RockWealth’s Story – A WordPress Site

I know this is a long section. If you want the authentic version of me, you can read it entirely. If you want the highlights, you can just read the bold writing.

Also, you might think that some of my language is harsh or overly critical but these are my true feelings and what RockWealth stands for and against.

Our ultimate desire is that more firms like RockWealth help shape and influence the industry in a positive direction that truly puts the client first. In our opinion, this is not the case today.

I am going to tell you our fee and then I will explain the WHY.

RockWealth has a simple advisor fee: a $25,000 flat-fee

There are 2 main components to client fees: the advisors fee and fees associated with the investments themselves.
- The advisors fee is how advisors are paid. Advisors have 100% control over this fee and can charge a client as much as is mutually agreed upon, within reason. In the industry, 1% is common but it is also not uncommon to see fees higher than this, upward of 2%.
- The other component of fees are related to the investments themselves and can come from many different areas. For example, here is a non-exhaustive list highlighting where clients may encounter investment fees;
  - Investments such as ETFs, mutual funds, and insurance products such as annuities, etc.
  - Investment strategies such as market arbitration, long/short, alternatives, etc.
  - Finally, from investment managers usually called Separately Managed Accounts or SMAs
- Investment fees are in addition to the advisors fee. It is my belief and philosophy that investment fees can and should be minimized to benefit the client. For example, while it may make sense to use a SMA for a clients portfolio, doing so while the manager is also using mutual funds can add significant cost to the clients portfolio which can cause the portfolio to experience what is called Fee Drag.

Now let’s explore the WHY. Here are the reasons why built RockWealth the way we did:

We think it’s fair
Ends the AUM game
Eliminates client segmentation
Stops the chasing of outside assets
Avoids several conflicts of interests
Reduces negative feelings most clients have about overpaying for advice
We work with fewer clients and only the right clients

1. We Think Its Fair

I know firsthand about a client who pays their advisors close to $1 Million dollars per year in fees. In fact, they boast about paying these fees. I believe it takes energy, effort and intelligence to accumulate the amount of money where an advisor would charge you this much in fees. However, it takes no intelligence to get taken advantage of and ripped off. When have you ever heard an advisor say, “sorry but you cannot pay me anymore money.” Never. Until now.

Let me tell you another story. One of my clients said to me, “Jon you have done so much work, and we want to pay you more.” I said “nope, this is my job. I am simply doing what you are already paying me to do.” My client only had one thing to say, “Jon, it is refreshing to hear you talk about fees.” The reality is these clients would have been happy to pay me more if I had allowed them to do so. But I made a commitment to build RockWealth into the type of business and practice where I would like to be a client and where if I was gone, I would want my wife to be a client. Fees are the cornerstone of that business.

Anyone can give away money or make bad decisions. It doesn’t take any skill or talent to do so. It is also hard to always know if you are getting a good deal or not. RockWealth flips these conversations and essentially says, “We are here to protect you.” We view ourselves as the shepherds looking after your interests, guarding the hen house from the foxes. You don’t have to worry about being taken advantage of by our fee structure. If we do a poor job, you can fire us, but you will never fire us because you believe we are taking advantage of you with our fees.

As Julia and I continued to build and grow Brain Wellness Institute (you can read more about this on the My Story page), we naturally became more successful and had more money. What happened next is the same experience I believe most successful and wealthy people encounter; we began to feel that people began to try and nickel and dime us simply because we had more than we used to. In my opinion, this is what happens to clients when working with advisors. The more assets a client has, the more money an advisor is trying to charge them. RockWealth aims to stop this by having a simple and fair fee structure.

The entire AUM structure is unfair in my opinion. Let me try to illustrate this outside of financial services, which to my knowledge is the last remaining industry that operates on this type of a fee model. Imagine if you and your best friend walk into a grocery store to buy a bottle of water. You both walk to the cold case and pick out the exact same bottle of water. Next you walk over to the register to pay for your waters. When you get to the clerk, instead of scanning the water as you would expect, the clerk looks at both of you and asks you how much money you each have in your bank account. You and your friend look at each other a little awkwardly but then you both answer the question. Turns out you have little bit more money than your friend does. The clerk then turns to you and informs you that you will need to pay more money than your friend for the same bottle of water just because you happen to have more money than your friend. All of us would agree that it is outrageous but, in my opinion, this is how most clients are charged in financial services.

