Episode #121: “The Fine Print: Understanding Financial Advisor Disclosures”

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Transcript

Welcome And What We Do

SPEAKER_02 0:01

Welcome to the physical physical podcast. Join us today is we sit down with the founder of Alchemy Wealth Management and author of your physical physical, Ryan Nelson. Tune in to gain valuable insights and practical tips as we simplify complex financial concepts into digestible lessons. From budgeting to retirement planning, this podcast is your go-to resource for mastering financial literacy.

The Fine Print Behind Your Advisor

Aaron Hoisington 0:33

Welcome everybody. This week's episode of the Fiscal Physical Podcast. My name is Aaron. I am here with Mr. Ryan Nelson, founder of Alchemy Wealth Management, my podcast co-host here. And uh good pal, uh Ryan, how are you doing today, man? I'm doing really well. How are you doing? You know, living the dream over here. Can't uh can't complain. Ready to ready to dive into some fiscal physicaling, if you will. Not sure if that's a verb, but we're gonna make it one. But uh uh you uh you ready to dive in today? Yeah, let's do it. All right, so today we are going to be discussing uh quote unquote the fine print, understanding financial advisor disclosures. Um this topic actually came up, Ryan, because I am a client of Alchemy Wealth Management, which you're very familiar with. And uh I got an email from you that was the annual ADV and privacy policy notice. Um you know, looking at that email, I was like, the first line, I like how you uh first off, I really like how you send your communication. It's like your first line was like, no action is needed of you. And I was like, perfect, cool, all right. That makes me feel a lot better. It's almost like I'm playing with house money at that point. Like, cool, like I don't really have to think too much, but I was like, you know what, I got a little bit of time. Like, let's let's pull this up. What are we working with here? So I went through and I skimmed through that. Uh I guess it's the ADV privacy policy notice. And um, honestly, it had some cool information in it. And and I was like, oh, I wonder like what the rationale or the reasoning behind like sending this is, why it's important. Do all financial advisors have to do this, or what does that actually mean? And I I kind of think back on, you know, like when you sign up for I good example is like um, you know, you accept the terms and uh uh whatever terms and agreement or whatever when you sign up for something. It's only like 15 pages long, and I'm like, I really don't know what I'm signing up for when it comes here. So um I don't think that's kind of what this is, but I think for maybe for most people, the layman like myself, that's kind of what it kind of looks like. So um, I hope we can kind of break it down, like why it's important, what it is, and kind of you know get into that if you don't mind.

Ryan Nelson 2:33

Yeah, let's do it. All right. Um, so yeah, um, yeah, exciting, exciting stuff, these uh these ADVs. And uh so yeah, every year um being a state licensed advisory firm, I'm required to send all of my clients um basically a set of compliance documents, which in which includes what's called the ADV and the privacy policy. And so this is effectively the documents that sort of I'm compliantly governed by. Okay. Um and so like all clients receive these when they sign their initial onboarding paperwork, but they're also required to get them on an ongoing basis. And and you always have access to it like anytime uh like on our website, there's a link to it, the most updated form at the bottom of the at the bottom of our website. But this is really just kind of going over some of the important information about uh how my firm operates, how we charge fees, things like that. And so it really is just a compliance, just an FYI form um sent to uh clients. Um and so uh yeah, not always the most exciting uh email you probably get, but it does explain who we are, what we do, how we get paid, like what services we offer, any conflicts of interest that we have, things like that. And then the privacy policy which is attached to it just explains what information we collect, how we protect it, and what information that might be shared. So basically it's it's like how the relationship works, documents. Um the like you said, I always try to be transparent in my email communication. So I always put in there like no action is required. Sure. Um, just because no action is required doesn't mean it's maybe not useful to read through those types of documents, right? So certainly not required to. Um, but uh there can be some value in there and you skim through them. Well, we've got out of curiosity, did you have any meaningful takeaways?

