Latest / Only Fee-Only / #83 - Decoding Regulatory Challenges in Fee-Only Financial Advisory -Travis Johnson

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#83 - Decoding Regulatory Challenges in Fee-Only Financial Advisory -Travis Johnson · Only Fee-Only

• 0:05
  Speaker 1: How's it going everyone?
• 0:06
  Speaker 1: Welcome back to the only fee only podcast.
• 0:09
  Speaker 1: In this episode we are talking to Travis Johnson, who is the managing director of XY compliance solutions for XY planning network, and this is a really great conversation.
• 0:22
  Speaker 1: I know a lot of you are probably saying compliance, compliance isn't fun.
• 0:27
  Speaker 1: I don't like thinking about compliance.
• 0:28
  Speaker 1: When I hear the word compliance feels like I'm going to get in trouble.
• 0:33
  Speaker 1: But Travis does an exceptional job of talking about how compliance can be made easy, the things and strides that they're making over XYPN to make it amazing for everybody that's at that organization and a part of it, and also how XYPN is advocating for the fee only community when it comes to state legislators and regulators.
• 0:56
  Speaker 1: So it was really cool to hear his perspective on some of these things, talking about how they are justifying why fee only planners have a place in financial planning, which seems like a given.
• 1:10
  Speaker 1: But I learned during this conversation that there are people who have different views.
• 1:16
  Speaker 1: So, without further ado, here is Travis Johnson on the only fee only podcast.
• 1:24
  Speaker 2: What's up everyone?
• 1:25
  Speaker 2: Welcome to another episode of the only fee only podcast.
• 1:29
  Speaker 2: I am Peter Travolo.
• 1:30
  Speaker 2: I'm here with my co host, Brock buckles.
• 1:32
  Speaker 2: How's it going today, Brock?
• 1:34
  Speaker 1: I'm doing well, man.
• 1:35
  Speaker 1: How are you?
• 1:36
  Speaker 2: doing Well.
• 1:37
  Speaker 2: Very excited to have Travis Johnson on, who's currently the managing director of XYPN's compliance department.
• 1:44
  Speaker 2: So, travis, welcome to the show.
• 1:48
  Speaker 3: Yeah, thanks guys, happy to be here, happy chat with you.
• 1:51
  Speaker 2: Likewise man.
• 1:52
  Speaker 2: So we've been able to hang out a little bit at XYPN and also the NAPF for conference last fall, like we just talked about.
• 1:58
  Speaker 2: But for those who don't know who Travis is, you want to give a quick kind of 30, 60 second overview of who you are and what you're doing at XYPN.
• 2:07
  Speaker 3: Yeah, absolutely so.
• 2:08
  Speaker 3: Like you said, I'm the managing director of XYPN compliance, which is a support solution within XYPN, so we provide our registration support as well as hourly and ongoing compliance consulting to XYPN members who, as most people listening here probably know, is state registered and SEC registered fee only RAs.
• 2:28
  Speaker 1: Yeah, for sure.
• 2:29
  Speaker 1: So what is the kind of?
• 2:31
  Speaker 1: What is your?
• 2:32
  Speaker 1: What do you do on a daily basis?
• 2:34
  Speaker 1: Like walk us through, actually, let's, let's go back.
• 2:36
  Speaker 1: How did you?
• 2:37
  Speaker 1: What were you doing before XY?
• 2:38
  Speaker 1: Right, like what, what kind of led you to eventually getting there?
• 2:43
  Speaker 1: What was kind of your previous experience?
• 2:44
  Speaker 1: And then we'll get into the XY, because I wanted a little bit more about Travis's personal story before we get into the XYPN stuff.
• 2:51
  Speaker 3: Yeah, absolutely.
• 2:51
  Speaker 3: So I got into the industry 2012.
• 2:54
  Speaker 3: I just start in college about a year or so in college I guess and my uncle in Nashville that's originally brought me down south.
• 3:01
  Speaker 3: He started an RIA, spent decades in corporate banking, joined a broker dealer and so I wanted to go independent so I started to zone.
• 3:08
  Speaker 3: Ria just invited me to come on in the industry firsthand so I joined, kind of just jumped ship, moved from Montana and Idaho down to Nashville, tennessee, and really learned the industry from the ground up there.
• 3:21
  Speaker 3: I spent several years as he built that RIA still still very much bigger RIA now, but supporting advisors throughout the country.
• 3:29
  Speaker 3: But it was really the first experience that kind of what what an RIA is in that part of the industry traditional asset management, working with retirees and pre retirees.
• 3:38
  Speaker 3: I did everything from operations, trading, investment, research and, inevitably, compliance.
