Latest / How Canadian Markets Work / Episode 16: Know Your Product and Suitability

Transcript

Episode 16: Know Your Product and Suitability · How Canadian Markets Work

• 0:00
  Have you ever wondered exactly what your financial
• 0:03
  advisor is legally required to know before they
• 0:06
  tell you where to put your life savings? I mean,
• 0:08
  it's something people just sort of assume, right?
• 0:10
  They think the advisor has all the facts. Right,
• 0:12
  exactly. Like, if you think about it, when a
• 0:14
  medical specialist looks at your x -ray, they
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  aren't legally limited to prescribing only the
• 0:20
  medicine their hospital makes the highest profit
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  on. Yeah, that would be terrifying. It really
• 0:25
  would. You just assume they're giving you this
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  objective, you know, completely binary diagnosis
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  based purely on your biology. Right, a pure diagnosis.
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  But when you sit across a mahogany desk from
• 0:36
  a financial advisor, that exact scenario being
• 0:40
  prescribed a product simply because it's, well...
• 0:43
  what the firm manufactures, is entirely possible.
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  Oh, yeah. It happens all the time. And we just
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  operate under this assumption that a financial
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  recommendation is as mathematically pure as an
• 0:54
  engineering schematic. Yeah, because we crave
• 0:56
  that objectivity. I mean, people want their finances
• 0:58
  to be visible and easily categorized. Especially
• 1:02
  when it's your entire life savings on the line.
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  Exactly, or, you know, your family's future well
• 1:08
  -being. But the reality of financial diagnostics
• 1:11
  is just, it's much more layered. It heavily depends
• 1:14
  on the unseen regulatory environment that the
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  advisor operates in. Well, welcome to today's
• 1:19
  Deep Dive. We are extracting the absolute most
• 1:23
  critical insights from a highly revealing source
• 1:26
  today. It's a really good one. It is. We're looking
• 1:28
  at episode 16 of the Canadian financial market
• 1:31
  series, diving into how Canadian markets work.
• 1:34
  and our focus today is squarely on the hidden
• 1:37
  machinery that dictates how your money is managed.
• 1:40
  The really foundational stuff. Yeah, the crucial
• 1:42
  relationship between know your client, know your
• 1:45
  product, and this overarching concept of suitability.
• 1:48
  And you know, I'll admit those sound like incredibly
• 1:50
  dry compliance terms. They really do. But they
• 1:53
  form the literal bedrock of whether your wealth
• 1:55
  compounds over the next 30 years or... and this
• 1:58
  is the scary part, gets quietly siphoned away
• 2:01
  by institutional friction. And that's our mission
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  today. We want to decode those hidden guardrails
• 2:05
  of the financial advice industry. Get right into
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  the mechanics of it. Exactly. We're going to
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  explore a massive regulatory shift that changed
• 2:13
  the landscape in 2021, understand the true jaw
• 2:17
  -dropping cost of a tiny 2 % fee over time, and
• 2:21
  most importantly, arm you with the exact questions
• 2:24
  you need to ask whoever is managing your money.
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  so critical for anyone listening. OK, let's unpack
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  this. I mean, let's start with the foundational
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  rules of engagement between an advisor and an
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  investor. What is the actual baseline here? Well,
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  the baseline is basically a three -piece puzzle.
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  OK. To understand how the wealth management industry
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  operates, you have to look at how these three
• 2:44
  specific pieces interlock to form, like a legal
• 2:47
  framework. So what's piece number one? Piece
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  number one is KYC. or know your client. And this
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  goes far beyond a casual introductory chat. Right.
• 2:55
  It's not just how's the weather. No, not at all.
• 2:57
  It is a strict legal obligation for the firm
• 3:00
  to document your identity, your financial circumstances,
• 3:02
  your investment objectives, and your risk profile.
• 3:06
  You know, that risk profile piece always feels
• 3:08
  a bit like a personality test to me. Yeah, a
• 3:10
  lot of people feel that way. And it kind of is.
• 3:13
  But it serves a dual purpose. They are measuring
• 3:15
  your psychological willingness to endure market
• 3:18
  volatility like, are you going to panic and sell
• 3:20
  everything? Right. But they are also calculating
• 3:23
  your mathematical capacity to absorb a loss.
