ITF 77 | Financial Independence

 

Financial Independence is not an easy feat to conquer because money is always accompanied by shame. When you don’t have enough, you are ridiculed; when you manage to get by, you are embarrassed by people who think you make more than you do. Financial advisor Eric Brotman joins us in this episode to demystify the shame around money. He sits with Zeona McIntyre to talk about his journey to financial freedom and what went wrong along the way. Listen in as Eric shares his financial planning strategies and the different avenues he used to grow his money.

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FIRE Movement: The Path To Financial Independence With Eric Brotman

We have a great guest, Eric Brotman. He is talking all about different financial independence strategies, different places to put your money. It is a different show than our norm. We are not talking about real estate investment, although I am very bullish on real estate. I also diversify in some of these accounts that he is talking about.

Read all the way to the end. There are lots of good nuggets. He breaks it down in an easy way, and you can reach out to him for more. He also has a great podcast called Do not Retire…Graduate, where you can learn even more about all of these strategies from a financial advisor directly. I think we should bring him to this show. Let’s bring in Eric.

Eric Brotman, welcome to the show.

Zeona, it is so good to be here. Thank you so much.

We are going to start the show how we start every show. We are going to ask you, how did you first hear about financial independence?

My first experience with financial independence, believe it or not, was years ago at my first FinCon conference. Even though I have been in the financial advisory space for almost 30 years and I had talked about financial freedom, certainly having passive income, and all the tenets of financial independence, I had never heard it put that way. I did not know what the FIRE movement was. Although I confess, I also did not know what a podcast was, so apparently, I did not get out much.

You were living in a cave. It is okay.

It was a very well-appointed cave though, and some would have traded with me.

Let’s tell people what FinCon is. How do you end up at FinCon if you do not know about financial independence?

FinCon is a conference that brings together money people and media people. It is a very special group that, in some cases, has upwards of 3,000 people attend. It is a not-to-be-missed event for anyone who is either in personal finance or media-related. It is bloggers, podcasters, journalists, authors, financial advisors, and this very cool community. It is very much like a club. The question is how did I get there? I spoke with Michael Kitces, who is an absolute genius in the financial planning field and a brilliant guy. He said, “If you are contemplating and trying to be an influencer at all, you have to go to this.”

It doesn't matter how old or young you are. It's never too late to start. Click To Tweet

I did not know what I was signing up for. I went to Dallas. I did not know what I was doing there. I did not know how it worked. Ironically, I was hearing languages that I did not understand about specs and all these things. I had never listened to a podcast before in my life. Fast forward, I was a speaker at FinCon.

I now have a podcast that I have been hosting for years. I published another book and have this entire influencer thing going on. I now consult other financial advisors on how to go from zero to an influencer in a very short period of time because Michael said, “You’ve got to go to FinCon and you’ve got to meet these people.” I made friends immediately who I think we will be lifelong friends.

I went to FinCon for the first time in 2021, which is where I met you, and I made the best of friends and connected with people I already knew that was there, but I do not know that I learned that much, which is interesting. It is different conferences for different things. I think FinCon is for the community, so even for people that are not producing something, if they are looking for a community in the independent financial space, people get this thing they are fired up about. That is a great place to go.

I agree with you. For me, I learned a lot because I did not know what I did not know but I felt at home immediately. I felt like I found my tribe. I did not even know these people congregated. I found my kindred spirits. Now I am going to learn from everybody. I did a talk at FinCon in DC, which is on one of the consulting websites that I have, and it talks about how I went from trying to be an authority on the subject of financial independence and financial planning to being an influencer. The journey that I took and all the things that went wrong along the way, and I think the talk was well-received. I also think it is funny and lively. I encourage anybody who wants to check it out. It was eye-opening for me to be around such incredible people.

I want to go to that light bulb moment. What happened to you when you said, “Now I understand. Now I get financial independence,” and how that is different from financial planning and the traditional route?

Financial planning is a verb and financial independence is a noun. In the very simplest of terms, financial independence is a state of being. It is a moment in time or a range in time where you are now free to make some decisions that other people can only dream of making. A financial plan was not supposed to be a noun. It is not a thing. It is not this hundred-page binder you pay a bunch of money for. That is a waste of time and money.

Financial planning to me is the verb. It is the action of trying to reach financial independence. Whether you are trying to become financially independent early at your FIRE movement and you want to do this when you are 34 or at 74, never to worry about money again is more individualistic. I do not think there is a right or wrong way to do it. When I was in college, my favorite two words together were free and beer. Now, I like passive income. I went from free and beer to passive income. If I had to have one or the other, I would rather be passive income and buy my own beer.

