Money Rehab with Nicole Lapin - Financial Advisors: Are the Robots Better?

Episode Date: February 18, 2022

When it comes to financial advisors and apps, there are so many choices. But which one is the best one for you? Today, Nicole and Joe Saul-Sehy (host of The Stacking Benjamins Show) decode the differences between financial apps, and how to choose which is best for you. Learn more about your ad-choices at https://www.iheartpodcastnetwork.com See omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. I had so much fun talking to my pal Joe Salsehi, host of the Stacking Benjamins show,

and we covered so much ground that I had to break our conversation up into a two-part episode. Yesterday, of course, we talked about demystifying misleading financial jargon. Today, we're talking about financial advisors and apps. There are so many out there, but which one is best for you? That's what Joe and I talk about in the second part of our conversation. Here it is. There is so much consolidation in the robo-advisor world, right? We just saw Wealthfront get snatched up by UBS. We saw Morgan Stanley owns E-Trade. Schwab gobbled up TD Ameritrade. One of the biggest questions I get is,

which app or which brokerage should I use? I frankly think they're all the freaking same. And now we have evidence that they are the same. I think they're all the same except Robinhood. I don't put Robinhood in there, but I like the thing that you said earlier about these companies is that they're not... Just realize none of them are your buddy. They're not your buddy. They're not your friend. They are in it to make money for them. So you have to be your own advocate. You have to make sure that you stand up for yourself, which as you know, a lot of us are afraid to do. And so you have to be your own advocate, right? You have to make sure that you stand up

for yourself, which as you know, a lot of us are afraid to do. And so you can't be afraid to do that. My problem with Robinhood has been the number of times, and I get some flack from this. I got some flack from it just recently. Somebody going, dude, why don't you light up on Robinhood? Because they haven't been around that long. Yeah, they've been around a lot longer than you think they have. And yet they continually have SEC violations. They're continually being sued by customers. They make mistakes that make you question, are they either not forthright, lying to us, or do they really not know? In other words, I'm afraid either way. And I'll give you the example of what I'm talking about there. They talked about a couple of years ago, maybe a year and a half ago, about how SIPC insurance

was like a guaranteed account. You should put your money in cash in Robinhood because it's SIPC guaranteed. And the commissioner of SIPC insurance even said, you're mischaracterizing what our insurance does. Our insurance doesn't do any of the stuff, Robinhood, that you're saying it does. So either they don't know, which scares me, or they're mischaracterizing stuff. And they've done it so many times, Nicole, that it really bothers me, especially when you have these other companies, which once again, are not your buddy.

Schwab is not your friend. Fidelity is not your friend. Vanguard's not your friend. But they have all these resources and competent people working there. And I can't think of the last time that Fidelity Investments lied to me. And maybe it's out there and somebody will send us an email saying, oh yeah, Fidelity, maybe. But man, not nearly as often as I read about Robinhood and the tools at all these other places. I use TD Ameritrade myself and the tools that I get at Ameritrade to help me make decisions

are far better than the Spartan tools that I would get at a Robinhood. So I'm not a fan. I can tell. Clearly, you're not a fan. What bothers me about the consolidation of the robo advisors is that they came out marketed. And again, I have to remind myself that this is marketing, that they're different from the big banks and the big guys, and they're like gonna stick it to the man or the woman. Well, mostly it's men, honestly. And now they're getting snatched up. So, okay, you're gonna wealth front, stick it to the man. But now if you get, what was it? 1.4 billion from UBS? Hey, man. Now we're one in the same. You know what's funny is that on Stacking Benjamins, even when robos were first introduced, I remember us having a big degree of skepticism

that if these companies were going to be able to redefine the world, Nicole, that somebody would have done it before them, that it would have been. So they had these very low fee structures, as you know, looked fantastically friendly, nice user interface, easy to use. But then what did we see? We saw Wealthfront come out with funds that are internal funds that happen to have a higher fee and also diversified into stuff that was their own so that they could start making some money because of the fact that this idea, this marketing that they brought to us that, hey, we're different. We still need to make money. And they weren't making enough money. that, hey, we're different. We still need to make money. And they weren't making enough money.

