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Follow the Incentives: Why Compensation Matters in Financial Services and How Incentives Can Influence Behaviors · Money In Motion with Klaas Financial

• 0:00
  Speaker 1: And our phone lines, they're open to you right now.
• 0:02
  Speaker 1: If you have questions for our retirement planning professionals from
• 0:05
  Speaker 1: Kloss Financial, love to have you join us this week.
• 0:07
  Speaker 1: Telephone number to get on the air live, 608-321-1310. That's 608-321-1310.
• 0:13
  Speaker 1: We'll get you connected with CJ Kloss and Eric Schwartz.
• 0:16
  Speaker 1: They are our retirement planning professionals from Kloss Financial. You
• 0:20
  Speaker 1: can learn all about Kloss Financial on their website, klossfinancial.com.
• 0:24
  Speaker 1: That's klossfinancial.com. Great website to learn all about Klaus Financial.
• 0:29
  Speaker 1: You can learn about their separate divisions. You can schedule
• 0:32
  Speaker 1: a complimentary chat right from the website. You can also
• 0:35
  Speaker 1: listen back to this and previous programs right on the website, klausfinancial.com.
• 0:40
  Speaker 1: Their telephone number for the office right here in Madison, 608-442-5637.
• 0:45
  Speaker 1: Don't forget, no charge for that initial conversation at Klaus Financial.
• 0:48
  Speaker 1: It will be complimentary to you. Again, their number is 608-442-5637.
• 0:53
  Speaker 1: You can also schedule that complimentary chat right from the website, KlausFinancial.com.
• 0:58
  Speaker 1: And joining us this morning from Klaus Financial, as I mentioned, Mr.
• 1:00
  Speaker 1: CJ Klaus and Eric Schwartz. CJ, how are you doing
• 1:03
  Speaker 1: this week?
• 1:04
  Speaker 2: I'm doing great, Sean.
• 1:05
  Speaker 3: How are you?
• 1:06
  Speaker 1: I'm doing really well. Great to chat with you, my friend. Eric,
• 1:08
  Speaker 1: how have you been?
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  Speaker 3: Not too bad, Sean. Excited for our show today.
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  Speaker 1: It is an exciting show. We're going to be talking about,
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  Speaker 1: the title is Follow the Incentives, and we're going to
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  Speaker 1: talk about why compensation matters when it comes to financial
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  Speaker 1: services and, of course, how incentives can influence behavior. We're
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  Speaker 1: going to get into the details later. with Eric and CJ,
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  Speaker 1: and that in just a moment. Before we get rolling
• 1:28
  Speaker 1: on this week's conversation, one of the great features of
• 1:31
  Speaker 1: the show, aside from an opportunity to get on the
• 1:33
  Speaker 1: air and ask your question and, of course, learn all
• 1:35
  Speaker 1: about Kloss Financial, is an opportunity to win a fantastic prize.
• 1:38
  Speaker 1: This week, no exception. Our friends from Kloss Financial have
• 1:40
  Speaker 1: provided a $ 25 gift card to Amazon for the winner
• 1:43
  Speaker 1: of the Kloss Quiz question of the week. I'll tell
• 1:45
  Speaker 1: you a little bit later on in the program how
• 1:46
  Speaker 1: you can win that prize. And a little tip, though,
• 1:49
  Speaker 1: just pay close attention to the show because just about
• 1:51
  Speaker 1: every question and answer come up during each week's program.
• 1:54
  Speaker 1: And before we start this week's conversation, let's actually look back, Eric,
• 1:57
  Speaker 1: at last week's show, get the question and answer to
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  Speaker 1: the Klaus Quiz question of the week.
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  Speaker 3: Yeah, so last week we were talking about kind of
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  Speaker 3: the psychology of financial planning and making good decisions. So
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  Speaker 3: our question was a good, or it was a true
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  Speaker 3: or false, a good financial decision will always produce a
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  Speaker 3: good outcome. And the answer to is false. And this
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  Speaker 3: is part of the concept that we were talking about
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  Speaker 3: is separating the quality of a decision from the outcome, right?