What The ADV Actually Discloses

Aaron Hoisington 4:21

Yeah, I I mean the fee structure of how you structure your fees is always it's always interesting to me, like the certain amounts, like the percentage and such too. So I was like, oh, that's cool to like I love the transparency of like how because I'm always curious of like how other companies or entities get paid when I when I contract their services. So I really like that. I also like that you it broke down um the like your you and I believe his name's Grant, um your like background and your history on it too, to like show like hey, this is what their background, their education is, what their previous work history is, like the people who are actually managing your money or are in charge of that kind of gave a little behind the curtain with that. With I mean, because for myself, I didn't I don't know Grant from Adam, but now I feel like I I do like I'm like, oh okay, this is his background, that's great. Like I've talked to him on the phone, but that's about about it. So I really like the fee structure and also kind of getting to know, and I don't know if that's standard with like these, like with these firms who have a ton of people who work for them or whatever, if they put everybody in there, but um, I just like that that made me feel kind of like I was I knew who I was talking to or who was managing my money.

Ryan Nelson 5:26

Right. No, yeah, that's cool. It also shows um not only like our backgrounds, it'll show if there's any uh like complaints or anything like that. So hopefully then you can kind of keep tabs on the per people that are managing your money and make sure that they're kind of up to snuff, if you will. Sure. Um so yeah, really the whole intent is transparency. Um, the hope is to be again transparent with again how we charge, who's managing your money to your point. Um, and so it really is just all around transparency. Um, and so basically, as a client, like you deserve to know how the advisor gets paid, you deserve to know what kind of conflicts of interest there are, you deserve to know what information is like how information is being handled. Um, and so this is really that document that that discloses all of that. Um, I'll tell you, I I don't know, but I'm guessing the vast majority of people kind of, you know, it is written in sort of a more legalese-esque. Yeah. Um, so it's not the most maybe enjoyable reading. Right. Um, so my guess is probably a lot of people do um maybe you then skip over reading it or just skim through it. Um, but it's kind of like that, that owner's manual, if you will, for the relationship.

Aaron Hoisington 6:34

Yeah, and I think that that's a good way to describe it because like I I don't really look at my owner's manual of like my car unless I like I'm like, okay, how many like how big is my fuel tank? Or how many miles to the gallon do I get? Or or where do it what it happens when this light goes on? Like I kind of and it's nice to know that it's there though, to be able to versus like, hey, cool, I I don't know anything about this, I don't know where to find this information, but if you ever had a question about it, like you could just like hearken back to that doc too. So I I I do think that the owner's manual is a good, a good kind of comparison to that for sure.

Where To Look First Each Year

Ryan Nelson 7:08

Yeah, and I mean, and it it's written in such a way where um you know it has a table of contents, um, and you can really go to the sections of you know if you have questions around um the types of clients we work with or the fees or the um you know any changes that we've made um or if we have investment discretion, right? You can just go and go straight to those pages and read just specifically about that question um you have. So I'd say that's probably a best practice. Uh I I could imagine, I mean, I suppose the best practice is to read the whole thing word by word, word for word, right? Um there's a lot of best practices out there. Maybe the more practical thing, because most people probably aren't um actually going to do that, the more practical thing would be to pop it open and take a look at maybe the the section or two that's of most interest to you. Um and and to your point, I think that you there there may be a takeaway or two and just make sure that your financial advisor relationship is is in alignment with the type of relationship you're hoping to have with that type of professional. Um and so yeah, so so really there are compliance documents uh being shared with the intent of transparency so that the clients have access to the information to make informed decisions if their financial advisor like to just be educated on how their financial advisory relationship is currently structured. And probably one of the probably best like if you're only gonna pop that thing open and look at one like section, like there is um the it's at the very, very beginning always. It's if there's any material changes. And so then you could see like, oh, if your financial advisory fee or if your financial advisor um like change structurally changed something about the business, it would be in the material changes. And so you could see like what changed since last year. Smart. You could just take a look there, and you know, it that would kind of almost keep you up to date, um, if you will, if you're just taking a look at that every year.