And what did... I'm not going to let Betterment off. Betterment all of a sudden starts up with their advisor channel then. And so they can now have... I don't know if it's called Betterment Pro or what a Betterment Plus, Betterment something where, hey, so you see these robos that originally come in and do the Robin Hood thing. We're for the little guy. We're going to be the little guy. And then they go, oh, we can't're for the little guy. We're going to be the little guy. And then they go, oh, we can't make any money that way. We've got to be more like the big guy. And then in Wealthfront's case, they go, well, maybe it's better to be the big guy. But we saw this also with Goldman Sachs.

Clarity Money was one of my favorite apps to track my money. And frankly, I still like Marcus Insights, which is what it's become. But Goldman creating this whole Marcus division is a way for them to swim downstream and use a baseball analogy to create a minor league. To work with a broker, it takes $250,000 or more to even sit down with them in most of these companies. So how do they develop new customers? And they do it,

I think, by taking over Wealthfront by buying. I think there's going to be a lot more consolidation and I'm sure you do too. This is just the tip of the iceberg. Yeah. There's a lot of talk that PayPal potentially could snatch up Robinhood now that they're in the pooper. I think that it was only a matter of time for them to get snatched up. And it just brings me back to a larger point. You know, a lot of our listeners are not necessarily watching CNBC. I mean, I don't or in the weeds about this M&A action in the financial services space or consolidation or care. But from a consumer perspective,

I think the point is that it doesn't really matter. And whatever interface you like and is a legit one that you're gonna use often and stick to is the one that's right for you. But you're not getting an edge. You know, this is one of the biggest questions I get. Well, which one should I use? Or which one should I download? I'm like, I don't fucking care. Download whatever you're going to open

regularly because they're giving you the same stuff with relatively the same fees. The whole marketing stuff about no fees, there's no fees. This is not a thing anymore. Right. Well, and what'd you see the second that Robinhood did that? I mean, M1 Finance went after them and then they all toppled to go to zero fees. And now it's not a thing, but I'll tell you what, Schwab has not had a difference in their bottom line. Have you noticed this? Fidelity doesn't have lower profits than they had before they went zero fee. They find other ways to make that money up. Like there will be... I don't know. I kind of laugh because I think that when a company says that they're going to go no fee and it's free, you know they've got some other thing going on.

It's like... I just read a thing about Disney and their parks lowering the portion size on your meals, you know? So yeah. And Disney just reported huge earnings, even though people are upset at the mouse for a variety of reasons. That's true. I think it's similar as well to social networks being free, but now of course they're profiting off your data. Like nothing is free. Nothing is really free. And I love that.

Were you the first one to tell me this? Because I think it was you that said that if something is free, you're not the customer, you're the product. I know I've heard you say that before. That's right. That's right. No, I think that it's been evident with this commission-free, fee-free stuff. Like, call it something else.

It's, you know, you're getting the pay-for-order flow stuff, which we went into in depth during the, you know, Robin Hood episode. It's like a fee in another way. You're getting, like, a little bit off the top. You're getting a little bit off the top. So it's not called a fee, but you're somehow paying something else somewhere else. I remember when I was a financial planner, I met with this one couple. And they called me the next day and said they met somebody who was going to do all their financial planning for free. And I told them, I said, you know, there's no such thing as free. Like that person has to work. There's somehow they have to make money. Like, do you know how

