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Investing Specialists

Alan Moore: What Millennial Investors Want

The XY Planning Network cofounder discusses serving younger clients, the trading frenzy in individual stocks and cryptocurrencies, and the future of a fiduciary standard.

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Our guest on the podcast today is Alan Moore. With Michael Kitces, Alan cofounded XY Planning Network, a support network for advisors looking to serve younger clients. He is also the CEO of AdvicePay, which is a compliant payment processor for financial advisors. Alan has been recognized by InvestmentNews as a top "40 Under 40" in financial planning, by Wealth Management as one of a "The 10 to Watch in 2015," and was the first recipient of the NAPFA Young Professional award in 2015. He is a certified financial planner, and he is also the host of XYPN Radio podcast.

Background

Bio

XY Planning Network

AdvicePay

XYPN Radio

Serving Millennial Clients

Forget About Retirement Planning for Millennials,” by Alan Moore, Money.com, Feb. 10, 2015.

Why Do We Work With Younger Clients?” by Alan Moore, xyplanningnetwork.com, Oct. 16, 2017.

When Subscription Fees Work,” by Christopher Robbins, fa-mag.com, September 2019.

How Advisors Can Attract and Profitably Serve Millennial Clients,” by Alan Moore, xyplanningnetwork.com, Aug. 29, 2019.

9 Keys to Building a Practice Focused on Next-Gen Investors,” schwab.com.

The Boomer-Millennial War in Planning Is Real,” by Eric Rasmussen, fa-mag.com, March 17, 2020.

The Future of Advice

How to Create a Business That Supports Your Great Life,” by Alan Moore, linkedin.com, July 13, 2015.

Don’t Be Afraid to Grow Your Firm,” by Alan Moore, xyplanningnetwork.com, Sept. 3, 2018.

Niche Advisors Grow Faster,” by Samuel Steinberger, wealthmanagement.com, Sept. 10, 2019.

Why a Niche Model Helps Advisers,” Morningstar.com, Sept. 23, 2020.

Have You Found Your Niche?” by Greg Dalgetty, investmentexecutive.com, Sept. 16, 2020.

7 Takeaways on the Future of Advice: Morningstar Panel,” by Ginger Szala, thinkadvisor.com, Sept. 17, 2020.

Financial Advisors Are Becoming More Digital, Specialized--and Affordable,” by Evie Liu, barrons.com, Sept. 17, 2020.

Fiduciary Standards

Fiduciary Oath

What Is a Fiduciary?” by Alan Moore, xyplanningnetwork.com, May 7, 2014.

XYPN Pivots From Supreme Court to States in Fiduciary Fight,” by Patrick Donachie, Oct. 12, 2020.

Transcript

Jeff Ptak: Hi, and welcome to The Long View. I'm Jeff Ptak, chief ratings officer for Morningstar Research Services.

Christine Benz: And I'm Christine Benz, director of personal finance for Morningstar.

Ptak: Our guest on the podcast today is Alan Moore. With Michael Kitces, Alan cofounded XY Planning Network, a support network for advisors looking to serve younger clients. He is also the CEO of AdvicePay, which is a compliant payment processor for financial advisors. Alan has been recognized by InvestmentNews as a top "40 Under 40" in financial planning, by Wealth Management as one of a "The 10 to Watch in 2015," and was the first recipient of the NAPFA Young Professional award in 2015. He is a certified financial planner, and he is also the host of XYPN Radio podcast.

Alan, welcome to The Long View.

Alan Moore: Thank you so much. I'm excited to be here.

Ptak: We are excited to have you. One of the catalysts for starting XY Planning Network is that younger clients don't have enough investment assets to qualify for advice from advisors who charge based on assets under management, but such individuals often have high incomes. Can you talk about why having clients pay a subscription fee makes sense in that context?

Moore: Absolutely. We started XY Planning Network seven years ago, and at that time, there were really no advisors charging what we would call “fee for service.” There were some hourly advisors, but really, it was either a short-term hourly relationship or just an asset-based relationship. So, if you have $1 million in assets, typical advisory fees is 1%, that's a pretty good business model. If you have nothing, 1% of nothing is not a good business model. And so, advisors just weren't working with clients who simply didn't have investable assets, investable net worth.

And so, what we did was, we wanted to create a business model that allowed advisors to work with clients and for consumers to be able to access fiduciary financial advice even if they didn't have millions saved. And so, we come in all forms. I'll put myself in this category where I don't have $1 million in an account waiting to be managed, but I have a financial planner that I pay a quarterly retainer fee to. But we have lots of clients that have stock options, that own businesses, that own real estate, or simply haven't yet had enough time to save to be able to achieve some of those asset minimums that advisors were charging. And so, it's all about getting fiduciary advice in the hands of consumers to really help them ultimately achieve their great life through financial planning and working with a trusted advisor.

Benz: One question I have is about the subscription model and whether people are suffering from subscription fatigue. We have all of these subscription fees that we are paying for video streaming or coffee or gyms, whatever. Those can be budget killers in their own right. So, do you get any pushback from consumers that they just rather not have another ongoing bill dragging on their budget?

