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Creating a Comprehensive Retirement Strategy
James Lange, CPA/Attorney
Guest: P.J. DiNuzzo, CPA, PFS®, AIF®, MBA, MSTx
Please note: Some of the events referenced in our audio archives have already passed. Please check www.retiresecure.com for an updated event schedule.
|Click to hear MP3 of this show|
- Guest Introduction: P.J. DiNuzzo, CPA, PFS®, AIF®, MBA, MSTx
- A Little Bit More about Jim and What a Meeting with Jim Looks Like
- Meeting with P.J. DiNuzzo
- Defining “Fiduciary Standard”
- A Second Consultation with P.J. DiNuzzo
- “I want to commit. Now what?”
David Bear: Hello, and welcome to this edition of The Lange Money Hour, Where Smart Money Talks. I’m David Bear, here in the KQV studio with James Lange, CPA/Attorney, and author of three best-selling books: Retire Secure!, The Roth Revolution, and now, Retire Secure! For Same-Sex Couples. Most people recognize that proper asset allocation is essential to the long-term financial success of their retirement planning. But investors often fail to consider all the factors of their situation. Sometimes, two plus two is greater than four. To help explain how that equation can work to improve your financial future, we’re pleased to welcome back P.J. DiNuzzo for this edition of The Lange Money Hour. A nationally-recognized expert in investment management, P.J. has been featured in numerous business publications and TV shows. Approved as one of the first one-hundred Dimensional Fund Advisors, he’s rated a five-star advisor by Paladin Registry Investor Watchdog, scoring in the top one percent of America’s more than 800,000 investment advisors. Based in the Pittsburgh area, his firm, DiNuzzo Index Advisors, also consistently ranks among the country’s top 500 investment companies. It’s sure to be an interesting conversation, so please stay tuned for an informative hour, and with that, I’ll say hello, Jim and welcome, P.J.
Jim Lange: Welcome, P.J.
P.J. DiNuzzo: Well, thank you very much, Jim. Thank you, Dave.
Jim Lange: Before we get into the meat of today’s show, I do feel honor-bound to say that I do have an interest in the business of our guest today, P.J. DiNuzzo. Usually, I try to get top national experts, and if they wrote a good book (which they usually have), I usually say something about the book, but there is no financial incentive for me one way or the other if somebody buys a book or if they do business with the guest or not. That isn’t the case with P.J. DiNuzzo and me. We have an arrangement whereby if somebody comes to our office, either through a referral or a workshop or even this radio show, we have a process that we’re actually going to explain in detail today, but if they come in starting with me, and they need what we believe is a combination of two main areas: one is, I’ll just call it, strategic planning that might be Roth IRA conversions, how much money can people spend, estate planning, tax planning, Social Security planning, long-term planning, grandchildren’s education, gifting, etc., which is what our office is strong with. And then, also the actual investment side, which is where P.J.’s office is very strong, using what we believe is the best set of index funds on the planet. If somebody is a good candidate and we like them and they like us and we decide to do business together, then the way it works is there will be a one percent or less fee, depending on how much money is invested, and then P.J. and I split that fee, and we think it’s a win-win-win, meaning that our firm can do what we like to do best and we are best at, and his firm can do what they are best at and they love to do, and for the client (which is the real winner), they are getting the best of our strategies and the best money management with, what I believe, is the best money manager I know, and using the best set of index funds on the planet. So anyway, as a quick precursor, we are not independent.
The next thing I wanted to talk a little bit about today is I’ve never really gone on the radio and said what really happens when people come to my office or even how they get to my office. So, I thought that this would be a good opportunity for me to describe my process and for P.J. to describe his, and then the interaction between us that happens both before somebody becomes a client, as well as afterwards. So, as you probably know, or even if you don’t, my main marketing is providing the best information I know how for either free (as in this radio show), or, by the way, the 110 hours of free archives that we have on our website at www.paytaxeslater.com that has 110 hours of archived radio shows with certainly the top IRA experts in the country, and many of the top financial experts, including Jack Bogle and many others. So anyway, I put that information out there, obviously at no cost to the public. I also do workshops, which are at no cost to the public, to provide the best information I know how. I have information on my websites. I do videos for YouTube. And then, I write these books. We’ve had four already, and I’m in the process of writing a fifth, and we sometimes give them away at workshops. The last book I did, I actually donated all the proceeds of the book to charity, so I’m not trying to make money writing the book, but I am trying to get great information to clients and prospects, and a certain number of people will like the information and consider doing business with me. So, the other thing that we do is we also mail invitations through the mail to come to a workshop.
