Wise Money Tools

The Financial World Has Changed

I was reminded today of the massive changes that the financial systems have gone through in the past 35 years.

It's been good for the do it yourself consumers, for the most part, and it's been really good for Wall Street, but not right away.

When I first started in '85, we had one quote machine in the office. We didn't have computers on our desks and everything we did was by hand.

If one of my clients wanted to buy stock, they would call me, I would call the trade desk or go to the quote machine and get the bid and the ask of the stock.

If my client liked the price I would take out my order pad, write down the ticker symbol, how many shares, and if was a market or limit order.

Then I'd call in to the order desk, place the order, and hope it was filled quickly.

When the order was filled, I would get a call, write down the fill information on the order sheet, and call back my client.

Then I'd put all the orders for the day on a ledger and file it away for 3 years.

The cost to buy was generally 3% and the cost to sell was 3%. As you can imagine at those rates there weren't a lot of trades in an account.

Think about it, if you bought a stock it would have to basically go up 6% before you even started making money. 3% on the front end and 3% on the back.

That could take a good part of the year or even longer depending on how well the market and that stock was doing that year.

A $10,000 trade order would cost 300 bucks to buy and another 300 bucks to sell, assuming you sold it for the same price, it would cost you more if the stock had gone up.

Very costly, right? Or so we thought…..

About 1987, computers began to be more affordable. I remember getting my first one, with a dot matrix printer, I thought I was in the big leagues now.

A year or two later we could subscribe to stock market quotes.

It was really expensive for live real time quotes and you could save some money if they were delayed 20 minutes.

Think about how that is today.

You can get an instant quote from 20 different website all day long for free.

Some brokerage firms will even display a constant stream of the market right to your desktop or device.

Then something interesting happened. The internet came along.

Information was being disseminated quickly and to about anyone who wanted it.

I'm not sure who was first, but the next thing to happen was discount brokerage firms popped up.

The first ones had flat fee trades of 97.00.

I know, that's crazy to think about now days, but back in the late 80's that was a bargain.

From that point on it's gotten cheaper and cheaper.

I remember 10.00 trades, then 7.00, then 5.00 and now with M1 and Robin Hood you can trade for free.

The bid and the asked have narrowed as well.

What does that mean?

When you buy a stock, you pay the asked price and when you sell it you pay the bid.

As an example, suppose you want to buy 100 shares of a stock who's asked price is 10.00.

Back in the day the bid might be 8.50, meaning if you bought the stock at 10, if you wanted to sell it you'd get 8.50.

Buy at the ask price, sell at the bid.

Another way to remember it is you always buy it at the highest price listed and sell at the lowest price.

The brokerage firm makes the spread.

So, before you made any money, the bid had to go up 1.50, to 10, and then you had to make up for your commission of 3% too.

And then you had to factor in the 3% commission to sell. All told you may lose 10% just between costs and the spread between the bid and ask.

This is why people bought stock and rarely sold it. They held on to it for years if not decades. A lot of investors took delivery of the stock certificates and then put them in a safe.

Costs were so high, and no one day-traded.

Day trading become most popular during the dot com boom when you could trade for pennies.

By the mid 90's discount brokerage firms were taking over Wall Street, and access to instant information was at your fingertips.

Then brokerage firms offered cheap margin accounts so you could leverage your money and trade all you wanted for a fraction of the cost.

Did it help the investor in the end? Nope.

Few day-traders make money long term.

They get confident in up markets, and then suddenly during a crash their trading system doesn't seem to work so well.

The long-term investors like Buffett bought a stock in the 1960's and never sold. They've done so much better than day traders.

In fact, that philosophy has made him one of the richest men in the world.

Now Buffet didn't do it because he couldn't afford the commissions, he simply realized that if he were to buy great companies, when they are at a bargain price, he could hold onto them forever and do very well.

Most investors don't have the kind of patience and certainly not the confidence that they picked the right stock.

Brokers don't get it either, they think in order to be worth their salt, they need to constantly be moving client's money.

I'd say a good majority of the investors and brokers out there are actually speculators, not investors.