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  Speaker 3: So good decisions sometimes can have disappointing outcomes. And the
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  Speaker 3: opposite is true as well. So we want to make
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  Speaker 3: sure we're separating the quality of the decision from the
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  Speaker 3: actual outcome.
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  Speaker 1: It was a great show as well. And folks want
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  Speaker 1: to listen back, of course, get on over to KlossFinancial.com.
• 2:40
  Speaker 1: That's Kloss, K-L-A-S-Financial.com. Also, while you're there, you can learn
• 2:44
  Speaker 1: all about Kloss Financial and listen back to that and
• 2:46
  Speaker 1: previous shows, podcasts, right at KlausFinancial.com. As mentioned, today's topic,
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  Speaker 1: it's called Follow the Incentives. It's an interesting title, I think,
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  Speaker 1: because most people assume recommendations are based strictly on expertise
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  Speaker 1: and professional judgment. And CJ, what do you exactly mean
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  Speaker 1: then when you say follow the incentives? Yeah, good question.
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  Speaker 2: So as an econ major myself, I can attest that
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  Speaker 2: one of the most valuable lessons in economics or business
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  Speaker 2: or human behavior is that incentives really do matter. So
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  Speaker 2: most people are decent human beings with decent intentions, but
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  Speaker 2: incentives often drive or influence behavior, sometimes in ways that
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  Speaker 2: we don't even recognize. This is true in financial services.
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  Speaker 2: It's true in health care. It's true in politics. Which is,
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  Speaker 2: by the way, why I'm personally in favor of campaign
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  Speaker 2: finance reform because of that, that I don't like it
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  Speaker 2: being true in politics. But then it's true in nearly
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  Speaker 2: every profession across the globe. So when consumers are evaluating
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  Speaker 2: financial advice, one of the most important questions we believe
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  Speaker 2: that they can ask is, how is this person compensated?
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  Speaker 2: Not because compensation tells you everything you need to know,
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  Speaker 2: but rather because compensation frequently helps explain why recommendations are
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  Speaker 2: being made.
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  Speaker 1: Talking this morning with CJ Kloss and Eric Schwartz. Of course,
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  Speaker 1: they are our retirement planning professionals from Kloss Financial online, klossfinancial.com.
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  Speaker 1: That's kloss, K-L-A-S, financial.com. Really interesting layout there, CJ. And Eric, then,
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  Speaker 1: as we talk about this, I got to admit, it
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  Speaker 1: kind of sounds a little cynical. And I don't know
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  Speaker 1: CJ to be a cynical man. Are you suggesting then
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  Speaker 1: that financial professionals can't be trusted?
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  Speaker 3: Boy, I hope not. Otherwise, I'm in the wrong business here. No,
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  Speaker 3: we're not suggesting that at all. And, you know, I
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  Speaker 3: think it's fair to say that most financial professionals want
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  Speaker 3: to help their clients, right? We're not We're not trying
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  Speaker 3: to be holier than thou when we're having this conversation.
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  Speaker 3: The point isn't that compensation determines your character. The point
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  Speaker 3: is that incentives are going to create opportunities and pressures, right?
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  Speaker 3: As humans, we are susceptible to these types of things.
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  Speaker 3: And professional conduct exists in part because regulators and industry
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  Speaker 3: leaders recognize that this is a reality. Human beings tend
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  Speaker 3: to respond to incentives, and that's why we have to
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  Speaker 3: understand compensation better. structures really well. And consumers don't need
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  Speaker 3: to become experts in financial regulation, but they should understand
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  Speaker 3: whether the person giving advice benefits financially from the recommendation
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  Speaker 3: in one way versus another.
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  Speaker 1: It's really interesting as we talked this morning with CJ
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  Speaker 1: Kloss and Eric Schwartz, our retirement planning professionals from Kloss Financial.
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  Speaker 1: And as we talk about kind of following those incentives
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  Speaker 1: and kind of understanding human nature is, I know we've
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  Speaker 1: touched on different aspects of this as well in the past.
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  Speaker 1: And one of the cool things is If you haven't
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  Speaker 1: been to the Kloss Financial website, klossfinancial.com, I urge you
• 5:49
  Speaker 1: to head on over there today because you can listen
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  Speaker 1: back to some of the previous shows as well and
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  Speaker 1: get a really good sense of what we're talking about.