So, what happens then? So, we vary the subjects of the workshops. We do a two-hour Social Security workshop. We do a two-hour trust and estate workshop. We do a two-hour Roth IRA conversion workshop. We do a two-hour estate planning workshop. I’m forgetting one or two, but anyway, we tend to rotate workshops, and then we also rotate locations. So, in the north, I go to Wildwood Country Club. They’ve been a great place. And by the way, I’ve been filling up, so literally, we turned away people last time. We do one in Squirrel Hill. We typically go to the Pittsburgh Golf Club, which is off Northumberland, not too far from Forbes and Murray, in Squirrel Hill. In the south, we go to the hotel…they keep changing the name. It used to be Holiday Inn. It’s now Crowne Plaza. And then, let’s see where I’m missing…the east. I think we either go to the Marriott, or there’s a couple hotels out towards Monroeville that we go to. So, we vary the subjects, and then we also vary the locations, but we always do at least one workshop a month, and I invite the public. That’s usually the plug on the radio show that describes a little bit about what the workshop is. And usually, it’s two two-hour workshops. So, I might have Social Security in the morning and estate planning in the afternoon, or something like that. But there’re two two-hour workshops. We do not feed people in terms of lunches or dinner because frankly, I want people who are interested in the information, not just eaters. We do have, you know…
David Bear: Light refreshments.
Jim Lange: Light refreshments, cookies, soda, coffee, decaffeinated coffee, you know, we want to keep people comfortable. Oftentimes, people just sign up for one, but when they’re there, they usually like it so much that they often will go to two or even to three. The third one is a half-hour talk just on investments. So, we talk about index funds and the difference between passive and active. And for each one of them, it’s like the two hours, you know, you’re talking about well, let’s call it an hour and forty-five minutes of solid content, ten minute break, and then at the end, there’s about a five-minute pitch where I say, “If you like what you heard and you’re interested in meeting with me, we do offer a free consultation.” At least, at this point, that free consultation is with me, not my staff. And then, we’ll talk about what happens at the consultation.
So, sometimes people come in through there. They might come in through a referral from an existing client. They might come in from the radio show. They might come in from the website. And then, the other thing is, if somebody signs up for the workshop (and we don’t even advertise this), we always send them a copy of Retire Secure! That way, they have a better idea of what we’re about, and it gives them a chance to actually do some of their own legwork before they even meet with me, or before they even meet me at the workshop. Then, at the workshop, we give them another book, and then, I’ll tell you, we give them a whole bunch of stuff if they do come in. So, what finally happens, somebody says, “Yes, this makes sense.” And if you’re married, I do ask that you bring your spouse into the meeting, and we ask that you do a little bit of preparation. We look for a list of assets. We look for your tax return that we ask you to bring in. We ask you to bring in your wills and the beneficiaries of your retirement plan because I actually want to look at all that stuff to give you as much value as I can during our time together.
Let’s say you, maybe you’re married, you and your spouse come in. The appointment is set with me. Right now, by the way, there’s about a one month waiting list. But people come in, and usually I start by asking what you are interested in. It might be estate planning. It might be Roth IRA conversions. It might be Social Security. It might be investments. It might be a gifting program. It might be a personal situation in your family. And I try my hardest to listen completely. In fact, that’s one of my challenges because a lot of times, I know the answer. I’m just busting to tell people a solution, but I try very hard to listen as much as I can. And then, I tell people…I don’t hold back. I don’t say, “Oh, you know, you have to hire us for me to give you the answer to the issue.” So, I try to do my very best during, let’s say, it’s an hour, or sometimes it goes over into an hour-and-a-half, during that meeting. If, at the end of the meeting…there’s a very small chance, by the way, that I’m not going to come up with anything that is useful. In fact, out of the hundreds of free consultations I’ve had, I’ve never had people say, “I didn’t get anything useful out of the information. It wasn’t worth coming.” That has never happened. So, I’m always going to provide good information. But towards the end of the meeting, if there are ways that I think that I can improve your financial situation, I will tell you what they are, and if it involves additional work in our office, I will tell you how much it would cost. So, if, for example, I thought that you would benefit by having your wills and your estate plan redone, and I have a good idea of the scope of the work, I’ll tell you, “This is what I think needs to be done. This is how much it’ll cost.” If I think that you can benefit by having a Roth IRA conversion and Social Security analysis done, but everything else is okay, I’ll tell you that and this is how much it’ll cost. Whatever I think needs to be done, I’ll say, “This is what I think it is.” A lot of times, though, there’ll be so much that I think needs done, or the possibility of the investments that can be improved, and in that case, I’m not going to say, “Okay, this is what I think needs to be done. This is how much it’ll cost.” What I’ll do is, I’ll say, “Well, I think we need to analyze this.” And then, I say what information that we need, and then we set up a subsequent meeting.
I should also mention, I’m taking notes during our meeting, and then at the end of the meeting, I will write maybe two full typed pages of personal notes of things that I found out about you during the meeting, and I do that because I can serve you better, and it’s a lot of things that wouldn’t necessarily show up on a balance sheet or a short description. Often, it’s family issues. Maybe there’s a spendthrift child. Maybe the kids don’t get along, or whatever it is, and I record that because that’s all important. But if somebody particularly is a candidate for assets under management, using the combined services of DiNuzzo Index Investors and myself. Then, what we say is, “We will come up with a set of recommendations for you.” Again, those recommendations might be getting a new will, new beneficiary designations of a retirement plan, a Roth IRA conversion plan, a Social Security engagement plan, tax planning to improve your overall tax positioning and reduce your taxes, and the big thing might be investments. So, in that case, let’s say that what we’ll do is, we will take your portfolio, we run it through Morningstar (we have the software set up), and then we will prepare an overall asset allocation showing you where you are, and then we will make specific recommendations. You know, it’s probably like a four to six hour process, probably more, for our office to do this. Then, I forgot to mention, before you leave the first meeting, and this is true whether you just meet once and I give you a proposal on the spot or a longer one, we give you a whole box of information that consists of two books, I think it’s four or five DVDs, about three CDs, a bunch of articles. So, we give you a lot of information, very relevant information, too. Things that, if I tried to, I could probably sell it for about $97 each. In fact, I have. I just haven’t been doing that recently. So anyway, that gives you plenty of opportunity to find out more.
