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The Conflicts Beyond Commissions · Money In Motion with Klaas Financial

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Speaker 1: And our phone lines are open for you right now
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Speaker 1: at six oh eight three two one thirteen ten. That's
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Speaker 1: six oh eight three two one thirteen ten. Gets you
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Speaker 1: right on the air with our retirement planning professionals from
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Speaker 1: COSS Financial. The website to learn more about Class Financial
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Speaker 1: Coss financial dot com. That's Coss klaas Financial dot com.
0:18
Speaker 1: You can learn all about Coss Financial and the team.
0:20
Speaker 1: You can also schedule a complementary chat right on the website.
0:24
Speaker 1: That's Cossfinancial dot com. Telephon number for the office right
0:27
Speaker 1: here in Madison six oh eight four four two five
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Speaker 1: six three seven. No charge for the initial get to
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Speaker 1: know your appointment at Class Financial. It will be complementary
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Speaker 1: to you again their number six oh eight four four
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Speaker 1: two five six three seven. As mentioned, we do have
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Speaker 1: our retirement planning professionals available to you this morning. If
0:45
Speaker 1: you have a retirement planning or retirement related question, love
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Speaker 1: to have you join us this morning. The number to
0:50
Speaker 1: get on the air six soh eight three two one
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Speaker 1: thirteen ten. That's six soh eight three two one thirteen ten.
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Speaker 1: And joining us this morning from Class Financial are Eric
0:58
Speaker 1: Schwartz and Kyle Kite. Eric, how you doing this morning.
1:02
Speaker 2: Good morning, Sean. I'm doing great. How about yourself?
1:04
Speaker 1: I'm doing well.
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Speaker 3: I Uh.
1:06
Speaker 1: A couple of weeks ago, I was down in the
1:08
Speaker 1: Rockford area and I I should have sent you the
1:10
Speaker 1: photo as well. I drove past a place called Beeferoux
1:14
Speaker 1: and I was more than a little intrigued by what
1:16
Speaker 1: beef Roux was. Katie here at Station's talked about it
1:19
Speaker 1: in the past, and then like a day later, I
1:21
Speaker 1: hear they're not They're not open right now, and hopefully
1:25
Speaker 1: they get that place open soon. Eric, we need to
1:27
Speaker 1: get that came.
1:28
Speaker 2: Can you shed some light on this part. I'm not
1:31
Speaker 2: sure about the law around bux.
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Speaker 1: Oh, Eric is not. I thought you might know Kyle
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Speaker 1: que us in on this. What do we know?
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Speaker 3: Yeah, so I this was kind of a surprise everybody
1:41
Speaker 3: because has been a Rockford staple forever. And then yeah,
1:45
Speaker 3: they just randomly shut all their stores down. I didn't
1:47
Speaker 3: hear exactly why. But then they've already opened them back up,
1:50
Speaker 3: so I don't know if it was political thing that
1:52
Speaker 3: they were working on or something with the city or what.
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Speaker 3: I think they're back up and running now.
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Speaker 1: The perfect Well, next time I'm i'm down, I'll stop by,
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Speaker 1: say hello, and maybe I'll bring a little beefru because
2:01
Speaker 1: I do want to. Just the name in itself makes
2:04
Speaker 1: it makes it seem beef and shut. Well, we've got
2:10
Speaker 1: we've got a great conversation ahead. We're gonna be talking
2:13
Speaker 1: about conflicts beyond commissions and and uh it's is We're
2:17
Speaker 1: kind of get a little bit deep and into some
2:19
Speaker 1: of these potential conflicts of interest. There's a lot that
2:23
Speaker 1: you need to know about and Kyle and Eric will
2:26
Speaker 1: provide all sorts of great information this morning. As mentioned,
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Speaker 1: if you ever have a question, love to get you
2:30
Speaker 1: on the air six oh eight three two one thirteen ten.
2:32
Speaker 1: That's six soh eight three two one thirteen ten. The
2:35
Speaker 1: website Class financial dot com. That's Class k l a
2:38
Speaker 1: as financial dot com. I mentioned the telephone number you
2:41
Speaker 1: want to hold on to it today as always of
2:43
Speaker 1: course that free consultation at Class Financial, but also a
2:46
Speaker 1: chance with that number a little bit later on the
2:48
Speaker 1: program to win a fantastic prize. Our friends from Class
2:50
Speaker 1: Financial have provided a twenty five dollars gift card to
2:54
Speaker 1: Best Buy for the winner of our class quiz question
2:56
Speaker 1: in the week. We will do that a little bit
2:58
Speaker 1: later on in the program. Little tip though, if you
3:00
Speaker 1: and closely to the show, just about every single program,
3:03
Speaker 1: the question and answer come up during the show, and
3:06
Speaker 1: before we start talking about some of those conflicts beyond commissions, Eric,
3:09
Speaker 1: let's go back actually look back at last week's programs
3:12
Speaker 1: and get the class quiz question a week from that
3:14
Speaker 1: show and the answer as well.
