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Alex Klingensmith

Episode 48: How to Choose the Right Financial Adviser that Fits You, with Alex Klingensmith

Alex Klingensmith is an experienced Wealth Advisor and Chief Operating Officer with a demonstrated history of working in the financial services industry. He is skilled in Fiduciary Independent Investment Management and Financial Planning. Alex has strong community involvement in the Carlsbad Hi Noon Rotary Club and in North San Diego County.

What you’ll learn about in this episode:

  • Financial Detox: Labrum Wealth Management’s podcast for consumer advocacy
  • Labrum Wealth Management’s decision to work for their clients and not a firm
  • How to choose the right financial adviser for you
  • Why it matters how your financial adviser gets paid
  • The reasons fiduciaries offer better investments than brokers
  • Finding the right cadence of communication with your financial adviser
  • Choosing an investment philosophy
  • Why it’s never too early or too late to start investing
  • Where to find a great financial adviser
  • Ways to start saving before you get an adviser
  • Alex’s goals in getting Labrum Wealth Management’s message out there

Ways to contact Alex:

Podcast eBooks:

The Power of Two

Episodes 1, 2 and 3 collide to bring you summary of lessons learned and systems created around Vision and Key Initiatives that help drive success to companies and businesses.

The Transition to Automation

In Episode 25, Vera talks with Heidi Rasmussen, CEO and Co-Founder of one of Inc 5000’s fastest growing companies in America – freshbenies. This eBook highlights part of the conversation to bring out the best lesson in automation and on-boarding for startups.

Using IT Strategically

In Episode 29, Vera talks with Tom Grooms, Vice President, Information Technology, and Chief Information Officer for CF Industries. This eBook is your guide for seeing IT as more than just a faster way to do your accounting.

The ZFactor Methodology

In Episode 35, Vera talks with Cindy Goldsberry, founder and partner of ZFactor Group. This eBook shows you how to take your business from vendor to value creator.

Transcript:

Welcome to System Execution, the strategy and system behind today’s successful companies. Systems can make or break your company, but here, we’ll solve your physical, technological, and psychological systems issues by connecting you with experts that have succeeded in overcoming those challenges in their own business and providing you the guidelines and tools you need to implement those same strategies for immediate results. Now here’s your host, Vera Fischer.

Vera Fischer: Today’s episode is sponsored by 97 Degrees West, the brand marketing agency located in Austin, Texas. 97 Degrees West serves regional and national companies in the healthcare, finance, energy, and manufacturing industries. 97 Degrees West believes that an integrated approach to marketing that involves traditional and digital strategies that fit your customer’s buying journey yields the greatest impact on your bottom line. Go to www.97dwest.com to learn more.

Welcome to System Execution, a podcast devoted to using processes and systems to drive to a better outcome for your business. I’m Vera Fischer, your host. Many of you know that business success relies on systems. Systems can be physical, such as a warehouse or a factory, or technological, think software, while others are psychological systems, such as checklists, org charts, or your daily hot list.

My guest today is Alex Klingensmith. Alex is the COO and Senior Wealth Advisor for Labrum Wealth Management. Alex comes with a history of working in the financial services industry for several years. He’s skilled in fiduciary independent investment management and financial planning. Alex is also a member of the Carlsbad Hi-Noon Rotary Club in North San Diego County. Welcome to System Execution, Alex.

Alex K.: Thank you for having me, Vera. I appreciate the time.

More on Alex’s Background

Vera Fischer: Well, Alex, before we get started talking about the process that you’re going to be sharing with us on how to choose the right financial adviser for yourself, please tell us a little about you and your experience in financial advising.

Alex K.: Yeah, and thank you again so much for having me on the show. I work, or I live in Northern San Diego in a town called Carlsbad. I actually grew up in Austin, Texas, where you are, and I see a lot of similarities there. I do love the beach, which is one of the reasons why it’s hard for me to, as much as I love Austin and want to go back to, now that we’ve got a, I’ve got my wife and children here and we’re in the community, the beach is something that always draws us. So I’m a surfer. I’m a beach guy, but I still love the country music and good barbecue and the long ones, of course, right?

Vera Fischer: Absolutely.

Alex K.: Yeah, I mean, I started out in financial services just out of college, and after several years of trying to figure out what part of it I liked the most, the most recent five years have really helped me reach a point now with Labrum Wealth Management where we are in a position now to do something, I think, beyond maybe what traditional financial services companies do, and we’ve created a sort of a consumer advocacy brand. We call it Financial Detox. It’s our podcast, and we speak on a radio show on AM 760 KFMB here in San Diego, and then we take it and we send it out via podcast, so podcast on your iPhone or Google Play or iTunes, Financial Detox is the name.

