Investment Expert P.J. DiNuzzo on the Value of a Trusted, Caring Advisor

Episode: 195
Originally Aired: June 7, 2017
Topic: Investment Expert P.J. DiNuzzo on The Value of a Trusted Advisor

The Lange Money Hour - Where Smart Money Talks

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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  1. Introduction of P.J. DiNuzzo of DiNuzzo Index Advisors, Inc.
  2. Hire a Fiduciary Advisor Years Before You Want to Retire
  3. Advisor Is Crucial for Navigating Complex Financial Decisions
  4. Each Investor Is a Snowflake With Unique Assets and Needs
  5. Advisor Avoids Behavioral Mistakes Individuals Often Make
  6. ‘Gut Instinct’ Investing Is Wrong 2 Out of 3 Times
  7. Robo-Advisors Are Cheap But Don’t Add Value
  8. Even Brilliant People Need Help With Retirement Planning
  9. Sticking to Your Masterplan Involves Many Tradeoffs
  10. Advisors Handle Day-to-Day Details, Saving Time for Clients

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Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at Now get ready to talk smart money.

1. Introduction of P.J. DiNuzzo of DiNuzzo Index Advisors, Inc.

Dan Weinberg: And welcome to The Lange Money Hour. I’m Dan Weinberg along with CPA and Attorney Jim Lange, and this week, we welcome P.J. DiNuzzo back to the show. P.J. is a nationally recognized expert in investment management and was approved as one of the first 100 Dimensional Fund advisors. His Pittsburgh-area firm, DiNuzzo Index Advisors, Inc., was founded in 1989 as one of the first few hundred fiduciary, or fee-only, advisors in the United States, and it consistently ranks among the country’s top 500 investment companies. And this week, our topic is the value of an advisor. Index funds have, of course, risen in popularity in recent years, and it’s easy to think that maybe you can be a do-it-yourself investor, and some people can, but it’s important not to discount the benefits, and there are many, of a qualified advisor. Over the course of the next hour, Jim and P.J. will discuss some of those benefits, some of the things a talented advisor can bring to the table, including helping you with long-term financial planning with asset allocation, and helping you get through rough patches in the market where you might be tempted to sell low. So, we have a lot of great information for you this week and let’s get right to it. Hi, Jim, and welcome back, P.J.

Jim Lange: Welcome, P.J.

P.J. DiNuzzo: Hello. Thanks for having me.

Jim Lange: So, before we get into the meat of the program, I do feel honor bound to say that I do have a financial interest in P.J.’s business in a certain particular way. So, normally, when I have guests on, and let’s say that they have written a great book, I will often say, “Hey, I think you should go buy this book,” and I always mean it if I say that, but on the other hand, it’s not like I’m getting royalties. I have no financial interest in you taking any action on anything that, let’s say, our guests have said in the forms of a book or a product or something like that. That is not the case with P.J. DiNuzzo, and by full disclosure, I feel honor bound to mention that. P.J. and I have an arrangement whereby if I bring … now, see, I think of myself more as a strategy guy. So, I love to do the tax planning, the Roth IRA planning, the Social Security planning, on the legal end, the estate planning, but, very frankly, even our financial clients, I’m always thinking about estate planning, and we have a process that we call running the numbers, where we do intense projections, and we use that, not only to determine where you will likely be, but also appropriate action plans, again, whether how much of a Roth IRA conversion should you make, what is the best Social Security strategy for you, what is the synergy between Roth IRA conversions and Social Security, how should we prepare for the looming death of the stretch IRA, which is coming up, and our firm does that type of work. On the other hand, we are not money managers, and that is a completely different skill set, and rather than us trying to manage money, what we have done — and there’s a long story behind it that I will skip — is that we searched out what we thought was the best index advisor in western Pennsylvania, or, for that matter, anywhere in the United States that I know of, and the name of the firm is DiNuzzo Index Advisors, and I said to P.J., “Well, P.J., what if we have a combined service where our office does the strategies, our office does the Roth, we do the Social Security and the estate planning and that kind of thing, and then your office actually manages the money?” And he has his own very thorough system involving what we call the bucket, or the stack, system, and he also goes into extreme detail and does a personal balance sheet and does a personal income statement and has his own procedure.

But part of the idea, and the underlying investment, is using low-cost index funds, but, and it’s a particular set of funds that we think are the best set of index funds on the planet, which is called Dimensional Fund Advisors. But rather than him charging a fee for managing the money and our firm charging a fee to manage the money, we actually have an arrangement where people pay one fee, and P.J. and I split that fee. So it is a win for us because we get to do what we like and we’re good at, it is a good win for P.J. because he’s being handed good clients on a silver platter, but the real winner, we think, is the client, who gets the best of our strategies, the best of P.J.’s money management, and some of the things that we’re going to talk about today, all for one low cost, which is anywhere between 50 basis points, which is half of 1 percent, to a high of 1 percent, depending on how much money is invested. So, I do have an interest in this combined activity with P.J. and I feel honor bound to mention it before we get started.

