — buyer’s fatigue, and they just pick the first thing. Or they weren’t, like I said, they weren’t looking for it at all. And Mr. Sales Salesman XYZ comes and shows up and tells them how insurance is so great. And they’re like, “Yeah, I’ve been meaning to get around to investing. And this guy just showed up, and I’m doing it today.” And then they meet me two years later and, like you said, now I’ve got to figure out how to get him out of a really crappy whole life policy that’s ruining, you know, their chances at really making some strides in their financial life. So, education is key.
Why you need to interview potential financial advisers
Rob [00:25:24] Yeah. And there’s a lot to be said when people are interviewing financial advisers or looking for one. There’s a lot to be said for just asking the person, “How did you become a financial adviser or financial planner? Like, what brought you to that?” I mean, like Lauryn, your story is so compelling. And anyone who hears your story knows that you have their best interest at heart because your story starts with being taken advantage of yourself and seeing other professional athletes getting taken advantage of and [wanting] to make a change to that.
Rob [00:25:48] So it’s really important ask that question of what draws you to that. And it’s OK if someone — “I like numbers,” or “I’m really good with numbers.” Or— But there should be some element of “I like to help people” or “I had a bad experience” or “I had friends who had a bad experience and I want to make it different.” There should be some element in their story of why they became an adviser when you ask them.
Rob [00:26:07] And treat it like an interview. Like, if you’re talking to somebody, you know, they may seem like they have more competence, which sometimes makes us feel, like, have lower self-esteem and not ask the tough questions. But ultimately, it’s your business that they want. And so you can ask the tough questions, just like you were hiring them to work for your company or to work in your business or to take care of your kids. Take that approach to it, and it will put you in a position of power. And you’ll be more confident asking those really important questions.
Travis [00:26:30] Yeah. I think that there [are] some legitimate reasons that some commission firms exist. I will say that savings rate is everything. We’ve kind of determined that. Right? So if somebody goes and talks to Northwestern Mutual or Edward Jones or some firm that has higher-than-average industry fees but then also tends to work with maybe lower-income people compared to the average firms that maybe work with higher-income people, then that’s actually good.
Travis [00:26:54] Like, there [are] actually, you know, thousands and thousands of these high-fee commission advisers out there that are actually doing really, really good work. I don’t know if they’re doing the Lord’s work, but they’re doing a really good work in the sense that they’re helping people. Obviously for that profit motive, but they are helping people do much better than they would have done if they had just not paid attention.
Travis [00:27:11] And that’s kind of a key is, I think that most people would do exceptionally well if they got a student loan plan from us if they have a lot of debt. And then they hired, like, a Vanguard, Betterment or Wealthfront to just manage their money, and they stash tons of it away. And then if they went and, you know, found an adviser willing to give them advice for, like, a situational thing, I think that would be fine for probably 95% of people.
Travis [00:27:32] But I do think that we are also pro-adviser for Student Loan Planner. I think that most people probably eventually want to get to the position where they are working with a financial adviser. Because when you have that flat fee or just at least a fair fee and you have that fee-only advice where somebody is on your side, you’re just going to be incentivized to save more money, which is going to help you out a lot more than getting the perfect investment return on your rate, you know — on your investments, I mean. So, that stuff does matter more.
How not having enough experience leads to bad advice
Travis [00:27:59] So to keep it moving, in terms of the title of the show — like, “Why financial advisers give lousy investment advice,” right? So a lot of financial advisers don’t have that level of training. That’s one part of the problem. And a lot of them don’t have the level of volume. So one analogy of this is, imagine you’re going to a cancer doctor who does 100 procedures a year of the thing that you’re looking to get done, or you can go to one that does 100 procedures a month. Which one’s going to have the greater likelihood of skills?
Travis [00:28:24] So maybe you guys can talk about some of the problems you’ve seen from — general in the industry — from financial advisers who don’t have a lot of volume in terms of the number of student loan cases that they do and kind of the problems that causes.
Rob [00:28:36] I was also going to say, maybe if we could add to that when people are given responses. Something along the lines of, you know, since the three of us were advisers or are advisers, you know, what are some of the things that were totally shocking or we didn’t know before we started working with Student Loan Planner.
Lauryn [00:28:50] Well, I’ll jump in and say that one of the things that prompted me to get so passionate about student loans was one of my very first clients came to me. She was a single, young lady making $134,000 a year, which I thought was a really great income in Michigan. She had around $335k of student loans, and I had never seen student loans at all. I didn’t have student loans myself.
Lauryn [00:29:14] And I was just like, “Oh, man. Like, this stinks.” You know? She makes a really good income. She’s single. She should be able to save. And I can’t figure out — Like, I was just looking at the payment, and I just I didn’t know where to start because, like you said, we don’t get that training as a Certified Financial Planner.