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Speaker 2: Yeah, so last week we talked about building your retirement paycheck, right,
3:21
Speaker 2: so taking the different resources that folks have going into
3:24
Speaker 2: retirement and actually creating an income stream on that. So
3:28
Speaker 2: our question last week was true or false. Portfolio income
3:32
Speaker 2: is typically the most flexible part of a retirement paycheck,
3:36
Speaker 2: and it can be increased or decreased as retirement income
3:39
Speaker 2: needs change. And the answer to that was true, Sean.
3:43
Speaker 1: And that was a fantastic show, and you can listen
3:45
Speaker 1: back to that at Clossfinancial dot com. That's glos klaasfinancial
3:50
Speaker 1: dot com. So today we are going to be talking
3:51
Speaker 1: about the conflicts beyond commissions, and most of us, of course,
3:55
Speaker 1: we think about commissions, we realize, oh yeah, there's a
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Speaker 1: potential conflict of interest there, But commissions aren't the only
4:01
Speaker 1: incentives out there that matter anymore in this in year
4:04
Speaker 1: twenty twenty six, and Kyle, let's bring you in on
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Speaker 1: this are what are we really talking about here?
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Speaker 3: Yeah, that's exactly right, Sean. I mean pretty much everybody's
4:12
Speaker 3: familiar with commissions, whether they're buying a car or some appliances,
4:15
Speaker 3: that kind of stuff. It's pretty straightforward. If you buy
4:18
Speaker 3: something from somebody and they're entitled to a little perk
4:21
Speaker 3: for selling that to you, that's a commission. And those
4:23
Speaker 3: are basically the easiest to explain. So the harder conversation
4:27
Speaker 3: is about what we would call soft conflicts. So these
4:31
Speaker 3: can be things like referral fees, custody incentives, vendor perks,
4:35
Speaker 3: conference sponsorships, revenue shares, and even subtle pressure created by
4:40
Speaker 3: technology platforms. So we're going to get a little bit
4:43
Speaker 3: behind the curtain today, especially in our industry here and
4:46
Speaker 3: talk about some of these things. But just because you
4:49
Speaker 3: know there's a conflict of interest doesn't mean that it's
4:51
Speaker 3: unethical or that it's you know, against the law or
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Speaker 3: anything like that. But all of these have to be disclosed, understood,
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Speaker 3: and managed. So here at COLSS, our internal standard is
5:03
Speaker 3: can we disclose this? It's does this move us closer
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Speaker 3: to reducing our conflicts of interest for the client, because
5:09
Speaker 3: we know that it's almost impossible to completely get rid
5:12
Speaker 3: of conflicts of interest, right, but how do we get
5:14
Speaker 3: those down to as minimal as possible? And that mindset
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Speaker 3: comes straight from our core value of integrity.
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Speaker 1: Talking this morning with Kyle Kaiden, Eric Schwartz our retirement
5:24
Speaker 1: planning professionals from Class Financial Online costs Financial dot Com
5:28
Speaker 1: that's coss k l a as Financial dot com and Eric,
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Speaker 1: let's kind of start off with those referral fees. And
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Speaker 1: I think this one may surprise a lot of people.
5:37
Speaker 1: How do referral arrangements create conflicts?
5:41
Speaker 2: Yeah, it's a little bit of a behind the scenes
5:44
Speaker 2: look for listeners today. And you know, referral fees exist
5:48
Speaker 2: in a lot of industries. It's not just financial planning.
5:50
Speaker 2: You know, CPAs, attorneys, insurance professionals, they might all receive
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Speaker 2: compensation for referring a client to another professional. The fl
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Speaker 2: DE rises here when the referral is influenced by compensation
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Speaker 2: rather than quality or fit. Right, So if I'm incentivized
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Speaker 2: financially to refer you to person A instead of person B,
6:11
Speaker 2: that incentive needs to be disclosed and more importantly, it
6:14
Speaker 2: needs to be questioned, right, So from a fiduciary standpoint,
6:18
Speaker 2: the bar is much higher. We believe that referrals should
6:22
Speaker 2: be driven by competence in character, not compensation. So for example,
6:27
Speaker 2: we work with professionals where no referral fee exists at all. Okay,
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Speaker 2: So that's just how part of how we live out
6:34
Speaker 2: integrity and empathy, which are two of our core values
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Speaker 2: here at CLSs, and we just in clients deserve confidence
6:41
Speaker 2: that recommendations are being made for them and not for us.