• 3:26
  Oh, I see. So it's not just about feelings. Exactly.
• 3:28
  I mean, a 30 -year -old with a massive mortgage
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  might have the psychological stomach for high
• 3:34
  -risk tech stocks. Sure. But mathematically,
• 3:36
  a severe market downturn could literally bankrupt.
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  them, the firm is legally required to map both
• 3:43
  of those realities. So if that first half of
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  the equation is knowing my exact circumstances,
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  I assume the second piece of the puzzle focuses
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  on knowing exactly what they're putting into
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  my portfolio. Like the product itself. Spot on.
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  That brings us to KYP, or Know Your Product.
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  OK. Firms and their registered individuals are
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  obligated to deeply understand the securities
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  they make available and recommend. They can't
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  just skim the marketing brochure. No. They cannot
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  just skim the glossy brochure provided by a fund
• 4:12
  manager. They're required to understand the underlying
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  structure, the... derivative exposures, the hidden
• 4:20
  liquidity risks, the true embedded costs. And
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  this is a big one. How the product performs under
• 4:26
  severe market stress. I mean, I have to imagine
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  that a single advisor sitting in a branch office
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  somewhere isn't reverse engineering the prospectus
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  of every mutual fund on earth between client
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  meetings. No, of course not. The sheer volume
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  of financial products out there is just staggering.
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  It is. And the regulatory framework accounts
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  for that volume by splitting KYP into two distinct
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  levels. How does that work? Well, the first level
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  happens at the firm itself. A bank or a brokerage
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  employs dedicated risk committees and analysts
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  to do the heavy structural diligence. So they
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  do the initial vetting. Right. They tear a product
• 5:01
  apart, stress test it, and ultimately decide
• 5:04
  if it is approved for their shelf. Their shelf.
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  Yeah. That's the industry term for the approved
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  inventory of products a firm is permitted to
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  sell. Which means the second level falls on the
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  individual advisor sitting across from you. Exactly.
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  They bear the final burden. An advisor cannot
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  blindly rely on the firm's overarching approval.
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  Really? Even if the firm already said it's okay?
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  Even then. They must personally understand the
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  mechanics and costs of that approved product
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  before they can ethically and legally recommend
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  it to a specific human being. Okay, so we have
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  the client's profile and we have the analyzed
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  product. Yeah. The third piece of the puzzle
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  has to be the mechanism that connects them, right?
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  Yep. The third piece is the suitability determination.
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  This is essentially the hinge of the entire industry.
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  Suitability. Right. Before executing any trade
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  or making any recommendation, the advisor must
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  determine that this specific product makes sense
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  for this specific client at this specific moment
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  in time. But the standard for what makes something
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  suitable underwent a seismic shift recently,
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  right? Our sources heavily highlight the 2021
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  client -focused reforms in Canada. Yes. And what's
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  fascinating here is how subtle the wording change
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  appears on paper and yet how fundamentally it
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  alters the legal landscape. How so? Prior to
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  2021, the suitability standard generally meant
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  an investment simply had to be appropriate for
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  you. Like just not terrible. Pretty much. It
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  just couldn't be patently disastrous based on
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  your KYC profile. But under the 2021 client focused
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  reforms, registrants are now mandated to put
• 6:35
  the client's interest first when making a suitability
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  determination. I got to say client first. Sounds
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  incredibly familiar. I feel like I've heard that
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  phrase in every bank commercial for the last
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  20 years. Oh, absolutely. But the difference
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  is it has transitioned from a marketing slogan
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  into a measurable regulatory requirement. Wow.
• 6:54
  OK. Yeah. In the wealth management industry,
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  conflicts of interest are omnipresent. I mean,
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  an advisor might receive a higher commission
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  for selling fund A over fund B. Right. Or the
• 7:04
  firm might incentivize the sale of its own proprietary
• 7:07
  products. The 2021 reforms dictate that any Any
• 7:10
  conflict of interest between you and the firm
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  must be addressed comprehensively in your favor
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  or avoided entirely. So they can't just pick
• 7:17
  the one that pays them more anymore? Exactly.