I'd bet most people don't know what they own or why they own it and what's a good buy price and what would have to change in order to sell.

Brokers don't do these kinds of analysis, they ride with the tide and what's popular, and because of that they rarely, if ever will beat the market or protect your money in a crash.

Most people I see out there hand their money over to mutual funds or advisors and hope the advisors knows what they are doing.

Now that we have instant trading, quote machine on every phone, you can trade all day long for pennies, and never make any money….and often times lose it.

The other thing that has changed is brokerage costs to buy and sell have been essentially eliminated, and now the word on the street is to charge fees.

It's called "AUM" and it stands for assets under management.

I was listening to an advisor talk about getting as much AUM as possible, that's how he assures an annual income for himself.

Look, Wall Street wasn't being generous and charitable to eliminate commissions for stock trades.

It is tremendously more profitable for them to charge fees. Let me show you.

Think about a guy who has 100,000 and back in the 80s buys 5 stocks for 20,000 each.

He pays $3000 to buy those stocks. Then most likely doesn't sell them for 20 or 30 years.

Using a very crude 9% growth rate, and no dividends so all his equity is stored in the stock price and when he sells, he'll pay capital gains tax rather than ordinary income tax.

Anyway in 20 years his stocks at 9% grow to $506,400.

If he sold the old fashion way where he pays a whopping commission, he'd get a bit of discount for the size of the trade, but let's say it's still 2%.

Cost to sell, $10,128. Total cost to buy and sell $13,128.

He then has a taxable gain of $396,272 (does not include his original 100k investment) and at 15% (plus state taxes) he'd pay roughly 59,440 in taxes and have 336,832 plus his 100,000 for total of 436,832.

The broker makes his commission and all is well.

However, now that brokers charge fees instead of commission, and we think, great we're finally sticking it to those commissioned brokers. Let's see how it turns out.

Suppose the broker says, we don't charge commission, trade all you want, we simply charge a 2% management fee and we'll trade, watch over, and protect your stocks for you.

Now because there is no commission to trade, chances are the broker will have you trading more often than not.

Rather than doing the research and holding on to one company for 20 years, they have you moving in and out of stocks with the tides, usually over diversifying you money because they don't know how to buy stocks, they simply oversee the process.

This will often times cause short term gains which are taxed like ordinary income.

So how does this same person fare?

Remember commissioned broker took a total of 5% for both the buy and sell and the buyer held on to the same company for 20 years. It cost just over 10,000 for those trades the old-fashioned way.

In addition, the broker had to wait 20 years to make half of his money.

If the fees were only 2% a year, over the next 20 years instead of his stock portfolio being worth $506,000, it would only be values at 386,000.

A difference of $120,000.

It cost you $120,000 in fees because Wall Street convinced you that fees were better to pay than commissions.

That is $110,000 more than the supposed high commission way, if you paid 10,000 in commissions.

Can you imagine if a broker asked you to choose -

Would you like to pay us 10,000 over the next 20 in commissions?

or over 110,000 in fees?

Duh….

What was interesting is listening to this financial advisor on the radio on Saturday, he was talking like this was a good change for the industry.

He was saying that you can even find advisors who will work for 1%.

Using our same numbers that means instead of paying 10,000 in commission you would pay $94,000 in fees.

Over 900% more in fees and again likely less than average return because they move money around too much.

Oh it was a change a big change since 1985 alright, a big change for the good for wall street, not so good for you.

It reminds me of the story of the couple who went to this very ritzy yacht club and saw all these beautiful yachts.

They asked one of the deck hands, who owns all these yachts. The boy said, oh, these are mostly owned by Wall Street advisors and Walk Street execs.

The man then asked, where are the yachts of their clients?

The boy walked away perplexed….

It seems the clients paid for Wall Street to live pretty well.

Now let me say this, there are advisors who are worth their fee.

They do something unique or better, they protect your money from large downside losses or get you better returns than the market average because they understand investing.

They don't simply put your money in a "diversified" portfolio and pretend they know what they are doing.

They actually earn the fee because you do better in the long run.