But P.J., to get into the meat of the show, so I just had somebody in my office yesterday, and let’s just keep life simple, let’s say that they had roughly a million dollars in their retirement plan, and they’re relatively bright people, and they could’ve said, “Well, gee, you know, I believe in index funds. Why don’t I just go to Vanguard and be a do-it-yourselfer and pick portfolio Number 4 that Vanguard recommends, and then not have to worry about anything?” What would you say to that particular person on why they should consider hiring, let’s say, any money manager, but presumably even more focused, the combination of our office and your office?


2. Hire a Fiduciary Advisor Years Before You Want to Retire

P.J. DiNuzzo: Yeah, Jim, what I would say to them is, what we try to identify initially is there’s sort of two ends of the continuum. One end of the continuum is the do-it-yourselfer, self-directed, and the other end of the continuum would be a delegator, somebody who’s comfortable handing the keys to the car off to someone else to drive the car, the financial car in this case. Once we identify that, I’ve never seen a clear pattern, so to speak, in my professional life as in the need for assistance for the average individual managing their own finances. For quite a bit of time, individuals thought, “Well, it’s all about just managing the portfolio, and I can manage the portfolio as well as anybody else out there can, any professional firm,” but it’s a much deeper dive, and this is a great topic for today on how a wealth-advisory practice, and I would say on steroids with the strategic partnership that we have, with the four corners of your personal financial house being covered, just a ton of value than can be added across the board, and especially if the household typically has one individual who is stronger than the other. Oftentimes, it’s almost a 100 to 0, or if one spouse is very strong, then they’re just thinking about themselves, but if they start to think, “Heaven forbid, what if something happens to me and I’m incapacitated, or predecease the spouse who hasn’t had any interest in the personal finances?” We could be an extraordinarily valuable insurance policy in that case as well.

Jim Lange: So, you’re talking about, let’s say you have an engineer or somebody who has historically taken care of the finances of the family, and let’s say that they’re now in their 60s or 70s or even beyond, that there is obviously a fear of dementia, there is a fear of that stronger person, in terms of financial knowledge, passing, and after that person has dementia or has passed, that’s not a great time to go looking for an advisor. Is that the essence of what you’re saying there?

P.J. DiNuzzo: No, you definitely want to get your ducks in a row ahead of time.

Jim Lange: All right. Well, Russell Investments, that is a very well-respected journal, actually came out with an article in March 2017 that talked about the value of a fiduciary advisor. And by the way, this is very important. What we are going to be talking about really relates to fiduciary advisors, meaning an advisor that both morally and legally must do what is in the best interests of the client, and the article said that the value could be as high as 4 percent; actually, it says even more than 4 percent, and that doesn’t even include some of the things that our office does. So, if we can break down some of the components of specifically how an advisor could potentially benefit somebody, and let’s not even say somebody that doesn’t know anything. I’ve heard you anecdotally say, “They need us like they need oxygen,” meaning they desperately need us whether they recognize it or not. But why don’t we try to break down some of the different values that an advisor might actually bring to the table?

P.J. DiNuzzo: You know, it sounds good, and the one thing, Jim, the compliment that, you know, the recent research article published by Russell Investments, of course, some of the audience members might be familiar with the Russell 2000 Index, the Russell 1000 Large Value, et cetera, but this research has reached very similar conclusions. Vanguard’s done a ton of research in this area. They call it Advisor Alpha, and Morningstar, which a lot of listeners will recognize, they refer to is as Morningstar Gamma, that a wealth advisor can add in complete total value for the average household.

Jim Lange: Well, interestingly enough, speaking of Vanguard, Jack Bogle, who is the founder and CEO of Vanguard, was actually on our radio show, and he’s actually been on twice. The first one, I actually have video footage of him in Malvern, PA, and at the end of the interview, I sometimes say to the guest, you know, I usually try to read the person’s book. Jack Bogle, by the way, said I was the best prepared interviewer he ever had, and I thought, “That’s really sad,” because he testifies in front of Congress and everything else! All I did was read a couple of his books, develop some questions and sent him an e-mail saying, ”These are the proposed questions,” and then he said, “OK, I like these questions. This one, I don’t like. Add this one.” But anyway, at the end of the interview, I sometimes say, “Is there anything that we didn’t cover that you’d like to talk about?” And he kind of shocked me by saying … you know, and I think of Vanguard as super-low fee, and Jack Bogle was the cheapest guy in America. Don’t get me wrong; he’s an American hero, but at the end of the interview, he actually said something about the value of an advisor, which kind of shocked me, that might actually play in here and might give some credibility to what you’re saying. So, before you go on, if we could play that little clip from Jack Bogle, then you can go on about the articles and your point being that it’s not just Russell that’s saying this, because I think Morningstar said something similar. So, here is the Jack Bogle clip.