I know some of you will make the argument that no two clients are the same and therefore the workload is different, justifying different cost. I understand that argument but then why don’t CPAs charge on AUM, or lawyers? Of the big three service industries (advisors, CPAs, and lawyers), only advisors charge their clients based on AUM (to the best of my knowledge as I don’t know any CPAs, my dad and brother included, or lawyers, my brother included, who charge clients based on AUM). In essence, the more successful you have been, the more you are expected to pay for the same or a similar experience. I vowed that if I was going to return to financial services, I was going to fight against this model and work with clients in a consistent and fair manner. I believe this structure is stupid and I refuse to play the game. (use the following line somewhere above: this is stupid)

2. Ends the AUM Game

As I began with a blank canvas and thought about what I would want our firm to look like, I first spent time reflecting on the areas of the industry that I thought needed to be changed. An area that has always bothered me was the manner in which the majority of the industry charges clients. The typical model is to charge a client a percentage of the assets an advisor is managing, or assets under management (AUM). This has always bothered me immensely and here’s why: in my experience, if a client has $5MM or $25MM, the amount of work on the backend is not all that much different. Yes, there will probably be more accounts and the use of different strategies. I think that this is the advisor’s main job. But the difference in fees between $5MM and $25MM is staggering and in my opinion isn’t justified by the likely minimal additional amount of work. For example, let’s say that the $5MM client is paying 1%. That would be $50,000 in fees every year. Now let’s say the $25 is paying .80% (advisors usually discount the percentage they charge a larger client, but the overall dollar amount the client pays to the advisor will be higher). That is $200,000 in yearly fees. You may baulk that a client would pay this amount of fees, but I can attest that they do. I have seen it personally. So, in this hypothetical scenario, I would argue that the additional work managing the 2 different clients does not justify an additional $150,000 in fees every year. There is no logical way in my mind, in my opinion, that this is fair to a client.

3. Eliminates Client Segmentation

Another aspect of the industry I never liked is “client segmentation.” Client segmentation is the practice of segmenting and classifying clients based on a set of criteria, with fees usually receiving the most weight in the ranking. There are other areas that advisors will rank clients on such as client referrals or types of clients such as business owners, etc., but usually it is fees that receive the most attention.

Each client will then be given a ranking, usually something simple like AAA, AA, A, B, C, D for example. There is then a service matrix that determines what services each group gets. For example, maybe an advisor will meet with all of the AAA, AA & A clients 3 times a year, the B clients twice a year and the C’s and D’s once a year. Or maybe all of the A’s and B clients will be invited to a client event while the C and D clients will not. Other examples would be how many times a client is called in a year, if a client is taken to lunch for their birthday, how many events the client is invited to, etc. Finally, maybe the A clients will get different services that the B, C and D clients do not, such as financial planning.

My point is this, as you can hopefully see, client segmentation determines how an advisor interacts with a specific client. I do not believe this is the right way to approach working with clients. As of this writing, unless you are Elon Musk, there will always be someone who has more money than you and because of that fact alone, will determine what services you are offered by an advisor. I am breaking away from this lame and unfair structure. At RockWealth, every client is treated the same. There is 1 service model for every client. Every client is an AAA client. Simple as that. I believe in my soul that if a client decides to work with RockWealth, they deserve the absolute best of what we have to offer. Period. No more stupid games and segmentation.

4. Stops the Chasing of Outside Assets

Another frustrating experience that is avoided by not charging clients based on AUM is the chasing of outside investments. As individuals become more successful, it is common that they accumulate assets in different locations. If this has been your experience and you have assets at different locations, how many times has your advisor asked you to move those assets to their firm? I would venture to say more times than you can count. I would also guess this is super annoying and has potentially had a negative impact on your relationship.

If you happen to be unfamiliar with what I am describing, it is a common practice for advisors to heavily focus on getting clients to transfer those outside assets to them which allows them to make more money essentially. Some argue that it is for simplicity, alignment, etc., but then why do advisors always charge clients more money when the assets are moved over to the advisor’s firm? As we discussed earlier, in my opinion, there isn’t always that much more work being done on the backend. But what we do know for 100% is that the advisor will make more money, guaranteed.

At RockWealth, this stupid annoyance is eliminated. We leave it entirely up to our clients to determine what is best for them and the location of their assets. We do not use this dumb sales tactic. This also works the other way around. If a client would like to take money from RockWealth for any reason, including another outside investment, we would never stand in the way. We would offer an opinion about the risk/reward potential of an opportunity, but since it does not impact us financially, our only objective would be to help a client evaluate the opportunity and would encourage them to move forward with it if it is a good fit for them.