Moore: I don't hear that a lot from consumers. What I do hear is, “Hey, what I really need is to one-time plan. Maybe I just have a few questions; I just want to get a plan and then I'll self-implement for a while.” And so, it's less about subscription, monthly versus quarterly and that sort of thing. It's more so one-time versus ongoing. And there's absolutely room for both. And from an ongoing perspective, it's up to the advisor, obviously, to show value to their client, to show that ongoing value. And if they are showing that they are helping clients, but make good decisions, as well as avoid bad decisions--so much of the value of financial planning is helping clients avoid making mistakes, avoid selling at the bottom of the market, avoid investing in their brother-in-law's business that they really shouldn't invest in, or loaning money to someone for whatever reason. Helping them avoid those decisions are really the critical steps and the critical value that financial advisors provide their clients. And so, as long as the advisor is showing value, we don't see any issues with subscription fatigue or fee fatigue, again, as long as they are seeing the value.

Benz: Is that one-time-type service available? So, if I'm looking for an overall one-time review, would an XY planner be able to offer me that type of service?

Moore: Absolutely. Many of our advisors do offer one-time services as well as ongoing. We are really focused on being sure advisors are focusing on a particular niche market, a particular client profile and client problem that they are an expert in solving. And some client profiles are much more likely to want to do one-time plans. Probably on one extreme would be your FIRE investors, your Financial Independence, Retire Early. They are not going to pay an ongoing fee for a financial advisor, but we do have advisors that specialize in working with that client base. And so, they may be more likely to pay a one-time fee and looking for an advisor that 1) charges in that way and offers that service, but then 2) speaks their language when it comes to their goals, and they are not going to try to talk them into working till they are age 65 and saving up millions of dollars in their 401(k), because that's not what they want to do.

So, yes, our advisors offer a wide range of services and fee structures, the most important thing being that our advisors do not earn a commission on the sale of any product. So, all of our advisors are fee-only, meaning, they are not incentivized to sell you a particular investment or a particular annuity or life insurance policy. They are a fiduciary. They are an advocate. In the end, they are doing what's best for their client. And you can trust the advice that they are giving, because they are not ultimately earning a commission.

Ptak: If I'm paying an XY advisor an ongoing fee, how much of the planner's time am I entitled to? Have clients tested the limits of what it means to have a planner on retainer?

Moore: It's a great question, and it will come down to each advisor. I spend more time with my advisor probably because I have a lot going on as a small-business owner, and I've got three kids with my oldest being six, and I'm buying a house and renovating right now. So, there is just a lot going on in my life. And so, I may work with my advisor more this year than I did last year, or that I will next year. And my advisor specializes in working with clients like me, and therefore has structured the service model that it's appropriate.

So, from a client's perspective, you should be able to get your questions answered, you should be able to engage with your advisor. And if there is any lack of clarity, if you are feeling like, “Should I reach out, should I not?” Just ask the advisor to help set expectations, to understand levels of access. Can I email you whenever I want? Can I call you? Can I text you? Can I only talk to you in our two, three, four meetings a year? And be sure, especially early on, but if you are already in a relationship with an advisor, just be sure that you are aligned with their expectations and your expectations. And from the advisor's perspective, it really is about understanding that target market and their needs. And if you work with clients that have a lot of stock options, then you understand there's going to be some slow years and then that company may IPO one day, and it's going to be a really busy year for that client, and that's OK, and price that into your model.

Benz: Objectively speaking, it seems like one could make a pretty good case for the hourly model being the fairest for consumers in that it aligns the cost of advice with the time the advisor spends on that client. Does that point resonate with you even though I know a lot of advisors are resistant to pursue that business model?

Moore: We could spend a few hours just unpackaging that question. So, in general, I do agree that hourly is a very fair way to charge fees for financial planning and for consumers to access financial planning. There is nothing wrong with hourly. The challenge that you run into with hourly is, while it may be a fair way to compensate the advisor for their time, many times it does not capture the value of financial planning. And as an advisor myself that worked on an hourly basis for a long time with clients, what I found was that clients waited to call me until they felt like they had $200 an hour worth of questions. And you know what, I do the same thing to my attorney and my accountant. So, I don't email my accountant or call my attorney every time I have a question. I wait, and I wait, and I wait too long. And it puts my attorney in a reactionary position where instead of being able to give me advice on the front end, they are trying to help me clean up a mess on the back end.

And that's what we found. And what we find working with clients on an hourly basis is that for certain clients, it's a great way to engage with an advisor. They are able to implement the recommendations on their own. They are able to continue monitoring their financial plan, their investment plan, and do so. But many clients are simply busy, and they go home with a list of recommendations, but they never actually implement them. They never actually put the strategies into place or monitor and a couple years goes by and then they maybe decide to finally reengage with that hourly advisor. Well, they never did get that life insurance policy and hopefully nothing has happened during that time period. So, what I find, and I think what a lot of advisors find is that we are simply more effective financial advisors with a lot of clients when we are able to maintain an ongoing relationship, when we are able to be more proactive as the advisor, we are able to monitor recommendation, implementation and such. So, I'm not here to say there are good business models or bad business models when it comes to hourly, subscription, retainer, project-based. There's a lot of ways to carve up that conversation. But in the end, I think it comes down to the way a client wants to engage with an advisor, and then how the advisor ultimately, in their ideal client profile, their market that they serve, what's going to make sense for them and the services that they'd like to be able to provide.

Ptak: To what extent does XY have a house view "on various matters" of financial planning, portfolio construction, or investment selection?

Moore: We really don't. So, we are a network of financial advisors, meaning we help them start their business, run their business, and grow over time. That being said, they are independent business owners. We are not a franchise, or what we would call an employee model. We are not a mega financial-planning firm with advisors attached to our firm. And so, we are here to support the advisors. We do have insights into more of the business metrics, technology they are using, revenue expenses when they choose to report that through some of our benchmarking surveys and such. I can't say, “Oh, 72% of our advisors do this investment strategy,” or anything like that. And so, it's just a little bit different of a business model in our space.