Aaron Hoisington 8:58

Yeah, no, that's a that's a great piece to at least at least seeing because I'm I'm kind of the same way. I'm like, if I I get like a bill or I know that's something I pay for like every year, if something changes in that, I'm like, wait, why did this change or what's going on there? So having that at the at the start there, it do most did you structure that specifically? Like, was that your decision to do that? Or is that kind of how the is there like a template that you use that everybody sends out to where like, hey, changes have to be first? I don't know if you know the answer. I'm just curious.

Ryan Nelson 9:26

Yeah, I don't know. This is something where we hire compliance consultants to help us draft these. Um and each basically everybody, because I'll look at other advisory firms' ADVs, and they are um structured in very, very similar ways. Um, I'm not necessarily well versed on exactly what the requirements are, if they have to go in the exact same order, or if that's just kind of been a best practice that's been adopted by advisory firms. Um, but certainly if you pull up a bunch of different ADVs, they're formatted differently. Right. But you can tell it they're very, very similar. Um if you look up an ADV, like I I don't know that I'd be able to do it on the spot here, but like you know, my ADV's 24 pages. Um if I was to pull, so let's see if I could find yeah, I'd be curious to see the comparison on on uh I'm sure it varies, like you said, but that's a good point.

Aaron Hoisington 10:15

I didn't even think about you that you it's probably a compliance company that you work with to do these, you know, make sure it's on up to snuff, if you will, which I love that line.

Ryan Nelson 10:24

Yeah, yeah. Definitely. I mean, when it comes to these types of things, we like to just be overly um overly cautious and use it out of an abundance of caution, just hire the best professionals out there to help us with these.

Aaron Hoisington 10:37

Um I'm seeing if I can and I think too, one of the one of the areas uh that is important, I especially for you, because you're you're very transparent with these things. Like, I think that if if you're opening up something like that and you're actually interested in this and you don't understand something, I think that's worthy to ask those direct questions to your advisor. I think that's a huge piece that I always recommend to honestly anybody, like, hey, like if you don't understand, ask that question. People get scared of sounding stupid or whatever. I'm like, hey, if you don't understand what that means, have them explain it in a different way because this is you know, money's very important. And if you don't understand something about like, uh, this doesn't really jive with me or this doesn't make sense. Is this how it's always been? Whatever it might be, like, ask those questions right to your right to your advisor for sure.

Ryan Nelson 11:20

Definitely, definitely. And so um, yeah, I think it it could be a good conversation piece to have some of those conversations. Um, like we said, a good place to look would be what changes we've made. Another interesting place to look would be to look at the disciplinary history, right? So then you could see, like, hey, is the person that I'm hiring or working with what kind of disciplinary actions have been taken against them? And you can make sure they have either a clean record, or if not a clean record, probably worth having that conversation with them and have them explain to you kind of what happened and what's going on and why they have something on their record. Absolutely. Um, and that'd be uh very likely a good learning experience. Um, so those would be a couple of of good use cases, but again, I think it's uh primarily just a document um that um promotes transparency in the industry. Um that in a perfect world you might look at every single word. Uh in the real world, you might just uh pop it open, take a look at what changes were made, and jump to any other um sections that um uh are relevant to your current needs or or of interest to you at that moment. Yep. Awesome.

Aaron Hoisington 12:20

That's good, man. I like that. Uh anything else you want to say on this here topic? I mean, uh I I think that uh uh for myself, I'm I'm like it's cool that that gets sent out. I think I don't know if that's like is that a state or federal thing? Do you know if that's like is it state regulated because you're Well, I'm regulated by the state, but it'd be a federal requirement. Federal requirement. Okay.

