Bogleheads on Investing- Episode 016 transcript

Sheryl Garrett

Our guest this month is Sheryl Garrett, CFP, the founder of the Garrett Planning Network, a nationwide network of more than 230 hourly based financial advisors whose mission is to help make competent, objective financial advice accessible to all people.

Garrett is frequently quoted in media and a recipient of numerous awards and recognition for her contributions in the field of financial advice. She’s written, co-authored or served as a series editor on more than a dozen books and has been very involved in financial education and awareness and investor protection.

President Barack Obama singled out Sheryl eight times during a 2015 speech at an AARP event. He said she was an advisor who puts clients’ interests first and supported her efforts for tougher investment-advice standards for brokers who handle retirement plans.

Transcript

Episode 016- guest Sheryl Garrett, CFP

Ferricircle

Rick Ferri, December 18, 2019

[Music]

Rick Ferri: Welcome to Bogleheads on Investing, podcast number 16. Today my special guest is Sheryl Garrett. Sheryl is an author, and a financial planner, and is the founder of the Garrett Planning Network, a network of over 230 hourly financial planners.

[Music]

Rick Ferri: My name is Rick Ferri, and I’m the host of Bogleheads on Investing. This episode, as with all episodes, is brought to you by the John C. Bogle Center for Financial Literacy, a 501(c)(3) corporation. Today my special guest is Sheryl Garrett, the founder of the Garrett Planning Network, a nationwide network of over 230 hourly based financial advisers whose mission is to make competent, objective financial advice accessible to all people. I have known Sheryl for many years, and I’m very happy to have her on the show today. So with no further ado, let me introduce my good friend Sheryl Garrett. Thank you for being on the show Sheryl.

Sheryl Garrett: Delighted to be here Rick, thank you.

Rick Ferri: I’m really excited to have you on the show. We’ve known each other for twenty years and you’re just doing wonderful things out there for investors in your organization. The Garrett Planning Network is just a fantastic organization that I have personally been involved with for many years, almost since the beginning, I believe. I’m really excited to talk with you today about the Garrett Network, but before we get into that tell us a little bit about who is Sheryl Garrett.

Sheryl Garrett: I am a gal who grew up in the middle of the country, Kansas to be precise and I went to college not knowing really what I wanted to do for a living but I found that I loved reading Money Magazine cover to cover and I was really into this concept of learning about knowing how to manage my financial affairs. You know I didn’t know what it was called or anything, but I wanted to know about personal finance and I didn’t want to have to have a husband or a father or somebody doing that for me. I wanted to know that stuff and I kind of was born an entrepreneur, or my father raised one, that’s for sure.

He was one who was an entrepreneur as well, and I had my first job when I was eight and working in a flower shop a couple of back yards behind our house, and so got a good lesson of value of money and working and fair dealings. And my father grew up really, really poor and married a woman who had a car in high school which was alright.

And so my father and his mother both were just extraordinary role models, and I live by a mantra, “what would grandma do?”  My dad’s mom, she raised nine kids, six of which were born and living during the Depression in Kansas with the Dust Bowl. She could make a meal for their whole family. You know, literally, I think the rock soup story began with my Grandmother and I just carried this forward. I wanted to do something that mattered in my work life, that made a difference. But I didn’t have the interest to be a medical doctor. I kept coming back to this love for learning about personal finance, and while I was still in college and working full time I actually met a woman who was a registered representative for IDS, now Ameriprise Financial Advisors, but I wanted to be able to control my own destiny as much as reasonably possible and having the knowledge of personal finance goes a long way to doing that.

And so I looked around. I started noticing company names and hearing about different financial advisors or financial planners or investment advisors. I didn’t know the difference between any of them, and I was applying for jobs. Companies that were wanting to hire one. And so I interviewed with a bunch of places most of them were insurance companies, talking about financial planning or investment advisor, or a financial advisor. And I was offered a position in  IDS, Ameriprise now, it was a lot narrower then as far as their spectrum of offerings and so forth. Actually a lot of financial planners and advisors started at IDS. It’s amazing the only decent way into the industry when you had nothing but maybe a semester of accounting or a semester of economics or something. Back then there weren’t investment classes in college,you know. Isn’t that crazy?