Benz: You cofounded a business called AdvicePay with Michael Kitces. What pain point or pain points for advisors does AdvicePay aim to address?

Moore: Writing checks. From an advisor's perspective, we are a heavily regulated industry. Every state has a state regulator that oversees the advisors in that state. And then, we have the SEC that oversees bigger firms. And there is a patchwork of regulation; there is a patchwork of requirements when it comes to how advisors are allowed to be paid. And so, not to go too much down the rabbit hole, but we have a concept in our industry called custody and custody means that if the advisor has the ability to take money from their clients' account without the clients' permission or express agreement, then we are deemed to have custody, which triggers a whole slew of compliance concerns. If you go back, the most famous case of custody was Bernie Madoff. Bernie Madoff had all of his clients' funds in his personal account, and therefore was able to do some of the things that he did.

Now, the rules related, and in reactionary to the Bernie Madoffs of the world actually, therefore, I guess they influence and impact the way that advisors can be paid. So, we are not allowed to take credit card numbers or ACH routing numbers, because in the end, we can use that information theoretically to take money from our clients' account without their permission. So, AdvicePay was built--it's a payment processor, payment platform for financial advisors to get paid for the services that we are talking about today. And so, it seems like a really simple problem. The challenge is, we are such a unique industry that really the only way to serve our industry was to build a custom solution specifically for this industry. And that's ultimately what we did.

From the client's perspective, it avoids them having to write checks for financial planning. If you pay your advisor, even if it's a one-time fee, or an ongoing fee of $200 a month, or $1,000 a quarter, whatever the fee is, many, many advisors are charging and having to require checks because they can't accept credit cards. Or worse yet, they are simply not offering the service. They are not offering a monthly subscription service because they don't want to deal with 40, 50, 100 checks coming in a month. And so, from an overall perspective, we saw AdvicePay and getting paid for financial planning on an ongoing basis as the last puzzle piece, the last piece of it all to allow advisors to really roll out a service that served this completely underserved or unserved market of clients that didn't have $1 million or more in investable assets. And so, from a client perspective, you are not thinking about how to pay your advisor on credit card or ACH. You just assume it's a subscription payment, you pay for everything. As you mentioned earlier, I have lots of subscription payments. Unfortunately, it's not that simple in our space. So, we created a solution to make it really easy for both parties to be able to ultimately engage with a financial advisor on an ongoing basis.

Ptak: Maybe we'll shift gears and talk about serving millennial clients. For starters, in what ways do younger clients tend to differ from older ones, say, those who are 50 and above? To what extent are those differences driven by level of wealth and to what extent are they generational?

Moore: It's a great question. One of the more interesting generational statistics is that younger generations are actually more willing to pay for financial advice than some of the older generations. And I think a lot of that has to do with how we have historically received advice. If I think of my grandparents' era, they went to the local bank, the banker sold them a CD and maybe sold them a bond or two, and that was really their financial advisor. And younger generations have access to so much information, thanks to the Internet and Google search, that they are really able to understand the complexities of financial advice. And I do think our financial world is getting more complex as there are more investment options, as there are more platforms, as careers are evolving. As we have become more self-sufficient from a retirement standpoint, we are no longer relying on defined-benefit plans, or pension plans, and/or social security. And so, generationally, we've certainly seen a bit of a shift.

From an advisor's perspective, or from a client's perspective as well, historically, it's not just that we've worked with older clients; it's that we've worked with older, wealthy clients. And for lack of a better metaphor, imagine that instead of financial advisors, we are athletic trainers. And so, we help our clients, our customers, try to win the Boston Marathon. So, we take marathon runners. They've done 50 marathons, they've been training for decades, and then we are going to help them win the Boston Marathon. That is sort of how financial advisors have operated in the past. They took people who already had wealth, who already had training, who already had good habits in place, and they've helped them really accelerate, tweak, and refine. And that's been a super-valuable service. But it was really geared toward those who already had wealth.

When you are working with younger clients, those who have not yet accumulated wealth or may never accumulate wealth, it's a different service model because the needs are different. We are not talking about tweaking a financial plan or an investment strategy. We are really helping our younger clients develop financial habits for long-term success. We are helping them develop saving habits and understanding their cash flow. We are helping them get on the same page as their partner on their long-term goals. We are helping them establish, again, that financial foundation for success. And I don't think it can be understated how difficult and how much work that really is specifically for the client to learn those habits. Our brain is not wired to make good financial decisions. We are not wired for financial planning to be easy. This is hard stuff. And advisors that choose to work with younger clients, millennial clients, ultimately are taking on a lot of that work of coaching their clients through many of these decisions. And so, what we see is that we've become behavioral coaches, work a lot with behavioral change, and helping clients make those good decisions early on.

Financial planning, when you are in your 20s, 30s, or 40s is really complex. There is a lot going on. I'm 34 years old. If I think about my life, again, buying and renovating a house, I am the co-owner of two businesses. I've got three kids. We want to take vacation. My wife works. We've got a lot going on. And for anyone to say, “I wonder what value Alan's financial planner provides him and his family” is laughable. Number one, our situation is complex, it is time consuming, but also, my family is at risk of me dying. And the only thing worse than I guess me dying is me dying and the family's financial planner dying at the same time. That's one of the big reasons we have a planner is so that if something were to happen to me, my wife and kids don't have to worry about both losing me and losing the one with all the institutional knowledge of our personal finances. And so, there's just so many reasons why young people should be engaging with a financial planner. I can't think of anyone I've ever met that I felt like, you know what, you wouldn't benefit from an objective expert helping you work through your personal financial situation. I think we can all benefit from that service.