If a client wants to move more assets to RockWealth, one of the main reasons is that they want to SAVE money. RockWealth only has 1 fee, and it is the same regardless of whether they move more money to us or not. If fact, if a client moves more money to us, we may have some additional work to do which actually lowers how much we make overall (if you were to look at how much we make per hour for example). We believe this only improves our clients’ experience and our relationship with them. Our clients feel no pressure to do anything they do not want to because it doesn’t impact us in any financial manner. Most advisors’ activities are focused around the financial implications of their actions and this is usually about making more money. That is sad, stupid, and leads to a deteriorated experience for the client.

5. Conflicts of Interests

Next, let’s turn our attention to conflicts of interests. When I use the term “conflicts of interests,” I am referring to actions by advisors that may not be in the best interests of a client. While these actions absolutely could be in the best interests of a client in a given situation, you cannot say with 100% certainty that is the case as no one can see the true motives of a person’s heart. For example, is it really in the best interest of a client to buy a product that pays an advisor a large commission or is the advisor worried about making his mortgage payment and needs to make a sale? This is the type of conflict of interests I am referring to. I am going to use a bullet point format for these to make it easier to follow. A couple of conflicts of interest have already been described above but we highlight them for simplicity:

Chasing outside assets: we described this in detail above, but it also deserves to be included in this list as well.
Chasing performance by taking unnecessary risks: when a client is charged based on AUM as described above, this structure could entice an advisor to try to grow the client’s portfolio because the larger the portfolio, the more money an advisor makes under the AUM structure. It is hard to be 100% convinced that taking more risks is necessary to reach your goals even with the best financial planning software, which at the end of the day is really just a best guess since no one knows the future. This conflict of interest, in my mind, cannot be entirely eliminated.
Paying off debt: I have heard with my own ear’s advisors discussing why paying off debt like a mortgage is a bad idea. The usual argument normally centers around the benefits of having tax write offs. While this may be true, what is also true is mortgages can involve a fairly large sum of money and if that is removed from the investments and accounts, the advisor will make less money since they are managing less money. Said another way, the AUM of the client will go down by reducing the amount of money an advisor is managing, therefore reducing the advisors fees. There is no way to remove this conflict of interest beyond a shadow of a doubt. If an advisor is advising you not to pay off debt, I hope this rings in your ears as the potential BS detector should be going off loudly!
Taking money out of the markets: similar to the conflict regarding paying off debt, if a client is nervous about the markets or just wants to sit on the sidelines in cash, they are usually met with a fair amount of resistance from their advisor. The usual arguments against such a move revolve around missing the best 10 days in the markets and how that impacts a portfolio long term. And this argument is true. Portfolios can be damaged by missing just a couple of the best days in the market. But it is also true that if a client moves money into cash, advisors typically do not charge their clients on the assets that are just sitting in cash (at least they should not be charging their clients in my opinion. If your advisor is charging you while sitting in cash, I would think about if that is a good fit for you.). Again, the potential of an advisor’s fee going down is at stake with this conflict. While it may make the most sense for a client to stay invested in the markets, you cannot fully know the advisors’ motives and therefore, this conflict cannot be fully eliminated.
Selling products: this is another area with clearly identifiable conflicts of interest. When advisors earn a commission from selling products, one can never truly know the advisor’s intent because they stand to reap considerable financial benefit from these sales. As I mentioned above, unless you can see into the advisors thinking and heart, you never fully know if this is the best option for you or if the advisor needs to generate income for themselves. RockWealth is not paid commissions, and we do not sell products. Our structure allows you to know that we have nothing to gain from recommending a product to you as we are not compensated in any way by any investment companies, insurance companies or distributors. You pay us $25,000, no more.
Churning: churning is when a new product is sold to a client when they already own a similar one. Variable annuities (VA) are an easy example to highlight. When a client’s surrender period has ended on a VA or the client has owned a variable annuity for a long period of time, it is possible to exchange the variable annuity for another variable annuity. When this is done between 2 different insurance companies, this action can result in a large payment to the advisor. I absolutely believe there is a time and place for exchanging an annuity and I am not going to break that down here. My point is the same as the points above. Is it possible to say 100% that the exchange is in the best interest of the client since you are not able to see the motives of the advisor and there is a possibly large paycheck to the advisor involved in these activities? Should RockWealth recommend such an activity, you can know 100% that there are no financial incentives behind our recommendations since we are not compensated on any transactions and we make no money when recommending an investment or strategy. Again, you pay us $25,000, not a penny more.
Selling vs. Advising: this conflict is a little more nuanced, but I will try my best to simplify it. There are 2 different standards in our industry and depending on the firm structure where an advisor works, it will determine which standard an advisor is required to follow. Here is a very simple definition and explanation of each standard as I do not want to get lost in the weeds. The first standard is called the “suitability” standard. It essentially means that when an advisor makes a recommendation or sells a product to a client, the investment must be “suitable” for the client at the time when the recommendation is made. This standard is synonymous with commissions and is what you normally see in the bank and wirehouse channels (I described the 3 main advisor channels here). The other standard is called the “fiduciary” standard, and you mainly see this standard in the independent channel (RockWealth is in the independent channel). The fiduciary standard essentially says a recommendation must not only be suitable at the time the recommendation is made, but for as long as a client owns or is invested in the recommended investment. This is an important distinction since under the fiduciary standard, suitability stays with the investment for as long as it is owned by the client vs. only at a certain point in time, the time it is purchased. The other distinction between the 2 standards is under the fiduciary standard, advisors are paid a “fee-for-service” vs. commissions. In my mind and in my opinion, this is a better option for a client. I will note, some independent advisors can be under both the suitability and fiduciary standards at the same time and can use both standards as long as they are disclosing to the client which standard they are currently acting under. If it sounds confusing its because it is confusing (RockWealth only operates under the fiduciary standard).