Then, at that point, we do all these recommendations, have you come in for a second meeting, and then I present the recommendations and I go through it. And at that point, I usually…one of the recommendations, assuming it is appropriate, and by the way, it certainly isn’t always appropriate, but at that point, I might say, “Well, it’s my recommendation that I think that your investments can be improved,” and I show you why, “and, if I were you, I would meet with P.J. DiNuzzo and DiNuzzo Index Investors to see if you are a good fit for the combination of working with them and me.” So, then, I think what we’re going to do after the break is we’re going to go to P.J.’s side. He can describe his process, and then we’ll talk about what happens after you’re done with his process, and what happens on an ongoing basis.
David Bear: Well, let’s take that break now and hear about the next workshop.
David Bear: And welcome back to The Lange Money Hour, with P.J. DiNuzzo and Jim Lange.
Jim Lange: So, P.J., I was hoping maybe what you could do is, let’s say somebody has agreed to meet with you, and you can talk about the choices of where that meeting could be, and I also didn’t mention the fact that I always ask permission from the client to share the information they gave me to you so you’re not walking in cold. In fact, when you meet with a client, you know an awful lot about them.
P.J. DiNuzzo: Yeah.
Jim Lange: All right, so let’s say that that meeting is set up, and can you talk about the choice of location, and what happens when they meet with you?
P.J. DiNuzzo: Yeah, Jim. First of all, this is the greatest show I’ve ever done. You’re doing all the talking today, so you’re making it easy on me! But I think one thing, Jim, just to reiterate for the audience, listeners, if anybody just tuned in, I think it was the greatest idea that you came up with to review your process because one thing from working with your firm…and again, I’m in my fourth decade of doing this, is I think clients who come to you come to you in the best way possible, and I’m not patronizing you. I’m being honest with that. In that they have unilaterally themselves come into some contact with your information and said, “You know, I’ve never had my will or trust drawn up,” or “I haven’t redone it for thirty years,” or “I do have a special needs situation.” And they come to one of your workshops, no cost, no obligation, and I’ve attended numerous of your workshops. You provide very valuable information. If they want to follow it up, you’re doing one or two face-to-face consultations with them in your office. So, they’ve had three face-to-face interactions with you. And then, as you said in the introduction, I appreciate that, if it is potentially a fit on our side, then we pick up the investment and the retirement planning and the financial planning torch.
So, our initial consultation…again, you get permission from the prospective client. Alice, or whoever it is in your office, sends over the information, and we schedule what we refer to as a “discovery consultation” with them. We’re probably talking to them via e-mail or on the phone maybe a half a dozen times before we schedule that initial consultation because, again, we tell them we want it to be as an efficient use of their time, for us as well as for them, but again, primarily for them. We tell them it’s a discovery consultation. It usually lasts about two hours in length. If it doesn’t last two hours, it’s usually two-and-a-half hours. So, we’re covering a lot of information, and we’re covering things that, surprisingly, the average individual’s never gone through before. And we have the same recommendations you do. We want both spouses. It could be a same-sex couple or traditional, whatever it may be. We want them both at the meeting. And we say, “You know, you’ve been throwing this money over your shoulder for decade after decade after decade into 401(k) accounts, 403(b) accounts,” and the super majority of times, they haven’t looked at any of this. As you said, they come to us with their eyes as big as saucers. They’re like, “Oh boy! Jim looked at my asset allocation. I can’t believe I’m so far off!”
Jim Lange: I know. I forgot to mention, usually people…one of the reasons we do this is to let people know, particularly people who are complacent and think they’re okay, but they’re really not.
P.J. DiNuzzo: It’s a real eye opener.
Jim Lange: Yeah.
P.J. DiNuzzo: Yeah, they come with us, like, “Holy mackerel, I didn’t own any international stock at all. I didn’t know I was this aggressive or this conservative.”
Jim Lange: And by the way, speaking of coming to you, where do people come?