It’s just like what it sounds like. It’s when you, a lot of us go through maybe times where we try to detoxify our health through diets and things, and the intention of this, really led by Jason Labrum, the CEO and founder of our firm, was to detoxify all of the toxins that come into our life as it pertains to making good decisions in our investing. Right? Where do we invest our money and why, and who are we going to bring into that decision-making process? Is it going to be friends, family, our financial advisers, brokers? Who is it? That’s what our mission is today.

Vera Fischer: Alex, I think that one of the, the system that you’re going to be speaking with us about today is something that has been on Financial Detox. Is that right?

Alex K.: It is. We talk about it a lot. The story of our firm is that our founding advisers worked at two large wirehouse Wall Street firms for 12 years combined as teams, and then in 2009, after all of us experienced the Great Recession, right, a painful experience for many, I think for everybody, really, they made a conscious and intentional decision to never again work for a firm and have a legal obligation to a firm. Instead, they made a decision, the founding advisers, to work for the client and have a legal obligation to the client through what’s known as a fiduciary standard or a fiduciary code of conduct in our industry. So-

Vera Fischer: That’s really-

Alex K.: … yeah.

How to Choose the Right Financial Adviser that Fits You

Vera Fischer: … interesting. I’d love the whole concept of working for your client and not the larger firm that you’re actually employed by, and I don’t think a lot of listeners understand that nuance.

Let’s jump into, really, that topic of, how do you choose the right financial adviser that fits you?

Alex K.: That’s right, and that is a big question. I mean, even the first question is, “Do I need a financial adviser?” Then once you decide that maybe you do, or if you’re just wanting to know what it would look like if you had one, it’s really important, in anything in life, so every system that you follow in your life or every pattern or habit you might develop, is to understand, what’s the motivators? So if I hire, if I interview a financial adviser, who do they work for, and how do they get paid, and what are they going to be doing for me?

Those are big questions that are … Most, maybe, talented sales people probably have very eloquent ways of describing it, but what you really want to listen for is, how do you get paid? Not so much how much do you get paid, but who pays you and why? Because that’ll tell you a little bit about what that relationship with that person might look like over a long period of time.

So if you’re talking to somebody who’s what’s called a full-time fiduciary, which is what we are, we only get paid one way by one person. That’s our client. We don’t get paid, so specifically, we have engaged Charles Schwab as the caretaker of all of the money and all the investments, and we believe they’re very good at doing that. They’re very large. They’re very good at customer service. They’re built to deliver on that very well, and they’re built to protect the clients from, perhaps, if we were to decide or lose our moral compass, we can’t take money out of Charles Schwab from our clients. That make sense?

Vera Fischer: It does.

Alex K.: So how, then, do our clients, how do we get paid? Well, we get paid a disclosed transparent management fee, so call it 1% per year, normally taken out quarterly, so 0.25% of what we’re managing in the account, so whatever the balance is at that time every quarter. And that’s what we get paid regardless of what investments we decide to actually put in the account, in the Charles Schwab accounts, and manage on an ongoing basis for our clients, doesn’t matter if it’s Vanguard, or Dimensional Funds, or PIMCO, or JPMorgan. All those things can be held in a Charles Schwab account. We don’t get paid by anybody, not even Charles Schwab, so that’s an interesting thing, right?

Vera Fischer: It is. I would be … It’s almost skeptical, if you …

Alex K.: Well, the skeptical one would be, is if you were sitting down with a broker, a non-full-time fiduciary, which now it’s getting really complicated because they have this Department of Labor rule that was, Obama administration pushed through, but then the Trump administration stalled it, and now its future is uncertain. But what that was doing was trying to get all of the industry to become fiduciaries or at least partly, part-time fiduciaries. Part-time, meaning that when they’re working with you on your retirement account, your IRA, or 401k, then there are fiduciaries, according to the Department of Labor law that is not passed yet.

But if they’re working with you on your after-tax money, your joint account, or your trust account, they don’t have to be fiduciaries. So it’s complicated, but it’s worth learning about and developing some habits on your end as the consumer, as the client, to make sure that you’re fully informed and you’re making the best decision for yourself and your family.

Vera Fischer: Excellent. Alright, so we’re going through the motivators, who do they work for, how do they make their money, who pays them and why, why would they pay them, so what’s next?