6:45
Speaker 2: An example of this can be seen on our website
6:48
Speaker 2: if you go under our resources tab there, Sean, you're
6:50
Speaker 2: always so good at directing people to our wonderful websites.
6:54
Speaker 2: You go to that resources tab where it says professional network. Okay,
6:58
Speaker 2: so this is something we've developed. We call it our
7:00
Speaker 2: COSS Professional Network. CJ loves to put his name on everything.
7:05
Speaker 2: I'm just kidding. He's gonna be really mad that I
7:07
Speaker 2: said that, because he actually hates having his name on that.
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Speaker 2: But the Class Professional Network is a It's a network
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Speaker 2: of local financial professionals across various disciplines, including accountants, attorneys,
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Speaker 2: tax advisors, lending, banking, real estate, insurance. All of these
7:27
Speaker 2: professionals none of them pay Class Financial anything to participate
7:31
Speaker 2: in our network, but they do have to sign a
7:33
Speaker 2: participant agreement that outlines a professional code of conduct and
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Speaker 2: service expectations to benefit our mutual clients. Now, as a consumer,
7:42
Speaker 2: imagine how different this type of arrangement could be if
7:45
Speaker 2: we asked our Class Professional network participants to pay a
7:48
Speaker 2: membership fee, or if we asked our participating firms to
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Speaker 2: pay us a referral fee. Now, admittedly, there may be
7:55
Speaker 2: nothing wrong with this in the eyes of the Securities
7:58
Speaker 2: and Exchange Commission, is long as it's disclosed in a
8:01
Speaker 2: regulatory document called an adv But as a consumer, you
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Speaker 2: can already sense why this might be a problem and
8:08
Speaker 2: could create a conflict.
8:10
Speaker 1: Right.
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Speaker 2: So, this is the reason why over the past fifty years,
8:13
Speaker 2: we've really worked hard to eliminate all referral fees and
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Speaker 2: or what are called revenue sharing arrangements, because we just
8:19
Speaker 2: think it helps us reduce conflicts of interest with the
8:22
Speaker 2: clients that we serve.
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Speaker 1: That's pretty eye opening, I guess I never realized how
8:26
Speaker 1: complicated just simple referrals could be when it comes to
8:30
Speaker 1: when it comes to a company like Class Financial and
8:33
Speaker 1: as we talked this morning about about these conflicts beyond
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Speaker 1: the commissions and of course the values at COSS Financial
8:41
Speaker 1: and again as mentioned the website colassfinancial dot com. As
8:45
Speaker 1: Eric was referring there, if you go into the resources
8:48
Speaker 1: and the professional network, you can see that right there
8:51
Speaker 1: online at classfinancial dot com. And Kyle, then when we're
8:55
Speaker 1: talking about when we're talking then about this topic, let's
9:00
Speaker 1: talk about custody incentives and maybe a term that a
9:03
Speaker 1: lot of folks aren't aware of, but it's another it's
9:06
Speaker 1: another area that that people need to be. It needs
9:10
Speaker 1: to be on folks radar, doesn't it.
9:12
Speaker 3: Yeah, absolutely, Sean, So yeah, custody or custodian. This is
9:16
Speaker 3: again a little bit behind the curtains, but some of
9:18
Speaker 3: the biggest custodians when it comes to financial planning firms
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Speaker 3: are Schwab and Fidelity are probably the two biggest, and
9:24
Speaker 3: then Pershing is another one. So what a custodian is
9:27
Speaker 3: is those are basically the people that hold the money
9:29
Speaker 3: for firms like us. So if you invest in cost Financial,
9:32
Speaker 3: you don't own shares of COSS Financial. We don't have
9:35
Speaker 3: a vault in the back of our building with all
9:37
Speaker 3: your money in it, it's held at Fidelity, right, so
9:39
Speaker 3: there are our largest custodian, and these types of firms
9:43
Speaker 3: may offer advisors things like technology support, or they'll send
9:47
Speaker 3: us to a conference or you know, some other things
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Speaker 3: like that based on how much money we have of
9:54
Speaker 3: our clients that's held with them and that kind of stuff.