[Jim Lange: Are there any, let’s say, words of wisdom … although you just said so for the index funds, but anything that if we want to, for our listeners or readers or audience, to take away? Can you give them, let’s say, the short version of Bogle investing, or is the 10 simple rules the best way to do it?

John Bogle: Well, use those rules, but they come down to some very simple things: keep costs down, allocate your assets with respect to the amount of risk you’re willing to assume with some focus on your age, not overbearingly, but some. You know, if you have an advisor, get a little help with some of the complexities of this system. You know, the financial advisor is a very valuable piece of work for the things that we don’t much think about, helping you with that asset-allocation idea, telling you the difference between a Roth IRA and a regular IRA, telling you in your financial position whether you might own municipal bonds as compared to corporate bonds. The system is loaded with nuances. Estate planning is a whole other complexity. So, with this complex world, I think most people need some kind of help.”]

Jim Lange: All right, so, what you’re saying then is this article is not unique, and very frankly, that is part of a very similar article that I hand out. So you have some pretty high-up objective sources talking about the value, and by the way, I am assuming a good advisor, not just any advisor, and I’m also assuming a fiduciary advisor. Well, can we break down some of the individual components, so when this person says, “Hey, gee, why shouldn’t I just go to Vanguard and be a do-it-yourselfer?” Can we kind of go through some of the components of how a good advisor could add value to this person?


3. Advisor Is Crucial for Navigating Complex Financial Decisions

P.J. DiNuzzo: Yeah, sure, Jim. One thing, I would just remind the audience, listeners, as you said, the value proposition here is sort of on steroids and we’re working with Lange Financial organization, in that you have the estate-planning firm and a crack team of estate-planning attorneys. You’re also a CPA and have an excellent CPA firm, working in conjunction with us on the financial-planning, retirement-planning side, on the investment side. We refer to those as the four corners of your personal financial house, and then the big picture, when we’re working, we have what we call the DIA, for DiNuzzo Index Advisors, Financial Wellness Process, and that process really starts with the very first phone call, Jim. It’s always an occurrence, but in our conjunction here with a strategic partnership, that starts with the very first phone call when we’re starting to gather data from the individuals, working through the entire process. So, you typically have two meetings with prospective clients. We’re typically having two, maybe three. So, there’s typically four, sometimes five, meetings in total but an average of four, and we’re working through this financial-wellness process, and that is to make this as simple for individuals as possible. What we come up with is what we refer to as a DIA financial-wellness score, which takes all this complicated matter and all these various topics that we’re discussing and makes it something that’s easy to internalize for the average household.

The first one would be, you know, I think it’s most obvious to the listeners, would be asset management, the management of the portfolio. Just a couple major topics to discuss here under the asset management, again, tying this into those four corners of the personal financial house and customizing that, the diversification, the portfolios, as you had said in the introduction, Jim, not just diversification, but our average retired client or pre-retired client has three different what we refer to as strategies that the average listener would think of, they’ve heard the word asset allocation, as far as how much in stocks versus bonds. So we go through our money-bucket stack analysis, you know, how much are we going to allocate to the cash reserves in the bank, how much for the needs bucket for food, clothing, shelter, health care and transportation, how much for the wants bucket for the discretionary spending, vacation, travel, gifting, and you had mentioned also in your story that you were talking to someone in your office about we would have that in the top bucket, in that dreams and wishes bucket, for that extra family vacation, you know, going to Disneyland, taking the family to Disney. That would be an extra expense that you wouldn’t have on an annual basis, but that’s where that would come from.

