The Differentiating Factors of a Sound Wealth Advisor with Matt Sommer
Episode 36 with Matt Sommer
What is the role of a wealth advisor? What are the conversations, holistic strategies, and skill sets that set a sound advisor apart from a mediocre one?
Today, co-hosts Wes Brown and Dr. Sonya Lutter sit with Matt Sommer, Head of Specialist Consulting Group at Janus Henderson Investors, to explore the role of advisors in the year 2024. Through this enlightening conversation, Matt shares several findings from his recent research: 85% of all investors desire more financial education, life expectancy is correlated to wealth, and 70% of investors admit to making mistakes due to emotions.
Based on his research and experience, Matt shared his refreshing take on the role of financial advisors in providing financial support beyond investments and the importance of providing peace of mind and behavioral coaching.
About Our Guest:
Matt Sommer is Head of Specialist Consulting Group at Janus Henderson Investors. His team consists of various subject matter experts across several disciplines including retirement planning, wealth advisory, practice management, and investment strategies. They provide clients actionable insight and expertise they can implement into their business practice to retain and gain clients.
Before assuming his current role in 2023, Matt was head of the firm’s defined contribution and wealth advisor services team and lead behavioral finance researcher and wealth strategist. Prior to joining Janus in 2010, Matt spent 17 years at Morgan Stanley Wealth Management and its predecessors, Citi Global Wealth Management and Smith Barney, during which time his roles included director of financial planning and director of retirement planning.
Book Recommendations in this episode:
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Matt Sommer 00:00
A lot of people think of financial advisors as perhaps a place to go to get stock tips. I would say that here in the year 2024 it's not about the stock tips, it's more about some of these other things, and being able to help people think about their wealth holistically and the transfer to future generations is a big part of that. Wes,
Wes Brown 00:24
hello and welcome to analog advisor, where we explore how money shapes our lives, futures, families and communities. I'm Wes Brown and I'm Sonia Luter, whether you're managing your own family's wealth or just curious about the world of wealth management, this conversation will enlighten and inform. Thanks for being here and for tuning in. What's the role of a wealth advisor according to today's guest, today's investors need more than stock advice. I couldn't agree more, the conversations I have with my clients go far beyond their investment portfolio. It's my belief that a good advisor is going to be thinking holistically about their clients lives. Money impacts every area of our lives, and it's our job to enter into the necessary and sometimes uncomfortable conversations, provide behavioral coaching and bring peace of mind, and the research backs it up. I'm excited to introduce you to today's guest, Matt summer, head of specialist Consulting Group at Janice Henderson investors. He joined Sonia and me for an enlightening conversation, sharing what investors need most based on the data, and it's probably not what you think. I loved getting into the data behind my client's concerns, goals and challenges. I also learned a thing or two. Grab something to take notes, and let's get analog
Wes Brown 01:42
you. You're in Colorado.
Matt Sommer 01:46
I'm based in Denver, Colorado. Yes, in Denver. Okay,
Wes Brown 01:50
nice. Have you always been in Colorado?
Matt Sommer 01:53
I'm originally from the northeast. Spent some time in New York City, and in 2010 decided to make both a career and a lifestyle change, and found my way to Denver, Colorado, and been here ever since, fortunate enough back in 2010 to join Janice Henderson investors. At the time, it was the Janus Capital Group, but today, it's Janice Henderson investors, and my role there is to think about ways that we can better service our advisors and bringing to them some insights and some thought leadership to help them in their practices and a lot of the content that we share with advisors, I think we're going to be discussing over the course of the next hour.
Wes Brown 02:34
Yeah, absolutely, before we jump into the professional highlights and whatnot. How is it living in in Colorado, after growing up in the northeast,
Matt Sommer 02:44
I love it. It's a wonderful place to live. People are really nice. It offers a lot. Every now and then, when I'm looking for a really good pizza or bagel, I'll make my way back east, like fortunate enough to still have family and friends back east, so I do get back there quite a bit, but this part of the country really has a lot to offer. And frankly, I couldn't be happier. The backdrop
Wes Brown 03:09
is jaw dropping. Now, you said you're from the northeastern from Did you say New York? Well, I
Matt Sommer 03:14
was actually born in quincie, Massachusetts, in Rhode Island, and upon graduating the University of Rhode Island, found my way to New York City back in 1993
Wes Brown 03:25
okay. Well, I, I grew up in Maine and, in fact, went to went to school in the North Shore of Massachusetts, near Beverly. So I know that area. Well, I've only been here in the south for about 15 years
Matt Sommer 03:36
or so. Okay, so I was born in quincie, so South Shore. Okay, yeah, yeah. Well, I
Wes Brown 03:41
hear the accent. I hear the accent which,
Matt Sommer 03:43
it won't leave me comforting and familiar. I
Wes Brown 03:46
like it. No, I like it. Well, I mean, if you had to move away from the coast, you picked the right place to go to. Because the couple of times I've been to Colorado, the backdrop of the mountains is just unbelievable. It's
Matt Sommer 04:00
amazing. Yeah, even if you're not a skier, and I'm not much of a skier, although I do get out from time to time, even if you're not a skier,
Wes Brown 04:08
there's tons, right? Yeah, yeah, that's awesome. Yeah, I appreciate you sharing that. It's always nice to meet a northerner as as a as a northerner stranded in the South. I get tired of being told I'm too direct, I'm too intense. I don't know whatever it is, I don't say bless your heart enough, or something. I'm not really sure. So it's nice to meet another Northerner. Same here. Well, I'm sure Sonia told you, but we love to kick off conversations, and you kind of started down this road a few moments ago. But we just love for our listeners to hear kind of the the key moments that led to where you are today.