Rick Ferri: But Sheryl, I mean isn’t that the way the industry still is. I mean you don’t need to have a degree in finance or you don’t need to have any kind of special training in order to take a series 7 exam and become a registered rep at a brokerage firm. Correct?

Sheryl Garrett: Oh sure, anybody can be a salesperson, by passing the sales licenses. It’s a transaction based thing and there is a very low bar of entry. Unfortunately there’s also a very low bar of entry to give fiduciary advice, the type of advice that should really harm or make or break somebody’s financial future.

Rick Ferri: What I always say is it’s harder for your 16 year old to get a driver’s license than for someone to become a financial adviser in the United States and let me explain that a 16 year old who wants to get a driver’s license has to go through a series of classes, then they have to take a written exam and pass it, and then they have to get a learner’s permit where they’re on this learner’s permit for six months or whatever it is until they learn how to drive and then they have to take another practical driving test to actually show that they are proficient driving a vehicle. A  financial advisor in the United States just has to pass an exam and that’s it, one exam.

Sheryl Garrett: Yeah, and it’s not all that difficult.

Rick Ferri: No I mean where I used to work in the brokerage industry back 25 years ago, all of the people who were doing sales assistance, they weren’t even brokers or advisors, they were the sales assistants to them, who were doing a lot of the administrative work. All of the sales assistants all had to take the exam and pass the exam. So it was not a difficult exam. Again, you maybe studied for a couple of months and then you go in and you take the exam in the morning and you’re done in the afternoon. And now you are a full-fledged expert as far as the public is concerned.

Sheryl Garrett: You could be the vice president of something!

Rick Ferri: Oh yeah you could be vice president, that was another thing too. Everybody was a vice president, it didn’t matter, everybody. So in other words the industry hasn’t really changed at all as far getting into it, but what you found when you got into it, was that it wasn’t for you.

Sheryl Garrett: That’s for sure and actually I bounced around for eleven years trying to find what was the right fit for me. I worked at IDS, definitely not the right fit. Then I went to work for a fee-only financial planner. It was more of a family office. We took care of 24 households. I learned a lot, but that’s not what made my heart sing. The next major role, I had a couple of similar types of engagements with independent firms, financial planning firms, to really learn holistic financial planning, complete my CFP education designation and start working with and looking at the issues the clients face.

But all through this, at first I was dealing with basically being a transaction salesperson that I am not, and can’t be but I miserably failed at it but I wasn’t going to give up hope that there wasn’t a better option out there because I was in love with the concept and I bounced around three or four different positions over the next eleven years trying to find a better fit, more client focused, more appropriate for what clients need and more right fit.

Rick Ferri: What exactly was the right fit for you?  I mean what were you looking for?

Sheryl Garrett: We don’t need a full time money manager, a full time advisor, but every once in a while we need somebody we can trust to turn to, and I wanted to be that outlet. To provide that same high quality advice that people who wanted to delegate and spend thousands of dollars a year to financial advisory firms. What about the rest of the people, the other 80% of the population. Nobody other than the sales community was even available to the middle market, and the beginners. And then nobody wants to deal with the to-do-it-yourselfers because there’s no long-term revenue. So I built my firm to charge by the hour to do what people needed.

Rick Ferri: Well let’s get back to that concept of making the jump from working for other companies, to this “aha moment” or this epiphany, where you decided that I need to go out and create a network that does this, this is needed out there, it doesn’t exist and you decided you were the person to do it.

Sheryl Garrett: I decided to become the outlet to provide financial advice to these people who didn’t have access before because of minimums, or asset under management requirements. I started out my practice eleven years into financial planning and I said, ”How would I want financial advice if I were the consumer.” I would want to walk in and say, “Rick, this is what I’ve got going on, what should I do?” And then you give me your advice and I take it and I run with it. I felt that that was how I would want to receive financial advice if I were the consumer and so I built my financial planning firm that way.

Rick Ferri: And how did that come in, get your advice, go out and do it yourself, pay-by-the-hour; how did that model go? How was it taken by the public?

Sheryl Garrett: Within a few months I started receiving a lot of traction.

Rick Ferri: So you’re out there on your own now and you’re getting a lot of business because there are very few financial planners-

Sheryl Garrett: None!