So there’s this customized diversification, and a lot of people underestimate the power of rebalancing. Again, the average household isn’t thinking about rebalancing their portfolio, or rebalancing at an institutional level. Without doing too deep of a dive, we’re placing a band on every position in the portfolio. So we’re analyzing or rebalancing on a daily basis, not just an annual basis, and although we’re analyzing it on a daily basis, it does not produce that many trades throughout the course of the year, maybe two to three trades on average, but still very, very important. And then where one of our rooms is talking with one of your rooms, Jim, typically is in your CPA expertise with your CPA firm that you have is in harvesting tax losses, harvesting capital gains and looking for those Roth IRA conversion opportunities. We never want to cry over spilt milk, but there was a case that we were recently working on, it’s a new client that’s coming onboard, they were with a firm that was just in that one corner, just in that investment-management corner, again, a national firm, and when you had gone to the meeting the same as us, but you had identified, you know, they took Social Security early at 64, now they’re approximately age 70, so there’s no planning opportunities around that. So just that Social Security decision, at least, what I see from our office and your office, Jim, is often a $100,000, $110,000, $120,000, $130,000 of additional value, from what your average recommendation and ours is, for Social Security maximization versus what the average household did. So, that could pay their entire fee for the rest of their life right off the bat on the Social Security. But then, getting to the Roth conversions, you get an opportunity in the same household when you had recommended, you know, just took a look at, and again, we’re not passing judgement on anyone, but if they had three, four, five years of a sweet spot to be able to do Roth conversions that you brought to their attention, and again, that value, and especially, this was like a family stewardship, the husband and wife both basically had a family steward mentality, and they’re looking for this money to go on to their children and potentially grandchildren, that Roth IRA conversion recommendation that you had discussed with them, again, would have been potentially hundreds of thousands of dollars, a couple hundred thousand dollars over their lifetime. Then in the asset-management corner, again, we’ve got determining asset location, placing certain investments in certain accounts, there’s a big difference between the account types of a taxable account, it can be an individual account, a joint account, a revocable living trust, versus an IRA that has required minimum distributions attached to that at some point in time, and then again, versus a Roth IRA.

So a lot of decisions there. The investment-selection decision, we still to this day, Jim, on the joint clients that we’re working with, you know, they come in and you do a very deep, in-depth dive, you know, with your analysis that you do on the existing holdings and their diversification, the friction or the cost in their portfolio, but our average client, and again, we can just state what the historical experience has been, there’s no guarantee for the future, but just the savings and the investments we’re placing them in with the Dimensional Fund Advisors, the DFA indexes, we’re typically saving them 50, 75, in some cases, over 100 basis points, which is, as you said, our fee ranges for our clients somewhere between 50 to 100 basis points, the average fee is around 75 or 80 basis points, but we’re saving some or most or even all of that just off the reduction in expenses for them for the rest of their life on the investments that we’re placing them into, and again, we don’t want to do too deep of a dive today. We do that show typically once a year just talking about the indexing, and in performance versus active managers, but again, we’ve got that additional benefit on top of the bullet points that we had mentioned.


4. Each Investor Is a Snowflake With Unique Assets and Needs

Jim Lange: Well, one of the things that you said and that you actually do in practice, and I’m going to quote you to you, which is that everybody is a snowflake. So, you do not have, let’s say, like, six investment buckets and you force everybody into that. The other thing is, sometimes people come with certain assets that don’t make sense for you to manage. They, for example, even though we are not fans of tax-deferred annuities, sometimes people come with them, and they might actually have a guarantee that is useful to keep, so we don’t always tell them to sell it. They might come with some very appreciated assets, that it doesn’t make sense to sell because of the capital gains, or they might actually have money in a 401(k) and they can’t have access to it. So my point is that people will have different investment needs. The other thing is, some people will have a pension, in which case the asset allocation that I have seen you do with somebody that, for example, has a pension, and/or one or two strong Social Security incomes is radically different than somebody with the same amount of money that might not have a pension. I know after my first meeting, what I have been doing is I write a long memo that talks about what we talked about at the meeting, and talks about some of the extra things in what people are thinking about, what their fears, what their dreams are, and then, with the client’s permission, I actually share that memo with you. So, when you go to meet somebody, you already know them because you have, like, a two- or three-page memo that you not only have all their financial information, so, for example, whether somebody is very, very interested in providing for their children or their grandchildren, or maybe they said, “Hey, I paid for their braces, I paid for their college, if there’s any money left over, that’s great, but I’m not going to go out of my way.” Well, that has an implication for my purposes as well as yours.

So, you had mentioned the rebalancing. What are some of the other areas that an advisor can bring to the table that would more than justify an advisor’s fee?


