What Your Financial Advisor Isn't Telling You

In this special episode of Better Returns: Invest Like a Pro, Matt and his friend, Kunal Dewan, have a little “Fireside Chat” to tackle the burning question: What are financial advisors not telling you? The conversation delves into the conflict of interest that some financial advisors face when selling investment products that they make commissions and fees from and how this can limit retirement investment options. If you want to avoid the pitfalls of the financial advisory industry, tune in to this must-hear podcast and learn how to take control of your investments.

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Transcript

welcome back to better returns we've got a special bonus episode for you today it's called the fireside chat with a close personal friend of mine Canal Dewan we're just going to chat a little bit about we we talk on a weekly basis pretty much for maybe an hour or two about real estate business and life today we're going to talk about financial advisors financial advisors by definition are the people who are fiduciaries of your money the question today is are they really genuinely watching out for your long-term goals that this is a topic which creates a lot of different types of feelings because on one hand I'm busy I have life I have kids I have work I have business I have friends and I'm putting all this trust on this person who is certified and licensed and went to school to run the models and complex analysis but at the end of the day they're selling a product that they bought from their vendor in a more simplistic way so they're trying to fit my retirement plan in that box of products so my circular retirement plan it doesn't fit in their rectangular box so me and you have been talking about it for I don't know so many I mean I live in Southern California mad and used to live in San Diego and this is where the I would I call it one of the hubs in the country because people are busy you know or they have generational wealth and they want to live life either by choice or because of ambition so the role of financial advisors has just become extremely critical in past few decades and but yet the retirement plan is still the same that it was ten decades ago yeah put it in the stocks so in today's episode Matt I'm so glad that you're doing this in in today's episode let's let's talk about everything we have talked about hours if a good financial advisor a true fiduciary of your Capital perhaps is he the true driver of your generational wealth exactly exactly so the first one and I talked to investors all the time and uh and quite often they'll say well I've got a financial advisor to take care of all that and then I always politely ask some probing questions like so how are you Diversified that's the the number one well I've got stocks bonds and mutual funds and I'm in you know different Industries within that but then I would say well you're still in the stock market you're still counting on companies to report their profits and earnings and they're in markets it became being manipulated the data's manipulated the market can be manipulated I'm sorry you're really Diversified if you're only investing in paper stocks then that's that's the big questions I always have for them nicely and then we'll talk a little bit about real estate how much different that is do you agree 100 Matt 100 I was talking to a buddy of mine and he did his Masters and then his PhD computer science masters and his PhD something in finance and at the end he ended up working in algorithm algorithmic trading which is the fast trading right and what he was talking to me about is the hedge fund so he used to work he had worked a few hedge funds in in past decade or so what he was talking about is there are software engineers and developers and I.T people who were hired by these hedge funds to create very focused Niche software and codes to do really high fast Trading right and these are not like a few hundred million or even a few billion dollar hedge funds these are big ginormous uh money movers right so when you talk about manipulation that is I did not know that until I spoke with him at the golf course after the second glass of wine you know that they have the power to move the Market within minutes and the retail investors the me and you the the 401ks and the uh the self-directed IRA they're just sitting in a a raft you know High choppy water raft just going for the ride they have no power to maneuver that raft because somebody else is controlling the tide So when you say diversity and manipulation and this is what comes to my mind you 100 correct I agree so the Counterpoint to that really is real estate this is particularly the stuff that we invest in a large commercial apartment buildings these are physical assets value typically doesn't ever go to zero because it's a physical asset it's insured if a hurricane rips off the roof it's replaced and by the way we get covered by the insurance for the Lost rent loss of income um and it's not something that's manipulated it's a local market you know wherever you're building physically is at if the job growth and employment growth those things are strong you've got a good property there um and it's just one of those things that people don't realize that okay even precious metals there's other things you can do outside of Wall Street but you're not Diversified if you're just buying what your financial advisor is selling you fortune and I think that's a travesty that people don't see that and that's why we're out here trying to educate people about this so what else what else want to talk about I I kind of alluded to like the conflict of interest with a financial let's talk about the products that they typically sell I wanna I wanna ask you this question this is one of the my investors asked me this question then so the investor asked me okay look I got kids and I want to focus on my summer vacations I want to plan those trips right so I don't want to think about uh where to put my money right so I trust my advisor and he is planning my retirement you know the gentleman has has a good career you know he's 20 years in in his career and probably hasn't a decade or so left until he quote unquote retires right so the question for you Matt is you know the fiduciary if really is looking out for this long-term plan for his client do they really refer out if if the plan for their client the investor is to create a certain amount of wealth cash flow tax savings like there's so many nuances right is that fiduciary the financial advisor referring out that client to some other fiduciary or in or possible investment sources to fill that plan out to the T what are your thoughts on that I've I think I've heard of one that actually do this because most financial advisors just say oh invest in stocks bonds they want to asset under management let's face it you know everyone's out for themselves they want assets under management and if you go and invest in a private placement memorandum with a large apartment complex they don't make any money off that so I've only heard of One financial advisor that actually endures saying yeah go outside of my product offering and go and invest in real estate all the others say nope nope