Welcome to the Conquer Risk Podcast. The podcast that discusses all things around investment management and the business of running an RIA firm. All opinions expressed by podcast guests are solely their own opinions and do not reflect the opinions of Potomac Fund Management. This podcast is for informational purposes only and should not be relied upon for investment decisions.
Clients of Potomac Fund Management may maintain positions in the security discussed in this podcast. Welcome to today's Potomac Conquer Risk Podcast. We've got a couple of subjects that are going to hit today, one of which of course is subscriptions become more and more prevalent in our, not just our industry but our world, whether it be cable or the newest prime. You want to buy stuff on Amazon in this case.
It's Schwab now has a $30 a month financial plan. We're going to dig into that. But also, this long bull run has mergers and acquisitions. Still, one would think that everybody who was going to be bought would be bought by now.
But that's not the case. And there's another recent purchase advisor. And I mean, he's had some insight on that. So we'll discuss that in the way that affects integrations.
So let's dig into the first topic. Schwab's $30 monthly financial plan. There's a little more detail in that. But what's your first take?
My first take is that it's great. It's good for the industry. Anytime you can deliver financial advice and investments to the masses. I think there's just a lot of people out there that don't have access to financial planning.
And I think this is a good first step in terms of how it affects the advisor community. The devil is always in the details. And you took some time recently to dive into those details, especially the disclosures and whatnot. So would you find in that regard?
So I think this is a little bit interesting because of course, this is done. Schwab did this in conjunction with their robo advisor. So if you're going to do the Schwab $30 gig, you have to also use their investment vehicle, which is their Schwab, you know, robo portfolio combination. The actual cost is $300 upfront.
And it's $30 a month. And like I said, the devil's in the details, this is what I found interesting. Once I get in the disclosure, the reality is if you were already a Schwab robo user, your charge was 28 basis points on the assets, right? So if you were already a Schwab user, you get the lower of that fee or this new fee.
I mean, think about that for a second. A $25,000 account, which is the minimum of what Schwab requires you to have in order to have this capability of even choosing the financial planning piece. It's not really a separation. I mean, you get the planning piece in lieu of the fee.
But when you narrow this down, Schwab expects they recommendation as you meet one time for one hour and then about 30 minutes every year after that. Do the math, $30 a month, it's $360 a year. Ongoing they're expecting for half an hour. So they're ultimately charging $720 an hour for financial planning.
That's a pretty good gig. Yeah. I mean, just based on the language, but of course it's unlimited calls, right? And you had mentioned it earlier when we talked about this that, you know, what happens if someone literally calls every day, you know, will they continue to service that or cut it off.
The second tier or question to this is how difficult will they make it for you to call. You know, I have Florida Power and Electric down here and they have, it's almost impossible to get someone on the phone, even though, you know, they make it known that you can easily chat with someone. So that's something to consider. We need to find someone who's actually using it or maybe one of us sign up and start asking questions.
Yeah. I mean, you know, like I said, it's a decent deal because of the fact that, I mean, look, we're supposed to be in the business to help people. And if this helps more people, then I'm all for it. I think that the change is always scary to advisors.
And I think a lot of times that's the, you know, that's the take. But the reality is they're not doing anything different than, than most of them. Most advisors. Right.
Well, let me jump in. I think here's the one thing that they are that will help. Right. So let's say you're an advisor and you charge $2,000 for a financial plan, right?
You finish a financial plan and you hand it to them and then you charge $200 to $300 an hour. Right. You and I know that that client is then going to hesitate and think twice before ever calling you to change that plan, right? Because if in the back of your mind, you know, oh, if I get this kind of phone for two hours, you know, just to make these changes.
So in that case, I think you might have more engaged customers knowing that it's just on a played plan and then you can call with any questions you have. Sure. Sure. So it's all about engagement and I think anything we can do to keep the clients more engaged is a benefit in the long run.
You know, and there's a tipping point, obviously, right? For those that benefit is the people that were already using the Schwab RoboGig because if they have enough assets, 20 of basis points is going to be cheaper. And so this is just icing on the cake, right? They're getting it and not having to pay any extra.
Now, of course, you know, those details, right? Going back to the details. Well, yeah, they advertise that everybody's a CFP. All right.