Lauryn [00:29:30] So, what prompted me — I went looking for more research. It was hard to find any good information on the internet. I found Heather Jarvis, though, and I connected with Heather Jarvis. And I dove in to find the information that was necessary in order to be able to give her good help. But if I didn’t find Heather, I don’t know what I would have done for that client. So I could have been that lousy adviser that made the wrong decision for someone because I didn’t have any of the information that I have.
Lauryn [00:29:57] And I think that’s one of the things that missing right now with advisers. They make lousy decisions because they feel like, “Here’s somebody I need to help. They came to me for help. Let me provide some advice instead of no advice.” And that advice ends up being very lousy because they don’t have the tools or the resources to get that information.
Why student loan strategies are foreign for many advisers
Rob [00:30:13] And I would say, just in terms of — The way financial advisers — most financial advisers — look at debt repayment is sort of the conventional way. You know, get a low interest rate. Pay it back. Maybe play the spread. If you can get a low enough interest rate, maybe invest alongside having the debt and pay it back. And that’s certainly, like, without understanding how income-driven repayment works because it’s crazy. So, someone who only does five to 10 plans a year, they might just be recommending, “Well, just pay it off. Pay off your loan in full over 20 years.” Which is highly, highly inefficient, as we all know.
Rob [00:30:42] Because these nuances of all these different income-driven plans — Like, the one thing that I learned by working here — I mean, I learned a lot — but the one major thing was there’s a difference between the payment plans where you pay off your loan based on how much you owe. Right? That would be, like, the Standard Plan, the Extended Plan and so forth. And then the plan is based on how much you make, which is the income-driven plans, like IBR (Income-Based Repayment), Pay As You Earn and Revised Pay As You Earn.
Rob [00:31:05] And the absolute hardest thing for me to get my head around was why is it in this person’s best interest to keep their payments low, let their loan balance grow and have it forgiven and pay the taxes. Like, that just seems totally backwards. Like, the whole point is getting out of debt. So why would they want to see their student debt go up? They should be paying it down.
Rob [00:31:24] But after learning from you, Travis, and doing all the consults, it’s like a lot — Like, I just had a consult today with a nurse practitioner who — It’s actually going to cost them less to pay back their loans using an income-driven plan with taxable loan forgiveness and paying the tax bomb than it would be for them to refinance and pay off their loan aggressively in 10 years. Out of pocket is actually going to cost — save them, like, $50,000 going on Pay As You Earn versus that. And that just, like, blows my mind.
Rob [00:31:54] I think a lot of advisers — most advisers — have, like, only doing five to 10 a year, like, you just would never see that. Most advisers are busy helping people with their — manage their investments, help save for kids’ college, for retirement and other financial planning needs, that the student loan piece is so complex that you do need that specialist. They’re kind of like an estate planner or CPA, like you were saying before Justin.
Lauryn [00:32:12] Yeah, you hit the nail right on the head, Rob, with advisers, like, being so focused on other things. I can say not less than six or seven advisers [I’ve] had a conversation with, and they’ve all recommended either the Extended or the Graduated Plan because it stretches it out. It makes it affordable for their cash flow on a monthly basis. Still allows them to be able to save, etc. And at the end of it all, the debt is gone. And that’s all the advisors can think of is, like, “OK, well, at the end of it, they don’t owe anything. So that must be good.”
Lauryn [00:32:41] And I’ve had to explain to them why taxable forgiveness is a viable option and what taxable forgiveness is. So, lots of lousy, like you said, advice being given out there, but they think they’re doing the right thing. They just don’t have the information.
Travis [00:32:54] Well, I’ve had a situation even where there was this adviser on a podcast [who] was kind of holding themselves out as a student loan expert. And they said something like, “I always tell people to get on the REPAYE plan and get the subsidy right away by consolidating.” I was like, “OK. This is pretty above-average knowledge.”
Travis [00:33:07] And then he said, “But then eventually, you need to get a situation where you just refinance and pay it off as fast as you can. Seven to 10 years, you know, because the government is definitely not going to forgive anything for all these high-income people.” And then I just face-palmed. I said, “Oh my gosh.” I said, “I’m going to vomit in my mouth. Like, are you kidding me?”
Travis [00:33:23] Like, that’s terrible advice because there’s already a situation for those high-income professionals that are going to get loan forgiveness. It’s called a tax bomb. And that tax bomb, let’s say it happens. You can prepare for that. And if it doesn’t happen — which is very likely, by the way, because every single Democratic senator is trying to introduce bills to eliminate the tax bomb. So that means you plan for it. You prepare for it, if it makes sense mathematically. But if it doesn’t, then you’re getting even more forgiven if you’re not having a tax bomb.