Here is where things get interesting. Under both standards, most advisors are paid by either commissions or AUM, both of which carry their own conflicts of interest as we have already discussed. And while in my opinion the fiduciary standard is an improvement from the suitability standard, only a flat-fee structure such as RockWealth can eliminate these conflicts of interests.

6. Reduces Negative Client Feelings

Moving on from conflicts on interest, we turn our focus to the perception clients often have of advisors and our industry. It is my belief and opinion, based on my experience in different parts of this industry, that it can be a common experience for clients to feel they are being charged an unreasonably high amount for the services they are receiving. This becomes more evident the higher you go in client size. It is also not uncommon to hear CPA’s sharing with their clients their thoughts on advisor fees, you only need to ask a CPA to hear their thoughts. As I mentioned earlier, in my opinion, the amount of work an advisor does on the backend isn’t significantly different for a client with $5MM vs. $25MM. Yet most clients’ fees will be significantly different. (need to finish this section)

7. We Work with Only the Right Clients

The final area I want to highlight is how RockWealth’s structure allows us to keep the number of clients we work with to a reasonably small number. This improves the overall client experience and allows us to avoid client segmentation. We treat every client as an AAA client. In my experience, it is common for advisors to have a lot of clients, hundreds of clients. If you visit FP Transitions (hyperlink name or add link) homepage and scroll down, you will see advisor practices that are currently listed for sale. If you click into a listing, it will show you the number of households the practice is currently serving (note: there can be more than 1 client per household so this number can be a little misleading depending on how the practice is currently householding or grouping clients together). As you will see, or if you prefer to take my word for it, it is not uncommon for an advisor to have a “lot” of clients. This is not our intention at RockWealth. Our aim is to work with a small number of chosen families and serve them exceptionally well. The final aspect to note about our fee structure is it creates a minimum client size. For example, it would not make sense for us to bring on a client with 1 million dollars to manage, as this would equate to a fee percentage of 2.5%. That would be excessive, and we would refuse to do so. While we do not necessarily have a minimum asset size requirement, we are cognizant of how much clients pay and want to do what is best for clients, even if that means declining to work with a client because we feel it would be unfair to the client.

To recap:

We refuse to play the AUM game and avoid the pitfalls that come with it
Our structure and price is fair
We don’t annoyingly chase outside assets
We don’t avoid conflicts of interest, we eliminate them entirely
We change negative client perspectives around fees
We work with fewer clients and only the right clients

Closing thoughts: RockWealth has been intentionally built to be a light in an industry that is often clouded in greed and complexity.

Disclaimer: The conflicts of interests I listed above do not automatically indicate that a strategy or investment is not in the best interest of the client. My belief is that under most current industry structures, these conflicts cannot be 100% eliminated, which is what I am intending to point out. Given that so many conflicts of interest revolve around fees, RockWealth has made the intentional decision to use a structure that truly eliminates these conflicts of interest since our fees are already set and do not change with the above actions. You can believe that the actions RockWealth takes are honest and sincere since we have nothing to gain from a financial perspective with any of the above actions.