P.J. DiNuzzo: Whenever we meet with them, we give them two options. Generally, since the majority of your client base is sort of North Hills, South Hills and East Hills (and we’re out in the West Hills, as luck would have it!), but we give them the option of meeting in Squirrel Hill at your office, or we have an annex, a separate branch, or meeting at our home office. So, sometimes, clients who are maybe from the Robinson Township area will meet at ours. But the majority of times, we’re meeting at Squirrel Hill. So, folks like that that we’re meeting in the office they’ve already met in for usually a couple of consultations with you, and we’re rolling up our sleeves and start off doing things that people generally would never do by themselves. I mean, no husband or wife wants to spend a Saturday and say, “Hey honey, I’m going to go back and look up all of our investment accounts and see what our asset allocations are, or how we’re diversified, or what our expense ratios are. Hey, what are we paying all these people, a lot of these different brokerage firms, to manage our money? Even if we think, as a lot of people do, I’m hardly paying anybody anything because I haven’t hired an advisor.” So, again, it’s a real eye opening experience. I think the most important thing, Jim, which I like to mention to clients, and I know you run your shop the same way, is I tell folks, and I attempt to at the very beginning of our discovery consultation every time, I say, “I want to make it abundantly clear that you both…” and Pittsburgh loves football. I know you just went to the Steeler game the other day!
Jim Lange: Victory too!
P.J. DiNuzzo: Yeah, you got the victory, so you brought that home! But I tell them, I say, “I want to be abundantly clear that you both, to us, on the opposite side of the table, the family unit on the other side of the table, you both represent, to us, the Rooney family.” And I say, “I want to make it abundantly clear that you both are in charge of this entire process, operation.” Because, surprisingly, Jim, as you know, most of the people, most of the clients that we get feel that they weren’t being listened to in a previous relationship. They feel their former advisor talked down to them. It was condescending, or that the advisor thought he knew more and didn’t share that information. So, surprisingly, there’s a lot of really bad experiences out there. So, I try to put people at ease. I tell them, “I’ve got one boss and only one boss. That’s every single client that I have.” So, you know, they’re in control. They’re the Rooney family. We’re working through all the fundamentals. I’m a CPA as well as you are. You know, we’re concerned about: what are your assets? What are your liabilities? What is your income? What are your expenses? And especially that expense category because the devil’s in the details.
When we start projecting into the future, it’s surprising. I’ve had engineers, as I’ve said before, come to me with spreadsheets as thick as a New York City phonebook, and they’re off by $500, $1,000, $1,500 or more, on their retirement projections. So, we’re building all the bases. And it’s surprising, there’s so much planning work to do, our initial consultation, if it is two hours, we may just get to about fifteen minutes on the investment side, because there’s so much heavy lifting that needs to be done on the financial planning, retirement planning, retirement income planning. Once we get to the end of the consultation, however long it is, we’ll ask the prospective client how they like the course of events and the progress that we’ve done, and we’ll leave it up to them if they would like to schedule the second consultation. And I refer to the second consultation as us going back to our office and doing our homework and coming back and providing them with our advice and recommendations. So, I think what’s unheard of, so to speak, Jim, through our entire process is the majority of individuals who come to us have been to a very high level, informative, educational workshop that you put on, no cost, no obligation. You yourself, with your multiple four-plus decades of experience, have sat with them in the super majority of cases and had a couple of consultations. We’ve sat with them. It’s at least two consultations with us, so there’s five high quality interactions, and again, no cost or no obligation. All of my coaches, I have a number of business coaches, all tell me I’m crazy. They say, “You should charge for this,” and everything else, but you know, you’ve had the same policy and been phenomenally successful as well as we have. And we’re willing to put our good name or reputation on our work, and if people think that it’s high quality enough that they like our value proposition, that they see how we differentiate with our multiple…as David had said earlier, two plus two being greater than four, and I look at your two, again, for the audience, as you’ve got yourself as an estate planning expert, an estate planning attorney, and you’ve got a team of estate planning attorneys in your office, yourself as a CPA and your team of CPAs in the office. So, that’s the big two I look at in your side. And then, our two being the financial planning, retirement planning, all of the planning work that we do. Then our other one is followed up by the investment planning, investment management. So, to bring all that together, as we’ve said before, client after client after client just loves the fact that, again, we’ve got multiple companies involved legally to be able to provide this service, but for you and I to coordinate the multiple organizations, the phenomenal team members you have who are experts in the areas that we’re referring to, with our offering, that we have their whole entire financial house covered from room to room to room.
Jim Lange: P.J., when you meet with these people for the first and second meeting, who is actually in the room other than the, let’s say, husband and wife, if they are married?
P.J. DiNuzzo: Yeah, as you know me, I’m a pretty anal individual and I take pride, you know, in our reputation at the practice. As I said, you know, we’re into our fourth decade, and I am in the initial, and even second or third, consultation 99% of the time. So, I actually head up our business development arm, and that’s just because I am so sort of old fashioned. I mean, I want to make sure that every person who potentially comes to our practice, as long as I’m humanly healthy and able to be able to attend every meeting, that they really get to talk to the boss, you know, where the buck stops here, so to speak.