Travis [00:33:48] If it doesn’t make sense to pay it back with a forgiveness strategy, then yes, you should refinance it. But holy cow, that was just, like, a random sort of political bias statement that was not based on math at all. And that’s going to hurt a lot of people because that person could have worked part time instead of working their tail off and getting depressed and getting burned out in their profession.
Why finding an experienced financial adviser is key
Travis [00:34:05] So, like, a personal story: You know, my dad had this kind of intense cancer surgery, and he went to somebody local. After the surgery was done, my dad was on the table for, like, twice as long, and he said it was the most complicated case he’d ever seen. And so my dad had a lot of complications, and he complained and really had a lot of emotional issues with that and wishing so badly that he had gone to the place that did way, way more procedures and somebody that was a lot more skilled and had seen a lot more complex cases. Right?
Travis [00:34:33] So, for a lot of non-complex cases, I think your decent, competent financial planner is going to do a great job. If you have $50,000 of student loans, I think your adviser is going to crush it, probably, and do a great job. But if you have a community property state where you have $300,000 and your spouse is a business owner and you’re trying to figure out tax filing strategies, that’s a really complex case.
Travis [00:34:52] And you’re not going to die from it, obviously. You’re not going to have any major complications with your health because it’s not that extreme. It’s just an example that you do want to seek out a specialist if your situation is very complicated because you can have some terribly negative things happen if you take somebody’s advice and they don’t really know in detail how to do the most complex cases.
Lauryn [00:35:11] I just think it’s a really good point. And I think with us being so passionate about student loans, you know, we’ve kind of got to be those warriors for getting people properly educated. And one of the things that I’m doing, I’m going to the eMoney conference coming up here in October. And eMoney is a really fancy piece of financial software a lot of advisers are using. But when they asked me, despite it not being a paid opportunity, I was like, “This is a chance to stop a lousy adviser from making a lousy decision on behalf of a client or not knowing where the resources are.”
Lauryn [00:35:43] So I’m really excited to be able to go there and explain to them the basics about student loans and then also say that there’s Student Loan Planner as a resource so that you can be a good adviser. If you don’t want to dive knee-deep into this and become an expert, there’s a really good way for you to be able to help your client and continue to provide the rest of the service that they need to them. So, kind of taking up that cross myself in helping other advisers not be lousy advisers is, I think, something that’s really cool to be able to do.
Travis [00:36:08] Yeah, that’s a great point just to kind of segue into the closing of the show is just, we love financial planners that want to do right by their clients. We love them, and we think that most people need to be working with them because you’re going to get a lot more attention and a lot more encouragement to save and achieve your life goals from somebody you pay a fair fee to. That’s going to be probably a four-figure-per-year fee, just so you know. And that’s going to help you achieve your life goals, and it’s probably going to be worth it.
Travis [00:36:32] If you are a financial adviser listening, we help people and do consults for people’s clients all the time. You know, you can reach out to us: Help@StudentLoanPlanner.com. And we’ll tell you the details of how we help folks. But if you’re a financial adviser, you know, refer out those cases that you probably shouldn’t be doing — just because it’s just a lot of risk and you’re acting in your client’s best interests. You might make a mistake and not know what you don’t know.
Travis [00:36:53] And then if you are somebody who’s not ready for financial advice yet, you know, try out some of these robo-advisers. And try out Schwab and Vanguard that have advisory services and see how they do in helping you save more and invest more and understand how to put money away for your future. You know? But eventually, you know, if you have a high enough income, then it probably does make sense to get a professional to help you manage things versus just relying on one person for all your sources of information.
Rob [00:37:18] Yeah, I was just going to say one thing real quick about, if you’re an adviser and you’re listening and you have a client who has more than twice their income in student loans, you definitely need to look into what we do here and get in touch with us so we can — because we can help you look like a hero and a champion to your client. And conversely, if you’re a client who is in a complex loan situation or has more than twice in what you owe in student loans, you need to reach out to us, and we’d be happy to have your adviser on the call so we can get a holistic plan for you, taking all that other stuff into consideration.
Travis [00:37:45] And I promise I’ll keep my mouth shut about, you know, advisers that charge too much because I’m sure people are scared of that after I made that comment about the people charging too much money. But thanks so much everyone for being on the show today. And remember that you can ask us questions at StudentLoanPlanner.com slash voicemail.
Travis [00:38:03] And when you’re talking to financial professionals in your life, just remember to always ask how they’re getting paid. What is the structure? What is their conflict of interest? If they can explain that well to you, then you’re already better off than 90% of people.
Travis [00:38:15] So, thanks so much for listening to today’s show. And thanks for all the team for having a great episode today.