Alex K.: The alternative, so if you’re sitting down with somebody, you ask those questions, you go through it, and those things don’t sound like the answers that you might be getting, then you want to understand, okay, look, there’s great people that work at the big firms that get paid according to the suitability model, which means they simply need to provide you with investments that are suitable for your situation. They don’t necessarily need to be in your best interest, though, and the way that that, the reason why that matters for you is that there is a conflict of interest then. If I had two investment options to sell my client, and one of them was going to pay me $5,000 and the other one was going to pay me $1,000, they’re both suitable, which one of those investment options do you think I would sell my client?

Vera Fischer: The $5,000 one.

Alex K.: Right, even though it doesn’t have to be in the best interest of my client. It only has to be suitable. Therein lies the problem of much of this decision-making with brokers. Good people. They’re not bad people, but they’re just within the confines of where they work and what the options are that they have made available to them. How, then, are they going to make good decisions for their clients? This is something that we are very, obviously, passionate about. The industry’s filled with lots and lots of money, trillions of dollars of money is flowing out of big Wall Street firms because people are figuring this out.

Vera Fischer: Interesting.

Alex K.: So we talk about this a lot. We think it’s important for people to identify the questions that they need to ask to their current adviser or broker, or if they’re thinking about hiring one, you know how to find one that makes sense, and we think this is step one. Obviously, it’s kind of an implied thing that we think fiduciary is going to be a better solution for everybody, but you got to find that out for yourself, right?

Vera Fischer: Exactly.

Alex K.: Yeah.

Why Trust is So Important to the Client-Adviser Relationship

Vera Fischer: So moving on to step two.

Alex K.: Step two. Once you’ve understood … This person, hopefully, has been referred to you, there’s some sort of trust built. Maybe it was referred from a friend or a family member, or if you already have an adviser or broker that you’ve, there’s trust there. That’s the most important … Well, I think in this case, maybe the second most important thing in this relationship is trust, versus understanding who they really work for and why.

Once you know the trust is there, then you want to understand what the relationship is going to look like. Ongoing, not just upfront. Are we going to do a transaction right now, like when you buy a house, get a mortgage, close the transaction? Or are we going to have some sort of path to follow together where we have an ongoing steps, or we call them review meetings, whether they’re quarterly, or semiannually, or annually? How often is the communication going to happen? What is it, in what form is it going to take place?

How Often You Should Meet with Your Financial Adviser

Vera Fischer: Okay. Then, what is acceptable in that, as far as an answer goes there, Alex? Is it, do you recommend that you’re hearing from them monthly, or does it just really depend on the type of investments, etc.?

Alex K.: That’s a great question. You know what I would, the way that I’ll answer that question, this’ll be kind of fun for you, is, you’re a potential client. What do you think the right answer is?

Vera Fischer: I would say it depends on what you’re doing for me from an investment perspective. If it’s something that’s somewhat volatile, I want you to talk to me every week, and if it’s not, then don’t bother me. That’s what I would say.

Alex K.: That’s a great … I love that answer. That’s such a good … That’s perfect, because I haven’t answered the other question that most people would have in these meetings, is, “What is your investment philosophy?” As you identify what, remember, step one, step two, part of trust is understanding what is the investment philosophy of your adviser and their team, their firm. This is a big one, because there are many different ways to cross the bridge here, right? You can … The goal being that you, you’re saving money, you’re investing it somewhere for the goal of what? That “what” is almost always really the same thing, is just knowing that you’re never going to run out of money when you eventually stop working. Right?

Vera Fischer: Right.

Alex K.: Or stop earning income. So the investment philosophy, the most important thing about an investment philosophy, and this is a quote from David Booth, the, I think he’s from the University of Chicago and also one of the co-founders of Dimensional Funds, “The most important thing about an investment philosophy is that you have one.” So if you’re talking to a financial adviser or broker and they don’t seem to have one or don’t know what it is, that’s a big red flag, right?

What “Investment Philosophy” Means

Vera Fischer: What’s an investment philosophy look like? What does that mean?