If you are paying an advisor to buy mutual funds or index funds, time to move on and save boatloads of dough!

And don't get me started on 401k fees, this is pretty much the scam of the century!

Want to hear a real crime in pension funds? The fees can be as much as 6% on portfolios earning 4%.

This is why we have underfunded pensions – Wall Street is charging fees, it's death by a thousand cuts!

They go upside down every year and no one really cares because at some point they think the govt will bail them out.

If you have a pension, you might want to see if it's on the list of underfunded pensions. You may not like the long-term results.

Now if there was something good come from all this is that you can do a lot of this yourself.

You can open account learn to invest for nearly nothing. But you have to understand HOW to invest.

You can't listen to the barber or your co-worker, you've got to put in the time!

If all you're going to do is buy mutual funds or the index, you can get very low-cost funds and do it yourself.

You can easily do that without an advisor. Quit paying fees for nothing….and I can about guess 99% accurately that you're overpaying for what you're getting.

There are very few advisors who are worth their fees….

Again, if an advisor can give you better than average returns on the upside or protect losses on the downside, that might be worth paying for.

That means even after fees, you're going to pocket more than you would have on your own or with other advisers who simply roll the dice and buy you 5 different mutual funds and cross their fingers the market will go up.

Let me end by this.

One of the reasons we do what we do, where we invest into safe, guaranteed investments, and then let the magic of compounding and leverage do the heavy lifting is because we can typically get better than average returns, safely, and so that you can set it and forget it.

The plans we put together have often outperformed Wall Street, with less to no risk, and tax-free, freed up liquidity, better than average income, and you can leave a legacy too.

You don't need to cause ulcers and anxiety over your money. Keep it safe!

I mean c'mon in this day of technology and easy access to financial markets, banks, and insurance companies, it's time you put that technology into a plan that will produce for you.

Without fees!

Check it out….

You are welcome to have a strategy session with me, see if it's a good fit. If not, no worries…

Best part is you won't pay annual fees, and you likely beat the market too. It's kind of a win/win.

Well that's it for this video….

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Strat session

Take care….

Hey guys….

Welcome..

So, the other day, my partners and I were talking to an advisor who worked for a big firm.

It was a big firm, been around for well over a century, and this advisor was really interested in doing the right thing for his clients.

He had found us on this Wise Money Tools YouTube channel and wanted to learn more.

What was interesting is this advisor had been in the business for over 15 years.

He would be considered a "seasoned" advisor and had been working with clients in helping them with retirement and other financial objectives.

As we talked to him, and went through our processes and how to build wealth in such a dramatically different way than traditional financial planning….

He was sitting there, and you could see the change in his face….he was nearly dumbfounded.

Almost speechless.

And you could see the wheels spinning in his head.

The questions he was asking himself were written on his face as he sat there perplexed,

wondering how come he'd never heard of this simple, concise, predictable way to build and sustain wealth and income.

It struck me that we were watching the Truman show….

Have you ever seen the Truman show?

It's about a guy who grew up in a movie set.

Everything, everyone, all that he knew was staged and he was the star, but had no idea he was.

Then one day while sailing he noticed something odd, there was a wall.

He followed the wall, to some stairs and ultimately to a door.

Where was he at?

He was at the back wall of the set that he'd grown up behind.

His entire life was staged and he was about to open the door to a whole new world, the real world if you will, a world that had been hidden from him.

At the door the director finally broke his silence telling him, don't go out the door, it's a too big and too scary out there.

He ended up taking a bow and walking out the door.

Its then that those outside the wall, jumped and shouted and were excited he finally escaped the movie set that he grew up in.

That is what it felt like watching this advisor.

He'd been raised, or trained, in a world that was behind the Wall Street wall.

He's been part of a financial world that is protected by the thousands of advisors that sell mutual funds and investment produced by Wall Street the firms that are part of the "set"

The firms keep all of advisor and their clients behind the wall.

They want you to stay on their set and not try to leave.

Investment advisors are part of the actors that keep the illusion of Wall Street and traditional financial planning behind the wall.

They have convinced their clients, themselves, and each other that there is nothing beyond the products and services they sell.