I want to touch upon this. I feel like we are tangenting. We are on this road and we will eventually get more into your story but I liked that you mentioned how you could be in your 70s and never worry about money. One thing that I have learned on my journey, I have been financially independent since I was 28, I still worry about money. I do think that it is different. One is psychology and one is math. It does not necessarily come together. There is a lot of healing that needs to happen between those two steps.

There is, and behavioral finance is now a field of study for a reason. That is because money is so intimate. It is such a taboo subject for people. People’s parents do not talk about it. Kids grow up watching their parents fight about money, then they get married. Now they are marrying and their in-laws fight about money for totally different reasons. One of them is a spender and one is a saver.

You have all this incredible baggage and can’t talk to anybody or feel you can’t talk to anybody because there is so much shame around it. People either feel like, “I should have more than I do. I wish I had been more successful,” or they think, “I have so much money. I am embarrassed by it.” It does not matter where you are in the spectrum. Somehow, there is a shame about money. I would love to demystify that but that is going to take a generation.

Let’s get back to your story. It was 2016, you were at FinCon, you had this light bulb moment, and you went home. What do you do now? How did you change your life after that?

ITF 77 | Financial Independence
Financial Independence: Financial independence is a state of being. It’s a moment in time or a range in time where you are free to make decisions that other people can only dream of making.

 

Several ways. One, I hired a bunch of vendors at FinCon. Literally on the spot, including a group that helped get financial advisors and others interviews on podcasts. I had no desire at that time to start a show or do any but I thought I can guest on some and get to know them. I did. I must have guested on 50 shows.

What I found was it was fun and I met some very cool people but the other thing was, it started to allow the crafting of a message. That message was that it does not matter how old or young you are. It is never too late to start. Financial independence does not have anything to do with income. It has everything to do with behavior and decisions.

I have been doing this for decades and never got the a-ha that there was a complete disconnect between what people thought was a success and what is a success. People feel like they are successful if they have a tax return with lots of commas in it. Let me tell you you are paying more than your fair share that way. That is not that much fun.

I have heard all of the things about him who dies with the most toys wins. I do not feel that way. I no longer believe it is about stuff. I now understand that it is about legacy. It is about what is more important than money. It is about relationships and leaving the world better than you found it. Money is a tool. It is a misunderstood tool that creates lots of shame and baggage but talking about it is therapeutic. Talking about it and being very open, honest about my own fears, worries, or experiences resonated with people going, “I am not alone.”

One thing that I get about you and your story is that you are someone who takes action. I love that you went there, you got inspired and on the spot, you hired people. It was not like, “Let me mull this over when I go home.” I think that is inspiring. It is important because a lot of our audience is new and they get stuck in that analysis paralysis thing. Sometimes you need to take a little action and you can learn more along the way but if you are only collecting information without enough action, you are not going to be moving forward.

Analysis paralysis is real. I agree with you completely. I think it is important to take action. I have been guilty at times in my life and in my career of sprinting and not always sprinting in the right direction. I am a thoroughbred and I want to run but I sometimes have to be guided to run in the right direction. I am going to be running.

I am going to be at full speed and full steam at something. Fortunately, if you are self-aware enough or if you have the right team with you to help redirect you when you are off base, it is so much better than sitting still. Money is the same way, Zeona. Money is like water. If it is moving, it could power a city. If it is stagnant, it smells bad and draws flies.

That is a good way to look at it. I want to know about the changes you made to your financial portfolio because as a financial advisor, one would think he would know it. What did you have to do to move towards financial independence?

First of all, one should never think I know at all, including yourself because I most certainly do not. It is great to constantly be learning. Education is a lifetime thing. With that said, the way I started advising started with why a lot more than how. From a portfolio and asset standpoint, the one thing that I did differently was I started looking at a future net income as opposed to future gross income. That meant putting money where it would never be taxed again and using it in ways where I could grow enough that the government would keep its mitts off of as possible.

I wrote a white paper at LowTaxBook.com that talks about four common strategies. Four things that not everybody uses properly. It has become a bit of a calling card that now, it is not so much about what you have but what you can keep and utilize and how do you create income or abundance that is not subject to the mortgage known as income tax, capital gains tax or any other tax.

When people mention tax, a lot of people are like, “I do not know about that. That is going to be too high level.” Do you think that these four strategies are something that applied to everyone or do you have to be high income? Could you run them down in a very high-level way and people can look it up later if they want to know more?