9:56
Speaker 3: So again it's not illegal or hidden, but the kind
9:59
Speaker 3: of exists if an advisor chooses or remains with a
10:02
Speaker 3: custodian primarily because of those benefits rather than client experience,
10:06
Speaker 3: safety and cost. So this is again one of our
10:09
Speaker 3: client our core values is curiosity. So we're constantly asking,
10:13
Speaker 3: you know, like I said, we use Fidelity right now,
10:16
Speaker 3: is that are they still the best custodian for our clients?
10:18
Speaker 3: Are their cost competitive with the expenses and that kind
10:22
Speaker 3: of stuff, and is the service improving or deteriorating? So
10:26
Speaker 3: you know, from our perspective, obviously we handle a lot
10:28
Speaker 3: of the questions for our clients and things like that
10:30
Speaker 3: when it comes to Fidelity, But how is our staff
10:33
Speaker 3: working with Fidelity and things like that, how's that service offering?
10:36
Speaker 3: So again, reducing conflicts means we need to be willing
10:39
Speaker 3: to change custodians for the benefit of our clients if
10:41
Speaker 3: it becomes necessary, and it means disclosing any of these
10:45
Speaker 3: incentives that we get or that we're that are being received. So,
10:48
Speaker 3: like I said, we're currently with Fidelity, and as we've
10:52
Speaker 3: refused all custody incentives from Fidelity for the reasons outlined above,
10:56
Speaker 3: and again it just goes back to we're trying to
10:58
Speaker 3: minimize those conflicts of interest and any residual benefits that
11:02
Speaker 3: do exist are disclosed and don't influence our investment recommendations
11:07
Speaker 3: or anything like that.
11:08
Speaker 1: It's great to hear, as we talked this morning with
11:11
Speaker 1: Kyle Kite and Eric Schwartz, understanding some of the conflicts
11:14
Speaker 1: beyond commissions, things like referral fees, custody incentives, vendor perk,
11:19
Speaker 1: also soft benefits. We'll talk a little bit about what
11:22
Speaker 1: those soft benefits are, what that exactly means. We'll get
11:24
Speaker 1: the details from our retirement planning professionals, Eric Schwartz and
11:27
Speaker 1: Kyle Kite. We will get that in just a moment.
11:29
Speaker 1: In the meantime, I Paul, hope you've had a chance
11:31
Speaker 1: to check out the website class Financial dot com. That's
11:33
Speaker 1: coss k LaaS Financial dot com. If you miss part
11:37
Speaker 1: today's program, or you want to listen back to a
11:39
Speaker 1: previous show or share the show, you can get that
11:41
Speaker 1: right at colassfinancial dot com. They've got to link the
11:44
Speaker 1: podcast there. Don't forget about their tellphone number six oh
11:46
Speaker 1: eight four four two five six three seven. No charge
11:49
Speaker 1: for that initial get to know you conversation at Costs Financial.
11:52
Speaker 1: It will be complimentary to you their number six oh
11:54
Speaker 1: eight four four two five six three seven. We'll continue
11:57
Speaker 1: our conversation with Eric and Kyle. We will do that
12:00
Speaker 1: next as Money in Motion with COSS Financial continues right
12:02
Speaker 1: here on thirteen ten, wu ib A talking to our
12:06
Speaker 1: retirement planning professionals from COSS Financial. We're talking this week
12:10
Speaker 1: with Eric Schwartz and Kyle Kite. Of course, you can
12:13
Speaker 1: learn more about Eric, Kyle and everyone at COSS Financial
12:16
Speaker 1: on the website class financial dot com. That's Coss k
12:19
Speaker 1: l a a S Financial dot com. You can also
12:21
Speaker 1: schedule a complimentary chat right online or pick up a
12:24
Speaker 1: phone call the office six oh eight four four two
12:27
Speaker 1: five six three seven. No charge for that initial get
12:30
Speaker 1: to know your appointment at Class Financial. It will be
12:32
Speaker 1: complementary to you talking this week about the conflicts beyond commissions.
12:36
Speaker 1: And we've talked about referral free fees, We've talked about
12:39
Speaker 1: custodial incentives. Let's talk about vendor perks were touching on
12:43
Speaker 1: as well, some of the soft benefits, and Eric, you know,
12:47
Speaker 1: I hear like soft benefits. That doesn't really sound all
12:49
Speaker 1: that all that's scary. It sounds kind of soft. Why,
12:52
Speaker 1: as a listener, you know, why should why should folks
12:54
Speaker 1: care about about soft benefits?