• 7:19
  An advisor can no longer just find a product
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  that is merely okay for you. They have to actively
• 7:25
  resolve those inherent conflicts so that you,
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  the investor, come out on top. Let me frame it
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  this way. If an advisor recommends a complex
• 7:34
  fund that they haven't personally investigated,
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  just relying on the fact that their firm's compliance
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  department rubber -stamped it for the shelf.
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  Which happens? It's identical to a doctor prescribing
• 7:45
  a heavy medication just because the hospital
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  pharmacy stocked it. That's a perfect analogy.
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  If the doctor doesn't read the side effects or
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  check how it interacts with your existing prescriptions,
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  they aren't practicing medicine. They are just
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  distributing inventory. Yep. and it gives the
• 7:59
  client a deeply false sense of security. Because
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  the white coat and the tailored suit both command
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  authority, you know. If the advisor has not fulfilled
• 8:07
  their personal KYP obligation, the entire premise
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  of their advice is hollow. Absolutely empty.
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  And the 2021 reforms are designed to force them
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  to read those financial side effects. If a generic
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  lower cost version of a fund achieves the exact
• 8:22
  same outcome for your portfolio, the regulation
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  compels them to recommend the generic rather
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  than the expensive name brand version that kicks
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  back a higher fee to their firm. Exactly right.
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  OK, but because an adviser is legally required
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  to put my interest first and avoid conflicts,
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  my immediate assumption is that they have to
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  scour the entire global finance market to find
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  the absolute mathematical best investment in
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  existence for my specific portfolio. And we are
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  now stepping into what is arguably the most misunderstood
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  limitation of the entire regulatory framework.
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  Because that's what best implies, right? You'd
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  think so, but the short answer is no. They do
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  not have to scour the globe. Wait, but they are
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  legally bound to a client first standard. How
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  can they put me first if they aren't looking
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  at the whole board? Because they are bound to
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  put you first, but within a very specific, strictly
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  defined boundary. The regulation requires an
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  advisor to consider what is called a reasonable
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  range of alternatives. And the vital limitation
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  is that this range is explicitly bounded by the
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  firm's shelf. Wait, so the rule is completely
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  real, but its absolute ceiling is the firm's
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  shelf. That is the reality of the market structure.
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  That is wild. It is. If you establish a relationship
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  with a large integrated financial institution
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  and that specific branch only offers its own
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  proprietary in -house mutual funds. It's usually
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  carry higher fees, right? Naturally. Then the
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  advisor is only required to pick the best possible
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  option for you from that specific inventory.
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  They aren't required to tap me on the shoulder
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  and say, hey, the brokerage firm across the street
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  has an ETF that does the exact same thing. for
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  a fraction of the cost. Not at all. They have
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  absolutely no obligation to recommend a competitor's
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  product, even if it is objectively superior or
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  cheaper. Wow. Yeah. Within the context of these
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  rules, putting the client first translates practically
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  to choosing the most sensible option among the
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  limited menu we are licensed to sell you. That
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  feels like a massive caveat. It is. And the source
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  material points out a glaring issue. Almost nobody
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  in the industry clearly articulates this shelf
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  limitation to their clients. I've certainly never
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  heard it explained that way. Right. Investors
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  hear terms like client -first standard and assume
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  their advisor acts as a like a universal personal
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  shopper. Yeah. When in many institutional environments
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  they actually operate as a highly regulated consultant
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  for a closed architecture of product. That significantly
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  shifts the burden back onto the investor. I mean
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  it means you have to know what kind of store
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  you just walked into before you start asking
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  for recommendations. Precisely. You have to ask
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  them upfront if they're restricted to proprietary
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  products or if they operate on an open It is
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  honestly the most important question you can
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  ask in an initial meeting. So, assuming that
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  advisor is confined to their specific shelf,
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  how do they legally justify putting a client
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  into an expensive proprietary fund when there
• 11:14
  might be a cheaper alternative sitting right
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  next to it in their own inventory? Well, under
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  the new reforms, cost is an explicitly mandated
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  factor in the suitability determination. Okay,
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  so they can't just ignore the price tag? No,
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  it can no longer be treated as an afterthought.