Alex K.: That’s a great tee-up question. Our investment philosophy at Labrum Wealth Management very firmly aligns with concepts most recently, kind of, publicized by Vanguard, and by Dimensional Funds, and by even Warren Buffett, recently, where we believe that the markets work, the capital and global markets work, that, also, we believe in that they are efficient, meaning that … We don’t think that we know more than the collective universe of investors. We don’t think we can predict when Apple or Amazon are going to go up or down, and thus we’re going to buy them or sell them for our clients because we can somehow predict what’s already priced into the value of the stock. Instead, to harness the power of the markets, we believe in global diversification, and focusing on things that we can control and not things that we can’t. There’s a Venn diagram where you have all the things that matter in one circle, the things that you can control in another circle, and then where they overlap. That is the sweet spot, right?

Vera Fischer: Right.

Alex K.: Controlling the things that you can control that matter.

Vera Fischer: Exactly, so let me ask you this. Whenever you’re, let’s say there’s someone like me who’s going out looking for that financial services adviser, never really worked with one. Is there a, for the client, now I’m not talking about you, the person that would be providing that service, but I’m talking about, hey, if you’re 30, are you too young? If you’re 60, are you too old? Is there an age thing going on?

Alex K.: No. No, I don’t … We don’t believe so. I don’t believe so. I don’t think that … It’s never too early or too late to become informed on one of the most important decisions of your life, and that is, what are you going to do with the money you save, right?

Vera Fischer: Right, exactly.

Alex K.: I mean, whether … Even if you have so much money that you’ve amassed all the wealth you could possibly need for your lifetime, that then becomes a greater responsibility to yourself, which I don’t need to tell these folks this because they’ve obviously reached a level of success that many people only aspire to, but then you have the responsibility of transferring the wealth of future generations to make a generational impact. And not only just the money part, but the values associated with the money, and the skills, and the morals, and the things that, “How did you get there, and how do you get that to the next generation and beyond?”

Vera Fischer: Is there an additional step after you’ve gone through those three qualifiers, if you will?

Alex K.: Those are big, by the way. I mean, if you take time and do, understand who you’re sitting across the table with and what motivates them, what the ongoing relationship’s going to look like, and then within the trust, is, which it’s impossible to trust somebody the first time you meet them. You have to develop that over time, but interest is the investment philosophy, and what are you going to be doing for me, and why are you going to be doing it? Do you believe in it? Are you going to change your mind every time there’s a big news headline? Are you going to let me, the client, change your mind when I freak out because I see something come through on the news, or are you going to stay, have conviction in a process that’s going to work long-term so that I then can go and spend time … I’m saying “I,” the client, right? I can go then spend time with my friends and family and doing the things I really want to be doing. That’s why I’m hiring you in the first place, I don’t have to think about this stuff. Right?

Vera Fischer: Mm-hmm (affirmative), mm-hmm (affirmative).

Alex K.: Those are big things. If you can get through those things in a one-hour meeting with somebody, then you are, and you feel good about the whole thing, and you have evidence to back up each step. Evidence, meaning there’s no hypotheticals, there’s no … There’s not going to be a surprise, I guess, in a future relationship because everything, the foundation’s been laid out for success.

Why You Should Find an Adviser That’s Like You

Vera Fischer: Interesting. How do you find someone like you?

Alex K.: That’s a great question. I think a great place to start is the CFP, so Certified Financial Planning is a designation in our industry that’s kind of like the master’s degree of financial planning. That’s a really good differentiator, because there’s a website. It’s publicly available. Right? A good step. There’s a third party who’s kind of like a verifier, right, that this person has done these steps necessary to get to this point in their career. It differentiates from a lot of the folks out there that might be biased by one thing or another, like an insurance salesperson’s probably not going to be a CFP. Not that insurance is something you don’t need, but it’s not the only thing you need, so if you go to that person, it’s probably the only solution they’re going to be able to provide you.

CFPs have shown and demonstrated that they want to be in this industry, probably, long-term, so it’s intentional and serious for them. That’s a good starting point, I think, and from that, you’re going to learn about the person. You’re going to … I always, I don’t know about you, Vera, but I check people out on LinkedIn immediately.

Vera Fischer: Of course.

Alex K.: Right? That’s a great one, because LinkedIn, you can see their past. It’s kind of like an online résumé. What are they doing now, what have they done in the past? What else? There’s something called the SEC. Right? We’ve heard of this before. Securities Exchange Commission. You can search advisers on there, SEC adviser search, so you google “SEC adviser search,” put in the person’s name. You can see their whole track record in the industry. Where they’ve worked, what years they worked there, if there’s been any disclosure events, so meaning like any, have they gotten in trouble for any reason? Right?

Vera Fischer: Oh, wow.