• 3:44
  Speaker 3: So as that firm rapidly grew, we had to register in various states.
• 3:49
  Speaker 3: I get a number of advisors registered throughout the country and the firm in various states throughout the country until reaching SEC registration.
• 3:58
  Speaker 3: So I learned just kind of the nuances and intricacies of various state by state regulation and during that time discovered XYPN.
• 4:07
  Speaker 3: I got heavily involved with FPA financial planning association and just trying to learn the profession, learn kind of network and kind of see how how his business was done.
• 4:15
  Speaker 3: At that time, I think I was 20 years old and eventually XYPN got founded in 2014, had connected with Alan regarding some FPA stuff at one point and discovered Kitsis and reading the nerds I view blog, michael Kitsis blog over those years those early years, and when XYPN brought in compliance in house in 2016, it was just perfect timing, good opportunity, and jumped over to XYPN and helped build out their RIA registration service, which is still one of our core offerings.
• 4:50
  Speaker 2: Love that.
• 4:50
  Speaker 2: So let's talk about, I mean, you got an XYPN.
• 4:54
  Speaker 2: I mean it's a newer organization, but you got in at the beginning in 2016.
• 4:59
  Speaker 2: So how many advisors were there at that time?
• 5:02
  Speaker 2: And we'll get into, kind of, how you've been able to help grow and figure out all these registrations for all these great family planners.
• 5:11
  Speaker 3: Yeah.
• 5:11
  Speaker 3: So if you've heard Alan and Michael talk at all, either at the conference or some of people talk about the growth trajectory, they kind of had this slow, steady growth plan for kind of over 10 years and it exceeded that in a matter of a couple years, a few years.
• 5:25
  Speaker 2: Yeah.
• 5:25
  Speaker 3: So I think I joined middle of 2016.
• 5:28
  Speaker 3: I think there were a couple hundred, maybe 250 members, I don't remember the exact number there, but we had, I think, less than 10 team members at the time, including the two founders, alan and Michael, and we everyone lived in different states.
• 5:44
  Speaker 3: We didn't have a headquarters in Bozeman yet, so we got together once a quarter in various cities and that's where we did our quarterly planning and retreats, and then, obviously, at XYPN Live, which the one that year was in San Diego, and it's grown significantly since then.
• 6:03
  Speaker 1: Where was the first XYPN Live?
• 6:05
  Speaker 1: How many years into it did they start doing that?
• 6:08
  Speaker 3: They did do.
• 6:08
  Speaker 3: I think the first one was the year before that, in 2015, and it fit in one hotel conference room, I believe just a group of chairs.
• 6:16
  Speaker 3: Yeah.
• 6:17
  Speaker 3: With some of the early XYPN members and planners at that conference, probably just half a dozen employees and a couple volunteers maybe.
• 6:26
  Speaker 1: Yeah, yeah.
• 6:27
  Speaker 1: So you eventually went with XYPN doing the compliance stuff.
• 6:32
  Speaker 1: Now what does a day in the life kind of look like for you and does that kind of change in different parts of the year?
• 6:38
  Speaker 1: Is there more busy times, slower times?
• 6:41
  Speaker 3: Oh yeah, that's a great question.
• 6:43
  Speaker 3: So my main role is leading the continuous development and delivery of our offerings and supporting our team of consultants and compliance experts and supporting our members.
• 6:51
  Speaker 3: So a lot of that involves just kind of making sure the wheels stay on the bus and everything stays moving, as well as I have a really good team in place.
• 7:00
  Speaker 3: I have a growing team.
• 7:02
  Speaker 3: We have a couple more consultants joining us soon.
• 7:04
  Speaker 3: We've got an outstanding team that really makes that part of it much easier At any time.
• 7:11
  Speaker 3: We're supporting several hundred advisors through either our consulting services, hourly support or our registration.
• 7:18
  Speaker 3: We have our registrations going in.
• 7:20
  Speaker 3: We've done registrations in, I think, every state US territory at this point, as well as with the SEC, and we have anywhere from 50 to 70 of those going at any given time.
• 7:30
  Speaker 3: So a lot of it will involve, if I'm not in meetings or working kind of on the business, is helping certain team members solve compliance challenges with the firms that they're working with.
• 7:41
  Speaker 3: So I still really dig into the compliance expertise side of things as much as I can.
• 7:45
  Speaker 3: In terms of seasonality, for all of the financial planners those listening that are registered they'll know it's annual ADB update season, so they have these regulatory filings that have to be submitted every single year between January through the end of March, and so we will support probably 900 members of XYPN roughly with those filings this year.