that's way too risky and they don't know anything about it by the way that's too risky just sticking stocks and bonds just the stuff I sell and how can that be good for every investor to only buy what your financial advisor is selling exactly again I've ran across one person that said yeah my financial advisor said it's okay to invest with you man all the others just know I I can't do this because somebody else is telling me not to yeah right on so Allah I responded to along similar lines that in the world of business you know nobody wants to say bye bye to the money that's coming to them you know so that kind of goes against the word fiduciary because here you are planning and implementing somebody's life savings which is tailored to that person right so this is probably the biggest reason that financial advisors do not want people to invest in real estate because they are not real estate experts and they don't want to that money to go outside their control so perfectly I agree with that and and the second part of my response was that ask the financial advisors okay why not if you say it's too risky okay let's write down all the risks and that compare to the other risk that we have on stock market that you can't even control over here I can call Matt Matt has an offering and the offering was supposed to do 15 percent it did 14.9 Matt why did I lose my one point and Matt can say hey it's 14.9 because of or depreciation or hey you already got whatever that is there's a there's a response there's a there's a transparency so ask a financial advisor why is it risky and compare that to the stocks that you can't even control and perhaps then make a decision if diversifying because we are not saying pull everything out of stock market that's not what we are talking about right man right right you can invest in stock I've got a little money in the stock market still but I don't have a hundred percent exactly even 80 percent what we are saying is don't when the true diversification is do not put everything in the market that you can control rather understand the risks of each either private offerings or stocks and bonds through a financial advisors and then make the call that fits your retirement plan isn't it that's excellent yeah and and I think the other element is um and I did this you know I was a young person started out in a big corporate job and I maxed out my 401. yeah in 30 years I had a lot of money but I'd wait 30 years had I taken some of that money not maxed it out just did the company match in my 401k and invested in real estate or something outside of that that exponentially grows quicker because it's not a long term and that's what the stock market's about long term over the average you're going to make great money but the upside is not near as much as buying a 30 million dollar apartment complex renovating some of the units over the next two or three years and then selling it for 45 million dollars and making a 15 million dollar profit and sharing that with your investors that's a huge boom I mean most of my investments kick out close to six digit returns that's never happened in the stock market and it's and as we talked about risk it's actually a little lower risk than being in the stock market for 30 years I can do this in five or six years so why wouldn't you I think that's that's another thing is like their time Horizon and you you mentioned this earlier I'll still your Thunder's like they never talk about cash flow it's just about building Equity Building Equity you have all these stocks over time well you invest in real estate if you do it well you can usually get a little bit of both and the equity is Big at the end because you're you're a physical share owner share owner of these um these apartment assets but that's that's another thing I can be chatted a little bit about yeah I nailed it and that's why we chat for two hours three hours it keeps going because these you know these eye popping moments that a majority of people do not realize yeah retirement is great yes wealth is great yes Equity Building is awesome but what about cash flow today that's just the cherry on top because stock is great it builds Equity wealth you know yeah beautiful well you can do the same thing real estate just as you said but what about you could get an extra five percent which is five thousand dollars over a hundred thousand dollars year over year consistently and yet save on taxes a fiduciary does not talk about that and I wonder why you know we wonder why give that choice to your client if you are truly a fiduciary and let the client make a call what's fits the best for them yep yep so I don't know what the remedy is for that like you you post some really good questions just ask your financial advisor like what about real estate you know what what was the reason and we're talking about passively investing you don't want to go out and buy a bunch of single-family homes and flipping that's a whole business and industry that that's a lot of work I've done that a lot of people I know have done that nah you really want to look at the more the passive investing avenues like at least explore the options and ask your financial advisor if your portfolio should include more than just paper stocks I think that's really that's our whole message here and if not why why shouldn't you exactly you know because we want to compare apples to apples flipping single family homes or buying single family owns or even buying a unit by yourself and collecting rent that's not what we're talking about because that's not what we do in stocks bonds and equities in the market we buy and we just put your hands off what is the similar real estate investment you know private offering syndication you put money and hands off but only one of them creates an exponential wealth over a true long term creating tax advantages and cash flow so Apples to Apples and mitigate the risk between the two and then make the call with your advisor exactly exactly any other tips you want to share Canal you think people should be saying asking their financial advisor I I would I would my tip will be ask the questions to the advisor then ask the same question to a sponsor like me or you and compare the answers

and then decide what's the right Financial path or a mix I mean they're probably the right answer is mixed I mean of course I'm biased I'm going to say yes all in a real estate yay but that's not the right answer because then I will not be the right fiduciary right the right answer is the the road in between depending on the age depending on the goals depending on the capital depending on the risk there's so many factors a true fiduciary be the advisor or be a syndicator or a sponsor like me and you will give you options that's my last uh tip to all the listeners out there golden nuggets golden nuggets we hope everyone enjoyed this episode we're going to be bringing these to you occasionally's fireside chats with just canal and I shooting the breeze sharing our thoughts you know we're seasoned investors been doing this a long time we've seen a lot and you know this is this is our opinion and hopefully that enlightens you makes you think a little bit more about how your Investments should be managed as well thanks so much have a great day