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  An advisor can absolutely still recommend a more
• 11:32
  expensive product, but they must justify that
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  higher cost by documenting a specific, tangible
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  client need. I want to understand what makes
• 11:41
  one fund fundamentally more expensive than another.
• 11:44
  We're usually talking about actively managed
• 11:46
  funds versus passive index funds, right? Broadly
• 11:49
  speaking, yes, an actively managed fund charges
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  a higher fee, often around 2 percent, because
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  you are paying for, you know, a skyscraper full
• 11:58
  of human analysts, portfolio managers, economists.
• 12:02
  Right. The people actively pulling the livers.
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  Exactly. They are actively buying and selling
• 12:05
  securities, attempting to beat the market average.
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  And the alternative. A passive index fund, which
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  might charge, say, a quarter of a percent. It
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  simply utilizes an algorithm to mirror the broader
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  market. It requires far less human intervention.
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  hence the vastly lower cost. Okay, here's where
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  it gets really interesting. I want to look at
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  the compounding example from our sources. Because
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  analyzing the actual math behind those percentages
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  completely shatters how most of us view fees.
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  The math is sobering. Let's assume a conservative
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  baseline for an investor. $100 ,000 portfolio,
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  left alone for 20 years, generating a 7 % gross
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  annualized return. And just to clarify, 7 % is
• 12:46
  a standard, historically reasonable benchmark
• 12:49
  for a balanced portfolio before fees are applied.
• 12:52
  Right. So if we look at Funday, the actively
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  managed fund on the shelf, it charges a 2 % annual
• 12:58
  fee. That brings the net return down to 5%, right?
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  Correct. If you compound $100 ,000 at 5 % over
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  two decades, you end up with roughly $260 ,000.
• 13:08
  Which, you know, from a purely psychological
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  standpoint, an investor sees a statement showing
• 13:13
  $260 ,000. realizing they more than doubled their
• 13:17
  initial investment. They feel incredibly successful.
• 13:19
  Very successful. They feel successful until they
• 13:22
  run the math on Fund C, the passive index alternative
• 13:25
  on that exact same shelf. Right. Fund C charges
• 13:28
  a 0 .25 % fee. The net return is 6 .75%. Over
• 13:34
  the same 20 years, that identical $100 ,000 investment
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  grows to roughly $370 ,000. So the difference
• 13:43
  in the ending balance is $110 ,000. Wait, the
• 13:47
  gap is literally larger than the original capital
• 13:50
  invested. It is. The fee swallowed more wealth
• 13:52
  than the investor even started with, and the
• 13:55
  difference in the fee was less than two percentage
• 13:57
  points. I know. It sounds impossible when you
• 14:00
  say it out loud. It does. People hear a 2 % fee
• 14:02
  and their brain immediately categorized it like
• 14:05
  a retail sales tax. You know, a tiny one -time
• 14:07
  surcharge on a transaction. But we are not neurologically
• 14:10
  wired to comprehend compounding friction. Compounding
• 14:13
  friction. That's a great term. A 2 % investment
• 14:15
  fee is not a one -time tax at the cash register.
• 14:18
  It is a relentless annual abstraction of your
• 14:21
  total accumulated wealth. I always pictured a
• 14:23
  fee like a pinhole leak in a bucket of water.
• 14:26
  you fill the bucket, you see a tiny drop escaping
• 14:29
  every few minutes, and you assume it's harmless.
• 14:31
  Just a few drops. Right, you think you still
• 14:33
  have a full bucket. But the reality is actually
• 14:36
  much worse than just losing those specific drops
• 14:39
  of water. The water that leaks out is no longer
• 14:43
  in the bucket to attract more water. The compounding
• 14:46
  effect. Exactly. You aren't just losing the 2
• 14:48
  % you paid the advisor. You are permanently losing
• 14:51
  all the future compounding growth that those
• 14:55
  vanished dollars would have generated over the
• 14:56
  next 20 years. It acts as an aggressive counterforce.
• 15:00
  The fee compounds against your timeline just
• 15:03
  as powerfully as the market compounds in favor
• 15:05
  of it. It's terrifying. It is. But, and I want
• 15:08
  to be fair here, Our sources are very deliberate
• 15:11
  in providing a balanced perspective on this dynamic.