• 8:08
  Speaker 2: That's awesome.
• 8:08
  Speaker 2: That's awesome.
• 8:10
  Speaker 2: So I mean, what's kind of like, when do you start engaging in the process?
• 8:14
  Speaker 2: I mean, some of our audience I mean they're XYPN, so they already know this.
• 8:18
  Speaker 2: But you know some planner they want to start.
• 8:21
  Speaker 2: They decided, hey, xypn seems like a good home, they sign up, what you know?
• 8:27
  Speaker 2: Where are you in the process as far as the onboarding phase and then kind of, what's the servicing and annual calendar look like, moving forward, yeah, absolutely so.
• 8:38
  Speaker 3: it a little bit depends on where they're coming from.
• 8:41
  Speaker 3: If they're coming from a wire house or a broker dealer, they have an established business.
• 8:44
  Speaker 3: You know.
• 8:45
  Speaker 3: Some of those are going to be able to take clients with them, some aren't.
• 8:48
  Speaker 3: They might be starting from scratch, you know when they break away.
• 8:50
  Speaker 3: But ultimately I think the similarities across whether they're a career changer or or breaking away is, you know, once they have that business plan established, they have an idea of you know who do they want to serve, how do they want to do it and how are they going to charge for it.
• 9:06
  Speaker 3: So when they thought through those things, they sort of have that path forward.
• 9:10
  Speaker 3: You know they're usually talking with our business development team, our sales team, consuming XYPN content.
• 9:18
  Speaker 3: A lot of people that come in are already familiar with at least a couple of XYPN members, a lot of referrals, or they've learned about it through thekitsuscom blogs.
• 9:29
  Speaker 3: And so when they kind of get through that, they have a plan, kind of a path forward.
• 9:33
  Speaker 3: It's a little more complicated if they are breaking away.
• 9:35
  Speaker 3: There's just broker dealer issues, notification.
• 9:38
  Speaker 3: There are former firms finding out that they're trying to make this transition, which can get complicated, but as long as once they've sort of got a roadmap for that, they join XY and we have a very refined process for those firms that need to still go through registration.
• 9:55
  Speaker 3: They don't have an established firm yet and it's really educating them on.
• 9:59
  Speaker 3: Ok, here's what you need to know in order to really for us to help you submit a complete application with the state in which you're going to register.
• 10:08
  Speaker 3: Some of our firms can come over if they're bringing over enough assets and register with the SEC right out the gate, but you need about 100 million to do that.
• 10:14
  Speaker 3: There's very few other exceptions pretty limited, but so most of them are registering at the state level.
• 10:20
  Speaker 3: We have a group call that we take them through to talk about what the registration process looks like, what to expect, the information we will need to help them draft their compliance documents and then they, when they're ready to sign up after that point some of them, you know, usually within their first couple months of joining membership.
• 10:40
  Speaker 3: Some will wait longer, but most of them are within those first couple months.
• 10:42
  Speaker 3: Then they'll go through our process of working with one of our compliance specialists to draft their compliance documents, prepare what I call just kind of a complete application to register in the state it varies from state to state.
• 10:55
  Speaker 3: We'll submit that and then when they start getting correspondence back from the regulators, we sort of drive that process in most cases to help respond to any regulatory comments.
• 11:05
  Speaker 3: There's a lot of back and forth with the state securities divisions until they get their firm approved.
• 11:43
  Speaker 1: Yeah.
• 11:43
  Speaker 1: So that brings up an interesting question, Kind of go.
• 11:46
  Speaker 1: You kind of just covered it a little bit right, Like once you have 100 million, get SEC registered and all of that.
• 11:51
  Speaker 1: But is there like a big difference in what you guys have to do?
• 11:56
  Speaker 1: Like, we just had AJ Ayers right, For instance, with BrooklynFI on the podcast recently and her team has obviously grown like crazy, I would imagine within XY.
• 12:05
  Speaker 1: They're one of the larger firms with quite.
• 12:08
  Speaker 1: I mean they have they have quite a bit of advice, I think a team over 20 right now.
• 12:11
  Speaker 1: When you're working with a firm like that versus a firm that's like just a solopreneur, is there a lot more that goes into it or are we still kind of following the baseline kind of guidelines and rules?
• 12:21
  Speaker 1: What does that look like for you guys as far as a compliance standpoint?
• 12:25
  Speaker 3: Yeah.
• 12:25
  Speaker 3: So when we think about the RIA regulation, there's the element of supervision is really what comes into play.
• 12:31
  Speaker 3: When you have a larger team, especially if they're dispersed you know they have hybrid and remote team members the need for supervision increases.