There’s a complete disconnect between what people think is success and real success. True success is about legacy and leaving the world better than you found it. Click To Tweet

I will be glad to. Although, it would be more fun to quiz you and see how many of them you could guess. I won’t put you on the spot. It is your show. I would never do that. Four places where American families can put money were used properly. It has never taxed again. One is the Roth. Whether it is the Roth 401(k) or the Roth IRA and that is the one most people know about. They know that you can use after-tax dollars to fund something and grow it in a tax-favored way. The second one is 529 College Savings Plans.

It is so interesting that you like these because a lot of people are not so happy about 529s.

I love them and the reason I love them is that they are not irrevocable gifts. They are still in your name and your control but they are outside of your state and you can change beneficiaries. They have no law or no rule against perpetuity and they can be used for any type of education. I happen to think it is a great way for grandparents to park money for grandkids where it is still grandma’s money if something goes wrong and she needs it. If she does not, it is going to roll downhill completely tax-free.

If grandma needs it, she gets taxed heavily on it, doesn’t she? There is some fine.

If you are an 80-year-old person and you are doing this for your grandkids, you do not pay taxes on what comes out of there. There is no penalty for pulling out your principal. There is only a penalty on the income. If you are in the 10% tax bracket and there is a 10% penalty, all it costs you is 20%. That is the same as what your kids might have paid on capital gains. It is not punitive. It is punitive if you are high income and you change your mind and say, “These kids are rotten. I want my money back.” That is not going to work out for you but assuming that is not what happens, it is a home run.

What we are talking about is the 529, which is traditionally known as a College Savings Plan but you can use it for private school for undergraduate stuff. The problem with it, I think, is that it is only for education. Education is changing a lot. Especially in the real estate space, a lot of us do not necessarily think that we need to go to college. College is wonderful. It shapes minds, but for the costs that we incur in the United States, I do not know that it makes sense. Sometimes, I am not sure if I want to be putting sake in that. What will happen to these plans if college became free?

It is a great question. Legislatively, there would need to be some solution around that but I agree with you that a lot of undergraduate education is not worth the sticker price. You and I are kindred spirits. I am anti-student loan. I do not want to see people take on a huge amount of debt for an education that they maybe do not need or is not worth what they are paying for it. I do know that there is a significant push, at least in our area, to private schools versus public schools for lots of reasons because you can now use the 529s to pay for private schools up to a limit every year.

Some of that issue has been mitigated but you are right. College is not worth the sticker price in a lot of cases. Some grad school might be. If you want to be a doctor, you are going to go to med school but I agree with you. You can become very successful without a college degree. There is no question that is true.

I have a question about this. My guess is that number three would be an HSA which is a health savings plan. I love these and the reason I love them is they are these triple tax advantage accounts. All the accounts we are talking about, what is cool about them is that it is tax-free growth. That is what is exciting about all of these accounts. That is the same with the 529 and Roth. With the HSA, it is supposed to be used for health expenses but if you do not use it, by the time you are at retirement age, it is another retirement account. The 529 does not do that. There is no point where you can use the money for whatever.

No, there is not. You would change the beneficiaries and you would perpetuate it within your family tree in some way. The HSA is the single greatest tool there is. I was going to save it for last but you did not let me. That is fine.

I got excited that I knew one.

ITF 77 | Financial Independence
Financial Independence: Financial independence does not have anything to do with income. It has everything to do with behavior and decisions.

 

There is a 25% credit.

I knew two. I only did not know what direction we were going. I was not sure if you were going to dig us into a deep hole in estate planning.

No, these are simple things everyone can do. The HSA is the greatest tax tool ever invented. It is the perfect tax planning tool, except for one thing, do not die with one. Make sure you use it during your lifetime or your spouse’s lifetime because if you own an HSA when you die, the beneficiary pays taxes on the full account the year you die, which could be very bad for tax planning.

Keep your medical receipts. Do not use your HSA for little copays and deductibles. Keep a file of receipts. Twenty years from now, file twenty years’ worth of claims against your HSA. Let it grow in whatever market you want it to grow in for two decades and pay no tax on the principal or the interest and reimburse yourself for all of that later.

I have heard this advice before and it freaks me out. I am like, “I am not sure that I can commit to that but okay.” It is a good plan. I do think of the HSA sometimes as like, “I will pay medical out-of-pocket and I will have the HSA. That will be this cool tax-free growth account.”