• 15:14
  Paying a 2 % fee is not automatically equivalent
• 15:16
  to financial malpractice. I have to admit I am
• 15:18
  highly skeptical here. After walking through
• 15:21
  a $110 ,000 gap, how can anyone objectively defend
• 15:25
  a 2 % wealth extraction? Well, the defense relies
• 15:28
  entirely on a massive condition. Which is? The
• 15:31
  advisor must actively earn that premium. Okay,
• 15:35
  I mean, I see the value in behavioral coaching.
• 15:37
  If the market drops 30 % and they talk me off
• 15:40
  a ledge so I don't liquidate my retirement at
• 15:42
  the absolute bottom, that's valuable. Very valuable.
• 15:45
  But is one frantic phone call during a recession
• 15:48
  really worth $110 ,000? If viewed in isolation,
• 15:52
  perhaps not. But a comprehensive advisor is doing
• 15:56
  far more than crisis management. What else are
• 15:59
  they doing? They're executing complex asset location
• 16:02
  strategies like Deciding which specific assets
• 16:05
  sit in your taxable accounts versus your tax
• 16:07
  sheltered accounts to minimize your annual tax
• 16:10
  drag. Oh, right. They are performing tax loss
• 16:13
  harvesting to offset your capital gains. They're
• 16:15
  structuring your eventual retirement decumulation
• 16:18
  so that you aren't bumped into a higher tax bracket
• 16:20
  when you start withdrawing funds. That sounds
• 16:22
  incredibly complicated. It is, and they are coordinating
• 16:25
  your estate planning to ensure your wealth transfers
• 16:27
  efficiently to your heirs. If an advisor is actually
• 16:31
  executing that level of holistic financial architecture,
• 16:34
  they will easily generate enough measurable value
• 16:37
  to offset their 2 % fee over a lifetime. I see.
• 16:41
  So the problem isn't the existence of the fee
• 16:44
  itself. The danger is paying for comprehensive
• 16:47
  architecture and only receiving like a generic
• 16:51
  blueprint. Precisely. The true hazard is paying
• 16:54
  an advice level fee and receiving zero actual
• 16:57
  advice. Right. If you are paying 2 % simply for
• 17:00
  an advisor to place your money into a proprietary
• 17:02
  mutual fund and mail you a generic market commentary
• 17:06
  newsletter four times a year. Which happens a
• 17:08
  lot. You are experiencing severe wealth destruction
• 17:10
  with no corresponding benefit. The absence of
• 17:13
  value for the fee is the crisis, not the fee
• 17:15
  itself. Well, because that 2 % leak is so devastating
• 17:18
  when unaccompanied by real advice, the natural
• 17:20
  temptation for an investor is to fire the advisor,
• 17:23
  download a trading app, and keep the money. Of
• 17:25
  course it is. But when you remove the fee, you
• 17:27
  also remove the entire regulatory safety net.
• 17:30
  If we connect this to the bigger picture, the
• 17:33
  financial ecosystem operates on a sliding scale
• 17:35
  of responsibility. OK. You can pay a premium
• 17:39
  for a licensed professional to bear the regulatory
• 17:42
  burden of suitability, or you can eliminate those
• 17:45
  costs and hoist that entire regulatory burden
• 17:48
  onto your own shoulders. We are talking about
• 17:50
  order execution only platforms, right? commonly
• 17:53
  known as discount brokerages or DIY investing
• 17:57
  apps. Yes, exactly. And the fundamental reality
• 18:00
  of an order execution only platform is the complete
• 18:03
  absence of a suitability determination. Zero
• 18:05
  suitability checks. Right. The firm operating
• 18:08
  the platform still conducts KYP. They evaluate
• 18:11
  the securities to ensure they are legitimate
• 18:13
  and structurally sound before offering them on
• 18:15
  the app. But absolutely no one is checking if
• 18:17
  those products align with your personal financial
• 18:19
  reality. So if a 65 year old living on a fixed
• 18:22
  pension decides you know, on a whim, to dump
• 18:24
  their entire life savings into a highly volatile,
• 18:28
  leveraged biotechnology ETF. The platform is
• 18:31
  just going to process the order. Just like that.