• 12:39
  Speaker 3: So you have a solo advisor.
• 12:41
  Speaker 3: You know the CCO, the founder, the lead advisor they're all the same person so they don't need to supervise themselves.
• 12:47
  Speaker 3: But they still need to have policies and procedures in place that govern how they're operating and how certain issues or certain situations will be handled, and regulators expect that to be documented, are in writing and maintained over time.
• 12:59
  Speaker 3: So for a solo advisor, compliance is pretty easy as once you start to understand it and have those processes in place, you can more or less I don't want to say put it on autopilot, but there's just not a lot of stuff that has to happen regularly once you get everything in place and there's just some quarterly and annual tasks that you need to stay on top of putting it on the back burner for a couple years.
• 13:20
  Speaker 3: Advisors learn pretty quickly.
• 13:21
  Speaker 3: It can be a lot to catch up on.
• 13:24
  Speaker 3: But for those larger firms, the biggest difference I think in the work that we do with them is you know the applications and filings are pretty standard, so it's just you know additional filings but how, how we may work with them and in Brooklyn FIs, an example, and some of these others that have many different team members as Supporting them through compliance training, if they're engaged in some of our ongoing consulting services will help Help execute their annual compliance meeting with their team, which is required if their SEC registered and Maining taint, maintaining policies and procedures, updating the jurisdictions I need to register in.
• 13:57
  Speaker 3: If they have employees that are moving from state to state, and just understanding the need for supervision.
• 14:02
  Speaker 3: Usually we have one point of contact in the firm.
• 14:04
  Speaker 3: It's the chief compliance officer or someone on the compliance team if they've started adding to that team and we'll work at that person to understand the specific application of some of the supervision requirements so that they Are always prepared for an audit.
• 14:17
  Speaker 3: It's really the goal.
• 14:18
  Speaker 1: Yeah.
• 14:19
  Speaker 3: Yeah which is not fun.
• 14:21
  Speaker 1: Let it could happen.
• 14:23
  Speaker 2: Yeah, so what are some other kind of like triggers that you see, like when you're kind of brought in, like we know when they're bringing on team members, when they have X amount of clients in a new state, you know, like, what are some like key things that you know.
• 14:35
  Speaker 2: Just you guys work on with advisors.
• 14:38
  Speaker 3: Yeah, so those are a couple good ones.
• 14:39
  Speaker 3: It's usually when you know when they start asking about anyone, the existing firm.
• 14:43
  Speaker 3: So they've been, they've been registered, they've sort of done some of the stuff on their own.
• 14:46
  Speaker 3: The there's a few different either triggers or inflection points.
• 14:50
  Speaker 3: You know, growth being one of them.
• 14:52
  Speaker 3: Clients in various states For state registered investment advisor, with the exception of Texas and Louisiana, you can have up to five clients in any given state before you need to register there, as long as you don't have a place of business in that state, so that once they start hitting that, they'll reach out to us for additional state registration support.
• 15:10
  Speaker 3: Some of them will will be able to go through that on their own, but we make it really easy to take it off their plate and handle it for them.
• 15:16
  Speaker 3: Some states are pretty challenging.
• 15:18
  Speaker 3: Even if they're not they don't have a place of business there.
• 15:20
  Speaker 3: In order to get registered and work with more than five clients, they'll Put them through a, you know, a couple month process of answering questions about how their firms operating their disclosures and making sure it aligns with the standards and expectations in a given state, and that's that's really what the value kind of we provide in guiding them through that process.
• 15:39
  Speaker 3: The other kind of trigger is they get notified of their exam.
• 15:42
  Speaker 3: It's inevitable they're gonna be audited.
• 15:43
  Speaker 3: Some states will audit them within first, the first six months, a year, year and a half.
• 15:49
  Speaker 3: Other states they may not hear from for three, three to five plus years.
• 15:52
  Speaker 3: Some of these states an increasing number of states are doing what they call kind of newly registered firm exams, which is just making sure that you know are you developing policies and procedures that are reasonably tailored for your firm, are you implementing them and Are you actually maintaining a compliance program?
• 16:09
  Speaker 3: And you know if you're still in that development phase we can help you catch any issues before they become bigger issues the sort of that set up.
• 16:17
  Speaker 1: Yeah, so I know that a lot of people obviously you know we talked to a lot of people a lot of people listen to the podcast that are going to start an RIA.
• 16:25
  Speaker 1: We tell a lot of people, obviously, to go the XYPN because we love the organization route.