And it’s amazing, Jim, we just had a case the other day that Carl and myself, one of our other advisors in the office, just presented…it was a nice-sized organization. I mean, it doesn’t matter about this organization, we just see it time and time again that people have material portfolios, one, two, three, four million dollars, and they’re with other organizations, the people would look at, maybe from the advertising, and say, “Oh, that organization versus DiNuzzo?” I mean, it’s not even a comparison, where they’re on their second, third, fourth, fifth advisor, whereas I’ve been sitting in my chair for over twenty-five years, and they’re meeting me a couple of times or meeting you a couple of times, they’re going directly to the top. And we all have challenges. You know, none of us are perfect, but I think what people like is whenever something does come up, you and I, we’re there from the beginning, we’re there to make it right, whatever it may be, and I think this is all a testament to how high of a closing rate that we have. I mean, people go through the process, we provide them with a ton of value, and as you’d mentioned earlier, this is all under a fiduciary standard. I mean, you had done the disclaimer. Of course, we’re separate companies. There’s a solicitor agreement, etc. between us, but, you know, we’re bringing this all to them in a fiduciary standard.
Jim Lange: Can you tell our audience what a fiduciary standard is?
P.J. DiNuzzo: Yeah. A fiduciary standard, only a portion of all financial advisors in the United States operate under a fiduciary standard. Very simply put, I have to provide the same exact advice to my clients as what I would do myself, or, as I tell clients, if you want pressure, what I would do in my mom’s situation. So, if I’m looking at it, what is the advice that I would give my mother given the same exact set of facts that you have? And it’s surprising, Jim. We’ve mentioned this. I think it’s come up on the show before, but it bears repeating, the average stockbroker, advisor in the United States, does not own one percent of what they’re recommending to their clients. And, you know, we tell folks upfront, I’ve got this little chart I show them, we’re going to go through the five-year cycle, weather patterns, etc., spring, summer, winter and fall, and I tell them, “We don’t want to, when we’re down in that financial foxhole and the bullets are flying up above and we’re in a bear market, for you to turn over to me in the foxhole and say, ‘Hey, P.J., you know, just what do we own and why do we own it? Or even more importantly, do you own any of what you’re telling me that we’re going to be okay with?’” I own 100% of exactly what I recommend to my clients. I don’t buy anything else. I don’t recommend individual stocks. I don’t own one individual stock, not in my 401(k), not in my SEP IRAs, Roth IRAs, joint accounts, taxable accounts, my mother’s account, we just don’t do it. We believe that what we do is the best way to invest.
So, you know, people just, at a certain point in time, it’s “once bitten, twice shy”, a lot of people come to us if they’ve had unfortunately two or three bad relationships with advisors. And that is understandable. They’re skeptical, but I think at a certain point in time, you realize hey, you know, this isn’t a front. You know, they are operating…attorney Lange with his practices and DiNuzzo with the investment advisory practice (we’re registered with the SEC in Washington DC), they’ve got a fiduciary standard, they have my best interests at heart, and, as you had mentioned earlier, we’re bringing in institutional strategies. We really didn’t get to the investment part yet, but we would argue that Dimensional Fund Advisors (DFA), of which we’re the largest, oldest pure index manager in the city of Pittsburgh, is the best index manager in the country. So, we didn’t really scratch the surface on the investments so far.
Jim Lange: Well, I will mention that you had a presentation to our group. Now, we have about sixteen people, and we have a 401(k), and we heard your presentation with DFA, and the vote was sixteen to nothing to change all our retirement plans to DFA, with you overseeing it, and that has worked out very well. And the other thing that I should mention, although maybe this should be after what happens afterwards, but I will also say that…so, three years ago, we were just kind of getting started, but 2013 was the first year we were really going on all six cylinders (or four cylinder car in my case because it saves a little gas). We picked up $40 million, and for a small advisor, in terms of the size of our firm, that’s a huge, huge number. Last year, we picked up $50 million of assets under management. I’m talking about the combination of my firm and DiNuzzo Index Advisors. And this year, we are on track to pick up $55 million or $60 million. So, people are seeing the value proposition.
The other thing that I think is amazing, other than the people that we have fired, I mean, it has to work both ways. If you’re a pain in the butt, if you complain all the time, if you pay your bills late, and if you’re going to call us on the weekends and demand instant attention, everything else, and you just called me today and said, “Hey, we’re going to have to let this one client go,” but assuming that we don’t have to fire you and that we like you from the start, we actually have a 100% retainage rate, which is unheard of in the industry, you know, compared to people who are unhappy and they change and then they go somewhere else and then they change again. And you don’t stay with people that you’re unhappy with. So, you’re doing a great job there.
David Bear: Well, I was just wondering, when do people actually start paying fees? How does that work?
P.J. DiNuzzo: When you start paying fees…yeah, Jim, I just wanted just to…
Jim Lange: We haven’t done the second meeting with you, though, have we?
P.J. DiNuzzo: No.
Jim Lange: Yeah, so that’s a little bit early. All right.
P.J. DiNuzzo: Yeah, I just wanted just to follow up, Jim, on what had you said, I just want to let the audience know that the cases that when something doesn’t work out with us, I’d say we’ve run historically maybe two percent of the time. So, again, it’s just very, very infrequent. But as Jim said, you know, we’re extending our hand halfway. You need to extend your hand halfway across the aisle, and I tell folks all the time, it is a collaborative effort and we can’t work collaboratively with you unless you’re willing to extend, you know, an open hand and work with us. Those are the challenges we have, when people aren’t willing to work with us.