Benz: We've had a few discussions on the podcast about financial life planning, which you've sort of referenced. Can you talk about, first, explain how you think about that concept? And does that type of planning tend to resonate better with younger clients who are still formulating a vision for their lives than it might with older clients?

Moore: We have a lot of terms in our industry like financial life planning and for the investors out there, a lot of that is because our industry is, while we are heavily regulated in some areas, other areas are very unregulated. And anyone can say, “Well, I do comprehensive financial planning,” whether they do or not, we're not really held to a certain standard of what that means. So, what we found was that advisors who were doing comprehensive financial planning--what I would call real financial planning--all of these folks who were doing it halfway or not doing a good job but still calling it the same service, they started looking for new terms, they started looking for new terminology. That's where financial life planning came from. And we've called it many different things.

But what I would say, to me, financial life planning is simply real financial planning. And when I say real, what that means is that it's fiduciary, it's advice; it's not a sales pitch, it's simply advice. It's focusing on the clients' goals. Historically, advisors have focused on, “How do we maximize your investment returns?” Well, that may not be what a client needs. Real financial planning to me, and the financial planning that our advisors and XY Planning network provide and really what consumers should be looking for, in my opinion, is an advisor who doesn't start with, “What's your net worth? How do we maximize investments?” They really should start with, “What do you want out of life? What are you hoping to accomplish? You get one life to live, what's going to make it great for you?” Because what makes your life great, what makes my life great, maybe very different. And so, really, developing that relationship with an advisor that helps you articulate your goals, which is really hard to do. That's not like, “What do you want out of life? Oh, I want these seven things.” That's a really hard conversation. And if you have a partner, they have their own list of things, and trying to figure out how do we meld those goals together into a cohesive strategy, a cohesive plan, is the hard work of financial planning.

The nuts and bolts of financial planning of how much life insurance and the investment strategy, that stuff is the easy part. Once you know where you are going, once you have a destination, and you've really defined your financial goals, developing the strategy to get there is the easy part. But the hard work really is that initial work. And so, what I would say is, many advisors will call it financial life planning, what I would call it is just good, real financial planning. And it's what I think all advisors should be providing their clients, and it's what all clients really should be looking for from their advisor.

Ptak: Since you mentioned goals, maybe it's logical to bring up ESG at this point. A few studies have concluded that younger investors are more interested in ESG matters than older ones. Have you and your partners in XY, have you found that to be true?

Moore: We've definitely seen the same studies where clients are looking to be able to match their portfolio to their values. So, what I should say is, yes, we are seeing consumers asking for that. What historically has been a challenge, and it still is today is that advisors don't--really advisors and consumers--neither one really have the tools to fully implement what I would call an impact strategy or an ESG strategy. Meaning that if I say, “I want the S&P 500, no guns.” There's not a system out there that I'm aware of that can do that, or at least do it easily. And it's not that simple. What are guns? Is it just the making of weapons? Is it the selling of weapons to certain industries? Can I buy Walmart, because Walmart does sell guns, but that's probably 1% of their business, if that? So, are they allowed? Are they not? And that's an individual conversation with every client.

What happens when two of my priorities can compete? And I say, well, I don't want guns and I don't want oil. Well, what happens if I need to have one of those in my portfolio for diversification? I'm not saying you have to have one of those two. I'm just saying, just for simplicity, what happens when those two are in conflict, which one wins, or which one gets weighted more than the other? And so, I do think, myself included, consumers are looking for the ability to invest in businesses they believe in, that support their values, that are aligned, that are doing the work that they are passionate about. We really haven't had the tools to implement those strategies. And so, it has been a very, very manual process that, quite frankly, has been fairly reserved for the very, very wealthy. This is not a common strategy that's getting implemented just because of the time-consuming nature.

So, historically, advisors said, well, just invest in the general market and donate your time. And even 10 years ago, that was an acceptable answer to clients. It's not anymore. And so, that is something that advisors are going to have to continue to face those questions and start to move that direction. I hope to see more tooling coming available to make it easier to implement some of those strategies, which we are starting to see but a lot of work to be done. But short answer is yes, we definitely see clients wanting to see their values reflected in their investments. We just have a bit of ways to go to see that really come to fruition.

Benz: Most financial advisors have switched to working with clients virtually during this pandemic period. What percentage of XY advisors or advisors in the XY Network have been working with clients virtually all along?

Moore: 100%, actually. So, that was one of our founding principles was that all of our advisors had to make their services available to clients virtually. And we did that for a couple of reasons. Now, they weren't required to be 100% virtual. They just had to offer it as a service. I mentioned earlier that we are big proponents of having a really specific niche market, a really specific ideal client profile. And historically, we worked with whatever advisor’s office was closest to our home or our own office. But as the Internet has given us the ability to really go out and find the expert in dealing with our situation, we are finding that advisors and clients are able to connect virtually and form a really great relationship, and those advisors are able to have a really big impact with those clients. And so, you may have stock options, or as an advisor you may focus on clients with stock options. Well, you have stock options in all 50 states. And we never wanted the geography to be the limiting factor for an advisor being able to grow their business. So, long-winded answer to say, 100% of our advisors work with clients virtually. They do on a range. Some are 100% virtual and always have been, some have--all have definitely done more virtual work in the last year--and some may only meet with 5% to 10% of their clients virtually, but all our meeting with clients virtually in some capacity.