It is only cool and tax-free if you use it during your lifetime, and that is the point. I wanted to scare you. There is no such thing as a free lunch despite the fact the HSA is the best yet. For married people, I think the use of an HSA can be postponed almost indefinitely, but if you are not married, either you are widowed, divorced, single or what have you, you have to be careful if you are attempting to do this tax arbitrage. The entire strategy is largely blown if you die with a meaningful balance.

There is still value to you utilizing it for copays then. If someone you thought, “I am not organized enough to keep those receipts for twenty years,” then at least you are using it.

It is true but it loses its compounding power. What makes it so powerful is that you do not have to use it that year. A flexible spending account can be tax-deductible for copays. The FSA, the Flexible Spending Account for healthcare for your copays, and bank the HSA. You can do both and deduct the whole thing.

How are you keeping your receipts? Do you have photos and you upload them or spreadsheets and hopefully, your paper receipts are going to last twenty years? Sometimes receipts lose the ink.

They do. I have the big file but I also have everything in Quicken when I have a medical expense. Quicken, Mint, or any of those systems. Everything for me is in Quicken. I can pull up my medical for any given year. If I had to file a claim, I could export that to excel and submit it with a claim and have five years’ worth of medical expenses sitting there.

I am going to talk to my bookkeeper about that. This is all about me, in case you were wondering.

Money is a misunderstood tool that creates a lot of shame and baggage. Click To Tweet

Anytime I can give you free advice. It is my pleasure.

I guess we should learn the last one but my question first is the 529. What happens when you die in that one?

It depends on how you have it structured. 529s allow for successor ownership. If you are married, you want the successor owner to potentially be your spouse. If you are doing this for a grandchild, you want the successor owner to be your son or daughter to benefit the grandchild. You never want the child to be the owner of the plan because as soon as the child is the owner of the plan, it becomes custodial. It becomes something you can’t change anymore. You can no longer change the beneficiary. We want you to have a successor owner on every 529, different than the beneficiary.

The beneficiary is the person who can use it and because you can change that, you never want the beneficiary to own the account but there is no tax impact. If you die and you leave this to your daughter to benefit her son someday, there is no tax impact when it passes. It is not in your taxable estate. You do not have to worry about any inheritance tax. It transfers the ownership and the tax-free. I should say the tax-deferred principles of it maintain and it does not change the cost basis. Nothing.

You are selling me on it. I might be investing in that.

I know people who have created 529s before they have children. They create them for themselves because, in some states, you get a deduction for your contributions. You can’t deduct it federally but maybe at the state level. It depends where you live.

Colorado is one of the highest states and I live in Colorado. Tell us about number four because the trickle-down is what I want to know. I think that happens to people a lot. They do not realize that all these accounts have a maximum like an HSA at somewhere around $6,000. HSA is probably $3,500 now. It is the max, single or married.

It depends on whether it is $3,650 if you are single. It is double if you are married and it goes up a little if you are over 55.

The Roth is about $6,000. It is like, which one do you do first? Let’s learn the fourth one and figure out how you do it.

The Roth is not $6,000. If you have a Roth 401(k), it could be $20,500. Not only the Roth IRA. If you have a 401(k), for young people and who might not have hit their income stride yet but they have the bandwidth to do this, you can put $20,500 a year into a Roth IRA. It is $27,000 if you are 50 or older, but it is $20,500 a year into the Roth 401(k) through payroll deduction. It still qualifies for a match if there is one.

If you get a match, it goes into your traditional account rather than the Roth account. You will wind up with some of each and that is fine but what a total home run. If you are a young married person, the HSA gives you $7,300. The Roth 401(k) is another $20,500 and maybe you have a spouse who is working. Maybe it is double that. The 529s have contribution limits but only up to the annual gift exclusion, which is $15,000 per donee per year. Parents can do $30,000 a year.

ITF 77 | Financial Independence
Financial Independence: Life insurance shouldn’t be in lieu of a traditional equity portfolio. Instead, it should be part of a diversified portfolio.

 

You could squirrel all your money away.

You can put in a lot of money. I am not saying you should. Disclaimer. It is not advice but you can put. There are limits. I can’t wait to see the look on your face. The fourth one is life insurance.

I already know about this because I was a life insurance hater for a long time, then I have got friends that now sell life insurance and I have come around. I am open to this conversation.

Whole life insurance has all the components of a Roth IRA with no contribution limit and a death benefit. If it is done right, it creates the greatest collateral ever. I talk about it in that white paper I was telling you about. I talk about how I use these four tools. My life insurance policy paid for my first piece of real estate.

That is a very cool thing. You can borrow your own money.