Alex K.: Yeah. Which is good, because if somebody’s gotten in trouble, you can see the whole outcome of the situation, and you then can pose that question to the person and ask them about it. Doesn’t mean … No one’s perfect, but you need to know who you’re talking to, right?

Vera Fischer: Exactly. Exactly.

Alex K.: Yeah.

Vera Fischer: Oh, I love this.

Alex K.: Those are some pretty good tips, I think, for people that kind of just get their bearings on some qualifiers.

Vera Fischer: Absolutely.

Alex K.: I think … I don’t know, what do you think, Vera? What would you do, or what have you done in your personal life to help you find the right solution for you?

Vera Fischer: For me, it’s always been referral, word of mouth. It can be pretty daunting, especially if you haven’t met with a financial adviser, you don’t know what to ask, you don’t know what to say.

So the tips that you’ve provided in laying out that step-by-step process of what to ask and when to ask it is really, really helpful. I think a lot of us out there may just not think we need a financial adviser, “It’s only for people that have a whole bunch of money,” but I don’t believe that to be the case. I think it’s, you may not have a bunch right now, but you will at some point, just through the compound effect, if you will, so I think it’s good to go through this.

Alex K.: Definitely. Another good spot too, to start, if you don’t know where to start, and maybe you’re young, maybe you’re not young, but you just don’t think you’re, like you said, you need it, for some reason, you think it’s too expensive to hire one of us or something, there are direct, we call them, retail points of entry. We, obviously, are biased towards Schwab. When I say “biased,” full disclosure, Charles Schwab pays us nothing, and this is not endorsed by Charles Schwab. I’m not endorsing Charles Schwab for anything other than, they’ve always delivered on what they said they were going to deliver on.

It could be Fidelity. It could be TD Ameritrade. It wouldn’t matter to us as long as they’re delivering the best thing for our clients, but if you’re thinking about it, you can go into like a Schwab branch or go online. It’s all very, very tech-savvy nowadays to any one of those three big ones, and you can get actual kind of basic general advice for free from a Charles Schwab employee, and you can open up accounts, and you can start the savings habits and things. Then what typically happens there is, once you kind of get going and you have some money, some real money, in your world, to you, then you start to seek out more direction. Like, “Okay, I’ve saved money. Step one.” Right? Step one is spending less than you make and then saving it. Right? Then what do you do with it once you save some of it, and how does that tie into your goals, short and long-term?

Vera Fischer: Exactly.

Alex K.: That’s … Yeah. Then referrals, like you said, are great. The referrals are amazing. That’s most of our business, 80%-plus is from referrals from existing clients and our professional alliances that we’ve got with CPAs and estate planning attorneys. Right?

Next Challenges for Alex and His Company

Vera Fischer: Exactly. Well, Alex, this information that you’ve shared with us around how to choose the right financial adviser for you has been really educational, and I’m really thrilled, because it’s so easy to understand, so that’s fantastic. In your world, let’s wrap up our discussion, and tell me what your next challenge is with your company and the podcast.

Alex K.: Our next challenge is actually exactly what you are good at doing, is to figure out the best way to take what we believe in and what we do every day all day for our clients, and how to get the message out and make sure that our message is clear and easy to take action on, and makes sense, and is different. Maybe not so different that it’s earth-shattering, but it’s something that’s worth taking five minutes to look at or listen to. That’s our next challenge.

Vera Fischer: Well, Alex, you’ve shown us that processes are needed to get the work done and have provided a few of the nuances that our listeners need to hear regarding the execution of a successful system. Before we go, let’s close out today’s discussion with any final advice you want to share, anything that we may have missed, and then tell us the best way we can connect with you.

Alex K.: That’s great. Thank you. I think the best way to proceed, for anybody listening that’s interested in listening to more, either directly email me, alex@labrumwealth.com. That’s Alex, A-L-E-X, @labrumwealth.com. Also, check our podcast, Financial Detox. That’ll give you a glimpse into more of us and our personalities and kind of reinforcing what we’re saying, and obviously we can take it from there.

Vera Fischer: Awesome. Well, System Execution fans, no matter how many notes you took or how often you relisten to this episode, remember, every successful business uses systems to drive to a better outcome. Alex, it’s been great to have you on the show. Thank you for sharing your insight with System Execution listeners.

We hope you found this episode of System Execution enlightening. For free examples, case studies, eBooks, and more, be sure to visit systemexecution.com/resources. Contribute to the conversation by reaching out to Vera directly on email at Vera@SystemExecution.com. Until our next episode, thank you for the privilege of your time.

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