Ptak: You mentioned some of the pros associated with working virtually with clients. There's efficiencies. It sounds like it facilitates niching to a certain degree. Maybe you could focus on some of the things you have to give up in a sense when you work with clients in a virtual context. When you're talking to an advisor that's considering joining your network and they are accustomed to meeting in person with their clients, and they have to make this jump to virtual, how do you prepare them for making that change?

Moore: I'll take one step back and add a couple to the pros list before I jump to the cons list. What we have found was that clients—1) Yes, they wouldn't be able to access an advisor who's an expert in their situation. But also, as we've talked about working with younger clients, one of the things is that younger clients are significantly busier than a baby boomer client that may be approaching retirement or is already retired. And so, just having to drive to an advisor's office, take time off work, all the things that come with an in-person meeting, what we found was a deterrent for younger clients hiring a financial advisor was leading to a lot of clients simply not engaging with the planner.

The other thing that we found pre-COVID, and I think advisors have now really seen the benefits of this is, there's something to be said for being able to enter a client's home even if it's virtually. Clients are a lot more relaxed in that environment. You are able to see how they live; you are able to see their values. In the end, if you want to see where a client's values are, just look at how they spend their money. And the home is a great way to see that. And there's no judgment there. It's just learning the client. And there are situations. I had clients, and I remember that when they had a newborn, I got to meet the newborn and the new cat that they got at the same time. But I also remember when baby started fussing and mom wanted to breastfeed, they just turned the camera. And so she wasn't on camera anymore. That may have been a really uncomfortable situation for her in the office. We may have needed to take a break. We didn't have to do that. We were able to just keep flowing. She could hear what I was saying. We could still communicate, but she was comfortable. And so, there are a lot of benefits to working virtually.

In terms of the drawbacks, I know there are so many concerns from advisors around about building trust. And if you go and read the research on what ultimately develops trust, shaking hands, meeting in person, none of those things are on the list. The ways you build trust are things like, do what you say you are going to do when you say you are going to do it; be a trustworthy person. Follow through, be honest, always be upfront and honest and candid. Be an expert. When you are giving advice, be sure you are giving advice in areas that you are actually an expert in. I'm not sure that there really are many drawbacks to meeting virtually. I think it's just new. I think it's something that advisors have not historically been accustomed to doing. And so, it's been a concern. I think what advisors have found is that they are able to form great relationships with their clients, whether that be in-person or virtual. And there may be things like, well, I like to do in-person client events. And if I have clients all over the country, maybe I can't do that. OK, that's fair. But I can tell you that I used to meet with clients that lived three miles away from my office virtually because they didn't want to drive, they didn't want to deal with parking. And so, you could have a local or regional-based strategy and still meet virtually with your clients.

Benz: You've mentioned that you are a big believer in financial advisors focusing on a specific niche. And most advisors in the XY Planning Network do that. We had Meg Bartelt, who is part of XY, on the podcast earlier this year. You know her. Her focus is women in tech. So, how do you encourage and help advisors identify those specialty areas?

Moore: When we think about having a niche market, many times we think profession-based--I work with doctors, I work with lawyers, I work with real estate investors. But really a niche is the problem that I want to help my clients solve. And so, Meg is a great example--she works with women in tech, but she really works with women in tech at pre-IPO companies. And she understands that world, she came from that world. She can talk to those clients about what they are going through. She can empathize with them in a way that I simply can't, because I've never been a woman in tech at a pre-IPO company. But she is also the expert on stock options. As she probably mentioned on the podcast, she is in a study group where they meet, I believe, weekly to discuss the latest research and commentary around stock and equity compensation. I do not do that.

So, if you are a woman in tech, looking for an advisor, are you going to hire me or are you going to hire Meg? There's no question. I have no chance to win that business. And so, what we do is work with our advisors to help them identify what are they an expert in, what is an area that they either are currently an expert in or want to develop an expertise into, to help clients solve a particular problem. And as they start to develop that, as they develop that expertise, what they find is that their business does grow significantly faster. We have data to show that we tend to spend a little bit less time per client simply because we are not doing a ton of research on the back end on topics we are not experts in. We were able to provide more value to clients because we are an expert. And therefore, we are able to really scale our businesses in a way that generalists are simply not able to do.

Ptak: Can a niche be too narrow? And then, maybe a companion question of that is what's a niche that has been on your or partner's list that really hasn't been exploited at this point where you haven't found the right person? Is there an example of such a niche?

Moore: Can a niche be too narrow? I don't think so. I mean, as long as there are, whatever, 50 to 100 people in that niche, you are probably going to be OK. Past U.S. presidents, maybe a little too specific. But even then, I bet our past U.S. presidents could afford a financial advisor in a way that you only need to work with one or two of them to be able to build a successful business. So, I don't think you can be too specific. I know advisors are concerned at times about what it means to really focus, which we can talk about separately. But I don't think you can be too specific.

In terms of unserved niche markets, the list of potential niche markets is infinite because you really can't be too specific. There's, what, 6 billion, 7 billion people in the world. We have a lot of opportunity to be really focused, because you only need, again, 50 to 100 clients to really build a successful, sustainable business. And so, if you'd asked me this question seven years ago, I would have said, “Anyone under 50, that's not a millionaire.” We are seeing more and more advisors. We are approaching 1,500 advisors at XY Planning Network that are serving the gen X and gen Y marketplace now. So, we are continuing to see the focus. But the reality is, just overall, we don't have enough financial advisors in general, not just at XYPN. We just don't have enough advisors. We don't have enough people getting into the profession. We have too many that are getting into sales roles under the guise of financial planning, then they leave the profession. But we really do need more financial planners, because there is so much need for financial guidance out there that really I don't think we will ever have too many advisors.