Ryan Nelson 12:42

Um the the uh you know the the other thing to maybe pay attention to would be the privacy policy, just how your information is collected. Again, it should be shared as well. Um so good to take a look at that. Um and yeah, I mean, I think i if anything, probably your best bet is to have the to not be afraid to have those conversations with your financial advisor because it like I said, sometimes these documents can be sort of written in legalese. Like I said, I hire consul like consult compliance consultants to help draft these documents. Um, they're not always written in the most layman terms. Like they're not, you know, I we we do a lot of things, like a lot of the topics on this podcast. Hopefully, we're condensing fairly complicated topics down into layman terms, right? Where there's a lot of times when I'm presenting a financial plan to a client, we're trying to take a complex situation, condense it down into layman's terms. This ADV, that's not the use case for that. Right. We're not trying to condense it down into layman's tools. It's it is a comp or into layman's terms, it is a compliance tool and requirement. And so it really is written more in legal ease. So some you might take a look at it and be a little overwhelmed. Again, that'd just be a good opportunity to to if you have questions, just bring them up to your advisor and and um kind of work through those like in a human-to-human way. And um they'll they'll probably they'll be able to explain it in a more digestible format, I would assume.

Aaron Hoisington 14:04

I would hope so. And if if they don't, if either like, oh no, don't worry about that, it's like, well, maybe uh maybe consider some of your choices with that because they I hopefully, I mean, the people are able to break that down because it's supposed to breed that transparency in in maybe an industry that doesn't have the best reputation for transparency. But um, if you're able to get that broken down, I think that that's that's super important to be able to know what's going on. And I I think you have it noted here. You don't have to be an expert in this, but you yeah, and I think you've mentioned on this podcast before, maybe know just enough to be dangerous. Yep, exactly. Exactly. Awesome, man. Anything else to uh bring up on this topic here before we go into that? I think I'll do it. Awesome. Well, hopefully you guys stayed awake during that. You know, it's one of those topics that uh we uh you know might not be the most exciting, but it is very important, and uh hopefully everybody will uh hang tight here. We'll be back on the other side of this.

SPEAKER_02 14:52

And now to put the personal in personal finance.

Aaron Hoisington 14:58

Welcome back, everybody, this side of the physical physical podcast. I'm still here with uh Ryan, and uh I have a trivia question for you, Ryan. You ready? Let's do it. Absolutely, let's do it. All right, so uh uh this is a fun trivia question. I actually got this information from uh um Pimsler, is what it is, which is a uh uh language learning app and that you're familiar with. You've learned several languages through them, I'm sure. Um and uh uh so it the I it's a two-part question here. So the first one is what are the top five most spoken languages in the world? And by spoken language for this, it means that uh you can be a non-native speaker, but you also speak that language. So your primary language? Yep, exactly. So that's the first question is what are the top languages spoken in the world? Top five of them.

Ryan Nelson 15:48

Um English, Spanish, Cantonese, um English, Spanish. English, Cantonese.

Aaron Hoisington 15:56

Spanish, nailed it. Cantonese isn't? No, but I think you're thinking of the right one. You just might have the wrong I'm saying it wrong. No, well, you just am I even saying a language? You are Cantonese is a is a language, yes. But the the I think you're meaning to say Mandarin. Oh, Mandarin. Yeah, but yeah. I think you might have used them interchangeably there. But yes, those are top three. English. English is number one, Mandarin number two, Spanish is number four.

Ryan Nelson 16:19

Okay.

Aaron Hoisington 16:19

And there's two other in there that I I I figured you'd get those first three, but I'm curious about it.

Ryan Nelson 16:24

Yeah, that's tough. Um let's see. Um one of these I was like, oh, like I would assume it's a I I'm so ignorant. I would assume it's a language they speak in India.

Aaron Hoisington 16:38

It is, yeah, yeah, yeah. Indian? Yeah. Is it just called India? India is what it's called. Yeah, exactly. Yeah. Yeah. I was like, it's got a lot of people. And this other one, I don't know if you'll get this one, but it was like Is it it's not another romance language if that helps.