And sadly, many of them are simply extras, believing in the illusion and not seeing the wall or looking for the door themselves.

They are convinced there is nothing better than you paying fees riding up and down with the stock market, keeping your money, and your future at risk.

They need you and want you to keep throwing your money into any products that wall street has created.

They need you to keep paying fees so that their future and their income is secure, but not yours.

The Wall is what keep you in, the actors and advisors hope you'll never find the door.

So, this advisor was beside himself, jaw dropped, and confused.

How come he'd never been taught these simple principles about money, safety, and leverage.

He along with the other players in the "Wall Street show" never thought there outside the world they live in.

He had finally opened the door, and when he went out he saw there were many of us who walked out the door years ago.

He sat there and wondered why others, such as his mentors, his trainer and several managers, had never exposed him to these concepts.

We had to break the news to him, that the principals and managers of these firms are kind of like the director.

Some may know, some don't have a clue, but when they do learn about these strategies, they have to keep it quiet, under wraps, and away from their advisors or they take a chance the advisors will walk out the door.

They could lose their entire business the build and advisors that they trained, and that's too much of a risk.

Better to keep the advisors and their clients in the dark, safely behind the wall.

Back in the mid 80's when I started in this business.

I worked for a big firm and I was captive, meaning I could only sell what they allowed me to sell.

I remember picking up the financial planning magazine and seeing articles and advertising for other products and investments that I could not sell.

Many of them I felt were better choices for my clients.

It bothered me, because my purpose, if you will, was always to provide my clients with the best products that I could.

It never dawned on me to just sell stuff, I wanted to do what would help my clients.

How could I be an objective advisor but only could offer my clients what the firm I worked for allowed?

Seemed I was at odds with my firm in behalf of my clients.

I ended up leaving and starting my own firm 18 months into the business. I knew it would be a risk, but I had to have access to the best products for my clients.

So, you could see what was going through this advisor's mind.

The light come on, he had seen a peak beyond the Wall and saw a whole new world.

A world that had not been open to him before.

A world that his previous firm would prefer he'd never known.

A world that Wall Street had prevented him from seeing.

And now, he was about to walk through the door….

It's always exciting to see…because I know, back in the day, I was Truman too. I was behind that wall.

Sadly, most advisors, like Truman for most of his life, didn't even know that they are behind the wall.

Then you have the dyed in the wool advisors, if you ask them about the wall, or ask them about products and services they don't know about, let alone offer, these guys are the first to tell you, that there is no wall.

They may know, they may not know, but to say there is no wall while basking under the lights of the movie set, is putting the blinders on.

They aren't searching, they aren't looking to see if there is something beyond the wall.

I started diligently looking after 2 crashes, a recession, and dot com bust.

I could no longer be an "actor" in this wall street movie. I had to find a better way.

Advisors are still pushing the same old traditional financial planning products even after they realize it's not working.

Just yesterday listening to a traditional financial advisor on the radio spewing the same thing I've heard for 35 years.

The market will recover, hold tight, and he felt no guilt that his clients have lost 20-30% of the wealth.

His answer was, just keep sailing, pay my fees, and pay no attention to that wall right in front of you.

Hopefully, his client aren't retiring this year, or in the next few years because they just lost a substantial part of their wealth.

Their 401k, their mutual funds and potential income are all down, all while paying fees and hearing, "don't look around, there is nothing better than what I can offer."

What they offer you inside this wall is all they have.

There is a wall street wall, they say they've got everything you need.

Things are changing. Wall Street is losing its grip on advisors and a few of them are looking around.

Some are finding the door. Some are keeping the blinders on, and firms are trying to keep their advisors from seeing the wall.

We're already outside and the world is so much better for our clients.

It's an amazing world outside of the wall…

So, my question to you…..

Are you ready to see what's outside the wall?

It's pretty exciting…..

If you'd like to see how your situation can change on the other side of the wall,

If so, click on the time trade link below, set up a time for us to have a strategy session.

Well, that's it for this video….

Don't forget to subscribe, never miss a video,

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Take care….