Benz: Maybe it's personality driven, but it does seem like there is the potential for some advisors who might say that they really enjoy being generalists, that they don't want to focus on a niche. And they might say that working with different types of clients and different career paths at different life stages just keeps things interesting, makes life more diverse and interesting. Does that vantage point resonate with you? And have you heard that from any planners in the network?

Moore: Admittedly, I used to hear it more than I do today. I know that advisors are worried about getting bored about solving the same problem over and over. But I will say that every client is unique, every client is different. They have a partner, they have parents, they've got kids, they've got different situations that, just because you have a niche market doesn't mean you are doing the same thing all day, every day, and that every client does bring their unique life and individual identity to the meeting. That being said, can you be a generalist? Yes. If we look at legal, I can go to a small farm town that my wife grew up in, and I can find the lawyer who does a little bit of everything--he does some wills, he does some estate planning, he does some contract law, does a divorce here and there.

The challenge from both the consumer and the advisor perspective is, sure, that may be fun for that lawyer. That may be the only access that those consumers in that area have to an attorney at this point or historically pre-Internet-based attorneys and being able to meet with an attorney virtually. But from a consumer perspective, that really scares me. It's very easy to make a mistake on a will or in a divorce that could really harm clients. And can you be an expert in all things? And the answer is no. It's hard enough to be an expert in one thing. And so, from a consumer perspective, what we see is that the niche-based advisors, the really focused advisors, ultimately are winning the business of their ideal client. There's a great firm based out of Atlanta called One and Done Financial. They specialize in Chick-fil-A franchise operators. Super specific. I don't know how many Chick-fil-A franchises there are. Let's say, 3,000, 4,000, or 5,000 out there, super specific. But you know what, they are going to win the business of every Chick-fil-A franchise operator that interviews them and a generalist, and Meg is going to win the business of the woman in tech at a pre-IPO company, and someone else is going to win the business of the pilot at a commercial airline.

And so, what we are seeing is that generalists end up not being able to compete for business. And so, therefore, they do get forced into competing on the one thing they can compete on, because if they can't compete on value, they have to compete on price. And so, they end up having to lower their fees. And from an advisor perspective, that's a difficult business to operate, because it's not sustainable. And from a client perspective, you are simply not getting as much value from that advisor. I think all around, it's a win to focus. And we'll continue to see more advisors doing so. Especially if you want to stay solo or you want to be a smaller firm, I think you are going to have to develop a niche to be sustainable and successful long term. If you want to be a generalist, you will probably end up in a larger firm, simply because there is more room for generalist financial planners in that type of space.

Ptak: I wanted to shift back to younger investors, if we could. Does the current trading frenzy among younger investors for things like individual stocks--I suppose we could add crypto and NFTs to that list--does that worry you?

Moore: Oh, it terrifies me. I'll tell you what, I'm just shaking my head right now at where we are at. We could talk about each one of those supposed asset classes individually. But I always had clients that would come to me and say, “I want to put just 1% of my portfolio into something.” And we used to hope that they would lose a little bit of money. Because if they lost money the first time they tried it, then they would never go back to it. But if they won, they would get hooked. And at what point you are trading stocks, you are buying in and out of crypto, you are buying NFTs, it's gambling. It's not investing anymore. But we call it investing and it makes us feel better. But in the end, if you are operating in that way with your investment strategy, you are gambling. I mean, you might as well just go to Vegas. The odds are probably better in Vegas.

And what has happened over the last couple years, is all of these platforms are popping up in the middle of the longest bull market in history. And all of these platforms, robo-advisors included, have ridden the wave of a bull market. And sure, we've had some blips on the investment radar over the last year, year and a half. But it does scare me. It gives the illusion of higher returns. We are seeing return expectations really high amongst young consumers. They will say, “I want 12% or 15%.” This is not realistic to be able to achieve that. And I don't care if you did that one year, or your friend did that because they bought Dogecoin at the right moment. It's not sustainable. So, we are seeing higher return expectations being set. We are seeing folks looking for the high of gambling. They are looking for the high of winning. And unfortunately, that's a really, really great way to lose all of your money. Because, in the end, there is someone who is smarter, more sophisticated when it comes to investments sitting on the other side of that transaction. And I think it's important to recognize. For you to make money in the market, to beat the market, someone has to lose. In the end, if the market is returning 8%, and you want to make 10, someone's got to make 6% for you to do that. And I'm not a betting man. I'm not willing to sit on the other side of that and go, you know what, I am smarter than all the algorithms and all the folks with Ph.D.s who are out there on the other side of this transaction. I think it's a terrible idea.

And so, just overall, investing should be boring. And I know a lot of folks don't want to hear that, because it can be exciting. It feels like something you can control. But investing should be boring. It should be something that every now and then you look at your 401(k) and you go, “Wow, that's great. It's up $10,000 since I looked last, because I've been saving every two weeks into it, and the market has gone up a little bit.” If it's not your full-time job, you should not be thinking about investing in the markets and such on a daily basis, or even a weekly or monthly basis. It's something that really should be boring that you don't have to pay attention to, so that you can focus on the things you really can control and ultimately live your life.

Benz: Do you have any thoughts on how advisors can thread that needle, though, where they want to harness the enthusiasm of younger clients, but get them to invest sensibly at the same time? How do you navigate that as an advisor?