• 16:30
  Speaker 1: What are you guys doing, or what advice could you give someone about starting when it comes to the compliance aspect of it, because I think a lot of people like we've talked to advisors that do their own ADV and things like that it can be really stressful for them sometimes.
• 16:45
  Speaker 1: What would you say that really sets XY apart From just saying, hey, I'm gonna bootstrap this thing myself, try to do all these pieces by myself.
• 16:55
  Speaker 1: What is it that you guys really do that sets you apart?
• 16:57
  Speaker 1: That really makes it easier for the advisor to be able to predominantly Focused on the other things, like building the business, and you guys kind of help them take care of the compliance, because I know that could be stressful for a lot of people.
• 17:10
  Speaker 3: Yeah, I would say it's really the expertise we have in the nuances of state by state regulation, just because of the membership base and those that have broken away as independent advisors, solo firms that ultimately need to register at the state level.
• 17:23
  Speaker 3: I think we've done over 1,300 registrations, ra registrations, with 95% of those being at the state level in all 50 states.
• 17:32
  Speaker 3: So we've built up a lot of familiarity with many of the state jurisdictions and how they view ongoing financial planning fee models versus AUM or just hourly planning and what you need to do on an ongoing basis to demonstrate that you're earning your fee.
• 17:50
  Speaker 3: There's certain record keeping and books and records requirements that they have to meet and the doc being able to evidence the delivery of services so that they can show they earned their fee.
• 17:59
  Speaker 3: That's becoming an increase in concern with some states that for advisors where they're just not as familiar with these financial planning firms that are leading with ongoing or comprehensive financial planning rather than investment management Especially some of those regulators that have had a career in that space 23 years they're used to seeing your traditional asset management firms.
• 18:21
  Speaker 3: They manage assets.
• 18:22
  Speaker 3: They might sell insurance, generate some commissions, but as long as it's disclosed and they're doing it appropriately.
• 18:27
  Speaker 3: It's just kind of the status quo.
• 18:29
  Speaker 3: But what regulators are looking at now is what they and NASA is calling these emerging fee trends which, understandably, many states haven't seen.
• 18:40
  Speaker 3: As many financial planning focused firms in the past at least.
• 18:43
  Speaker 3: Not enough to have a substantial amount of data to feel like they know how it needs to be regulated.
• 18:51
  Speaker 3: So some states choose to over-regulate that they feel like this ongoing financial planning model that so many of our members deliver their services off of is a gym membership model.
• 19:03
  Speaker 3: It's something you're going to get your clients to sign up for and then they never use, they never do anything.
• 19:09
  Speaker 3: They just lock them into a subscription, which isn't really the case.
• 19:13
  Speaker 3: There's obviously bad actors in the industry, as there are with any type of financial services company.
• 19:19
  Speaker 3: You can read Google online and see anything about fraudulent activity and enforcement actions.
• 19:27
  Speaker 3: So the financial planning model it's clear, it's transparent.
• 19:29
  Speaker 3: I think comparing it to the AUM model is a whole separate conversation.
• 19:34
  Speaker 3: Some advisors are still predominantly AUM driven, which is fine if that's their business model, but many of our XYPN members are financial planning first and investment management is a component of comprehensive financial planning, which is really, and their clients want that support.
• 19:50
  Speaker 3: They want comprehensive financial planning support at some level.
• 19:54
  Speaker 3: Specifically, it might vary based on the niche that they're serving, but ultimately that's what's driving these emerging fee trends and that's where we provide support.
• 20:02
  Speaker 3: To wrap up, the answer to that question is it's the understanding of state nuances, their views of certain business practices and the application of their rules when interacting with these new firms.
• 20:16
  Speaker 2: So what is their outlook?
• 20:17
  Speaker 2: I mean just kind of because you sit in a very interesting position where you get to see a lot of data, you get to see a lot of planners go through this.
• 20:24
  Speaker 2: What are state regulators looking for?
• 20:27
  Speaker 2: What are they maybe warming up to more now, more so than before?
• 20:31
  Speaker 2: What are some trends that you're seeing?
• 20:34
  Speaker 3: Yeah, absolutely.
• 20:34
  Speaker 3: It's a big discussion throughout states and NASA that really kind of supports the many states with model rules and they have project working groups specifically for state securities divisions.
• 20:47
  Speaker 3: So you'll have NASA's really staffed with state regulators that serve on these committees to hopefully promote uniformity among states.
• 20:56
  Speaker 3: So we've interacted with them in a number of advocacy fronts, with a big topic being emerging fee trends and what advisors are doing in the industry and how these fee decisions are being made in terms of compensation models.
• 21:11
  Speaker 3: It does vary.