Rick Ferri: None at the time, who are actually willing to get paid a fair wage for actually doing financial planning and just doing financial planning and not deciding to sell you insurance or manage your money or something, just doing financial planning?

Sheryl Garrett: Yeah, I set my rate based on the time I put into working with or on behalf of a client instead of how big’s your portfolio or how tall are you or what your BMI, you know formulas never fit everybody every time, and I haven’t found AUM to fit most people most of the time. And I can’t do that, so for me the most fair way to charge, although it does put more onus on the advisor, is to charge for my time.

And also one thing that I noticed is nearly everyone that I worked with, my firm works with, probably about 1,000 households, when I was involved in the hourly practice and within one year, 15 months exactly, I started getting a whole lot of industry press about my hourly novelty, or oddity, or insanity.

Rick Ferri: Yeah, I like the word insanity because since I’ve been doing hourly a lot of people think that I’ve gone insane, too.

Sheryl Garrett:  Yeah, and welcome to the club.

Rick Ferri: But it is hard. I mean it’s not easy money like doing assets under management is relatively easy money; you get paid whether the market goes up or down, whether the client calls, whether the client doesn’t call. I mean you get your cut every single quarter. So hourly is not easy.

Sheryl Garrett: As we’re thinking about it if you can’t make a living at whatever dollar an hour rate. You know people will complain about a service provider that charges $85 an hour or $185 dollars or $400 an hour whatever but if they fix your problem for a price you’re willing to pay you’re thrilled.

Rick Ferri: So you’re doing hourly, the phone ringing, you’re getting busy, but then also the media takes notice of what you’re doing and boom, so the world kind of explodes on you.

Sheryl Garrett: When some journalists heard about what I was doing. I started getting calls and I started talking to journalists about what I did. And it was pretty remarkable because the first major journalist I recall tracking me down was Liz William Weston while she was at the LA Times, and she was working on an article called Middle Income Advisor. And so she contacted her stable of go-to resources and all of them said, “You know that really – middle America really wouldn’t be me,” and I’m not talking geographically, I’m talking financially. Liz said, “My contact at a number of my resources, and they kept mentioning, have you talked to Sheryl in Kansas?” And to me, that’s a punch line, already when somebody has to go 1,500 miles to find one girl in Kansas that works by the hour? I mean there has got to be a joke in here somewhere.

Rick Ferri: Oh that’s true; though I mean the whole industry, and most of it still is this way, is geared towards how can I make money off of your money. I mean both the brokers who are

Sheryl Garrett: oh [bleep] you figured it out?!

Rick Ferri: It’s not about how to make money for you, it’s how to make money from you, that’s the way that the brokerage firms were. I mean when I was in the brokerage world, and I was there for ten years, at two different companies, well one of them was at Kidder Peabody, and the other one was Smith Barney, so these were not small companies. Both of them are no longer in existence, but you know when I went in every year for my annual meeting with my office manager, where we were setting goals to determine, you know, what my goals would be, it wasn’t how many clients you are going to help reach their financial goal this year; how are you going to help the clients, you know, send their children to college. It wasn’t anything like that. It was how much commission revenue are you going to generate and how are you going to do it.

They didn’t really care how you did it, really didn’t. If you hit these goals that they had for you then you got your corner office, so you got your free trip or whatever it is you were going to get.  But it’s all based on how much revenue you’re going to extract from the client. And then when I actually left that industry and I started a money management company where we charged AUM but I charged a very low AUM – as you know I was only charging 0.25% management fee – and I wasn’t doing financial planning, so it was truly just, we will manage your portfolio and index funds and work with your financial planner, but we’re going to charge you a low 0.25 percent fee.

You know all the others, a lot of the advisors around me, in fact most of the advisors around me, were, “You can never make it; you have to charge 1%.” Yeah it was all about you deserve the right to get the most, have a certain standard of living and you should charge what the market will bear, not you know, I would say I was trying to charge what was fair, not what the market would bear. It was all about how much money can you make from the clients rather than what you can do for the clients.

Now that I’m doing the hourly thing I can see it even better, and even though I was charging a low fee when I was managing money, now that I’m not doing that anymore I see the hourly fee, or something like that, where it’s more aligned with actually helping the clients rather than trying to get into their wallets and get a piece of the action, is really the most fair way to do it.