12:57
Speaker 2: That's a great question. I think, I think because they
13:01
Speaker 2: influence people's behavior more than more than people realize. I mean,
13:04
Speaker 2: I think we like to all think that as humans
13:07
Speaker 2: were Oh well I wouldn't be swayed by that, but
13:10
Speaker 2: but people really can be swayed pretty easily, and in
13:14
Speaker 2: this day and age in some of these benefits. I mean,
13:17
Speaker 2: just for example, we're talking about okay, if you if
13:20
Speaker 2: you work with me, you can use our free software
13:22
Speaker 2: that that'll save you money somewhere else. Or we'll give
13:26
Speaker 2: you discounts if you come to this conference, or we'll
13:29
Speaker 2: we'll take you out to dinner, or or honestly, they'll
13:33
Speaker 2: offer to fly you out to a conference for three
13:35
Speaker 2: days somewhere just so that they can they can tell
13:38
Speaker 2: you all about their great products, right preferred access to
13:42
Speaker 2: vendor specialists.
13:43
Speaker 1: They'll send you clothes.
13:45
Speaker 2: Dishware, anything and everything that a logo can be put on,
13:50
Speaker 2: they will they will send to you. And none of
13:52
Speaker 2: this really shows up as a line item on a statement.
13:54
Speaker 2: But human behavior always responds to incentives. And the ethical
13:59
Speaker 2: question I think here becomes would the recommendation that an
14:03
Speaker 2: advisor is making to a client still stand if some
14:07
Speaker 2: of these perks that the vendor was giving them disappeared.
14:11
Speaker 2: So at COLSS we operate with a clear rule. Client
14:14
Speaker 2: results come first. Vendor relationships are secondary. If a tool
14:19
Speaker 2: or a platform doesn't improve our client's experience, it does
14:22
Speaker 2: not belong within the firm, no matter how attractive the
14:26
Speaker 2: perk may be. And one way for our listeners to
14:30
Speaker 2: practically apply this logic to be on the lookout for
14:33
Speaker 2: any vendor branded materials or clothing or awards in your
14:37
Speaker 2: financial advisor's office. So if you walk into your advisor's
14:40
Speaker 2: office and they have an American Funds or Prudential or
14:44
Speaker 2: Fidelity Schwab branding on their shirt or on their desk
14:49
Speaker 2: or wherever, you get the idea right an informed consumer
14:54
Speaker 2: might want to ask themselves if the relationship with that
14:57
Speaker 2: vendor could create a conflict for them as as a client.
15:01
Speaker 1: I think about some of those conventions though, Eric, you
15:04
Speaker 1: get the food and drinks and a couple of seminars
15:07
Speaker 1: and a lot of times are like water parks, you know.
15:11
Speaker 2: All of those, all of those things, Sean, and and
15:14
Speaker 2: they are they are very enticing to a lot of advisors.
15:18
Speaker 2: We see it all the time.
15:19
Speaker 1: It's and it's important to highlights as we talk this
15:22
Speaker 1: morning about some of those conflicts beyond commissions. I think, yes,
15:25
Speaker 1: as consumers, as clients, and we think oftentimes about some
15:29
Speaker 1: of the conflicts around commissions, and it's it's really eye
15:31
Speaker 1: opening the more that the more that we're talking about
15:33
Speaker 1: this morning about all the different avenues there when it
15:36
Speaker 1: comes to conflicts and uh and Kyle, it seems like
15:39
Speaker 1: there's a lot for folks to kind of evaluate. How
15:41
Speaker 1: can someone actually know whether their advisor is kind of
15:44
Speaker 1: managing these conflicts appropriately.
15:48
Speaker 3: Yeah, it's a great question, Sean. And you know, this
15:50
Speaker 3: is where our core value of empathy comes in is
15:52
Speaker 3: we don't expect the clients to be you know, compliance experts.
15:56
Speaker 3: We call them that's our job, but we at least
15:58
Speaker 3: want to educate you know, the listeners here to just
16:01
Speaker 3: be aware of things. And it's not always outside of
16:04
Speaker 3: the firm like we're talking about with vendors and that
16:06
Speaker 3: kind of stuff, but they can also exist inside a
16:08
Speaker 3: firm depending on how compensation, bonus structure, growth targets, and
16:13
Speaker 3: internal incentives are structured to reward certain behaviors. So that's
16:17
Speaker 3: why firm culture matters so much, is that, you know,
16:20
Speaker 3: most people understand this. Incentives drive behavior, whether we acknowledge
16:24
Speaker 3: that or not. That's where human beings, that's how things
16:26
Speaker 3: generally work. So three kind of practical questions that every
16:30
Speaker 3: listener should feel comfortable asking is how are you paid?