• 21:13
  Speaker 3: One of the things I would love to change is having, if I could change anything, would be the sense of uniformity amongst all states with regard to what's considered a reasonable fee.
• 21:22
  Speaker 3: What might be considered a fee in Washington state is vastly different than what's considered a reasonable fee in Texas or California or a number of other states, and those states ultimately have the same rules or very similarly written rules.
• 21:36
  Speaker 3: It prohibited an unethical practice to charge an unreasonable fee.
• 21:40
  Speaker 3: Now some of them will extend that a little bit further.
• 21:43
  Speaker 3: It's an unreasonable fee based on the services provided, the buying power and sophistication of the client and a number of other factors there, but it's usually pretty broad.
• 21:53
  Speaker 1: Yeah.
• 21:54
  Speaker 1: No doubt it's a hot topic, yeah, and what's insane to me is you have, like, the AUM and the fee only.
• 22:01
  Speaker 1: I've even heard amongst fee only financial planners the debate between AUM and flat fee.
• 22:07
  Speaker 1: Right, that could be a hot topic in ways.
• 22:10
  Speaker 1: But the thing that I find to be hilarious is there's state regulation and regulation coming down on financial planners.
• 22:16
  Speaker 1: The vast majority of the only financial planners that I've ever met are super planning focused versus the regulation could be a lot more loose on people that are commission based who can go out and just sell, like crazy, insurance products that are way like not non-compliant, right.
• 22:33
  Speaker 1: Like this should never happen.
• 22:35
  Speaker 1: So it's interesting to kind of hear that there's been some crackdown and some different thoughts around what's a reasonable fee.
• 22:41
  Speaker 1: I guess it makes sense that you have to think about it, but I guess, just from the people that we've gotten the opportunity to talk to and the intentionality behind most of them, it's kind of an interesting thing to learn about.
• 22:53
  Speaker 3: It is, and I think a lot of it stems from just a lack of understanding of what true financial planning is and what it involves.
• 22:59
  Speaker 3: It's historically in the industry and you'll see some of the larger enterprise firms that have been around for decades that used it.
• 23:08
  Speaker 3: They might have done it right, but ultimately they use the term financial planning as a tool to sell other products and that regulars are used to seeing that Financial planning is something you just add on to investment management or other forms of planning.
• 23:24
  Speaker 3: And we've seen that and we've gotten kind of evidence of that from regulators who have suggested changes to these advisors fee models that have said, hey, I recommend you do this instead.
• 23:34
  Speaker 3: Here's an example of a fee structure that we would approve and it's like it doesn't support my business model.
• 23:40
  Speaker 3: It kind of defeats the purpose of what I'm trying to do is usually what we see.
• 23:45
  Speaker 1: Go ahead.
• 23:45
  Speaker 1: What do you mean?
• 23:47
  Speaker 1: Can you give us an example of that?
• 23:49
  Speaker 1: What would they?
• 23:50
  Speaker 1: Maybe here's what they're trying to do and then here's what the regulators would recommend that they do and how.
• 23:55
  Speaker 1: It doesn't kind of fit what they're trying to do.
• 23:57
  Speaker 1: Can you give us an example of that?
• 23:59
  Speaker 3: Yeah, at one point we had a state that would provide like three or four examples of that.
• 24:04
  Speaker 3: You could tell her from very traditional asset management firms that had some level of financial planning component and it was usually part of figuring out that it depends also whether they're a fee only firm versus a fee based firm.
• 24:19
  Speaker 3: Fee based firm, they'll still be able to transact insurance and annuities.
• 24:22
  Speaker 3: So that's usually what a big part of that financial planning component was for these advisors under these large institutional firms and wire houses at the time.
• 24:35
  Speaker 3: And so it would be.
• 24:37
  Speaker 3: Basically they'd recommend that if you're going to provide financial planning as a separate service and separate fee, we would either prefer it to be hourly or a fixed fee, a one time fee, because what happens after you deliver the plan, once the plan's done?
• 24:52
  Speaker 3: Some of these regulators just their historical understanding is that there really shouldn't be much needed to change, so why are you charging for it?
• 24:59
  Speaker 3: So they don't see it the same way that they look at investment management where, because of how that's evolved and how the definitions that are at play in the regulation is, these advisors are obligating themselves to have a provide continuous and regular supervision over managed assets, which is the element to justify that.
• 25:20
  Speaker 3: On the element that's important for justifying an ongoing fee based on a percentage of assets, that led to regulators establishing kind of the industry standard right now is if it's less than 2% of the account value and you're delivering on what you say you're going to do, it's a reasonable fee and usually no questions asked.