• 5:56
  Speaker 1: Of course, this week, a fantastic conversation about following the incentives. Also,
• 6:00
  Speaker 1: while you're at klossfinancial.com, you can get to know the team.
• 6:02
  Speaker 1: You can also schedule that complimentary conversation right online. That's klossfinancial.com.
• 6:07
  Speaker 1: That's klossfinancial.com. Or you can give them a call, 608-442-5637.
• 6:11
  Speaker 1: No charge for that initial call. get to know your
• 6:15
  Speaker 1: appointment debt clause financial, it will be complimentary to you.
• 6:18
  Speaker 1: So CJ, can you kind of give folks some real
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  Speaker 1: world examples here? Yeah, you bet.
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  Speaker 2: So let's imagine two financial professionals. One is compensated through
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  Speaker 2: commissions when, say, a certain product is sold. Another charges
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  Speaker 2: a fee for advice, regardless of which investment or product
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  Speaker 2: that is selected. So neither structure automatically makes someone more
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  Speaker 2: trustworthy or more ethical, but those compensation systems, of course,
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  Speaker 2: create different incentives. So when the one financial professional suggests purchasing, say,
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  Speaker 2: a variable annuity that gets paid an upfront commission for
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  Speaker 2: your purchase of that annuity versus another financial professional who
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  Speaker 2: provides the exact same suggestion but does not get paid
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  Speaker 2: an upfront commission when you purchase that annuity... I'll bet
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  Speaker 2: our listeners can already get the sense that the quality
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  Speaker 2: of the suggestion between the two financial professionals might be
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  Speaker 2: a little different simply based upon the compensation structure. Now,
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  Speaker 2: as Eric was mentioning before, we are certainly not saying
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  Speaker 2: that your compensation structure defines character. I know a ton
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  Speaker 2: of really high quality, what I would call financial advisors
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  Speaker 2: or registered representatives, who sell products and get paid commissions.
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  Speaker 2: As a matter of fact, we actually bought out the
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  Speaker 2: practice of one of those many, many years ago. Oh,
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  Speaker 2: and conversely, I know a lot of really not great
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  Speaker 2: human beings with great character who are in the fee-based
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  Speaker 2: advisory space. So I hope our listeners get the point.
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  Speaker 2: Your compensation structure alone does not define the character of
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  Speaker 2: who you are and whether or not you'll put somebody's
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  Speaker 2: interest ahead of your own.
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  Speaker 1: However....
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  Speaker 2: The law matters and actually in like the fiduciary kind
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  Speaker 2: of law, so to speak, is that you must put
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  Speaker 2: the interest of the consumer ahead of your own. Whereas
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  Speaker 2: that's not the same when you're selling a commission. So
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  Speaker 2: the law defines these things differently. And then secondarily, the
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  Speaker 2: incentives may drive different behaviors. Hey, it's not by chance
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  Speaker 2: that when you go to an auto dealership, you feel uncomfortable.
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  Speaker 2: I hope everybody gets my drift, right? It's not by chance.
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  Speaker 2: It's because the incentives drive that. Everything on the lot is,
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  Speaker 2: you know, sold by a salesperson. And if they can
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  Speaker 2: get you to purchase, then they're going to get paid
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  Speaker 2: a commission. No wonder why it's uncomfortable, generally speaking. Now,
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  Speaker 2: for anybody who's out there who's selling cars, I don't
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  Speaker 2: mean to speak ill of you. That's not the point here.
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  Speaker 2: Some of you are fantastic. And you've actually learned to
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  Speaker 2: be more consultative. Like, good for you. But I hope
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  Speaker 2: everybody's getting the point. It's when you dig down in
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  Speaker 2: the weeds on this, incentives really do matter. Now, similar
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  Speaker 2: to that kind of example that I gave you, there
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  Speaker 2: are advisors that are compensated based on assets they manage.