16:34
Speaker 3: And does anybody else pay you related to my account?
16:36
Speaker 3: So if you walk into an advisor's office and they
16:38
Speaker 3: don't want to answer that or they give you a
16:40
Speaker 3: roundabout answer, you know that's something to just be aware of.
16:43
Speaker 3: You know, at costs we're very very open and that no,
16:46
Speaker 3: you pay us directly by the fees that we charge.
16:48
Speaker 3: We don't receive any kickbacks or anything like that. And
16:51
Speaker 3: then you know, do you receive any benefits directly or
16:54
Speaker 3: indirectly from custodians or vendors tied to where my assets sit.
16:57
Speaker 3: So again, why are you using a fidelity or or
17:00
Speaker 3: something like that? Are they you know, are they giving you,
17:03
Speaker 3: like I said, a kickback or revenue share? Those types
17:05
Speaker 3: of things are what's to be aware of. And then finally,
17:08
Speaker 3: how do you manage and reduce conflicts of interest? Not
17:10
Speaker 3: just disclose them? Because again we've talked about it a bunch.
17:14
Speaker 3: There's a form called a form ADV that you can
17:16
Speaker 3: look up on any firm and they have to be
17:19
Speaker 3: updated on an annual basis. We actually just sent ours
17:21
Speaker 3: out a few weeks ago, so this is all outlined.
17:24
Speaker 3: Any conflicts of interest that they have is in that
17:27
Speaker 3: ADB But again, they just have to disclose them. It
17:29
Speaker 3: doesn't mean that they're not still taking advantage of it
17:32
Speaker 3: or anything like that. If it's disclosed, that's honestly all
17:35
Speaker 3: the regulator really cares about. So again, if an advisor
17:38
Speaker 3: is not willing to answer those three questions that we
17:41
Speaker 3: just talked about, then you should proceed with caution because
17:44
Speaker 3: there may be some conflict of interests that they're not
17:47
Speaker 3: willing to go in depth about or anything like that.
17:49
Speaker 1: Talking this morning with Kyle Kite and Eric Schwartz, our
17:52
Speaker 1: retirement planning professionals from Class Financial, the website Class financial
17:55
Speaker 1: dot com. That's Class k l a as Financial dot com.
17:59
Speaker 1: Telphan over six four four two five, six three seven.
18:02
Speaker 1: We'll wrap up our topic this week. We'll also head
18:05
Speaker 1: on over to the mailbox and check the Money in
18:07
Speaker 1: Motion listener question corner as well as the Class Quiz
18:10
Speaker 1: question of the Week. All of that next as Money
18:12
Speaker 1: in Motion with Class Financial continues right here. Thirteen ten
18:16
Speaker 1: WIBI talking with Eric Schwartz and Kyle Kaite, our retirement
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Speaker 1: planning professionals from Class Financial, talking this week about conflicts
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Speaker 1: beyond commissions and Eric, So, as we're kind of wrapping
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Speaker 1: up this week's topic, what are some of the big
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Speaker 1: takeaways for folks?
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Speaker 2: Yeah, I think this show is covering a topic that's,
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Speaker 2: as I said, a little bit more behind the scenes
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Speaker 2: and not something that people generally think about, and I
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Speaker 2: think that's why we wanted to bring it forward. You know,
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Speaker 2: this is something that lives in the background and people
18:45
Speaker 2: are often not aware of. And I think the big
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Speaker 2: takeaways for listeners would just be to when you're evaluating
18:52
Speaker 2: a financial advisor, don't stop at the question of are
18:56
Speaker 2: there conflicts of interest? Ask how do you reduce conflicts
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Speaker 2: of interest? Because conflicts will always exist in this business.
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Speaker 2: The difference between firms really is how seriously that they is,
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Speaker 2: how seriously they take the responsibility to manage those conflicts,
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Speaker 2: and whether or not they do everything within their power
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Speaker 2: to reduce them for the benefit of their clients. A
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Speaker 2: fiduciary relationship is grounded in curiosity, it's grounded in integrity,
19:22
Speaker 2: and it's grounded in empathy. And it doesn't just meet
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Speaker 2: the legal standard, it respects the human standard. And if
19:30
Speaker 2: you want to help, if you want help evaluating your
19:32
Speaker 2: own situation, or you simply want a second set of eyes,
19:35
Speaker 2: our team is always here to help. And in our opinion,
19:38
Speaker 2: trust isn't built by by claiming to be perfect. It's
19:41
Speaker 2: built by acknowledging that conflicts come up along the way,
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Speaker 2: and it's it's built by doing the extra work to
19:50
Speaker 2: reduce those conflicts.