You do not even have to borrow it from the insurance company. People think you have to borrow it from the insurance company and that might not be a good deal. You can use a cash value line of credit like a home equity line or a line of credit against real estate or a securities backline against your portfolio.

You can do a cash value line, which is now at 3% or 3.25% and it does not go on your credit report. It does not affect your credit score. It allows you to have the capital you need and it is the same as cash in terms of the mortgage company. They do not care. When I bought my first home, I was 26 years old, I had a life insurance policy that my parents had the foresight to get for me when I was a teenager.

When I graduated from school and they gave it to me, they said, “It is yours now. Take care of it.” I used that to buy my first home. Fast forward, since I know you like numbers, I sold that home for 2.5 times what I paid for it. I made money and I would not have been able to buy it without the life insurance then I started this company in 2003 and no bank would lend me money as an entrepreneur. I am trying to start a company. I am borrowing from Visa. I am borrowing against my house and my mother’s house.

What do you have to do in your 30s to borrow money from your mom to start a company? There is risk involved there. You could mess up Thanksgiving forever. It is one of the places that I went to. One of the places I went was my life insurance and made a difference because banks would not lend to me. I did not have two years’ tax returns and the P&L I needed. As an entrepreneur who was bootstrapping, I would much rather have a life insurance loan at 3% or 4%, then put it on Visa at 18% and hope for the best.

My complication with life insurance is that you have to have the forethought to know what you can afford to put into it. You lock yourself into this thing, saying, “I am going to contribute $30,000 a year or whatever the amount is.” Is that not true?

It can be true, but it does not have to be true. There are ways to fund a contract fully as a single payment. That does not mean a single premium policy because that creates a modified endowment and now we are into tax law. I do not want to do that on your show but there are ways to pre-fund the whole life insurance where you say, “Here is what is going to equate to ten years of premiums. It is a ten-pay contract. I am parking that and it is going to draft ten times. I do not have to worry about coming up from it from my salary, for example.”

It's not about what you have but what you can keep and utilize. Click To Tweet

Another way to do it is I treat whole life insurance like the fixed income portion of a portfolio if your objective is to hold 80% in stocks. Again, I am making this up. It is not advice. If you have got 80% in stocks and 20% in fixed income, some of that fixed income might as well be life insurance because quite frankly, it is more compelling than a bond, CD, or cash and it is self-completing.

There are people who will argue against any of these four and that is the beauty of debate. I happen to think that these are the four spots that were used properly and responsibly. You can build as much wealth as you would like. Not only for yourself but for your entire family, for generations and to do it in a way that is completely tax-favored.

What is interesting about this is the people that I know that is super pro-life insurance are not into the stock market. They do not like things like Roth because they think that there is more risk in that than the way that life insurance works. This is a super compounder because the money has never gone. Am I explaining things right?

That I will disagree with. I do not think life insurance should be in lieu of a traditional equity portfolio or real estate or any. It is part of a diversified portfolio. I do not think it is the sole be-all answer. I think there are some folks who might make their living doing life insurance who want to convince you that it is all you need. I can’t fathom it. I have never met a human being where that is a good idea. For me, I still like Roth. I still want the upside, especially if you are 35 years old. If you can earn a 7% return, and I do not know if you can or not, for the next 21 years, your money is going to double a couple of times.

That is a beautiful thing. I do think it is important to have equities. I do think it is important to have different types of debt instruments. It is important to have cash and not cash equivalents but an emergency fund and where are you going to go if you suddenly need a washer and dryer, the car dies, or life happens where you are out of work for six months.

There are some people that play it real fast and lose with the life insurance, where that is their emergency fund and it is everything, but that sounds scary to me.

Nothing is everything. By the way, I do not suggest that strategy to anyone who has not already met their financial independence objectives. That does not mean they are financially independent. It means that what they are doing in the traditional investments is on pace with reasonable assumptions to get them there at the age that they would like. If you said, “I want to be financially independent when I am 60.”

I said, “We have 25 years to get you there. Let’s do the math because the math does not lie. It is what it is. Here are the return and inflation. Let’s see.” We figure out what that is, then if there is either the abundance to do more or if there is a way to carve out a piece that is in the fixed income space that is appropriate for life insurance, then you do it but you do not do it in lieu of having your foundation. To me, that is a mistake.

I love the clarity. What I want to go back to is the question that I had about how do you decide what is the order of investing that you do?