Sheryl Garrett: Exactly. There are situations where somebody does need to delegate and have somebody babysitting their financial lives for them, you know like a conservatorship or possibly a widow or widower or someone with diminished capacity or someone that’s a busy professional or busy living life in another way or out of the country, and they want to delegate it. If you’ve got that desire and the money to do it, by all means there are providers to do that, and you will pay a lot for that service.

Unfortunately for the middle market and the do-it-yourselfers of the world that’s pretty much all there was and still to this day almost all there is, but the tide is moving away from, definitely commissions, away from transaction cost and…

Rick Ferri: You’re speaking about the fact that ETF trading at Charles Schwab and so forth yeah is all now all zero commission and then the funds themselves are smidgen above zero, so I mean the actual costs to manage a portfolio literally have been driven down to next to nothing and the only last bastion of gluttony, if there is one out there, is the 1% AUM fee which is the average fee that an advisor charges to manage say a 1 million dollar portfolio.

Sheryl Garrett: And that’s the average.

Rick Ferri: That’s true, it’s unfortunate that’s the average.

Sheryl Garrett: Yes unfortunately there are higher ones but yeah that is an average.

Rick Ferri: So you had this philosophy and you were out on your own doing hourly and nobody else was doing it. I mean how did it all come about where you decided to create a whole network of how many hourly advisors?

Sheryl Garrett: Currently 235.

Sheryl Garrett: My financial planning practice grew really fast and and I was having so much fun and really feeling great and having happy clients and happy me and I told that story around the industry, and I started getting picked up from some of the trade journals of “what is this yahoo doing hourly financial planning and an investment advice.” 

Well when people read those kind of articles, Bob Veres, a longtime journalist and industry kind of visionary or futurist person inside the financial services industry, tackled me about this and talked about my practice and then wrote a piece about what I’m doing and compared it to kind of like a dentist’s office where you pay for services as you need them and you don’t need a full time financial planner or a full time dentist, but you do need to go to your dentist periodically, probably twice a year as they coach us, some people more often, some people less often. But you know, we need to look at our financial advice that way. I started getting as many inquiries or calls from contacts from financial advisors, financial planners, wanting to do what I was doing, charging by the hour. So I had lunch with a local person in Kansas City and at lunch he pulls out his checkbook and said, “What can I pay you to teach me how to do what you’re doing?“

Like this is crazy, insane! At fifteen months into my hourly practice I spoke at an Institute of Certified Financial Planners conference for new certified financial planners or students of the program about what we did all day long. I was a financial planner and my message, and who I worked with, and how I worked resonated with the audience extremely well. About a hundred and thirty five people were in attendance and when we broke, instead of a panel discussion with five people, we could go to one of five sections and spend the afternoon. Almost the entire audience came to my section because they could see themselves doing work that mattered, that made a difference and that wasn’t all tied to implementing a product, selling a product transaction or investment management; it’s about financial planning. So the interest of fellow financial advisors and then Bob Veres doing an interview he said, “Sheryl you are obviously willing to share what you have been doing and I know you’re a capitalist, so why don’t you bottle it and sell it.

A year almost to that date we had our first training class. We launched in February of 2000 so just shy of 20 years right now and had our first training class in July of 2000 with 11 advisors. So it just kind of continued to grow about 50 new members a year, based on the shared philosophy of doing the right thing for the client regardless.

Rick Ferri: You are asking these planners to put aside the traditional sales culture and money management culture that they grew up in and to actually get down to doing financial planning and getting paid for it.

Sheryl Garrett: I really am very challenged to understand as a financial planner which as you know we’ve discussed this numerous times, money management and financial planning are distinctly different activities.

Rick Ferri: And they deserve a completely different fee model, no doubt.

Sheryl Garrett: Yes that’s exactly, agree wholeheartedly. We don’t attract financial advisors to this way of working with clients if they’re you know, in it for the “how can I get rich off my clients money without working?” That’s a pretty significant small funnel to go through because you’re yourself selecting a philosophy of how you’re working and basing your time, your charges on the time that you invest working on behalf, or and with, a client.

Rick  Ferri: You started out with the class of eleven, and are any of the original eleven still in business? 