Well, in the last five years, you could go back probably a little longer than that, but you know, Texas Tech, K State, there's a number of schools, universities now that have financial planning programs. And in the end, you're going to end up with your CFP. No mark there. But the reality is you and I both know odds are high that they're going to get a whole lot of folks that have really no experience.
They've got all the book learning, but haven't met that good old fashioned real world yet. So when you're, you know, when you're calling in and yeah, you're getting a CFP, they really have much experience. And that's another another ticker, right? The reality is it says in their disclosure, you're not assigned to anyone.
They all take notes and whoever happens to call. So it's just a big call centers is what it is. It's a call center, right? So if you if you were an experienced CFP with real world experience, would you want to take a job answering calls for $30 a month subscription?
Probably not, right? And I always bring this back to the whole personal trainer versus going to the gym, right? LA Fitness is $30 a month. You can hire a person trainer for $60 a session, right?
Just based on that cost, why would you ever get a trainer, right? But there's no guidance. There's no help. And are you going to get a, you know, experience trainer to come in there and help you at that level?
And that's why I think it is good for the masses. And I think it is good for people starting out, but I just don't think someone with deeper needs or even a lot of money and is really going to want to step back into what I think is a solution for the lower asset households. Yeah, I think your mark on fitness is a perfect a perfect description because my own experience is a couple of years ago. I mean, I was spending basically, you know, 45, I think it was because I did a bit of a discount, $45 a session, three times a week.
I did that for about nine months before I left and moved from one state to another. And I had another and had another personal trainer that I met to start laughing at me like, why did you pay so much? Well, of course, as where I'm helping this person move some furniture and what have you as one of my neighbors, one of my neighbors that I just had recently met there, you know, her description was she tells you what to do. And that's it's up to you to go do it.
Well, look, I know somebody I need somebody right there. You know, I told Shane my trainer, I'm like, look, you won't have to yell at me. You won't have to scream at me. You won't have to make fun of me.
You just have to tell me what's next. And he used to laugh at me because he's like, I've never seen anybody go at this so hard. It's just a matter of, you know, you I tell you what to do and you do it as fast as you can as solid as you can. And then you're I know you're dying and you're telling me you're asking me what's next.
And that's that accountability. And that's where our advisors are financial advisors out there in the industry with experience need to have their elevator speech. You need to have their, you know, details of their value proposition available because look, this is an easy one. If you've got some experience, this Schwab $30 plan, somebody comes to you and says, well, I could go to Schwab and get it.
You should say, well, if that's what you think that you need, I highly suggest that you try it out, right? It's just accountability. And at the end of the day, it's accountability. That's that's what it comes down to, right?
I mean, the same as a month, you will get access. You won't get the same person over and over. Right. Your personal needs.
And that's not a bad thing. It just depends on your situation. Correct. Right.
So ultimately everyone, it is personalized to a certain point and it just comes down to accountability. Yeah. All right. Well, you know, from that standpoint, I think it's a reasonable value.
You have to understand that there is a cost involved and, you know, it is what it is. I don't think any financial advisor should be worried about it. Embrace it, embrace it. And you know, that may be a way to just get people started if they're too small.
Right. And I think we need to really, you know, make the point that, you know, LA Fitness can charge $30 a month because they have thousands of people who join and those thousands of people don't all go to the gym at the same time. Right. So they're able to spread it out and scale and this is no different.
You use their robo, Schwab makes a killing on cash. They make money from the ETFs. So it's sort of the Amazon effect, right? Prime next day delivery, they don't make money on prime.
They make it all on web service, right? And the cloud service. So, you know, it's one of those lost leaders where, you know, I don't think they're necessarily aiming to make money on the actual subscriptions. It's the other stuff, right?
Security lending cash ETFs. Yeah. No, you hit a big one right there. It's the cash.
And so this is one of the things, again, another item from the disclosure, right? Okay. So you do the financial plan. You're signing up and you've got $25,000 to put into their gig.
So you get this robo scenario, right? They've got a big take on cash. And that is you can they tell you upfront. They're going to be assigned in the robo portfolio from 6 to 30% cash.
Well, look, cash is a great tool from a conservative standpoint, from a risk management standpoint, but not to just set on it. And so there again, another thing to be aware of because you can make your own personal as a financial advisor. You can make your own personal argument as to why just holding on to, okay, you're a conservative client, you're going to hold on to 30% cash. Well, they're making money handover fist on the cash, right?