they make money? And they said, no, he's just a really nice guy. He's a super nice guy. And I said, no, I'm sure he is a nice guy. He's a super nice guy. And I said, no, I'm sure he is a nice guy. He can be a great guy. And by the way, working with them might not be bad, but you still have to know how they get paid. And I think that's a great point on all this discussion is that if I'm going to use Betterment or Wealthfront or whatever app I'm going to use, I'm going to trade for free, that's fine. But how are they getting paid? And ask yourself that question and just know. And still using the app is fine, but realize there's no such thing as a free launch. And it turned out, by the way, that this particular financial planner was with a big insurance company. And all the recommendations that they were going to get

were all from this big insurance firm, which once again might not make it bad, but probably not what I would have done. Hold on to your wallets, boys and girls. Money rehab will be right back. Now for some more money rehab. more money rehab. Yeah. I mean, I think that when you look at all financial people as helpful people, that's just not the case. I talk about in Miss Independent that a vice president of a company or some broker like these folks are not your friends. The only people that can help you and you talk to me as a recovering financial planner are fiduciaries that are not selling you their own stuff. Yes. That is one of the first questions I would ask a financial planner. And by the way, in my book, Near the End, I've got this whole section on hiring help because I believe

in having good help around you. But I think there's so much bad help that it's really important to make sure that you get the right help. And that is a phenomenal question to ask. Are you a fiduciary? And by the way, and this is a trick that I've seen lately, Nicole, this is a scary one. You have to make them show it to you in writing. We did a story maybe six weeks ago about a person who met with a financial planner and the financial planner said, oh yeah, I'm a fiduciary. And they said, well, no, because you get commissions and you're a commission salesperson. They said, well, I kind of call myself a fiduciary because I do what's in your best interest. That's not a thing. That is criminal. That is illegal. It is completely

illegal. So if somebody can't show you in writing that they're a fiduciary, it's time to run. That's bananas. I actually didn't think about that. I didn't stop to question like, oh, show me the proof. So what would your tips be for people who are trying to get a financial planner for the first time? Well, here's the first thing. You need financial planners that are going to make you smarter. You cannot abdicate being Queen Nicole. You have to be on top of your own money. You still have to listen to the podcast. You still have to read the books. You still have to know what you're doing. But an analogy that I really like, Nicole, is Mary Barra at General Motors. General Motors isn't the most innovative company,

but the fact that Mary has kept that company competitive when I'm a Detroit guy originally, and watching her keeping them in the game has been phenomenal that they're still around and doing, maybe not lighting the world on fire, but doing great. Mary surrounds herself with really smart people who run the different parts. But Mary doesn't come into work and go, Hey, car people, I'm going to go away for six months. You handle the car stuff and I'll come back. No, Mary's still the CEO of the company. She knows far more about cars than I would ever know.

But she still has people smarter than her protecting her downside and taking care of some of the stuff she can't. So that's the first thing. If you have a financial planner who takes it away from you, looks down on you, tells you you're not going to understand it, you need to fire them because they have to make you smarter. The second thing is that you want to make sure that your financial help is a fiduciary, but it's also much more about the relationship. The questions we forget to ask are, how do you work with people? How often am I allowed to call you? I feel like a lot of the mistakes people make are in the misconceptions they have. You think they're going to do one thing and they think they're going to do another. Some people are looking for somebody to manage their money.

So they want somebody who will handle their assets and make the necessary moves that they need to make. Other people don't want that at all. They just want somebody to sit down with them for a couple hours and do a financial plan and I'll take it myself. So asking a financial planner what they actually do and what to expect is going to avoid a lot of fights down the road. And is the CFP website the best place to get started? Or what would you suggest? I think the CFP is a fantastic place to start off. I like registered investment advisors for me

first, because I'm pretty self-motivated to do things myself. And what that means is that they're just going to give me some advice about where to go. Some registered investment advisors will handle the money for me. For me, I like having just the... I want to pay for a few hours. There's a great planning network out there that I have a lot of respect for. I'm not affiliated with them. The XY Planning Network, I think, is a fine affiliation of financial planners that are fee-only financial planners. And I think that's another good place to start as well. Because if you pay the fee to them, they're not getting kickbacks on the stuff that they're recommending. That's right. I would still ask it.