Sheryl Garrett: Yes, one of them’s on our advisory board, and we have several from the next class who was in September of 2000 and October of 2000, and we have members from all those classes still with us.

Rick Ferri: So you could put to rest the idea that hourly advising as a profession it doesn’t work for the advisor. I think that after 20 years of people being in the Garrett Planning Network, charging hourly, being successful at it, pretty much puts a nail in the coffin that for the people who are the pundits who say no you can’t make it that way you have to charge AUM, you have to charge higher fees, it’s just simply not true.

Sheryl Garrett: Yeah.

Rick  Ferri:  So you’ve got now about two hundred and thirty five advisors at the Garrett Planning Network, all them have the same philosophy, but some of the Bogleheads who I asked on the forum, bogleheads org, because I told them that I was interviewing you so they could write in questions and they did. And a couple of the questions, I’d say three people were asking, “How do you screen the planners who come into your network?”

Sheryl Garrett: That’s an excellent question and it’s also a topic that I’ve probably spent talking to journalists over the last three or four years most of anything is how do you find a financial planner that’s right for you and what do you need to look at and that kind of thing. I’ll tell you what we do with the Garret Planning Network. No level of screening can be exhaustive but I want everyone to be really crystal clear on what we do do, and then also what I would encourage individuals to do when they want to take it to the next step.

So what we do at the Garrett  Planning Network is we receive an application.  We also require their ADV documents, the annual filing for registered investment advisors. There is a zero testing or requirement to call yourself a financial planner in this country.

Rick Ferri: I think that’s a really good point. I mean there are regulations or laws that say if you’re going to call yourself a registered investment advisor you in fact have to be registered with either states or you have to be registered with the federal government through the Securities & Exchange Commission.

Sheryl Garrett: Or if you call yourself an investment advisor, you better do it.

Rick Ferri: Right I know I live in Texas here and if you say you give one iota of investment advice for any kind of compensation at all, you have to register. No discussion about it. But financial planner, different.

Sheryl Garrett: Yes anybody can call themselves a financial planner. I guess it’s as easy as guru. and such. You know you see the commercials about guru, teacher, coach, whatever. Financial planner is the type of work that we do, might be the job title, but there’s no curriculum other than we embrace or recognize two primary designations, one being the CFP, Certified Financial Planner, and the second being the designation that a CPA would have if they’ve also had a financial planning training equivalent to the CSP, which is a personal financial specialist. So there’d be a CF, CPA, PFF. Other exclusions above and beyond the CFP designation would be like a person who has a PhD in financial planning.  I think I would say they would qualify a person who has a master’s and we have had these folks as members who they’re teaching educational programs, the financial planning program, around the country. So that is our educational criteria. 

And then we want to look at their application and “tell me why.” I want to hear a lot of their philosophical approaches, and how they expect to build their businesses, and are they prepared for a certain amount of time to get their businesses up and running. Because I don’t want people to join our group and not be successful. So they need to be prepared for what it takes to start a practice and get it to a point where it can sustain itself, and they can focus on taking care of their clients.

Rick Ferri:  So one of the Bogleheads has asked a really good question about how often you need to do a financial plan, and his comment is do investors modify financial plans more or less frequently when using assets under management as a form of compensation to their advisor or some sort of a fee based model like hourly. 

Sheryl Garrett: I have zero statistics on that question and it’s quite interesting but I’ll give you my guess. I would tend to think that if people are acting as a fiduciary there shouldn’t be much difference. Now what happens in between visits to an episodic advisor such as the services I provide on an hourly basis is if I don’t know about it, I don’t know about it, versus the AUM advisor who better know about it because they’re getting paid to watch.

Rick Ferri: Let me now talk about that for a second because you know “we’ll watch it for you” was always something that the brokerage industry was-

Sheryl Garrett: It’s a great sales line.

Rick Ferri: Don’t worry we’ll watch it for you but in fact, look I was an AUM advisor for 20 years, all I’m watching is the revenue come in from your portfolio, you know when are you adding money and when are you not adding money-

Sheryl Garrett: Or how does your portfolio react to the market.

Rick Ferri: Right, and that’s what I’m watching, in other words to talk with you on a regular basis.