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  Speaker 2: Others may be paid on hourly fees. Some receive salary
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  Speaker 2: and bonus compensation. Some might receive a combination of several
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  Speaker 2: different methods, including revenue-based compensation. So each approach can create
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  Speaker 2: different incentives and different potential conflicts of interest. Because even
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  Speaker 2: in the utopian space that we talk about, which is
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  Speaker 2: like a fee-based fiduciary who does what is in your
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  Speaker 2: best interest, well, what if that fee-based fiduciary only still
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  Speaker 2: gets paid on sales and there's no stability to their income?
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  Speaker 1: You get the idea.
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  Speaker 2: It can create underlying tensions for that individual. And this
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  Speaker 2: is why, in our opinion, in disclosures and transparency are
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  Speaker 2: so important in our industry.
• 10:02
  Speaker 1: Really good perspective from CJ Kloss and Eric Schwartz. They
• 10:05
  Speaker 1: are our retirement planning professionals from Kloss Financial. If you've
• 10:08
  Speaker 1: got a question for CJ and Eric, we'd love to
• 10:10
  Speaker 1: get you on the show this morning, whether it's about
• 10:11
  Speaker 1: our topic at hand or if it's about anything retirement
• 10:14
  Speaker 1: planning related, they'd love to answer your question. We'd love
• 10:17
  Speaker 1: to take your call right now.
• 10:18
  Speaker 2: 608-321-1310.
• 10:18
  Speaker 1: That's 608-321-1310. We'll get you right on the air. with
• 10:24
  Speaker 1: CJ and Eric, our retirement planning professionals from Kloss Financial.
• 10:27
  Speaker 1: You can learn more about them online as well as
• 10:30
  Speaker 1: the separate divisions at Kloss Financial and listen back to
• 10:32
  Speaker 1: this and previous shows podcasts. You can also schedule a
• 10:34
  Speaker 1: complimentary conversation right at KlossFinancial.com or give them a call
• 10:38
  Speaker 1: at the office, 608-442-5637. No charge for that initial get-to-know-you
• 10:42
  Speaker 1: appointment at Kloss Financial. It will be complimentary to you. Again,
• 10:46
  Speaker 1: their number, 608-442-5637. We'll continue our conversation with Eric and
• 10:50
  Speaker 1: CJ and take your call next as Money in Motion
• 10:53
  Speaker 1: with Kloss Financial continues right here on 1310 WIBA. And
• 11:05
  Speaker 1: our phone lines are open to you right now at 608-321-1310.
• 11:09
  Speaker 1: If you've got questions for our retirement planning professionals from
• 11:12
  Speaker 1: Kloss Financial, love to have you join us this morning. Again,
• 11:14
  Speaker 1: the number is 608-321-1310. Speaking of telephone numbers, Kloss Financial,
• 11:18
  Speaker 1: their office right here in Madison. Great day to give
• 11:20
  Speaker 1: them a call.
• 11:22
  Speaker 2: 608-442-5637.
• 11:24
  Speaker 1: No charge for that initial get-to-know-you appointment at Kloss Financial.
• 11:27
  Speaker 1: It will be complimentary to you. Again, their number, 608-442-5637.
• 11:30
  Speaker 1: You can also schedule that complimentary chat right from the website, klossfinancial.com.
• 11:36
  Speaker 1: That's Klaus, K-L-A-A-S, financial.com. Talking this week about incentives, why
• 11:41
  Speaker 1: compensation matters in financial services, and how incentives can influence behaviors.
• 11:47
  Speaker 1: And Eric, I wonder, and I think for a lot
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  Speaker 1: of people wondering this question, is every conflict of interest
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  Speaker 1: a bad thing?
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  Speaker 3: Yeah, that's a good question. And I think the short
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  Speaker 3: answer is not necessarily. In fact, I don't think it's
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  Speaker 3: really inherently a good or a bad thing, a conflict
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  Speaker 3: of interest. It just exists, right? And it's something that
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  Speaker 3: we need to deal with. And it's going to be
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  Speaker 3: present in almost every profession, right? It's something that is
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  Speaker 3: a fact of life and something we're going to encounter
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  Speaker 3: quite often. So if we look at an example here,
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  Speaker 3: A financial advisor may earn more revenue if a client
• 12:28
  Speaker 3: invests assets rather than leaving money in a savings account.