They're making money on their own using their ETFs. They're making money on all kinds of things, the trade execution. You know, and then oh, by the way, if you only have 25 grand, that equates to 1.44% that the client is paying Schwab for that financial planning and management capability. So robo ain't cheap.
Yeah. Despite what everybody says, right, robo was cheap as the loss leader. And then all the services that start to get added in and then the cost, if you don't do the math, because people don't understand percentages. People don't understand percentages.
They have to convert it to dollars to have it make sense. You're really not necessarily getting a great deal, but it's better than nothing. So all right, moving on. Next topic, right?
You've got some some info on Orion and a recent purchase. Yeah. So Orion recently purchased Advisor as a financial planning tool and more also as a client portal to. But before that, let's take a step back.
We've been with Orion for a long time. Yeah. So here's one as our software provider. And I just think that years ago, when we first started, they had our CRM, our proposal system, everything built in and they started unbundling that and they were sort of the first to scream about integrations, right?
We're only good at one thing. So if you want a financial planning, go integrate. If you want a proposal, go integrate. And what we've learned over the last 10 years is that the integrations just don't work very well.
They're actually pretty bad. They sell them as a single sign on. Thanks for saving me 10 seconds to sign on. And then they send over maybe name, email address.
So all these integrations are just at the surface level, right? And what's happening recently is a lot of these firms are now taking that all back and they want to control the tech stack. Now, people can argue about this left and right, but invest in that buying MoneyGuide Pro, Orion Brian Advisor, these things are all adding up to larger companies recognizing that they need to control that tech stack. Fidelity buying eMoney.
Yeah. So that's another one for us. Fidelity is our largest custodial relationship, right? Just like we have used Orion for years, we've been working with Fidelity for what?
20 plus years? I mean, it's been forever. And Fidelity bought eMoney. And that was one of the things for us from a financial planning standpoint.
We were using right capital. And yeah, there are integrations and all these great things. But ultimately, we looked at it and went, okay, it's more expensive for eMoney, but in the long run, if this is our major custodial relationship, why not make sure that that is where we're going? And so we made a change ourselves.
So you can just part of the full disclosure. Yeah. And that's what I think Orion was lacking on the client portal and the experience. And they wanted to build on that.
And I know they tried different things. And there's a webinar coming up on August 2nd where they're going to dive into sort of the experience with advisors. So we're definitely looking forward to seeing that. But regardless of this purchase, I think in general that integrations for the most part in FinTech are dead.
I think you're going to have to control the tech stack. You're going to have to deliver an experience from signing up a client to executing trades seamlessly and not have to be tossed around to all these different experiences. So it's working both ways, right? Fidelity Body Money and now it's coming out with a TAMP, Orion bought Advisor and also bought a TAMP.
Investing that bought Money Guide Pro has insurance exchange. It's just slowly happening. And who knows what's going to happen with TD and what the next step is. But I think what this has really taught us is just at least we've gone through this personally, trying to set up some of these technology integrations.
And they ultimately end up in disappointment and you just move on. Part of the reason that this is important to us and we've seen and run through this, not just with our own experiences, but with our relationship with financial advisors. As advisors have to make the decision to, I'm working with this BD, I'm working with that BD or I'm with this RA and they want to go and make a change for whatever reason. One of our top producers and longest relationships went from working with a BD to being an RA, her and one other person.
And in that experience, it was really eye opening for both of them to see all of the expenses and all of the different decisions that have to be made in trying to create their own tech stack, right? One of the reasons why, for our standpoint, putting all those sort of dominoes in order make a lot of sense, right? Because for smaller advisors, anybody who can put that tech stack together, put that combination of services together to make life easier, that's a win, right? Because let's face it, advisors, you have to run a business, but there's a spectrum, how much of the business do you want to run, how many decisions you want to make, or are you just really good at sales and relationships and that's where you want to focus to grow your business?
Well, this is how TAMPSOL got started, right? It was like, listen, focus on your clients, let the TAMP do the back office and all that stuff. And it's evolved a little bit. Lots of calls from RIA's from 15, 20 million who go out on their own and they can't afford Orion or they don't have the staff to put the stack together.