Sheryl Garrett: It provides a lot of comfort to people.

Rick Ferri: If you do a really good financial plan for somebody? How often do you have to redo it? 

Sheryl Garrett: Well it depends on age and circumstance. Or really circumstance. If I were working with young people, we’re making projections about stuff that’s going to happen decades from now, we can’t even come close, I mean what we’re going is from imagine my arms are straight out to my side, 180 degrees, and we take a look at you know the current trajectory you’re on and plot that out and precision projected over time is not precision and it’s an illusion of precision and it’s insanity, but having targets and knowing that you’re heading in the right direction is really helpful.

To young people, you know, if you put a plan together and say by this time next year I should have X amount in my net worth, I’m going to pay down debt by this,build up assets or cash reserves or whatever, those are my goals. And if you made those goals and nothing else really changes in your life you don’t even update. Or you know but sometimes things happen like regulations change when the Roth IRA becomes available, you know if a 529 plan might make sense, some of these Bogleheads folks would likely be aware of them but the average client that I worked with wasn’t necessarily a dyed-in-the-wool reader of all things personal finance and fiduciary great kind of advice.

Rick Ferri: Sheryl, when you’re paying an AUM fee for not only portfolio management but financial planning you do the financial plan the first year; how much extra work is that: your two year, three year, four year, five. Do you think  that advisors who charge for financial planning and asset management, say using one percent, are maybe overcharging for the financial planning side?

Sheryl Garrett: Probably not near one, but you know I don’t know what any dollars or percentage is.

Rick Ferri: Let’s talk about somebody who has 1 million dollars, I have a million-dollars.

Sheryl Garrett: 10,000 dollars, yeah, you’re probably overpaying, unless you got a-

Rick Ferri: But that’s the average fee, that’s the average fee for an advisor if you look at the statistics, there’s a million dollars they charge 1% they get $10,000 a year and then when you question them about they say-

Sheryl Garrett: Just ‘cause it’s average doesn’t make it right.

Rick Ferri: Well but they say when I argue with them on Twitter they say well we add a lot of value we are, our clients rely on us and you know we are a coach to them and we are a circuit breaker to them when the markets go down because there, we’ll be behavioral coaching we’re going to keep them in the market when they want to get out. No I don’t believe a lot of that by the way because again, when I was managing money people didn’t just when the market went down all of a sudden panic and sell. I mean there might have been a few that did that but very very few of the clients do that.

Rick Ferri: Well but they say when I argue with them on Twitter they say well we add a lot of value we are, our clients rely on us and you know we are a coach to them and we are a circuit breaker to them when the markets go down because there, we’ll be behavioral coaching we’re going to keep them in the market when they want to get out. No I don’t believe a lot of that by the way because again, when I was managing money people didn’t just when the market went down all of a sudden panic and sell. I mean there might have been a few that did that but very very few of the clients do that.

Sheryl Garrett: Probably only once, and perhaps if we’ve done a plan together updating it is easy.

Rick Ferri: It doesn’t take nearly as much time.

Sheryl Garrett: Oh no subsequent years just maintaining. You know if you’re in good stead, if we get you all lined up and maintaining that, that’s when the formulas melt down because they don’t go down with the amount of time expended.

Rick Ferri: Right exactly so this is what I wanna pry about. Let’s say assets under management, so you have a financial planner slash money manager who is going to manage your portfolio and do a big financial plan for you and the first year if they charge some fee let’s call it 1%, okay $10,000 on a million dollars but the second year why wouldn’t the fee drop to 0.5% because they’re not spending nearly as much time?

Sheryl Garrett: Right. Good question and that’s one that I would want answered before I would even consider working with that advisor. I also would do another thing, as you mention this scenario as a financial planner who also provides money management services and charges this as one consolidated fee.

That is most common. Also I don’t like it. I do allow AUM charging by Garrett members but hourly has to be primary and it has to be provided for the accessibility. And our members are well informed that I personally do not like AUM for financial planners. For money managers if the price is fair I don’t have an issue with it because managing a portfolio like you used to do at 25 basis points can be a really appropriate service for certain clients. And I say for certain clients because I don’t think everybody needs their portfolio managed. They might be able to buy a handful of funds and have it checked up on annually or something along those lines and just pay for the time for that checkup: am I still in the right place, is there any reason I should change and those kinds of questions is what I’d like to see. 