Some of that is going to depend on individual circumstances. The first thing is you got to be debt-free. By debt-free, I mean adverse debt-free. It is fine to have leverage against a piece of property or a business or what have you but adverse debt-free. I do not want you showing up with a big car payment and a credit card bill, student loans, and all that stuff then saying, “Where should I invest?” We got to get you out of the hole you are in before we started building, so out of debt then it is cash.

I can put you to sleep but you’ve got to have enough cash so that when life happens, you are not going back into a debt problem to solve it. There has to be an emergency fund. That is the moat around your castle. If you have not dug the moats, do not start building the castle yet. You will be invaded by predators and creditors. Once we built that moat, then we started building the castle then what do you do? First, you have to figure out how much you would need to put away to hit a reasonable target for yourself.

ITF 77 | Financial Independence
Financial Independence: It’s important to have not just cash equivalents but an actual cash emergency fund.

 

First things first. If there is a company match or if you are in a 401(k) program with an employer, your employer is going to match $0.50 if you do up to 6%. Do at least 6% and get the free money. If they are giving you 3%, take it. Some companies match or do a contribution. It is the same idea. If the company is giving it to you, take it. That is part of your employee benefits. That is a great thing. The only person I would suggest who does not do the 401(k) fully is somebody who has got such mind-numbing debt that they can’t part with it because they are going to wind up in a bigger hole.

First is the debt, then the cash, then the free money. Where is the free money? It is generally about building a diversified portfolio. If you are young and you are getting started, it is going to be an equity portfolio. You are going to ride the ride a little bit and that is okay because of your buyers. To me, you use the equity markets and the intangible assets to build accumulation, then you use tangible assets to build income whether that is real estate, businesses, or other types of tangible things.

Can you break that down a little bit for people that are getting a little bit lost in jargon land? What do you mean by equity versus tangible, so people would understand it?

When I say equities, I mean stocks or stock funds. We can argue all day whether it should be an index fund or something else but some equity or stock exposure because looking back at the last hundred years, it was extremely difficult to build a portfolio and build any meaningful wealth without stocks. By that, I mean a brokerage portfolio. There are plenty of ways to get wealthy without stocks if you do not have a brokerage portfolio. If you want to be in the real estate business and you wind up owning twenty properties and they are all paying your rent, you can survive 1 or 2 bad tenants. That is great.

When I say intangible, I mean non-physical. Something that you invest in that is on your statement but you can’t knock on the front door. Tangible means something that is either physically there like a building, whether it is a commercial building, rental real estate that is personal, residential, having a business, or something that is likely to continue to create income. Does that make sense?

Yes. Do you have more to say about the buckets and what comes next after the tangible versus intangible?

The first thing is the airplane safety lectures. First, you take care of yourself, then you put the mask on for others. Once you have hit your own funding target and that does not mean you have hit financial independence. It means that your habits and you are set up to hit it at that point in time where you want to, then we start talking about legacy planning. We start figuring out how do we create abundance for additional generations of your family. That is when we start talking about using those big tax shelter-type programs. How do we create abundance beyond your lifetime?

This is a question I want to ask you because you come from being a financial advisor. There is some conflict out there about if people need them and if they should have something so simple that they can manage it themselves. I am curious if you think that is still a good thing for people to look out for or not?

When you say need them, do you mean need a financial advisor? No one needs a financial advisor. People want financial advisors. It is like no one needs a trainer at the gym. You know how to do a pushup or a sit-up but there is something about not only the accountability partner, having that appointment going and making sure the form is right and doing the setups properly, and saying, “I will see you next Tuesday.”

I have a personal trainer not because I do not know how to work out but because I have a better experience because I have someone guiding me. I happen to think the value of a financial advisor is largely qualitative. I do not think financial advisors necessarily create better quantitative outcomes. I certainly do not think financial advisors should be tied to success in markets or returns.

Computer programs and robots can do that. I think where it comes in is where you are making life decisions, you are having qualitative discussions and you are dealing with things that computers or algorithms can’t do. Things like a child with special needs or a gambling issue, marital, divorce issue, or my parents are getting older and I am not sure how to handle that. Most of the value of a financial advisor has more to do with behavior, empathy, collaboration, and accountability than it does with returns. You can get returns to any place.

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The last question I have on this subject is, can you talk a little bit about fiduciary versus traditional financial advisors? What should people look out for when they are looking for one if they decide to go that route?

A fiduciary is a word that is being tossed around in the media and a lot of times, it is not being used properly. Governmental regulatory agencies are throwing out fiduciary rules and they are all different. How can the definition of fiduciary be different in one document than another? The reality is that a fiduciary, at the simplest term, is responsible for putting someone else’s interests ahead of their own.