Moore: Again, I think it comes back to having an ideal client profile. If you are used to working with clients who are index investors, and then someone shows up and says, “Let's talk crypto,” you really should send that client to someone who is an expert in that area who can talk to them about cryptocurrency and if that's going to make sense for them. If you want crypto to be your focus and your niche, OK, then ultimately adopt it. But I would say, be really careful of riding the wave of enthusiasm. We see this time after time. A lot of advisors got burned in the housing bubble of 2007-08 because we rode the enthusiasm wave. The same in 2000--we rode the dotcom bubble. I do think we are likely in a bubble that's going to pop, because the only guarantee of markets is they go up and they go down. And it's going to go down at some point. I don't know when. So, don't ask. Don't email me asking for stock tips or investment tips.

But I do believe that advisors should be able to look back on this time and say, “My clients did miss out on some investment returns, and I am OK with that, because they ultimately were able to achieve their goals.” And so, yes, there are strategies of having your client put 1% or 5% of their money in a play account and letting them play, particularly if they are looking to learn, if they are looking to research stocks and monitor and see how it's going. I don't think that's a bad strategy. What you cannot do is put a client's ability to achieve their long-term financial goals at risk on gambling and on playing with their money. And if you are ultimately not able to really get aligned with a client in that area, then they are probably going to need a different advisor who ultimately can embrace that strategy better than I certainly could.

Ptak: There's been a lot of research about how younger consumers would prefer to get answers to questions and interact digitally versus dealing with a human being in real time. How has XY attempted to harness that research and incorporate it into how XY planners work?

Moore: One of the myths, I think, of financial planning is that it's all science, that there is a magic algorithm that can say how much you should save and ideal tax strategies and ideal investment strategies. But in the end, as I mentioned earlier, the science side of financial planning is pretty easy. It's the art side of financial planning that is really hard. And it's the part that I don't believe will ever replace human advisors, at least not for the foreseeable future. And that is, helping a client really understand their financial goals and making the decisions that are going to help them get there. Sure, an algorithm can tell me I should save $1,000 a month for retirement. But one, what if I don't do it? Or two, what if I overdo it?

We don't talk about this a lot in our industry, but over-saving is as much of a danger to a client's financial and just personal well-being as undersaving, because in the end, they are missing out on the opportunity to really live their life today for something in the future that may never ultimately happen. And so, can an algorithm ultimately help a client navigate those decisions? I'll give you a personal example. I have a 6-year-old son from my ex. And my wife and I have a 2-year-old and a newborn. And her family are farmers. Any inheritance she receives goes to her natural born or adopted children, which my 6-year-old, she's not able to adopt my 6-year-old.

So, we have to navigate a conversation of how do we make things fair for the 6-year-old? Should we? Do we have to do anything? Well, what if we try to leave cash and he gets more cash and the two younger ones get a bunch of farmland that they can never actually sell because it's in a family trust? How do you navigate that conversation? What's the flow chart to get there? There's simply not one because there's not a right answer. Flowcharts only work if there is a right answer. And so, those are the difficult conversations that advisors navigate with their clients.

So, do clients want easier access to financial information? Yes. Historically, advisors were the holders of information. We had to call our stockbroker to find out the price of a stock. Those days are done. We can go to Google. Well, the problem now is, we have access to so much information that it's impossible to filter and sift through it to really understand what applies to us and what matters for us. And that has become the advisors' job is no longer the central point of contact for information. Now, we are really the point of contact for knowledge, and applying that information, applying everything that's out there to that particular client situation and matching ultimately their goals. And so, that's the part that, yes, your clients should have a more digital, friendly experience with their advisors, and we are seeing more technology in our space to help facilitate that. But in the end, it will never replace, it can only augment the human advice element. Michael Kitces and I have long talked about the cyborg advisor—half-human half-technology--as really the future of the industry. That we are still human, but we are able to augment that service with technology to create a better experience, maybe make us faster, more reactive for clients, or proactive for clients. But the human element is never going away.

Benz: A lot of our listeners, aren't financial advisors. They are consumers. Can you provide a quick rundown of the key questions someone should ask if they are looking for an advisor?

Moore: Absolutely. Some of it would relate back to things we talked about today. One is asking the advisor--their website should tell you--but asking the advisor, who is your ideal client? Tell me about a typical client. If they say, “We work with individuals, families, business owners, trusts and women.” Well, I'd keep looking. I’d find somebody who ultimately is an expert in the pain point that you are looking to solve. Because for the consumers who are listening in, in my professional experience, I never once had a client wake up, or a prospective client, wake up one random morning and say, you know what I want to do today. I want to go talk to a stranger about money. Let's just go hire a financial planner, why not? That's not usually how it goes. Usually, something happens in our lives. It can be a positive. It could be getting married. It can be having a kid. It could be a negative event. It could be a bankruptcy, the loss of a spouse, the loss of a parent. And some things don't follow those clear lines either. And usually, we get forced into going and talking to an advisor. So, really, understanding the pain point that you are experiencing, what's causing you to go talk to a financial advisor and being sure they are an expert in that area.