So what I would love to see in financial planning is separate out the fee for financial planning.

Rick Ferri: Absolutely 100% agree with you about that.

Sheryl Garrett: So if people are looking for a financial planner and they also offer investment management services, have them break it out; if they say we don’t, just leave.

Rick Ferri: Well let’s talk a bit about your network and that you just said that you do allow assets under management, you do allow your planners to charge. And if there’s one criticism I have heard of the Garrett Planning Network, and it’s a fair criticism because I experienced it myself when I’m trying to find financial planners, because I’m not a financial planner I just do the investing, when I’m trying to find a hourly financial planner for somebody I go to the Garrett Planning Network website, I look up who the advisers are in a particular area where a client is. The first thing I look at is are they managing money? If the answer is yes they manage money I wouldn’t typically send them to that planner. I would try to find a planner who does not manage money.

And the reason for this is because the– and this is what I’ve heard and I know it’s true that a lot of the Bogleheads who have contacted Garrett planners– we’re a little bit disenchanted by what happened. They go there to talk with them about financial planning and then they get pitched money management and it is a criticism I hear quite often from the Bogleheads. How do you answer that criticism? 

Sheryl Garrett: Let me know. I don’t want it either and we have removed a couple of advisers for that. Now I want to clarify we have removed a couple advisors for pitching AUM services, and the clients specifically needed, in my opinion, and the clients opinion and desires, they wanted to pay on an hourly basis or further time and not based on their assets, and that should have been made available as an option and it wasn’t and that individual is no longer with us. 

And so you know we, look, we’ve had two types of complaints in our twenty years. Luckily, they haven’t done all that often, and yes I very much am aware that the Bogleheads community, it’s kind of like the fee-only financial planners community, we’re really tight, we talk to each other. I know you all do. Most if not all of our members would be very familiar with Bogleheads, the love of low-cost indexing, being frugal, that kind of thing. They just go in and say I listened to a podcast with Sheryl Garrett on it and she said y’all offer hourly, and if you don’t get what you’re looking for feel free to contact me.

Rick Ferri: Fair enough. Another question. So Shery, you have had planners come into your organization and then there have been some who have left the organization as you mentioned a minute ago. What is your retention rate for planners every year?

Sheryl Garrett: Yeah I wish it was 99, but it’s right at 89 to 90 percent.

Rick Ferri: And the ones who leave, why, besides the fact that they get out of the business or pass away or retire, I mean are they just not making it as hourly planners?

Sheryl Garrett: Well yes and there could be reasons why. One of them that I run into is that some people are not designed to be entrepreneurs. Being the person who is in charge of everything, and you’re alone, and that’s one of the reasons for our network is we are all self-employed and it does get quite lonely out there, and the subject matter that we deal with is so broad it’s really amazingly powerful to be able to tap into a network of peers. And so that’s the reason we exist: to help leverage our time, talents and energies to better serve our clients and keep our sanity.

Rick Ferri: But Sheryl, the hourly model, is it better suited toward younger people, is it better suited towards people who are in midlife, or is it better suited towards people who are nearing retirement? I mean who would you say it’s best suited for or maybe it’s not suited for anybody better than anybody else?

Sheryl Garrett: That’s an interesting question because I can see very rewarding outcomes for all of those groups. Best suited for a validator, not a, and the do-it-yourselfers of the world; the people that we can’t serve best are the delegators.

Rick Ferri: Could you explain what a delegator is rather than a do-it-yourselfer?

Sheryl Garrett: Someone who comes in and “Shares, you know, here’s what I want to do and here’s what I’ve got going on. You deal with it. I’ll pay you.” and they leave, you know, and dump it all on you. An hourly adviser is not a good fit for that. 

Rick Ferri: Yeah, I could see that. I mean I see it in my own practice, where I can help people to a point, but if they want somebody to implement and someone to oversee on an ongoing basis, it’s not me.

Sheryl Garrett: Right, precisely, that sums it up. When the client can do the implementation, I found that that is often about half of the financial plan’s cost.  The legwork to implement and we as financial advisors can’t implement everything anyway. So the clients doing a good amount of it themselves. So why not empower them to fish for themselves.