Am I a fiduciary? Yes, I am. I am a certified financial planner practitioner. I have a fiduciary duty to every client we represent. I also have no employer. I do not have a duty of employment to anyone. The traditional financial model had people who were employees of various companies and they had split duties. They had a duty to their employer that superseded their duty and still does in some cases, superseded their duty to their client or customer.

To me, as a customer, be aware. If you are more concerned about satisfying your parent company than you are the end receiver of that advice, that scares me to death. I think fiduciary advice is important. If I was representing you, I would be representing you ahead of my own interests. I sometimes say that tough love is still love and there will be things that I am going to say to you that you might not feel great about. There might be some hard discussions and hard decisions but that is the human piece of it. What I can’t do is only because a shoe fits does not mean it looks good on you, so I can’t sell you something. I want this advice to be that. I want it to be counsel. I do not want it to be the sale of anything.

I do think when you are looking for advisors, it does not mean that someone who works for a company is not a terrific advisor. They certainly can be but there is a conflict of interest you cannot escape. I think it is important to work with somebody objective and independent, who is a fiduciary and does carry that licensure because unfortunately, unlike lots of industries, you are not a doctor until you have passed your medical exams. You are not a lawyer until you have passed the bar. You are a financial advisor. If you say you are the day you show up and you are working for XYZ company, that is horrifying.

I want to switch gears. We have a final part of our show where we asked you four questions. I am saying we because I am used to Craig being here but he is not but before we switch over to that final part of the show, do you have any final words of wisdom that you want to leave for our readers?

In the simplest of terms, start now. Do not let analysis paralysis take over. Whether it is on your own or with an advisor, get your ducks in a row and have a plan. Planning is a verb, not a noun.

We are going to ask you four questions. We and imaginary Craig. Question number one, what are you reading now?

I finished Mitch Albom’s new book, The Stranger in the Lifeboat, which is amazing. I tend to read for inspiration, not information. When I read, especially when I get a chance to read for pleasure, I tend to read things that make me feel good, make me think, and make me a better version of myself. Mitch Albom is the best. That is a great book.

He is the best. My favorite book ever is The Five People You Meet in Heaven, and I have read all of his books. I did not know he had a new book. Can you tell me a little headline? What is the premise?

The premise is there are people who survive an explosion on a boat and they are stuck at sea with limited resources. They meet someone who claims to be the Lord and it is interesting. It is not a religious book. You know Mitch Albom’s writing. It is spiritual but it is not religious but it is a little bit about survival, a lot about forgiveness and life. He wraps it all up, and I am not going to spoil it for you but if you like his writing, read it. No spoiler alert here.

ITF 77 | Financial Independence
Financial Independence: Don’t let analysis paralysis take over. Start now. Whether it’s on your own or with an advisor, get your ducks in a row and have a plan.

 

I do. I am feeling a lot of delight now. I am excited because I read a lot and it is always the quest for what is the new best thing to read my Kindle. Thank you. Question number two, what is the best piece of advice you have ever received?

There are so many. It is so hard to distill this down to one because I do have a big tent. I take advice from everywhere and I think that is important but I got advice in the first six months of my career. I was a 22-year-old, young person starting a career at that time in financial services. I was not a CFP yet. I was at a meeting and a guy who was my senior by probably ten years looked at me. He goes, “Can I give you some advice?” I said, “Sure, why not? I got nothing to lose.” He says, “I am going to give you two pieces of advice and if you do this, you will be more successful.”

I said, “What is it?” He says, “Number one, do not ever wear your school ring again. You look like somebody’s grandkid.” Help me, God. I had my class ring on it. He was like, “Take it off. Do not ever wear it again,” and I did not. The second piece of advice, which was a little bit more impactful though harder to implement was, he said, “Surround yourself with other professionals, roughly your age in different industries. Get together regularly. Learn from each other, build relationships together, and create a network. It does not take a mastermind to do that.”

This was before mastermind was a thing. I created a group in my early twenties, which we called Mastermind. The fact that I did not get a trademark is very upsetting but at any rate, he said, “Surround yourself with people who do things differently than you do and learn from each other.” We did. I had to find the people to do this. The first thing I did was I tried to find the right attorney. This was before the internet, social media, and all that stuff.

I wrote letters. I sent letters to 1,200 attorneys in the Baltimore Metro area and said, “I got an idea. Can I take you to lunch?” I took 60 lawyers to lunch. Sometimes three in the same day where I would be at the same restaurant for an 11:15 to 12:30 to 1:45, and I found the guy I wanted and ultimately built this group. Many years later, we are the closest friends. We have done enormous amounts of business together but more importantly, our families and our lives have been enriched by that group. I thought that was some of the best advice I have ever gotten and I took it to heart.