• 12:32
  Speaker 3: So by definition, we have created a conflict of interest here,
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  Speaker 3: but it's not necessarily a bad thing if the client
• 12:38
  Speaker 3: earns a higher rate of return by investing in equities
• 12:41
  Speaker 3: over a long period of time rather than just leaving
• 12:43
  Speaker 3: that money in a low return savings account. So that
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  Speaker 3: potential conflict actually worked to the client's advantage here. Some
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  Speaker 3: other examples would maybe include a tax professional who might
• 12:55
  Speaker 3: be compensated for preparing a tax return but not for
• 12:58
  Speaker 3: broader financial planning, right? They're going to focus their advice
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  Speaker 3: and their expertise on that one tax return rather than
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  Speaker 3: maybe giving advice that would benefit that potential client in
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  Speaker 3: the future. Another would be an attorney who bills by
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  Speaker 3: the hour, right? They would be incentivized to take more time.
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  Speaker 3: So none of these arrangements are really inherently wrong, but
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  Speaker 3: they do create these kinds of conflicts of interest that
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  Speaker 3: we've been talking about. So the really important part of
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  Speaker 3: this is understanding where the incentives exist and making sure
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  Speaker 3: that advice remains centered on your best interests and not
• 13:32
  Speaker 3: the interest of the professional that you're working with.
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  Speaker 1: Really good. Really good explanation there. So we talked this
• 13:37
  Speaker 1: morning with Eric Schwartz and CJ Kloss. They are our
• 13:40
  Speaker 1: retirement planning professionals from Kloss Financial Online. KlausFinancial.com. That's Klaus, K-L-A-A-S-Financial.com.
• 13:46
  Speaker 1: So CJ, hearing you talk about this makes me think
• 13:50
  Speaker 1: why regulation might play a pretty important role. Correct on that?
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  Speaker 3: Yeah, exactly.
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  Speaker 2: So many regulatory requirements are specifically designed to address conflicts
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  Speaker 2: of interest like what Eric was referencing earlier. So think disclosures,
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  Speaker 2: best interest obligations, fiduciary standards, supervision, documentation. All of these
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  Speaker 2: things are, you know, some sort of like regulatory requirement
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  Speaker 2: or disclosure requirement. And all of those frameworks recognize that
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  Speaker 2: incentives matter. It's not, but it's interesting. Once you get
• 14:26
  Speaker 2: deep into the weeds, and I will admit when I
• 14:28
  Speaker 2: used to study for securities exams and I would get
• 14:31
  Speaker 2: to kind of the regulatory components, I'd be like, I
• 14:34
  Speaker 2: don't get it. Honestly, there's just too much information for
• 14:37
  Speaker 2: my brain to understand. And I It's not that I
• 14:39
  Speaker 2: didn't understand that there was a purpose for it. It
• 14:42
  Speaker 2: was more I didn't understand why certain things weren't just
• 14:46
  Speaker 2: like outlawed, right? Oh, if you have a conflict of interest,
• 14:48
  Speaker 2: that should just be outlawed. And then I recognize I'm like, oh,
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  Speaker 2: everybody has conflicts all the time. As a matter of fact, like, hey,
• 14:57
  Speaker 2: I would like to work with you as a client.
• 14:58
  Speaker 2: That's a conflict because you get paid for that. It's like, oh,
• 15:01
  Speaker 2: my gosh, you turn right, you turn left, you turn
• 15:03
  Speaker 2: any direction, and there's a conflict that exists.
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  Speaker 1: Yeah.
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  Speaker 2: That's why a lot of regulatory requirements are about disclosures
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  Speaker 2: and about setting standards and making sure that things are
• 15:14
  Speaker 2: documented well. Because if you think about that, then a consumer,
• 15:19
  Speaker 2: if it's done appropriately, then the consumer has the information
• 15:22
  Speaker 2: they need, along with having met the professional, let's say,
• 15:25
  Speaker 2: to determine, are the conflicts too large for us to overcome?
• 15:32
  Speaker 2: Or is the character of this individual something I don't
• 15:35
  Speaker 2: want to engage with? You get the idea. It provides
• 15:38
  Speaker 2: the information to make decisions. So the goal isn't to
• 15:42
  Speaker 2: eliminate every possible conflict since that's, as I just mentioned,
• 15:46
  Speaker 2: that's impossible. The goal in kind of regulatory oversight is
• 15:52
  Speaker 2: to create transparency and accountability so that consumers can make
• 15:56
  Speaker 2: informed decisions.