• 18:33
  It will execute the trade in milliseconds. You
• 18:35
  operate as your own compliance department. Wow.
• 18:37
  There is no advisor bound by the 2021 client
• 18:40
  -focused reforms to intercept that trade and
• 18:43
  put your interest first because, well, you opted
• 18:46
  out of that relationship to save the fee. It's
• 18:48
  a double -edged sword. It really is. Yeah. For
• 18:50
  highly disciplined investors who deeply understand
• 18:52
  asset allocation and market mechanics, bypassing
• 18:56
  the advisor is a magnificent wealth accelerating
• 18:59
  trade off. But for an inexperienced investor,
• 19:03
  it is the equivalent of handing them a loaded
• 19:05
  financial weapon without explaining how the safety
• 19:08
  switch works. Which brings us to a crucial element
• 19:10
  of the regulatory framework that applies if you
• 19:12
  do choose to stay with an advisor. Right. Let's
• 19:15
  talk about that. The concept of ongoing suitability.
• 19:17
  The suitability determination is not a one -time
• 19:20
  event that happens only on the day you purchase
• 19:22
  a fund. The sources emphasize this and it totally
• 19:25
  reframed how I view the advisor relationship.
• 19:28
  Suitability applies to recommendations to hold
• 19:31
  a product or to transfer a product, not just
• 19:34
  the initial transaction. Exactly. Suitability
• 19:36
  is continuously evaluated at the exact time of
• 19:39
  any recommendation. This is precisely why Keeping
• 19:43
  your Know Your Client form meticulously updated
• 19:46
  is not just administrative housekeeping. It is
• 19:49
  the core of your legal protection. Walk me through
• 19:52
  the actual mechanism of how that plays out in
• 19:55
  a regulatory scenario. What happens if life changes
• 19:57
  and the paperwork doesn't? All right. Imagine
• 20:00
  you sit down with an advisor at age 35. OK. You
• 20:03
  are single, high income, and have a 30 year time
• 20:07
  horizon. The advisor puts you into an aggressive
• 20:10
  high -growth portfolio. Makes sense. It is perfectly
• 20:13
  suitable. Fast forward 25 years, you are 60,
• 20:17
  you have dependents, you've experienced a health
• 20:19
  scare, and you plan to retire in 24 months. A
• 20:21
  completely different life. Right. If your advisor
• 20:24
  recommends that you hold that exact same aggressive
• 20:27
  portfolio, they are legally required to run a
• 20:29
  suitability determination based on your reality
• 20:32
  at age 60. But they can only run that determination
• 20:35
  if I have actually informed them that my health
• 20:37
  and timeline has changed. Exactly. experience
• 20:40
  a divorce, a career change, an inheritance, or
• 20:43
  a shift in your retirement timeline, and you
• 20:46
  fail to update your KYC documentation, your advisor
• 20:49
  is legally managing the portfolio of a ghost.
• 20:52
  A ghost. That's chilling. They're executing strategies
• 20:54
  for a version of you that no longer exists. So
• 20:57
  if a severe market correction hits, that aggressive
• 21:00
  portfolio gets cut in half right before your
• 21:02
  retirement, and you decide to file a formal complaint
• 21:05
  with the financial ombudsman or the securities
• 21:08
  regulator. What happens? The very first piece
• 21:11
  of evidence the regulator will demand is the
• 21:13
  KYC form on file. Oh, wow. And if that document
• 21:16
  still indicates you have a high risk tolerance
• 21:18
  and a multi -decade time horizon because you
• 21:20
  ignored the request to update it, your complaint
• 21:23
  is effectively dead on arrival. Because it's
• 21:25
  my own fault. Right. The regulator will look
• 21:27
  the paperwork you signed, compare it to the investments
• 21:30
  held, and determine the advisor acted entirely
• 21:33
  within the bounds of suitability based on the
• 21:35
  data you provided. The paperwork is the contract
• 21:38
  that binds their fiduciary duty to your actual
• 21:40
  reality. We have covered a tremendous amount
• 21:43
  of ground today. I mean, let's pull this all
• 21:45
  together. It's a lot to digest. It is. Your advisor
• 21:48
  must intimately understand the products they
• 21:50
  recommend. That is their KYP obligation. But
• 21:54
  their recommendations are strictly bounded by
• 21:56
  what their specific firm allows them to sell.