5. Advisor Avoids Behavioral Mistakes Individuals Often Make

P.J. DiNuzzo: Yeah, Jim, the next topic we have is the behavioral mistakes that individual investors typically make. Before I touch on that one, I think, just to add to what you’d said regarding the snowflake, you know, we tell individuals when we first meet with them, every household to us looks like a 10,000-piece customized jigsaw puzzle, and it is completely different for every household. You know, the typical household, a lot of people don’t make these decisions until they’re close to retirement or at retirement, or a lot of times, we meet people who are retired and had gone into a relationship that didn’t work out well, or they were attempting to do it themselves, and they come into your office. But, you know, that 10,000-piece customized jigsaw puzzle, it really looks that way to us. We have to get our mind and our arms around the average household being at this for 30, 40, even 45 years or longer in a lot of cases, and then the big one, Jim, that we had just mentioned, the next one, Number Two on the list, are those behavioral mistakes individual investors typically make, and all I can do is think back to last year. In 2016, three major selling events in the year, our average 100 percent stock portfolio, again, the past is no guarantee of the future, but, you know, we were in that 13 percent-14 percent range last year in 2016, and when you take a look at the total investment universe, the average individual investor sold stocks last year. There was more money from individuals who had money in the market on January the 1st, more money moved to bonds and into money market instruments over the course of the year. So, we had the worst start to the stock market in a hundred years for January and February, a ton of selling into February, the second, third and fourth weeks into February, then we had the Brexit election, which went in a direction a lot of people were concerned about, there was a ton of selling coming out of stocks and stock mutual funds at that time, and then the presidential election in the fall, there was a lot of selling at that time. So, again, you know, just in one year, zigging instead of zagging, and heaven forbid, even if you moved into a bond or a bond mutual fund or a money-market instrument, you may have locked in a loss, as we saw a lot of people do, for the year or so, just in one year, locking in a loss of 2 percent, 5 percent, 10 percent, when potentially you could have made double digits that year. That could be something that would pay for itself, again, just in one year.

Jim Lange: Well, P.J., there’s a whole body of literature regarding behavioral finance, and it’s probably the most important, or, at least, one of the most important, reasons why you have an advisor, and I know that you like to support the statements that you make with proof. Were there some studies done related to what most investors do? So, you just basically said, “Hey, people got out of the market when they should’ve stuck.” Are there some studies that, let’s say, back your point of view in what you’re saying?


6. ‘Gut Instinct’ Investing Is Wrong 2 Out of 3 Times

P.J. DiNuzzo: Yeah, Jim, one of the largest wellness studies is Dalbar, an organization out of Boston, MA, and even in the research that we were talking about with Russell, with their research, and they cite their sources, they estimated that the annualized cost of the emotion of investing for retail investors is about 2 percent per year over the recent 20-year period of time, approximate 20-year period of time. Dalbar estimates it a little bit higher, but still, again, even 1 percent per year, and this is in addition to the cost savings we mentioned earlier and all the other ancillary services, but again, the average individual investor, and there’s been Nobel Prize-winning research that’s identified this, but if the average listener in the audience can just think of when their “gut” is telling them to do something and they feel as though that they’re missing out on something and they need to buy more stock than they own currently, or if their gut and their head is telling them that something is amiss in the market and that they own too much stock, and that they need to sell some, or most, or all of their stock positions, those feelings, on average, have been found to be incorrect two out of three times. So, I think you’ve talked to Charles Ellis before, you know, he wrote the famous book The Loser’s Game. Again, the audience just needs to think of they’re wrong two out of three times with their emotions, and that is a big part and a big advantage we have with clients. You could call it the life planning, life coaching, the handholding, however you want to refer to it, but a big part of our job is helping clients stay in their seat day in, day out, year in, year out, and staying on their plan.

Jim Lange: I know Nick Murray, who is an advisor to advisors, I remember being in a workshop with him, and he basically said, “See the guy next to you? He should manage your portfolio and you should manage his, and you’d both be a lot better off because you’d approach it from a non-emotional basis.”

P.J. DiNuzzo: Yes, that’s correct.

Jim Lange: So, why don’t we move on, and let’s say, talk about robo-advisors are becoming the rage these days, which obviously have lower cost. What are some of the advantages and disadvantages of the robo-advisors compared to, let’s say, somebody who is actually thinking these issues out on an individual basis, let’s call it the Snowflake DiNuzzo-Lange Approach?


7. Robo-Advisors Are Cheap But Don’t Add Value

P.J. DiNuzzo: Yeah, Jim. Regarding the robo-advisors, they’ve come on strong the last handful of years. The research, as at the end of the last year, the 10 largest robo-advisor firms had an annual fee that they were charging clients, the weighted average between the largest ten robo-advisors was 33 basis points or one-third of one percent. Again, that’s just pure asset management, investment management, you don’t have an advisor, there’s no one to talk to regarding anything. The average fee, I believe, for them, if you even wanted to have someone to talk to, and this was typically a team of individuals, sort of like an 800-number, that fee went up from, on average, 33 basis points to one-half of 1 percent. And again, no planning or anything, just they’re managing your portfolio and they provide someone on the other end of an 800-number to talk to. So, again, the average individual would have to think, you know, what is the value add? So, you’re looking at that on the extreme low end. Vanguard, Morningstar, Russell are looking at a comprehensive, competitive wealth-advisory practices, strategic partnerships, especially, such as ourselves potentially being able to add up to 3 percent to 4 percent. So, I would tell listeners, it’s sort of you get what you pay for. That may be better for a very small percentage of the population, but again, as we tell everyone that we meet, the average individual that comes into our office and that we meet jointly, you know, Jim, that you come into contact with, is thinking first and foremost investments, and they are very much surprised initially when we start going through our process and talking about those four corners in their personal financial house, and the estate-planning, risk-management corner that you specialize in, the tax planning and the dozens of tax-planning tools that you have available, and our retirement planning that, you know, the DI Financial Wellness process and financial-wellness score, and then the index-investment planning and investment management, but they’re very surprised how much weight and how important these other rooms are, so they realize that investments are not Number One, first and foremost, is getting your personal financial house in order, is vastly more important than just the investments. So we would caution listeners not to be distracted by that, thinking that that’s the Number One variable, that is not the Number One variable.