• 15:59
  Speaker 1: Great stuff this morning. CJ Kloss and Eric Schwartz are
• 16:01
  Speaker 1: retirement planning professionals from Kloss Financial. Head on over to
• 16:03
  Speaker 1: the website, klossfinancial.com. That's Kloss, K-L-A-S, financial.com. I know, obviously,
• 16:09
  Speaker 1: in the morning, got a lot of stuff going on,
• 16:10
  Speaker 1: driving into work, maybe dropping the kiddos, grandkiddos off at school.
• 16:14
  Speaker 1: You missed part of the program, running to get coffee.
• 16:16
  Speaker 1: You can always listen back and get caught up at klossfinancial.com.
• 16:19
  Speaker 1: You can subscribe to the podcast on the website as well.
• 16:23
  Speaker 1: That's klossfinancial.com, Kloss, K-L-A-S, financial.com. You can also schedule a
• 16:28
  Speaker 1: complimentary conversation right online or give them a call, 608-442-5637.
• 16:34
  Speaker 1: You heard CJ mention this stuff is quite complex. We're
• 16:36
  Speaker 1: going to get a little bit more details on that.
• 16:39
  Speaker 1: We'll find out from Eric and CJ all about it
• 16:41
  Speaker 1: next as Money in Motion with Kloss Financial continues right
• 16:44
  Speaker 1: here on 1310 WIBA. Talking this morning with our retirement
• 16:57
  Speaker 1: planning professionals from Kloss Financial, CJ Kloss and Eric Schwartz.
• 17:00
  Speaker 1: You can learn all about Kloss Financial on their website, klossfinancial.com.
• 17:04
  Speaker 1: That's Kloss, K-L-A-S, financial.com. Great website and resource to learn
• 17:09
  Speaker 1: all about Kloss Financial. You can also listen back to
• 17:11
  Speaker 1: this and previous shows, podcasts, all online, as well as
• 17:15
  Speaker 1: schedule a complimentary conversation right at klossfinancial.com, or you can
• 17:19
  Speaker 1: call the office right here in Madison at 608- 408-442-5637.
• 17:23
  Speaker 1: No charge for the initial. Get to know your appointment
• 17:25
  Speaker 1: tech loss financial. It will be complimentary to you. Again,
• 17:28
  Speaker 1: their number, 608-442-5637. Talking this week about incentives and understanding
• 17:34
  Speaker 1: the incentives. And CJ, I'm struck by the complexity of
• 17:37
  Speaker 1: this topic. Can you, you know, like, obviously you study
• 17:41
  Speaker 1: this stuff day in and day out, but what about consumers?
• 17:44
  Speaker 1: How can we like practically evaluate these issues?
• 17:48
  Speaker 3: It is, yeah.
• 17:50
  Speaker 2: I mentioned when I first got into the industry and
• 17:51
  Speaker 2: studied this that I was very confused because it just
• 17:54
  Speaker 2: seemed like between disclosures and standards and conflicts of interest
• 18:00
  Speaker 2: that I couldn't organize it in my brain, I guess
• 18:04
  Speaker 2: is what I would say. And so you're right, evaluating
• 18:07
  Speaker 2: incentives or conflicts of interest can be super complex. But
• 18:11
  Speaker 2: let me try and make it easier for our listeners.
• 18:14
  Speaker 2: I would encourage people to ask three simple questions to
• 18:17
  Speaker 2: their financial professional. First, how are you compensated? So simple.
• 18:22
  Speaker 2: Don't be afraid to ask this question directly. A true
• 18:26
  Speaker 2: professional should be very comfortable explaining how they're compensated. Second,
• 18:31
  Speaker 2: do you have a legal obligation to place my interests
• 18:34
  Speaker 2: ahead of your own? And do not miss legal obligation.
• 18:39
  Speaker 2: I'd be one thing to say, Do you feel obliged?