But going into the second consultation, we come back with our advice and recommendations, and it really is surprising, Jim, every single time, I guess I just have a little bit of a naïve process when I look at this, but how many things are broken in a lot of typical cases when we meet clients. I mean, they just pop up off…you know, you’ve done this for so long, but they just pop up at…like you said, when clients are telling you their story, you just want to jump in and say, “Hey, let’s start fixing this now!” But you need to be patient and we want to be active listeners, but, you know, I’m taking notes as well as you do, and usually, we’re at five or ten or even more than a dozen recommendations regarding, you know, assets and liabilities, as far as they may be overfunded in their cash reserve bucket, and if you’ve got $100,000 to $200,000 extra in the bank earning nothing based, it could be earning even a couple percent or one percent. That’s a huge value add, the asset allocations, the diversification. And one thing that you’ve always liked about us is in that second consultation, when we’re making our investment recommendation, our average client who is retired has three different investment strategies.
We go down to the worm’s eye view, and we want to know what the client’s “need bucket” is. That’s for their food, clothing, shelter, healthcare and transportation. We want to know what we call their “want bucket”. That’s for your discretionary or elective expenses, vacation, travel, extra dining out, etc. And then, the top bucket, your “dreams and wishes bucket”. We may even have sometimes even two strategies in that bucket, but we’re making it as highly customizable as possible, and on the back end, as we had started to mention earlier, what I have always felt is, if we do the planning work as well as possible, I sort of, years ago, backed into the indexes as just a result of the planning process, and I said, “I think we’ve got everything very well nailed down on the planning side, now let’s just not screw this up on the investment, so to speak,” and that’s really how I got backed into the indexes years ago. I said, “Hey, these things are winning three out of four times,” and I had seen very good plans built by other people, and then they had some kind of crazy active strategy that completely provided an upheaval on the entire plan, and it sort of stole defeat from the jaws of victory, so to speak.
So again, the second consultation, two to two-and-a-half hours, a lot of advice, a lot of recommendations, I’d say about a third to maybe even half the time, we end up having three consultations on our side to cover the information. Some of those folks need additional time to sleep on it. They come back in for the sign-up meeting. In that case, the third one we have, that’s usually about an hour-and-a-half. But again, a lot of high quality time, and we recognize that your practice and mine, we’re not a perfect fit for everyone, and I tell folks that right up front, and I say, “You know, talk is cheap. I need to prove myself to you, but I’m just letting you know upfront that we recognize we’re not a perfect fit for everyone, and we are not salespeople.” I tell folks, “We’re financial planners.” I say, “The worst thing to me that could ever happen would be for someone, for their retirement plan or retirement income plan, to be sold something by an advisor. That’s the last thing you want with your life savings, to feel as if you were sold something. You want to make a decision from an educated position, do what’s in your household’s best interest, and go forward from there and you’ll meet tremendous success.”
David Bear: Well, this is a good time to take that second break.
David Bear: And welcome back to the last twelve minutes of this edition of The Lange Money Hour, with P.J. DiNuzzo and Jim Lange.
Jim Lange: All right. P.J., well, that’s a very thorough discussion of what is going on. So, let’s say somebody says, “Okay, let’s do it,” and they sign the appropriate papers. What happens to their money then? And the other thing is, do you manage all the money or if somebody has something, frankly, that they and us think is appropriate to keep, such as TIAA, which is a much better than average bond fund, will you just accept part of the money?
P.J. DiNuzzo: Yeah, that is correct. What happens next, Jim, is with our custodians, we use who I would view. who’ve been working with registered investment advisors for decades, the three largest, safest institutions in the country, TD Ameritrade, Charles Schwab and Company, and Fidelity Investments.
Jim Lange: All right. So, in other words, you’re not holding the money yourself. The money is held at one of those places, and they get statements, not from your office, but from one of those…
P.J. DiNuzzo: From one of those custodians, yes.
Jim Lange: Okay.
P.J. DiNuzzo: And that’s a great point, Jim. That’s one of the most frequent questions we get over the years, especially whenever we had the Bernie Madoff incident, you know, going back to the ’08-’09 meltdown. And all of our clients have their own money at their own custodian. They are completely in control. We can’t access the account at all. I remind folks that every single time…because I research these things to death, when there’s been any shenanigans that have gone on with a money manager of any type, they could be on the SEC, whatever it may be, but that manager, such as Bernie Madoff, was the custodian as well as the money manager. So, just think if your person has some shenanigans going on behind the scenes, and that money manager is also the person that’s typing up your monthly statement. Well, they could type it up and say, “Well, we really don’t have that much money in the account, but let’s type it up to show that we do, and maybe we even made a profit that month.”
You always want anyone that you hire as your investment advisor to have a separate custodian. That’s rule number one. I’ve never seen a bad case when someone has had a separate custodian. And then, if you are going to use a separate custodian, what I recommend are the largest, most objective firms, and the ones I had mentioned, for example, have very, very, very little conflict of interest. They’re not like a lot of the other brokerage firms that are managing money. There’s a real conflict there. It’s an open architecture. TD Ameritrade, Charles Schwab and Fidelity Investments do not tell us what to do. They have nothing to do with it at all. All they do is just custody our client’s assets. As you said, Jim, they can provide monthly physical statements, monthly electronic statements, and daily access to the website…
Jim Lange: So, people could check their balance every day or every hour, if they want.