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Speaker 1: Really important stuff and for folks, and I really hope
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Speaker 1: that you get a chance to subscribe and listen back
19:57
Speaker 1: to the podcast. There's a lot of information in this
20:00
Speaker 1: this week's show. If you head on over to Cossfinancial
20:02
Speaker 1: dot com. You can do just that. Also, while you're there,
20:05
Speaker 1: you can submit a question to be answered in our
20:07
Speaker 1: Money and Motion Listener question corner. As a matter of fact,
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Speaker 1: our friend Mark writes in his question, is I have
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Speaker 1: a cash value? Life insurance policy? Says the face values
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Speaker 1: one hundred thousand dollars. Current cash value is about is
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Speaker 1: ninety five thousand dollars. My cost in the policy so
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Speaker 1: far is twenty thousand dollars. So if I were to
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Speaker 1: cash in this policy now, would I have a taxable
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Speaker 1: gain of seventy five thousand dollars, which of course would
20:36
Speaker 1: impact my taxable income. Without this gain, our income is
20:39
Speaker 1: about fifty thousand dollars annually, half of which is earned
20:42
Speaker 1: and the rest is unearned. The annual cost that life
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Speaker 1: insurance policy it's six hundred dollars and will not increase
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Speaker 1: during my lifetime. Now, per the illustration I've received from
20:51
Speaker 1: my agent, if I live another twenty years, that cash
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Speaker 1: value would would be approximately two hundred and seventy thousand
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Speaker 1: dollars and would be tax free for my beneficiaries. Now
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Speaker 1: it goes on to say, my spouses and I are
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Speaker 1: both retired, we're debt free, and we have a net
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Speaker 1: worth of three million dollars, of which seven hundred thousand
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Speaker 1: is in a raw IRA. I'm on Medicare and sixty
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Speaker 1: five years old. My spouse is on the marketplace for
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Speaker 1: health insurance for another two years since she's sixty three. Now,
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Speaker 1: in the interest they say of not paying taxes, I'm
21:22
Speaker 1: inclined to continue paying the annual premium and have my
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Speaker 1: beneficiaries received the death penalty death benefits when I die.
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Speaker 1: But I would love to hear your opinion about what
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Speaker 1: I should do with this life insurance policy. And that
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Speaker 1: comes from Mark Kyle. I'll let you have the take
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Speaker 1: on this one.
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Speaker 3: That's a lot. I'm sure Eric is just heartbroken about that.
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Speaker 2: So first, I think you're uniquely qualified here.
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Speaker 3: Yeah, first let me say thanks Mark for submitting this question.
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Speaker 3: And before we answer it, you know, I want to
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Speaker 3: be clear whenever a question is this specific, we would
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Speaker 3: really require a deeper understanding of goals, taxes, healthcare planning,
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Speaker 3: estate wishes, cashlow needs, all this other stuff. So what
22:08
Speaker 3: I'm going to give you here is more of a
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Speaker 3: decision framework, not actually personalized advice. So first of all,
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Speaker 3: Mark is thinking about all the right issues here, so
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Speaker 3: he's paying attention to what happens if he catches it
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Speaker 3: out as far as that seventy five thousand dollars of
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Speaker 3: gain would be income taxable to him. They're also looking
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Speaker 3: at the ongoing premium of only six hundred bucks a year.
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Speaker 3: That's honestly not that expensive for what he's getting. And
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Speaker 3: of course one of the most beneficial things about life
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Speaker 3: insurance is that death benefit going to his heir's tax free.
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Speaker 3: So those are all kind of high level stuff that
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Speaker 3: you should definitely take a look at when you're looking
22:43
Speaker 3: at evaluating these types of things. So, however, his big
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Speaker 3: thing here was avoiding taxes, and that shouldn't be the
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Speaker 3: sole driver of the decision. The more important question is
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Speaker 3: whether this is the best use of capital given the
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Speaker 3: broader picture, especially for retire debt free household with significant
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Speaker 3: assets and substantial raw saving. So what we mean by
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Speaker 3: this is he's got about twenty current cash value of
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Speaker 3: ninety five thousand and a face value of one hundred thousand.