Make sure you ask all those questions. But yes, the XY Planning Network does not work that way. And what would you suggest as a good amount for fees for financial planning? Well, and this is the tough part, Nicole, because that's the most popular question. Here's what you have to do. Everybody starts with the fee. I could charge you a bajillion dollars and do nothing. But if I charge you a bajillion dollars and do a lot, it might be worth it, right? You get two bajillion dollars for that. Two bajillion, right? Don't... Bajillion is a technical term that we like to use. That's another industry term, bajillion.

I don't want to start with a fee. I want to start with what do I get? Okay, fine. Fine. That's true. But when you're first starting, you don't really know what you're going to get because people talk a big game. So for the very first time, should you keep it to a percentage? Should you what? No, I don't like percentage fees. I generally like hourly fees. Percentage fees mean that they're going to manage your money for you. They're going to take it, manage it for you. They'll do it often for 1% or less. You can look at a bunch of websites that show that 1%, that skim over a 30-year period is going to be a hell of a lot of money that comes out of your pocket. However, Vanguard on the other side, which is why I don't like starting with fees,

Vanguard, who is the big low-fee provider, Vanguard has a piece that says that a good financial planner will add 3% on average per year to your bottom line. And the reason is, is that it's not about the fee, it's about what they do or sometimes what they don't do. Meaning they don't do a lot of trading where you might think that you need to trade stuff often. A good financial planner might say, whoa, whoa, whoa, Nicole, back off the sell button. We need to ride this out, right? Which is another thing. If we jump online, you'll see the words soar and plummet a lot in the media, which are wonderful words. But when the market plummets, that's usually our time of

greatest opportunity, not the time to panic. And when it soars and everybody's high-fiving themselves, that's usually the time of biggest risk is when things look like, when you feel like you're a rocket scientist and you know everything, that's when you should be a little more fearful. So a good financial planner will help you think about that differently. So I know I still sidestepped the question about how much should we charge. But frankly, Nicole, I don't know. I seriously don't know. What I do know is ask what they do. Think about it objectively. And by the way, don't hire the first person you meet with. The more people you compare, the easier it will be to see whether a fee is going to make sense versus other fees.

And everybody's got a good sales pitch. If you meet with five people, it's no longer about the sales pitch. It's about the product and the relationship, which is completely what you want. By the way, one more piece of advice. I've been in a lot of financial planner offices. Two great things that you don't want in a financial planning office if you're going to meet face-to-face. Number one, the people that... Or even if you're just calling in in the people that answer the phone, the receptionist in every financial planning office I've been in is a direct reflection of the boss, which is the financial planner. And I'll tell you every office where the receptionist was horrible or seem bitter or mean or not happy, or didn't have the time of day for you.

The financial planner was the same. If you walk into their lobby and they've got Jim Cramer on selling sell, sell, sell, sell, sell, or Fox Business, CNBC, whatever it might be, and they're screaming and they're yelling and it's all about stock jockey, I don't want that either. You should get out. I want the travel channel. I want something that a financial planner should calm you down, should show you how you can live bigger and do more. Nat Geo. Exactly. And I'll leave you one more. When you meet with a financial planner, whether it's virtually or locally, if the financial planner starts off with product and not process. In other words, if you and I are meeting Nicole and I say,

Nicole, tell me what your goals are. Tell me what you're trying to do. That's what you want. If they start off with, hey, I got this thing. Let me tell you how it works. This is a phenomenal thing. You've got to hear about this. You need to run because they're a product salesperson, not somebody who's helping you get where you want to go. For today's tip, you can take straight to the bank. I've said it before and I will say it again. Financial apps are all really similar. Your success will be more about how you use the app, not which app you use.

Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team, Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as

always, thanks to you for finally investing in yourself so that you can get it together and get it all.