• 18:43
  Speaker 2: I do feel obliged. I mean, feelings are good. I'm
• 18:47
  Speaker 2: not saying feelings don't matter. But in financial services, do
• 18:50
  Speaker 2: you have a legal obligation to place my interests ahead
• 18:53
  Speaker 2: of your own? In our opinion, that's a very important distinction.
• 18:57
  Speaker 2: And then question number three is, how do you handle
• 18:59
  Speaker 2: conflicts of interest when they arise? The answer often will
• 19:03
  Speaker 2: tell you a great deal about the firm's culture and values. Now,
• 19:08
  Speaker 2: If I were trying to sell you on Glass Financial,
• 19:10
  Speaker 2: I would tell you how we answer each one of
• 19:12
  Speaker 2: these questions today. But today is more about education. By
• 19:14
  Speaker 2: all means, if you want to come in or we've
• 19:17
  Speaker 2: done plenty of shows, by the way, on how we
• 19:19
  Speaker 2: answer these questions. So listen back to all of them.
• 19:21
  Speaker 2: I don't want to get into selling on the air here.
• 19:24
  Speaker 2: But at the end of the day, just know that
• 19:25
  Speaker 2: those three questions are great questions. And somebody who is
• 19:30
  Speaker 2: looking to run an honest business will lean in to
• 19:34
  Speaker 2: answering those questions. They may even get excited that you're
• 19:37
  Speaker 2: asking the question. because it means that they know that
• 19:41
  Speaker 2: you know how important these incentives really are. So there
• 19:45
  Speaker 2: you go. Those three things would help consumers to kind
• 19:48
  Speaker 2: of reduce the risk of picking a bad apple.
• 19:50
  Speaker 1: And Eric, as CJ just mentioned there, you know, listening
• 19:52
  Speaker 1: back to previous shows we've done and some of the
• 19:54
  Speaker 1: discussions you guys have had off the air as well.
• 19:57
  Speaker 1: I know there's two financial professionals that could have the
• 20:01
  Speaker 1: same credentials and licenses, but me working under a very
• 20:05
  Speaker 1: different set of incentive structures, right? Exactly.
• 20:11
  Speaker 3: And I think that's what makes this entire conversation so challenging, right,
• 20:14
  Speaker 3: is consumers are taught to focus on credentials and designations
• 20:19
  Speaker 3: and marketing materials. And those things definitely matter. People make
• 20:23
  Speaker 3: decisions based on those things. But understanding incentives can sometimes
• 20:27
  Speaker 3: provide a deeper insight into how recommendations are being made.
• 20:31
  Speaker 3: That's why we chose the title of today's show. When
• 20:35
  Speaker 3: you're trying to understand behavior, I think a really useful
• 20:38
  Speaker 3: question is, what incentives are influencing the decision that's to
• 20:42
  Speaker 3: be made here? That question can apply far beyond financial
• 20:45
  Speaker 3: services to other parts of life as well.
• 20:48
  Speaker 1: Eric, let's get to the bottom line takeaway of this.
• 20:51
  Speaker 1: For folks that are listening to the show, what's the
• 20:53
  Speaker 1: big picture of the bottom line to all of this?
• 20:57
  Speaker 3: I think it's that most financial professionals are decent people
• 21:00
  Speaker 3: trying to help clients achieve their goals, but But human
• 21:04
  Speaker 3: behavior is always going to be influenced by incentives. We
• 21:07
  Speaker 3: can't change that. And consumers don't need to become experts
• 21:10
  Speaker 3: in compensation structures or financial regulation. They just need to
• 21:14
  Speaker 3: ask questions and seek transparency, right? CJ just kind of
• 21:18
  Speaker 3: went through those three simple questions that you can ask
• 21:21
  Speaker 3: to put yourself in a good position. And when someone
• 21:24
  Speaker 3: is open about how they're compensated and how their conflicts
• 21:27
  Speaker 3: are managed and how recommendations are made, it is so
• 21:30
  Speaker 3: much easier to establish trust. And I can tell you this,
• 21:34
  Speaker 3: I mean, having been in a lot of meetings, clients
• 21:37
  Speaker 3: can tell when you're comfortable answering a question like this.