P.J. DiNuzzo: They could check their balance every hour if they wanted to, or every day, and they have the peace of mind knowing that one of these large, safe financial behemoths are in custody of their assets. And also, I might add, Jim, that those are three of the few organizations…none of those three came close to going out of business in the ’08-’09 meltdown, where almost the whole world had one foot in the grave and the other one on a banana peel. All three of those grew throughout that because of that open architecture, ‘client first’ base offering that they have as custodians. So, we love all three of our custodians equally, TD Ameritrade, Charles Schwab and Fidelity, and a lot of times, it’s a matter of preference. Maybe an individual says, “You know, Fidelity’s one of the largest 401(k) providers in the country. I’ve had my 401(k) with Fidelity for the last twenty years. I love them. I know the software. I know the technology. I’d like to come on board with your offering and keep my assets at Fidelity.” So, there’s a lot of reasons why…usually, they really like the custodian that we’re lining them up with.
Jim Lange: All right, well, I’ll tell you what. Why don’t I tell you what we do after somebody agrees, “Yes, I want the combination of DiNuzzo Index Advisors and the Lange Financial Group.” So then, let’s say, you know, I get a notification, “Yes, this client has signed up with you,” and then at that point, we invite the client in for what we call ‘number running.’ And that is where either Steve Kohman or Sheryl Trufelner, or sometimes the combination, the client comes in, and then we…Steve does some pretty intense projections, and we have multiple goals. I usually like to get involved at least at the beginning, and then also at the end. But I try to find out, okay, what are some of the big picture opportunities? Should we be thinking about Roth IRA conversions? If so, how much should we convert and what year should we convert it? And that’s something that, very frankly, the best way to determine is it’s not a matter of opinion, it’s a matter of getting to the mathematical best answer. And I don’t think there’s ten guys in the country that could do a better job than Steve doing that. What are the best Social Security strategies? Should we do apply and suspend? Should we do claim now, claim more later? Should we hold off? Should we take it now? So, we’re going to run numbers for that. Should we make any gifts? Should we be doing education trusts for grandchildren? Should we be thinking about life insurance? What should we be doing about the potential death of the stretch IRA (which is probably worth a show in and of itself)? So, we are looking at all that, and then making recommendations, and one of the things that a lot of clients like is if we have recommendations, a lot of times, it’s relatively seamless to implement it.
So, if a client says, “Okay, yes. I like that idea. Let’s do a $30,000 Roth IRA conversion.” Then they say, “Well, what do I have to do?” And I say, “Well, nothing. We’ll tell that to P.J. and it’ll automatically happen!” So, we are doing that, hopefully in close consultation with your office because we like to know what you’re doing, and I know that you like to know what we’re doing. So, the first number running session is pretty intense. It’s usually at least a couple hours, often more than one meeting, and then after that, we will meet a minimum of one time a year. And by the way, we call you. You don’t have to call us. Come on in and let’s go over the whole picture (what’s going on with your family, what’s going on with your health) to look for adjustments that might be needed. The other thing that I should mention is that we basically inundate people with information. We’re doing a monthly newsletter. It used to be quarterly, now we’re doing it monthly. We send people CDs and DVDs all the time. So, I think, in the last year, I’ve probably sent out five CDs to our assets under management clients. I’m sending out articles. We’re just about to update “Retire Secure!” I’m going to give at least one…I’m even thinking of giving multiple copies of our book to everybody. They’re invited to the workshops. We stay in touch in a big way, and we do it for two reasons: one, we like better informed clients, and two, very frankly, we are on top of mind for potential additional work or additional referrals. What are some of the things that you guys do on an ongoing basis once somebody has agreed to be a client?
P.J. DiNuzzo: Yeah, Jim, the ongoing basis, we refer to them as ‘progress meetings.’ What we like to do is meet six months after a client has initially come onboard. Again, we’ve had this entire flurry of meetings with them, yourself and myself, usually two to three on our side. Six months later, we like to do a face-to-face (and again, it generally lasts a couple of hours) progress meeting with the new onboarded client, and then we’ll meet in another six months, a year after they came onboard. And at that point in time, we usually fill things out and see…just individuals, sometimes, you know, we’d love to meet every six months, but some people, believe it or not, aren’t comfortable with that. That’s a negative for them. If they are comfortable in the relationship, then they’re happier just meeting once a year. So, we’ll follow their lead on that, but our clients, we want them to meet with us at least once a year. Of course, that’s a given. But we really prefer every six months.
Jim Lange: And if they want more, you would meet them an additional time, too. Is that right?