The second piece is to ensure they are a fiduciary. And the way I would recommend this, if you Google “fiduciary oath for financial advisors,” there actually was the--I'm going to get the name wrong--but the Institute of Fiduciary Advisors, I believe, and it was a group that was formed, I believe, by Ron Rhoades, who is a Ph.D. in our space. And they drafted a fiduciary oath that's blank that you can have your advisor sign. If they won't sign it, if they come up with a million excuses about how legal and how compliance won't let them sign it; or don't worry, they will be your fiduciary. Even if they can't sign it, walk away. Because in my opinion, you are only a fiduciary if you are legally liable for not being one. If you can be taken to court because you are not a fiduciary, you are not acting in your clients' best interest, then that's what it means to really be one. And from a consumer perspective, I think something like 80% of consumers believe their financial advisor is a fiduciary. Something like 17% of advisors are actually fiduciaries. So, there is a huge mismatch in consumer expectations, consumer beliefs, and where advisors are actually operating.

And so, I would encourage all consumers--I don't care if you've had your advisor, you've been working with them for 10, 15, 20 years--go have them sign a fiduciary oath. And the reason for that is to provide you the peace of mind that ultimately they are acting in your best interest. And that if they do not, there are repercussions and there is remuneration, if you will, for those misdeeds. And so, those are the two areas I would focus on first is: Do they ultimately serve clients like me, can they help me through this pain point? And then, two is: Are they always going to work in my best interest? And that's going to get you started. And then, from there, what I think you'll find is, many times it is personality, it's operating style, do they meet virtually, do you always want to be in-person, do you get along? That actually is an important thing. Bedside manner is a real thing. And so, just being sure you get along with your financial advisor and have that trusted relationship, so that you can have those hard conversations.

Ptak: Since we are on the topic of the fiduciary standard, wanted to ask about XY has been active in the push for a uniform fiduciary standard for advisors and planners. What have been some of the key headwinds in that push?

Moore: Well, I can say, I think we get outspent, I don't know, 1,000 to 1 between those who are fighting against a fiduciary standard and those of us who are pro-fiduciary standard. And so, there are a lot of lobbying efforts to protect the status quo, to protect the way that we ultimately operate. And that is a huge challenge. In the end, money talks and the lawmakers and the regulators, or at least the lawmakers, are certainly many times beholden to the lobbying dollars.

We are seeing, however, some push from the regulatory bodies who are not beholden to lobbyists. Yes, we are able to write briefs and do all the things, but they are much more independent because they are not voted in. And so, we are starting to see a greater push, a greater awareness of the challenges that consumers are facing and how to ultimately provide those consumer protections. It is ridiculous, absolutely ridiculous that in this day and age, we are talking about being a fiduciary. Just imagine if you were to go to your doctor, and only 17% of the time they are working in your interests and the other 83% of time, they may or may not. Imagine if your lawyer is that way and your accountant is that way. The fact that financial advisors who are at the center of your most valuable asset, your money, the fact that we are not all just automatically fiduciaries and held to that standard to me is just, it's a shame. It's ridiculous. And so, the headwinds in the end is money, and there's more money to be made without a fiduciary standard for a lot of organizations, for a lot of entities than there are under a fiduciary standard. And so, that's the challenge that we face.

However, consumers are wisening up. I'm hearing the word fiduciary from clients, which is amazing. They are starting to ask what that means. Sometimes they will say, “Are you a fiduciary? I don't know what it means, but I know I need one.” And I love that that's starting the conversation. Because quite frankly, it's a weird word that we don't use in day-to-day language. But you are looking for an advocate, someone who works on your behalf, who is going to ultimately make recommendations for you, that it's not a sales pitch. And I am just so looking forward to when we don't have to have this conversation anymore and we can start talking about competency and education and how much do they know about a particular topic versus the basic do they work for you, or are they just selling you a product?

Benz: You mentioned that regulatory bodies may be more supportive of a fiduciary standard, that you are starting to hear more about it. Is that the result of a new regime in Washington or what's sparking that change?

Moore: It goes back and forth a little bit. Some administrations and Congress will be more supportive of consumer protections; others are more supportive of more business rights and business protections. But overall, we are seeing a slow movement toward the consumer protections. And I think part of that is just because people have become more aware of more situations where folks have been defrauded, they've been taken advantage of, they've been lied to. And so, the more stories there are out there, the more of a push there is.

We're also seeing the rise of some of these independent platforms. XY Planning Network is one where there will be states--the State of Massachusetts, the State of Nevada--those are states that have put forth fiduciary rules and some of the big companies that our parents would know the names of, because they have big brand names, said, “We won't be able to operate in the state. We can't provide financial planning in the state if you implement these rules.” And so, there are more platforms like XY Planning Network that are saying, “That's fine. We've got 70 advisors in that state. We can operate there. So, if you can't, that's fine.” That's not a client protection or legal problem. That's a business model problem. And so, we are seeing this in the insurance industry where there are more and more platforms that are democratizing access to insurance, bypassing the agent model, where I only sell policies from my company, or I make more money to sell policy A over policy B, and there is no legal requirement that I sell you the right one for you. I just get to sell you whatever you are willing to buy. And some of those platforms and the technology there is going to start making this easier.

So, just overall, we are seeing a march toward this. There are always going to be setbacks. There are always going to be challenges. But we can look across the pond, if you will, and there are other countries that have just flat-out banned commissions. They have just made commissions illegal on the sale of financial products. I hope we get there one day. It's not to say that our entire industry is going to go upside down because there is a need for broker/dealers, there's a need for independent advisors and everywhere in between. But there is a huge need for clarity and regulation to protect consumers, because in the end, there is just simply too much confusion about whether or not the advisors are working in their clients' best interest.

Benz: Well, Alan, we have really enjoyed talking with you today, and we have learned a lot, too. Thank you so much for taking the time to be here.

Moore: Absolutely. Thank you both for having me on this show.

Ptak: It was our pleasure. Thanks again.

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