• 25:37
  Speaker 3: They're not asking advisors to track their time and you know log every single meeting with clients.
• 25:43
  Speaker 3: You know did you meet with your client?
• 25:44
  Speaker 3: You know once a year, unless you say you're gonna meet with them more often, but you might at least once a year.
• 25:49
  Speaker 3: Is their suitability information up to date and are you reviewing the account regularly or consistent with your ADV and policies and procedures?
• 25:57
  Speaker 3: Financial planning comes into play and then they just don't.
• 25:59
  Speaker 3: You know some regulators that don't understand.
• 26:01
  Speaker 3: You know what's going on on a Continuous basis.
• 26:07
  Speaker 3: That justifies a recurring fee, especially into subsequent years.
• 26:11
  Speaker 3: To that makes that fee reasonable.
• 26:15
  Speaker 3: Why would a client pay for it?
• 26:16
  Speaker 3: Which are our you know, and on an advocacy standpoint, from an advocacy standpoint, our position is it's really not that different, the subject matters different, but their engagement with the advisor, they, you know, one on one hand.
• 26:28
  Speaker 3: You know there's also the behavioral element.
• 26:30
  Speaker 3: One of the part of the value and ongoing, you know, on an ongoing financial planning is the, you know, the behavioral coaching and helping them stay on track with the financial plan they develop.
• 26:39
  Speaker 3: And that's, you know, that's part of the reason clients are willing to pay for that on a regular basis.
• 26:44
  Speaker 3: It's, you know this, if it's a flat fee, you know flat monthly or quarterly feeds, the same way they pay most other stuff.
• 26:49
  Speaker 3: So it's relatable, makes it really yeah, and and and.
• 26:53
  Speaker 1: For somebody that is a client of an XYPN fee only planner.
• 26:57
  Speaker 1: It's funny to me that that would even be a conversation because I can think about just since I've had the fee only planner that I work with.
• 27:07
  Speaker 1: I bought a house, we've done business planning with them.
• 27:10
  Speaker 1: They recently added a tax division.
• 27:12
  Speaker 1: They've helped us start a 401k.
• 27:15
  Speaker 1: They help it I mean, they help us do things ongoing every single year.
• 27:19
  Speaker 1: Not only every single year, but every single quarter.
• 27:21
  Speaker 1: So if you guys ever need somebody to testify on the legitimacy of the only planner, sign me up.
• 27:29
  Speaker 3: So really, what we want to have regulators, we want to see regulators do is establish a reasonable standard that is sort of, you know, somewhat Business model agnostic, if you will, or, yeah, you know that you can't apply.
• 27:43
  Speaker 3: We have, we've seen cases where an advisor is being asked to associate the reason illness of their fee with that industry standard.
• 27:50
  Speaker 3: It can't be.
• 27:51
  Speaker 3: How do you determine that it's within 2% of assets that are management?
• 27:54
  Speaker 3: What about my clients that don't have managed assets?
• 27:57
  Speaker 3: Right, I spent 10 hours with them throughout the year, 20 hours with them throughout the year.
• 28:01
  Speaker 3: You know whatever that is there, help their financial planning, service model.
• 28:04
  Speaker 3: But I'll spend a you know substantial amount of time with them on, you know, advising on, maybe held away assets.
• 28:09
  Speaker 3: You know doing a state planning, helping them do cash flow panning, budgeting, paying off student loans.
• 28:14
  Speaker 3: You know determining, you know, affordability of a home purchase or something like that that clients want to pay for and it requires an advisor, specifically if it involves investment advice.
• 28:26
  Speaker 3: You know if the client has, you know there's an element of that planning involves about investment advice, but the service model it may not be based on managed assets.
• 28:35
  Speaker 3: So what I want to see regulators do is establish a state, a reasonable standard that allows advisors to, on their own kind of determine, when they're starting out, assess the reasonableness and what a reasonable fee arrangement would be, what, such as you know, the and that could be, you know, based on, you know, an hourly equivalent.
• 28:54
  Speaker 3: It could be based on, you know, a Combination of factors taken into account, such as, you know, the complexity of the situation, the clients needs and objectives.
• 29:03
  Speaker 3: You know, in terms of trying to promote uniformity, they could apply some of the similar components they look at for the AUM, you know her fee must be reasonable based on the services being provided, the advisors experience and the buying power sophistication of the client.
• 29:17
  Speaker 3: And then have it be a facts and circumstances Approach during an audit.
• 29:22
  Speaker 3: Is, you know, are you doing the work that you committed to do based on your ADV in your contract with the client and Are is that documented and is it was their full disclosure?