Jim Lange: All right, well, why don’t we go to the next issue, which is some of the planning and auxiliary services, and again, using your words, I think, “our strategic partnership puts this value on steroids.”

P.J. DiNuzzo: Yeah, it’s just a joy because now we just mentioned to the listeners that this is no patronization, Jim, of you and your organizations, of your companies. In our world, if someone came to us from a different source, they were a referral from one of our long-time pre-existing clients, we’ve been in business for 28 years, the two rooms that you have the expertise in, that estate-planning, risk-management corner room, and the tax planning, those were always there for us with any client that we have, and it’s sort of a blessing to be able to work with you, and I could say, figuratively speaking, almost literally — but you have to be careful when you say literally — but one of our nine wealth advisors is in contact with one of your estate-planning attorneys, or CPAs, on a daily basis regarding our joint clients. I mean, and if it isn’t a daily basis, if there wasn’t one conversation one day, then there’s probably seven or eight the following day, but even I can think of a couple cases recently with individuals who even a deeper dive where we’ve had numerous multiple meetings with one of our lead advisors and one of your, either estate-planning attorneys or CPAs on individuals, especially when one of the spouses has passed away. There could be two or three or four additional face-to-face meetings in the handholding phase, working through all these multiple variables that they need to get their arms around. Oftentimes, that primary dominant spouse doesn’t sort of share as much information. So it’s sort of a Catch-22, where they’re taking care of it and the other spouse doesn’t have to worry about it, but heaven forbid, again, as you had said earlier, if they’re incapacitated, or if they pre-decease the other spouse, then there’s a lot of anxiety involved. So, the more anxiety, the more we’re hands-on, and again, I can think of a recent case that we just had. I think we’re on our fourth joint meeting now with either your estate-planning attorneys or your CPAs in your office with the lead advisor in this case, you know, over and above everything else, to help shepherd her through this situation, to ease her anxiety and make sure that she’s comfortable moving forward with her plan.

Jim Lange: Well, and this might tie into tax-awareness planning and investing, which is the next topic, but I will say that sometimes on our end, which is, again, we love to do Roth IRA and Social Security analysis, that sometimes, and we have some peer-reviewed proof to prove this, that sometimes the difference between getting those two right and not getting them right can literally mean a million dollars or more to the client, and sometimes even much more to the family of the client. So, for example, you had just mentioned a couple deaths that we had had recently where, in both cases, it was a husband who had probably the greater financial expertise, but the flexible estate0planning documents that we did allowed us to — the legal word is disclaim — and we disclaimed significant in one case, actually in both cases, more than a million dollars, and we will save those children well over a million dollars, even after inflation, of taxes in the long-term. So sometimes, even just one … and it’s not like it took us 500 hours to analyze it, it took us a couple hours, and the truth is, I kind of knew off the top of my head in general what we should do.

So, why don’t we switch to, let’s say, some of the tax-aware planning and the tax orientation with regards to investments?