Question number three, what is your why?

I took my why from J.D. Salinger’s The Catcher in the Rye. I trust you have read that book, probably not since middle school.

I have but I cannot remember it for life. Give me a warm-up.

There is some wisdom there and I am not recommending you go read this book.

I remember it being dry.

It has not aged well but there is a couple of things in it that were very impactful to me and part of it is my why. First of all, if you will recall, Holden Caulfield is the main protagonist in the story. He has these dreams and visions of standing at the bottom of a cliff and catching people who are falling like this idea that he is going to save them and protect them from themselves. That became an interesting piece doing financial advising, understanding that most people I meet with are on the precipice of either making very bad decisions or one terrible news story away from doing something that they won’t recover from. I feel like I have to protect them. That was the first piece.

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The other piece is Holden Caulfield’s teacher, Mr. Antolini, the character, said something. I have used this on my social media as my quote. I will share it with you and that is, “The mark of an immature man is that he wants to die nobody for a cause. The mark of a mature man is that he wants to live humbly for one.”

There is so much depth here. I keep thinking of Mitchell Albom’s books I have read. I can’t let that go yet, but there is so much depth and wisdom in his writing and so much about death and dying that he talks about. That is such a taboo topic. Not unlike money. I appreciate you bringing all this.

I walk a lot of families through a lot of difficult times. One of them certainly is the loss of a loved one. As a result, I am an accredited estate planner and I understand how to do that stuff but it is not the stuff that matters. It is helping people cope. I am no therapist but it is helping people deal with and giving themselves grace at a point in time where it is very tough.

I thank you for doing that because it helps the world be a little bit of an easier place to be in. Our final question is usually a trick question but I am not as goofy as Craig, so I do not have something that is tricky but what I would like to know is if you were to do it over again, what is one thing that you would do differently?

I would have started looking at the big picture of financial planning sooner. When I got started, it was very myopic. I did work for a company. I did play a role in that piece and I was not looking at the whole picture. If I had it to do professionally and do over again, I would seek someone like myself to mentor me. I would learn the business right the first way so that I did not develop habits that had to be broken when I finally figured it out.

We have created that career path for some talented young people here who are experiencing something that I did not get to experience, which is learning it the right way, the right time, and not selling anything to anyone. They are not calling their friends. All they have to do is be great, learn, be empathetic and be communicative. If I had to start over again, I would have found a mentor who had to work for free because I worked for so little anyway. I did not have a mentor. I had a sales practice and that was not rewarding. Believe it or not, I had some success in spite of myself at that, but that did not give me joy.

I think that is great advice, and I am even thinking of somebody who could use that now. I will definitely share this with her. Where can people find out more about you?

I will give you two spots. One is BrotmanMedia.com, which is where you will find the books, workbooks, online courses, podcast, and all the resources there. The other is our company, which is BFG Financial Advisors and you can go to BFGFA.com and learn more about what we do.

Thank you so much for being on the show and sharing all your wisdom. I know the audience will appreciate it and I learned a lot. I have got some notes here for myself and things to follow up on. That is always a benefit. I appreciate you being here.

It was a pleasure and I want a full book report after you read Mitch Albom’s new book.

Will do.

Thanks for having me.

That was Eric Brotman. Thanks for reading all the way to the end. I enjoyed that. I took a lot of notes. It is so interesting because there is this different world from people who are traditional and they only do real estate then there are other people that love index funds. Life insurance is a hot topic for people. There was a lot of good information in here, and I loved how he talked about where you start, what you should maximize, and how to diversify.

I think there are a lot of good nuggets in here and you can make real estate another peg of your table leg. You can have that one as well and do the four that he talked about. I appreciate you guys being here, reading the end. If you enjoyed this show, please share it with a friend or family member. Lots of people could benefit from improving their financial situation. If you love our show, please leave us a comment, a rating, a review on iTunes, Spotify, or anywhere that you listen to podcasts.

 

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About Eric Brotman

ITF 77 | Financial IndependenceEric D. Brotman, CFP®, is the CEO of BFG Financial Advisors, host of the Don’t Retire… Graduate! podcast, author of the Don’t Retire… Graduate! book, and regular contributor to Forbes.com. He and his team believe that financial literacy is the key to financial freedom, so they provide free and affordable educational resources and accessible financial planning with no asset minimums.