• 29:32
  Speaker 3: Does the client know what they're paying for and do they know whether or not and when that's been provided?
• 29:37
  Speaker 1: Yep.
• 29:39
  Speaker 2: So Quick question.
• 29:41
  Speaker 2: So you know we obviously sell life insurance, disability, long-term care and annuities, and annuities with fee only planners specifically always seems to be quite a gray area Because you know there's commission based annuities and then there's fee based annuities.
• 29:59
  Speaker 2: So like what's kind of your perspective as far as compliance when you know fee only planners are having discussions about annuities with clients?
• 30:11
  Speaker 3: Yeah.
• 30:11
  Speaker 3: So there's a couple things here.
• 30:12
  Speaker 3: You have the compliance element and then you have sort of the fee only element, and the fee only element depends on who's standard or whose definition of fee only you're relying on.
• 30:22
  Speaker 3: You know, at XYPN we primarily rely on the CFP board standards for fee only, which which essentially says you can't receive any sales related Compensation, and their standards of go into kind of further define that Sales related compensation in connection with your advisory services.
• 30:38
  Speaker 3: So yeah, you've seen a rise of fee based and kind of fee based or fee only annuities Either offered by custodians or through, I guess, custodians and and some insurance companies directly and it, I think from the compliance element it comes down to just disclosure.
• 30:55
  Speaker 3: You know it's full disclosure in their documents if they are, you know, going to be offering directly fee based annuities or insurance products there.
• 31:03
  Speaker 3: And then you know if it's variable annuity that they're, that they're selling them.
• 31:08
  Speaker 3: You know what's the.
• 31:09
  Speaker 3: You know are they the servicing agent, are they managing the sub accounts, the investments within the sub accounts, or are they delegating that you know what and what is their fee.
• 31:18
  Speaker 3: So if they're generating a fee, if they're gonna include that either as part of their total, the calculation of either advised assets.
• 31:26
  Speaker 3: You know see advisors that bill on assets under advisement.
• 31:28
  Speaker 3: Oftentimes that'll include, you know, certain insurance products specifically, usually if they have investment components with them, variable annuity obviously.
• 31:37
  Speaker 3: So it's full disclosure really.
• 31:41
  Speaker 3: I mean we we talked with advisors that are looking at doing that and making sure that their ADB supports that.
• 31:45
  Speaker 3: You know they may recommend various insurance products.
• 31:48
  Speaker 3: That, and just explaining the clear disclosure on not receiving commissions and you know any products they sell or fee based, and here's how that compensation arrangement works From the fee only standpoint you should make needs to make sure that you know if they are, that it's very clear and in that they aren't receiving any, any commissions for the sale of insurance products in order to hold themselves out as fee only.
• 32:10
  Speaker 3: You know the CFP board doesn't require people to be fee only, it just says you know if you're going to hold yourself out as fee only.
• 32:17
  Speaker 3: Here's what we require of you to ultimately ensure that you're not misleading clients.
• 32:23
  Speaker 3: Hmm, no.
• 32:24
  Speaker 1: No, no, that makes sense, man.
• 32:26
  Speaker 1: It's very clear that you're very there's no question about why you're in the chair in the position that you're in, man, you're very thorough and knowledgeable about what you do, travis.
• 32:34
  Speaker 1: So anything else that you wanted to add or thinking about Before you came on here.
• 32:40
  Speaker 3: No, I think I believe you all plan to be at XYPN live.
• 32:42
  Speaker 3: Is that correct?
• 32:43
  Speaker 3: Absolutely Yep, Yep yeah so I looking forward to seeing you all there.
• 32:49
  Speaker 3: I know it's October, I think 15th, 16th and 17th this year in Minneapolis, so excited to see you all there and many of our members.
• 33:00
  Speaker 1: Awesome, man, and are you on?
• 33:02
  Speaker 1: I know you're on LinkedIn.
• 33:03
  Speaker 1: Are you on Twitter or anything like that, if people want to follow along with what you're doing.
• 33:07
  Speaker 3: Yeah, if they search Travis Johnson on there, I'm sure there's a few of them, but I can find either has like an XYPN tag or bio, or I think my LinkedIn has my kind of compliance certification, iccp at the end of that, at the end of that name.
• 33:19
  Speaker 3: So LinkedIn Twitter is fine too.
• 33:21
  Speaker 3: I think I'm on on LinkedIn most often.
• 33:26
  Speaker 2: Thank you so much, travis, for coming on.
• 33:27
  Speaker 2: Yeah, absolutely, we'll talk to you soon.