• 21:59
  The shelf is the ultimate ceiling on their advice.
• 22:03
  And within the confines of that shelf, they are
• 22:05
  legally mandated to resolve conflicts in your
• 22:08
  favor. Right. But you must remain hyper vigilant
• 22:11
  about the underlying costs of what they recommend
• 22:13
  because investment fees compound relentlessly
• 22:16
  against your future wealth. A small percentage
• 22:19
  difference alters the entire trajectory of a
• 22:21
  portfolio. And if you choose to abandon the advisor
• 22:24
  model entirely to escape those fees via discount
• 22:27
  brokerage, you must recognize that you are flying
• 22:29
  without any regulatory safety net. You literally
• 22:32
  become your own suitability check. Which raises
• 22:34
  an important question for anyone listening. Here
• 22:36
  is a direct application of everything we've analyzed
• 22:39
  today. I like to call it the invoice test. The
• 22:41
  invoice test. I like that. Examine your investment
• 22:43
  portfolio this week. calculate the actual dollar
• 22:46
  amount you paid in fees over the last 12 months.
• 22:49
  Okay. Then ask yourself, what specific tangible
• 22:53
  value am I receiving in exchange for this capital?
• 22:56
  And would I gladly write a physical check for
• 22:58
  this exact amount and mail it to my advisor every
• 23:00
  single month? If you wouldn't willingly write
• 23:02
  a check for the service, you shouldn't allow
• 23:04
  the industry to silently deduct it from your
• 23:07
  future compounding growth. Exactly. So what does
• 23:10
  this all mean? We started today looking for the
• 23:13
  clean precision of a medical x -ray in the financial
• 23:15
  world. And it's not quite that simple. No. What
• 23:19
  we discovered is that the regulatory guardrails
• 23:21
  are structurally sound, and the 2021 client -focused
• 23:25
  reforms gave those guardrails real enforcement
• 23:28
  teeth. Very sharp teeth. But the system only
• 23:31
  protects you if you actively engage with it.
• 23:34
  It only works if you demand to know the limits
• 23:36
  of their shelf, if you mathematically verify
• 23:39
  the value of their fees, and if you continually
• 23:42
  update your own diagnostic baseline. The precision
• 23:45
  you want is achievable, but it requires relentless
• 23:47
  participation. You know, you cannot afford to
• 23:50
  be a passive patient when your wealth is on the
• 23:52
  operating table. Which leaves us with a highly
• 23:55
  provocative thought to mull over as we wrap up.
• 23:58
  We've seen exactly how aggressively a 2 % fee
• 24:02
  extracts wealth over decades. Hundreds of thousands
• 24:05
  of dollars. Right. And we know that regulations
• 24:08
  are increasingly forcing advisors to strictly
• 24:10
  and meticulously justify those fees against vastly
• 24:14
  cheaper index alternatives. Are we witnessing
• 24:17
  the slow death of the percentage of assets billy
• 24:20
  model entirely? I mean, it is the existential
• 24:22
  crisis looming over the entire wealth management
• 24:25
  space right now. In 10 or 15 years. Will financial
• 24:28
  advisors simply charge a flat hourly rate for
• 24:31
  their expertise exactly the way we pay attorneys
• 24:34
  and specialized accountants? It's very possible.
• 24:36
  And if the industry does pivot to an hourly model,
• 24:39
  will the average investor actually be willing
• 24:41
  to write a $3 ,000 check out of pocket for a
• 24:44
  comprehensive financial plan? That's the billion
• 24:46
  dollar question. Or will millions of people flinch
• 24:50
  at the upfront transparent cost refuse to pay
• 24:53
  it, and decide to navigate the markets completely
• 24:56
  blind on a DIY app. We all want the objective
• 24:59
  precision of a professional diagnosis, but are
• 25:02
  we actually willing to pay the doctor's bill
• 25:03
  when it's fully itemized? Something to really
• 25:06
  think about. Definitely something to explore
• 25:08
  on your own. Until next time, thanks for diving
• 25:10
  deep with us.