8. Even Brilliant People Need Help With Retirement Planning

P.J. DiNuzzo: Sure, that sounds good, Jim. On the tax planning and tax awareness, and again, you know, we’ve gone through organizing a client’s financial affairs, organizing their goals, we’ve determined optimal-risk profiles for the various portfolios, and everything we do is goals-based planning, and again, a lot of individuals who come to us just haven’t sat down and thought this through. I think that everybody is an expert, or has an opportunity to be the expert, at a specific discipline or something that they love or a field that they’re in, and we do have a plethora of experts: major university professors, CPAs, attorneys, engineers, actuaries, et cetera, but people don’t typically have an area of expertise in more than one discipline, so to speak. So, again, very bright clients, but they’re an expert in what they are, and they come to us for these issues. The tax that we’re planning in investing, and again, with us working with your CPA firm primarily, you know, working together on capital-gain harvesting, Roth conversions alone, I know the typical joint case that we’re working on with your office, and again, most cases, for the Roth conversions, you know, we’re looking at somewhere between the time that the first spouse retires until the younger spouse turns age 70, that I could think of a couple of cases we have right now we’re working on where they are older than 70, both spouses, but they have a very high legacy sensitivity, again, for children and grandchildren, and, you know, your recommendations are spot on. So, we’ll be doing Roth conversions for them, as well, but just to think, I don’t know of anyone else, you know, and again, with our strategic partnership, who’s able to go to a sort of, as a lot of people refer to it as what we do, one-stop shopping. I look at it as sort of a miniature family office with these four major disciplines working together. With the one-stop shopping, as a lot of clients refer to it, I mean, I don’t know where else you’re going to get that level of expertise regarding a year-by-year analysis, a year-by-year plan, and I know, you know, what comes out of your office from Steve and Shirl specifically, they sort of head that up, you know, in your tax-planning department. You know, certainly, you’re so much in Roth IRA conversions, and maybe this is the year to do $28,000 in Roth IRA conversions, and at DI DiNuzzo, we want to harvest $18,000 of capital gains to get out of a highly appreciated portfolio that they have, but that level of expertise, detailed down year-by-year recommendations, is something that is a very special recommendation.

Jim Lange: So, P.J., you just mentioned two of the CPAs on our team, Steve and Shirl, and I wanted to just mention a little bit about what they do in conjunction with the very long memo that I prepare during the two meetings that I’ve had with people. I’d like to come up with, what I’d call, a masterplan. In reality, most people that come to us, their financial position is the result of many individual decisions, all of which seemed to make sense at the time. Maybe they talked to their 401(k) administrator. Maybe they read an article on Roth IRA conversions. Maybe they went somewhere and got a will. Maybe somebody sold them an annuity. Maybe an insurance guy sold them some insurance. But where they are is the result of a bunch of individual decisions that each one seemed to make sense at the time. What we like to do is, we like to come up with a masterplan, and we have a couple ideas of what might work best for each client, and then we actually quantify it by a process that we call running the numbers, and we actually have the client in the room while we run the numbers, showing the different options, and that way, clients can actually see the results of different decisions, whether it’s Roth IRAs or Social Security or how much money they spend or how much money they give away to their children or to charities, et cetera. So it’s really a pretty quantitative type process, but at the same time, it has significant impact on people’s lifestyles. So, we call that running the numbers. Now, I know you also have a very quantitative process, and ours is time-intensive. Yours might even be more time-intensive, but why don’t you talk about your process once somebody is on board, or maybe even the final stages that can help and provide value for that client?


9. Sticking to Your Masterplan Involves Many Tradeoffs

P.J. DiNuzzo: Yeah, Jim, there’s value, and again, you know, I think one thing that really works well with your process as well as ours is they’re both collaborative and consultative in nature where the client’s there. It’s not where we go behind the curtain and we come out with something on a piece of paper or on a platter and divine that to them, not just promulgated from either of our practices. So, you know, with them being there working through the entire process with us, you know, there’s a comfort level in them getting to see how everything’s put together. You know, developing a successful financial plan is a pathway or a journey of tradeoffs. There’s a lot of tradeoffs that, you know, I may like to get back to the office quicker, back to my home, whenever I leave the radio show here this evening, but if I drive 85 in a 55, I’m taking on a lot more risk in a number of areas. So there are tradeoffs to everything that we do. In our, what we call, the DIA Financial Wellness Process, you know, getting to know individuals, I would say one area that we excel at, in your firm, as you’d mentioned, the detail, what we just see pretty much consistently case in and case out for individuals who come to us, they have, and you hit the nail on the head, Jim, you know, they purchase things that seemed to make sense at that point in time in their life with whatever type of advisor or salesperson that they ran into, but you know, regularly, bringing this entire process together, and other firms, from what we see from the individuals who come to us consistently, just don’t have anywhere near the level of attention to detail, and when you’re dealing with calculations over the next thirty, maybe even the next 35 or 40 years of your life, and that’s not even counting going into the next generation, so we look at every individual household as their own organization.