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Speaker 3: So if Mark were to pass away tomorrow, he's going
23:13
Speaker 3: to get that his errors and his spouse are going
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Speaker 3: to get that face value of one hundred thousand dollars.
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Speaker 3: But ninety five thousand of that is money that Mark
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Speaker 3: has put in and earned over the years here, So
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Speaker 3: that's why we're saying, is this the best use of capital?
23:26
Speaker 3: And timing also matters. So again with him on medicare
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Speaker 3: and his other spouse still on the marketplace coverage, a
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Speaker 3: seventy five thousand our income event could impact the subsidies
23:35
Speaker 3: that they're receiving, even if the existing policy might make
23:39
Speaker 3: sense at some point. When that happens, that can definitely
23:42
Speaker 3: change the outcome. And at this stage of life, this
23:45
Speaker 3: type of policy is an income replacement insurance anymore, meaning
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Speaker 3: neither one of them are working necessarily, so they don't
23:52
Speaker 3: really need to replace five ten years worth of income.
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Speaker 3: It's functioning more like an asset with an insurance wrapper,
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Speaker 3: and that means it should be evaluated alongside their other accounts,
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Speaker 3: like their row account, like if they have any traditional iras,
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Speaker 3: that kind of stuff. So the takeaway is this, don't
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Speaker 3: evaluate life insurance and isolation, and don't let tax avoidings
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Speaker 3: be the only goal. When insurance, taxes, healthcare, and a
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Speaker 3: state planning are coordinated thoughtfully, better decisions tend to follow.
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Speaker 3: So his question is a perfect example of where comprehensive
24:21
Speaker 3: financial planning. You can add some real value here.
24:24
Speaker 1: That's a great question. You two can be like Mark
24:27
Speaker 1: and get a great answer as well. Head on over
24:29
Speaker 1: to class Financial dot com. That's coss k l aas
24:32
Speaker 1: Financial dot com. You can submit your question right online.
24:34
Speaker 1: While you're there, you can also learn more about Class Financial.
24:37
Speaker 1: They're separate divisions. Listen back to the podcast, get to
24:40
Speaker 1: know the team, all that great stuff, and schedule complimentary chat.
24:43
Speaker 1: We're all online at class financial dot com. They're tough
24:46
Speaker 1: number six soh eight four four two five six three seven.
24:48
Speaker 1: Speaking of complementary, don't forget that first conversation at COSS Financial.
24:51
Speaker 1: It will be complementary to you. They're number six oh
24:54
Speaker 1: eight four four two five six three seven. Go on
24:56
Speaker 1: to hold on to that telephon number because it's time
24:58
Speaker 1: now for the Closs Quiz Question the Week. It works
25:00
Speaker 1: like this. In just a moment, I'll ask you the
25:01
Speaker 1: Class Quiz question Week. You will then have thirty minutes
25:03
Speaker 1: from the inter Today's program to call the Class Financial
25:06
Speaker 1: office right here in Madison at six oh eight four
25:08
Speaker 1: four two five six three seven. If you are the
25:11
Speaker 1: first caller with the correct answer, you will win this
25:13
Speaker 1: week's prize, which is a twenty five dollars gift card
25:15
Speaker 1: to Best Buy. This week's Closs Quiz question of the
25:18
Speaker 1: week is this true or false? Coss Financial beliefs. Referrals
25:23
Speaker 1: to other financial professionals should be driven by competence and character,
25:28
Speaker 1: not compensation. Telephone number six oh eight four four two
25:31
Speaker 1: five six three seven. First caller with correct answer win
25:34
Speaker 1: the twenty five dollars gift card to best Buy. Again
25:37
Speaker 1: that number six oh eight four four two five six
25:39
Speaker 1: three seven. Eric Kyle, It's always great chatting with both
25:42
Speaker 1: of you, guys. Enjoy the day and we'll talk real soon.
25:46
Speaker 1: Thanks Jean, Take care, guys. News comes your way next
25:50
Speaker 1: right here on thirteen ten WIBA. This is Money in
25:54
Speaker 1: Motion with Coss Financial Asset Advisors, LLC, a registered investment
25:58
Speaker 1: advisor registered at the SEC. The contents of this show
26:02
Speaker 1: are for informational purposes only and should not be considered
26:05
Speaker 1: individual investment advice. Class Financial does not offer tax or
26:09
Speaker 1: legal advice. Any opinion offered during the course of this
26:12
Speaker 1: show is the opinion of that particular investment advisor representative,
26:17
Speaker 1: and not necessarily the opinion of Coss Financial