And it's not as easy as just signing up. That's the easy part. To execute and to go through the systems, it's challenging. And this is where firms like Potomac can step up and maybe help because we have that infrastructure already built, right?
Yeah, and sometimes it's a pick on the consolidation, right? We talk about aggregation with a consolidation. One particular software that my former broker dealer had that was a couple hundred dollars a month is what we charge our advisors. Well, the specific advisor suddenly goes out and has a two person group trying to get that software, you know, it's thousands of dollars a month.
And it's just that whole concept, right? Of scalability. Well, when you're one or two, you don't have scalability. When you're 500 or 200 or 10,000, right?
There's a lot of things that happen. That's why you say some of these big behemas, they sort of control the world when it comes to pricing. But you know, to each zone, we all have to make those decisions and do our research. And that's part of the reason it gives us more things to talk about.
It does. And just to wrap this section up, I just, you know, I can go on Twitter and people will argue about integrations being great and how they send all this information. We've yet to find an integration that actually made sense. And I'm happy to see that they're all dying.
You know, you really got to pick a stack you're comfortable with and, you know, from start to finish, hope it works together. So anyway, moving on. What recommendations you got for this week? Yeah, well, I've got a different one.
And right now we mentioned before, I'm living full time in an RV. We traveled around the country. So we've been out in Colorado and started doing, finally getting a chance to start doing some hiking. And I made a change about a month ago.
And that was to get rid of my, I love my Columbia hiking boots, but they were really, I would say probably over the top, they weren't waterproof, but they were hardcore hiking from the standpoint of really hard souls. And, you know, I liked them for what they were, what I used them for. But now I wanted waterproof. That was really was my big search waterproof and comfortable because if I'm going to do some rock climbing or go do some other things, I wanted to have a little bit more flexibility.
And I bought some Merrell Moab to waterproof hiking boots. That is my recommendation. Because if you're going to go out and get it, I mean, I know that I've done this. We just went on a hike again night, a night before last about two and a half miles and, you know, up into the, up into the mountains and so forth on the Thomas trail, the Kirk Packet trail and crystal trail.
And it was a blast, right? We had to cross a cross a, you know, a stream coming down a waterfall and so forth. Yeah, the boots got a little bit wet. We got over the top of the boot, but they also wick away moisture so fast.
My feet never felt wet. So I could hide the straight. The last two weeks, you are last two episodes, you recommend food and now it's hiking boots. Yeah.
See a pattern of eating and then trying to work it off. Okay, you got it. Life's a balance, baby. Life's a balance.
All right. So my recommendation for this week is going to be probably not applicable to anyone listening, but it's leap. It's an animated kids movie that I have watched now 150 times on Netflix. And I actually dig it in every time my kids ask for it.
I'm like the first one to turn it on. No way. So it's a lot of at-home time and it's a good movie to watch. Even if you're an adult, I thought it was entertaining.
So watch it tonight and report back. I'd go broke buying headphones for every one of the kids I had. Of course, I only had one. So mine was a cheap exit, but I will say I'm really pleased that since my son is now 23, but there's a period at which not long after he was born, I think our industry, the movie industry, finally figured out that you know what?
If you make movies, the cartoons and stuff that are funny for kids, but also have some adult humor and some things that we can get engaged in, then it's not so bad. They'll go watch it. Well, I'm going to see Lion King this weekend with my daughter. I actually do want to see that.
Oh, you just take a minute? I rented the old one just to remind myself. It was actually made in 1994. So that's a huge difference between the second episode and my parents saw it and they saw it was wonderful.
So I'm going to go this weekend and check it out. But yeah, to your point, if you can make something like that, I mean, we're ultimately taking the kids, so it has to appeal to us as well. So anyway, leave, check it out. I want to get your feedback next week.
Watch it with Kim and let me know. All right, well, we'll add that to the list because now we're caught up on handmaids and so we have to wait a week before we get another episode. So I thought I'd give us something to watch. All right, so anything else on the docket for today?
That's it. All right, like, subscribe, do what you got to do. We appreciate it. We do record this video as well.
Our podcast, those are available on the Potomac YouTube channel. But like I said, iTunes, we're available on Conquer Risk on iTunes, Google Play, Spotify, Pippa, you name it, we're out there. Let us know if you have any questions. Peace.
Thanks.