We prepare personal financial statements, assets and liabilities, income and expenses. We refer to that as the footer, or foundation, for your personal financial house. Then, going through our financial wellness process, again, taking all this complex, complicated information and being able to distill that down to what we call our DIA Financial Wellness Score, so we can let individuals know where they stand on a daily basis for their needs bucket that we referred to, for in addition to their wants bucket in addition to their needs bucket, and then that dreams and wishes bucket. So, tangibly, how this helps individuals is, when someone’s a client, they’re typically thinking, from our experience, that they’re in worse shape than they are. So, when they call us up, last year, as I had mentioned earlier, off the horrific start to the stock market in January and February, how bad of shape they think they are in intuitively, or what they’re gut’s telling them, we know pretty much exactly what shape they’re in that day regarding their own unique needs, wants and dreams and wishes. We joke around and say, “You know, we’re getting it down to measure how much toothpaste you’re using on a monthly basis.” So, they have a lot of confidence in their plan, and we show them how strong they are. If it’s at the end of February last year or in the springtime, in the middle of the Brexit situation, or right after the presidential election, it provides an awful lot of peace of mind, and that’s what helps us with that Dalbar, with the behavioral research you’d mentioned earlier, not just telling someone that everything’s going to be OK, but actually we worked through it consultatively, collaboratively, and we’re able to show them their life in black and white, so to speak, and that just provides a tremendous amount of confidence and comfort.

Jim Lange: So, everybody talks about client service. What do you really do in terms of client service that, let’s say, an average or different financial advisor would not necessarily do?


10. Advisors Handle Day-to-Day Details, Saving Time for Clients

P.J. DiNuzzo: Yeah, Jim, on client service, and I always have to remind myself to mention some of the low-hanging fruit, so to speak, but regarding the service element, listeners need to think when they delegate these responsibilities to us with our strategic partnership, you know, we’re doing chores and functions that the client would otherwise have to do on their own. Some of the obvious ones would be maintaining the organization of their finances, providing reports, monitoring their investments, et cetera. You know, we’ve always tried to stay up on state-of-the-art or leading-edge technology applications. So, for example, what we have historically provided as a quarterly report, which was a physical document, we now have technology which we refer to as a client portal that’s accessed through our website, and we have a quarterly report available on a daily basis, and what we’ve done over the decades is customize this so that it can answer 95 percent, if not 99 percent, of the questions that our clients pose to us on a regular basis. So clients love the client portal. They know where they stand at every time. It has everything from growth of a dollar, performance, tax information, et cetera. And again, regarding that client-service element of individuals doing it themselves, you know, how much is a client’s time worth? On the big picture, to get back to what you had mentioned, Jim, you know, I love our service model and the client experience that we’re always striving to attain on a daily basis, you know, we prefer what we call a semi-annual progress meeting, so we prefer to meet face-to-face with clients on a six month basis, every six months. Your office is attempting to meet, you’re meeting with individuals on an annual basis, so I tell folks whenever they come to us, I say, you know, that Jim’s expertise in the estate planning and tax planning, that you’re looking in those two corner rooms and the related responsibilities of those topics. We’re looking into financial planning. We’re actually updating their financial plan with the DI Financial Wellness checkup and score on a daily basis. We want to meet with them face-to-face, again, once every six months for a semi-annual progress meeting, and, of course, the investments, we’ve got a dozen or so audits that we do on a daily basis. Another dozen or so, we’re doing on a weekly basis, monthly and quarterly. So there’s an awful lot of behind-the-scenes service that goes on, but just meeting with you or one of your senior team members, and their area of expertise, on an annual basis, looking in those rooms and looking at their big picture and us every six months is a very powerful client experience.

Jim Lange: Well, I think that one of the things that is important, and we haven’t mentioned it, it’s hard to quantify, is your team is really excellent. I know you usually get involved in the beginning and provide some overall direction. The advisors that we work with at your firm are really good, and I just think the world of Steve and Shirl, in terms of their abilities to run numbers, and it’s not just having the software because I know that both of us use what is probably the best software in the industry for our respective purposes, but just like we have been asked twice to actually help a company write a user’s guide for how to use their software, you can’t do it unless you actually really understand the basics, and understand what is going on, which both our firm does and your firm. The other thing that I should mention is, while there are no guarantees in the financial world, and I’m not allowed to guarantee any type of investment, this is one thing I do guarantee, and I mean this sincerely, we really care. It’s very important to me that our clients do well. I can tell by the hours that you put in, by the advice that you give, that you really care, and it is not an accident that our joint clients, together, we have a 97 percent retainage rate, which means that 97 percent of the people stay with us year after year, and that’s extraordinarily high in the financial world because, ultimately, people are happy and they continue with their services through good markets and bad markets, and it is genuinely a pleasure working with you, and I always feel great about knowing the clients are getting the best that I know of that is out there.

Dan Weinberg: All right, and thanks so much to Jim and to our guest, P.J. DiNuzzo. Listeners, if you’d like to meet with Jim Lange in person, give the Lange Financial Group a call at (412) 521-2732 to see if you qualify for the Lange Second Opinion Service. That’s (412) 521-2732, or connect with Jim’s office through his website at For now, I’m Dan Weinberg. For Jim Lange, thanks so much for listening and we’ll see you next time for another edition of The Lange Money Hour, Where Smart Money Talks.