• 21:40
  Speaker 3: And when you are comfortable answering a question like this,
• 21:43
  Speaker 3: it means you are not ashamed for the way you're compensated. And,
• 21:47
  Speaker 3: you know, I think a good rule of thumb is
• 21:50
  Speaker 3: never assume that incentives don't matter. Just make sure you're
• 21:53
  Speaker 3: taking the time to understand them. And always remember when
• 21:57
  Speaker 3: you're trying to understand advice, you want to be following
• 22:00
  Speaker 3: those incentives rather than paying attention to the marketing or
• 22:04
  Speaker 3: the designations or whatever it might be that's meant to
• 22:07
  Speaker 3: distract you.
• 22:08
  Speaker 1: Well put as we talk this morning with Eric Schwartz
• 22:10
  Speaker 1: and CJ Kloss, our retirement planning professionals from Kloss Financial.
• 22:14
  Speaker 1: I mentioned the website klossfinancial.com. That's Kloss, K-L-A-S, financial.com. Didn't
• 22:19
  Speaker 1: mention yet this morning, it's an important thing that if
• 22:21
  Speaker 1: you ever have a topic or a question for Eric
• 22:23
  Speaker 1: and CJ, something you'd like to have covered on the show,
• 22:26
  Speaker 1: you can always submit a question directly. The Money in
• 22:28
  Speaker 1: Motion listener question corner right at KlausFinancial.com. Also, while you're there,
• 22:33
  Speaker 1: you can listen back to this and previous shows podcast.
• 22:35
  Speaker 1: You can also get that complimentary conversations scheduled right online. KlausFinancial.com.
• 22:41
  Speaker 1: That's Klaus, K-L-A-A-S, Financial.com. Or you can give them a call, 608-442-5637.
• 22:48
  Speaker 1: That initial get to know you appointment at Klaus Financial.
• 22:50
  Speaker 1: It will be complimentary to you. Again, their number, 608-442-5637.
• 22:54
  Speaker 1: You want to hold on to that telephone number because
• 22:57
  Speaker 1: it's time now for the Kloss Quiz Question of the Week.
• 22:59
  Speaker 1: It works like this. In just a moment, I'll ask
• 23:01
  Speaker 1: you the Kloss Quiz Question of the Week. You'll then
• 23:03
  Speaker 1: have 30 minutes from the end of today's program. to
• 23:04
  Speaker 1: call the Kloss Financial Office right here in Madison at 608-442-5637.
• 23:08
  Speaker 1: And if you are the first caller with the correct answer,
• 23:12
  Speaker 1: win this week's prize, which is a $ 25 gift card
• 23:15
  Speaker 1: to Amazon. This week's Kloss Quiz question of the week
• 23:18
  Speaker 1: is this, true or false? The goal of financial regulation
• 23:23
  Speaker 1: is to eliminate all conflicts between customers and financial professionals.
• 23:27
  Speaker 1: Is that true or is that false? Telephone number 608-442-5637.
• 23:31
  Speaker 1: First call with Greg Tansel, win that $ 25 gift card
• 23:35
  Speaker 1: to Amazon. Don't forget as well, that's Klaus Financial's office
• 23:37
  Speaker 1: right here in Madison, 608-442-5637. CJ, Eric, it's always great
• 23:43
  Speaker 1: chatting with you. You guys enjoy this great day and
• 23:45
  Speaker 1: we'll do it all again real soon.
• 23:47
  Speaker 2: Thanks, Sean.
• 23:48
  Speaker 1: Take care, guys. News comes your way next right here
• 23:50
  Speaker 1: on 1310 WIBA. This is Money in Motion with Kloss
• 23:55
  Speaker 1: Financial Asset Advisors, LLC, a registered investment advisor registered with
• 24:00
  Speaker 1: the SEC. The contents of this show are for informational
• 24:03
  Speaker 1: purposes only and should not be considered individual investment advice.
• 24:07
  Speaker 1: Kloss Financial does not offer tax or legal advice. Any
• 24:10
  Speaker 1: opinion offered during the course of this show is the
• 24:13
  Speaker 1: opinion of that particular investment advisor representative and not necessarily
• 24:18
  Speaker 1: the opinion of Kloss Financial.