P.J. DiNuzzo: Yeah, if they want more, I mean…that’s what we tell clients is if they think they should pick up the phone and give us a call, they absolutely should, and we want to react to that. Oftentimes, there’s a flurry of activity. I mean, I can think of a couple of cases we have right now that we’re working in conjunction with your office. Folks are getting close to retirement. There were a couple of things that happened they had questions on, you know, early downsizing offerings at work, etc. But it’s not unusual for us, if there’s something going on, especially in a client’s life, to meet with them three or four or even five times over the course of a quarter. I mean, we’ll do whatever it takes. I mean, we’d rather have that communication and work together collaboratively. As I said earlier, we’re not trying to not have meetings. More meetings are better, more communication. As you said, your office believes the same thing. But the progress meeting, what I like about it, again, Jim, just to review for the audience, is let’s say in an ideal situation, we’re meeting with clients every six months, or at least once a year. You’re doing your one-time per year reviews. So, they’re getting, as we talk about, all four corners of their financial house inspected on an annual basis.
Jim Lange: And depending, by the way, on the client, I might be meeting with them once a year and they might be meeting with Steve or Sheryl or both…
P.J. DiNuzzo: Yeah, one of your CPA tax experts.
Jim Lange: …for the update of the number running.
P.J. DiNuzzo: Yeah, and we’ve had that happen in a lot of cases, as well. Again, you’re meeting with them on your area of expertise. It could be the estate planning, the big tax planning picture, specific tax issues with your CPAs. And again, you know, we are in, probably, one of our wealth advisors is probably in daily contact (I would say that’s easy to say) with one of your estate planning attorneys or one of your CPAs in the office, because we’re both hands-on. We’re having continual progress meetings pretty much every day of the week with our clients. There’s a lot of information flow going back and forth, and there’s a lot of planning opportunities that come up in the progress meeting.
Even with all this being said, I’d like to manage expectations for individuals that if someone hasn’t done anything for a number of decades, it can take even a year or two to really get…you know, we’re going to get all the big important things taken care of upfront, but sometimes people have almost a dozen-and-a-half or two dozen things that they need to work on, and a lot of these challenges aren’t as easy as just flipping on and off a light switch. I mean, it really may take six months of lead time, or twelve months, for them to be able to get to the point where they’re maxing out the benefits in their qualified plan at work. They’re not able to just do that overnight. So, these are the things that we track.
We’re working off of what you and I refer to as the ‘advisor alpha/gamma list.’ What we’re doing on the front end as well as the progress meetings, we talk about behavior coaching, how valuable it is just to have an advisor, that you’re working with someone to keep you on the ledge, not jumping off the ledge, you know, to keep you in your seat, so to speak, regarding investing. And one of the benefits again, Jim, I just want to reiterate, on the cost effectiveness of the index investing we’re talking about, our average DFA portfolio, we’re usually around one-third of a percent or less in the DFA expenses, with what’s referred to as the ‘operating expense ratio,’ in our indexes. So, being around .3% versus what the average individual owns, oftentimes their expenses are 1-2-3% a year in the investments that they own. So, placing them in the best indexes, the audience may have heard recently that Warren Buffett let it be known that whenever he passes away that 100% of his wife’s investments, if he predeceases her, is all to be in index investments, all the stocks in the portfolio…
Jim Lange: And the index investments had a big jump when he…
P.J. DiNuzzo: Yeah, they had a real big jump, yeah. So, you’ve got the smartest stock picker of the last fifty-plus years saying that he wants his spouse who survives him to be 100% invested in indexes. So, every year, it becomes more and more obvious how efficient the stock market is, and again, DFA is the best index manager in the country. But all these value adds just alone on Social Security maximization, Roth IRA conversions, the liability-driven portfolio matching up to a specific asset allocation with the client, holding their hand, staying close to them, and having all four corners of their financial house really does summarize that. Two plus two is greater than four when we put our entire offering together.
David Bear: Well, this is about the end of our show, so we want to say thanks to P.J. DiNuzzo. You can reach him directly at his firm’s website, www.dinuzzo.com. Thanks also to Amy, our KQV in-studio producer, and Lange program coordinator, Amanda Cassady-Schweinsberg. As always, you can hear an encore broadcast of this show at 9:05 this Sunday morning, here on KQV, and you can also access the audio archive of past programs, including written transcripts, on the Lange Financial Group website, www.paytaxeslater.com. Click on ‘Radio.’ Finally, mark your calendar for Wednesday, October 1st at 7:05 when we’ll welcome a very special guest, John C. Bogle, the founder and now retired CEO of the Vanguard Group, the world’s largest mutual fund company, back for the next new edition of The Lange Money Hour.
James Lange, CPA
Jim is a nationally-recognized tax, retirement and estate planning CPA with a thriving registered investment advisory practice in Pittsburgh, Pennsylvania. He is the President and Founder of The Roth IRA Institute™ and the bestselling author of Retire Secure! Pay Taxes Later (first and second editions) and The Roth Revolution: Pay Taxes Once and Never Again. He offers well-researched, time-tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans. His plans include tax-savvy advice, and intricate beneficiary designations for IRAs and other retirement plans. Jim’s advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendations frequently appear in The Wall Street Journal, and his articles have been published in Financial Planning, Kiplinger’s Retirement Reports and The Tax Adviser (AICPA). Both of Jim’s books have been acclaimed by over 60 industry experts including Charles Schwab, Roger Ibbotson, Natalie Choate, Ed Slott, and Bob Keebler.