Rick Ferri: I completely agree with that. This brings me into the final question that we had by the Bogleheads and here it is, “Why should a Boglehead investor with a three-fund portfolio consider consulting with a fee-only financial planner? I don’t need investment advice.”

Now let me explain what a three-fund portfolio is. You probably already know but I’ll explain it again.  It’s just simply investing in three broad index funds: a total US stock market index fund; a total international stock index fund and then a bond index fund of some sort, but it’s just three simple funds. Very simple portfolio, so somebody who follows that strategy and doesn’t really need any investment advice. Why use a financial advisor?

Sheryl Garrett: Definitely may not need an investment advisor. The financial planning is a much broader field. Investment advice is one aspect. Frequently questions regarding when I should start Social Security, which employee benefits do I need, how much should I be saving for this, should I take a 0% financing or the $2,000 cash back on buying the car. Some of these questions may be automatic to listeners of the podcast. They are personally educated, but every once in a while we run into stuff that we need to ask a professional or somebody for a second opinion. A lot of the clients I worked with viewed me as more of a second opinion, they called me their advisor but a number of them were quite savvy investors. But they wanted a holistic overview, kind of look at the whole thing.

Rick Ferri: And finally I can’t let you go without talking about this. You’re a famous person because President Obama himself called you out – I guess that’s the word – while you were in an audience and was telling the world basically what a fantastic job that you were doing: trying to push the idea that a financial advisor should be a fiduciary. Tell me about that whole experience.

Sheryl Garrett: It’s still surreal. It’s the first time to my knowledge any president has recognized a financial adviser and financial planner particularly. And I’m very, very proud of that. What happened, I had been participating in the fiduciary advocacy work in Washington with a number of other volunteers, and as I kept repeating horror stories that I had witnessed as an expert witness or a litigation consultant over the last few years these stories resonated, and they, they’re about normal people- you know average Americans getting ripped off by the current system. And I got a call about a week before that mentioned by the President from a person with the White House and I didn’t really think about it, I was kind of thinking do you, well you know I’m paying attention actually, nor did I think you know anything I said would actually going anywhere other than to help the rule, the fiduciary rule. I was going to listen to the President’s upcoming speeches because they interviewed me for the potential of, it was the speech writer, and she was potentially going to put some of my comments or thoughts into the President’s speech.

So that’s how it came about. I got a call just before the speech was to occur, the Friday before next Monday’s speech asking me if I could be in attendance, and I got to Washington D.C. and sat in the audience and listened to the various presentations or announcements. And then in comes President Obama and he lends his support to the DOL fiduciary rule, and then he starts talking about gunslingers in the wild wild west who have no regulations over certain parts of their activities, and I’m like “oh my gosh those are my words” or maybe and then he said my name and I don’t remember anything after that. I got home the next day, seriously, I got home the next day and watched it on youtube and I had of course hordes of emails from people.

Rick Ferri: How many times did he say your name?

Sheryl Garrett: Eight. I had never, never in my wildest imagination would have expected to be quoted. I mean that it is still in my mind it did not happen. But I’m really proud of the person it did happen to [laughs].

Rick Ferri: Well it did happen and it couldn’t have happened to a more wonderful person who has done so much for the average person out there with their finances.

Sheryl Garrett: We’re not average, we’re stupendous, we’re normal.

Rick Ferri: Everybody’s above average.

Sheryl Garrett: That’s right.

Rick Ferri: Well I’m so glad you came on the show today, Sheryl, and told us your story and told us a lot of good stories, I should say, and I think that I wish the Garrett Network continued success. I think that alternative models are, the alternative ways of which you pay an advisor are finally in the forefront out there. And are getting more publicity and you’re, of course you’ve been one of the big advocates for twenty years, and wish you continued luck, and thank you so much for being on the show.

Sheryl Garrett: Oh thank you, and my sincere pleasure.

Rick Ferri: This concludes the 16th episode of Bogleheads on Investing. I’m your host Rick Ferri. Join us each month to hear a new special guest.  In the meantime, visit Bogleheads.org and the Bogleheads wiki, participate in the forum, and help others find the forum. Thanks for listening.

[Music]


Investment adviser, analyst, author and industry consultant

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