Ryan Nelson 16:52

I was thinking it might be another uh Chinese dialect. Um God. I don't know. What is it?

Aaron Hoisington 17:00

It is French. French is the other one. Yeah, I guess that makes sense. Yeah, and so like you think about in Europe, people learn French, like, and then they have quite the following, like they conquered some countries in Africa and such, too. So um, but yeah, it was interesting. I was like, okay, cool. And so that's with total. What about with first language? Like uh what first language? Yeah, first language. So everybody's first language, that's your native language. What is the top percent or top languages spoken? I would guess it's Mandarin. Yes, with oh almost 13% of the world. Wow. That is like the first native language. So that was pretty wild to me. I was like, whoa. Yeah. Yeah, it's crazy. Yeah. All right. So you got Mandarin, nailed it.

Ryan Nelson 17:43

Oh, all top five again? Sure.

Aaron Hoisington 17:44

There's only one that's different on this list, and so I doubt that.

Ryan Nelson 17:47

So I'd go I'd say it's then it yeah, it's gonna be Mandarin, the Hindi again, uh, English and Spanish again. Yep. So French is gonna be the different one. Yeah, French. The different one, yeah. And it's this, it's the it's so this is primary language. Primary language, exactly. So I'm gonna go with another uh Chinese dialect. Okay, yeah, yeah.

Listener Feedback And How To Reach Us

Aaron Hoisington 18:04

Cantonese. That is a Chinese dialect, yeah. But no, it's actually Portuguese. Oh, because uh Brazil has a pretty big dialect. Ah, yeah, it's a big country. Yeah, interesting. So anyway, it was kind of interesting. I was like, I'm shocked that Portuguese, that's crazy. Yeah, it was it was wild. I was like, wow, like, but you think about countries that have like that, it's their native language. So I'm like, oh, probably makes sense. It was wild to me. I was like looking at the percentages, and like Spanish is like seven percent, and then like like I said, it it's almost double for Mandarin as like the first. And I was like, whoa, like that's that's pretty wild to me. So um anyway, crazy, fun stuff, fun stuff there for sure. And it also kind of gives you an idea, like if you you know, English being the most spoken language like across the across the world, like man, that's uh it's a tough language to learn. So I'm almost like glad that I'm a native speaker because it's like I think about all the the colloquial terms and even just listening to this podcast. Oh, yeah, shout out to our international listeners. Really appreciate you guys hanging out with us there because some of the terms you probably just gotta be like, I don't I don't even know what that means, dude. Right. Yeah, it'd be challenging. Yeah, it's challenging. Awesome, Ryan. Well, you did pretty good on that, man, as always. And uh we'll go ahead and uh get this uh get this episode wrapped up here. But uh want to thank all the listeners wherever you guys are checking us out from. These episodes drop every Tuesday morning. We'd love to hear your feedback on it as well. Please let us know. And uh, Ryan, I'll leave it up to you, my man. As always, stay the course.

SPEAKER_02 19:26

Thank you for joining us for the Fiscal Physical Podcast. Until next time, happy listening. And as always, stay the course. If you have a question or topic suggestions, please email us at podcast at alchemywealth.com. If you enjoyed today's discussion, subscribe to the podcast to ensure you never miss an episode. And consider leaving us a rating and review on your favorite platform. This helps other listeners like you find this channel. For more resources, you can visit Alchemy Wealth Management's website at www.alchemywealth.com or find your physical physical to book on Amazon. We'd be remiss if we didn't mention the personal finances just then. First of all, please don't take anything we say as advised. The presenting content is for informational and entertainment purposes only. It's not an offer or a solicitation, nor should it be construed or relied upon for tax, legal, or investment advice. It doesn't consider your personal financial situation or objectives and may not be suitable for you.