Matt Sommer 04:43
Yeah, sure, I basically have had just a couple of desks sometimes, as a result of merger and acquisition activity, the name on the door and the name on the business card tends to change quite a bit. But in terms of stops, I started out. Smith Barney that subsequently became Morgan Stanley. Smith Barney today It's Morgan Stanley. So I consider myself an alumni of Morgan Stanley, and over the course of 17 years, had the opportunity to work in a variety of roles, both in retirement planning as well as our 529 efforts. And then towards the latter part of my time there just thinking about financial planning and the transition to more holistic wealth management. And when I moved west and found my way to Janice Henderson, that was really to hone in on how an asset manager like Janice Henderson thinks about servicing its advisors and thinks about some of the tools and resources that would help advisors help their clients who are obviously end investors. So that could be various tax planning strategies, retirement planning strategies, how to think about Social Security claiming strategies for clients who are thinking about passing on wealth to future generations or charitable organizations, some of the different considerations, and the way that I like to think about it is just helping financial advisors be a little bit better as a financial advisor, to put it in simple terms,
06:17
okay, and part of your job, Matt, is research, and I met you when you were working on your PhD just down the road in Kansas, and I am so fascinated by this research that you've been working on recently that's looking at the high net worth and the affluent, and the finding that really jumps out To me, that I think, will be surprising to people. It was surprising for me that the percentage was this high, that 85% of people, and that's pretty much this. It's pretty similar for the high net worth and the affluent groups want financial education. Tell us more about that, and what sort of financial education you think people are looking for
Matt Sommer 07:00
that was surprising to us as well. So we asked, just to give the listeners a little bit of background, back in 2023 we did a survey among 1000 US investors, and we just wanted to get a better sense as to what's on their mind. What are their concerns? What are they worried about? What are they thinking about? How do they feel about the economy? How do they feel about the markets? And then we also ask quite a bit of information about what they want from their financial service providers, whether they use an advisor or whether they go it alone. And it's very hard to get 85% of our country to agree on anything these days, but what we found that was very fascinating, is that 85% of people are somewhat or very interested in building their financial education, building up their financial literacy. And that was consistent, not only among affluent investors, but also among high net worth investors, people who have investable assets greater than a million dollars. And so you would think that people of these wealth levels are clearly very successful in life, probably have had or have amazing careers, and you would think that those individuals would have a great deal of confidence in their ability to be successful investors, and I would suspect that in many cases, they do, but they're hungry for more, and they want to learn more, and they want to be smarter, and they want to be better prepared. So when we think about financial education or financial literacy, we can go in so many different directions. We can help people be smarter about the markets. We can help people be smarter about financial planning. We can help people be smarter about risk management. We can help people think about the transfer of wealth. But one topic that I've been thinking about quite a bit lately, that I don't think gets enough attention, is what is called longevity literacy, and this is just simply estimating how long you think you're going to live. It's sort of an awkward question. Some people might even suggest it's not the most pleasant thing to think about. But in any plan, you need to take into account whether or not you think you're going to live until 7585 95 or even 100 plus, that is going to have a significant impact on one's ability to generate the cash flow to do the things in retirement that they're hoping to do. And as Americans, we are really lousy at estimating our own life expectancy. One, we don't like to think about it. And two, if we were to venture a guess, in all likelihood, when you compare the guests to actuarial tables, it's a lousy guess. And so I think that for US investors, particularly people who would fit that high net worth category, there's a correlation between life expectancy and wealth. So the wealthy you are. Generally speaking, the longer you're going to live, that wealth affords certain things, including healthcare services and whatever one may need, should they become ill or sick. And research has found that when people are more literate in terms of their life expectancy, they tend to be a little bit more diligent in terms of planning for retirement, saving for retirement, thinking about their spending. So there's really two aspects. One, wealthier individuals, on average, are going to live longer than the average American. And two, when people are a little bit more literate, a little bit more knowledgeable about what those numbers really look like, they tend to make better financial decisions. So that's just one example of ways that some of the listeners out there can think about improving their overall financial education and their overall financial literacy. I have a
Wes Brown 10:58
couple questions for you on that, on the longevity piece and the correlation between level of wealth and longevity. What's the driving factor there? Is it financial capacity to handle higher medical expenses? Is it just a greater intention generally across different disciplines of life? So if you're more disciplined professionally, when financially, you're also more likely to be more disciplined from a lifestyle or or health stamp fitness standpoint. I mean, what are the what could you pull out of that?
Matt Sommer 11:29
I think the the number one driver, and I don't have data to back this up, but I think intuitively, it's just being able to access medical professionals, and there are so many people, unfortunately in this country that cut back on their prescription drugs because they don't have a choice. That's that's sad, and it's unfortunate. But on the other end of the spectrum, if you think about wealthier individuals, they have the means, they have the ability, and if they need to take care of themselves, whether it be preventative or if something should happen, they could seek out some of the best facilities, some of the best healthcare providers in the country, and make sure, if they need prescriptions, that they're able to fill their prescriptions. So it's just basically having the financial resources to one, take care of yourself and be preventative. But too, should something happen, be able to search for different alternatives that are out there in the marketplace and find the right professionals, given the circumstances that's interesting?
12:33
Yeah, I don't disagree with any of that, but I think you can back it up quite a bit further from that too, just in terms of how they grew up, and the types of jobs that they had, and the conditions in which different wealth spectrums work, and how you can be protected from some of those issues that later create pretty big problems. Yeah, and
Matt Sommer 12:56
there's something to personality as well. If you think about one of the personality traits that is correlated to wealth, it's conscientiousness. People who are just more conscious about their finances tend to be better savers, and they tend to budget better, and they tend to take more of a long term perspective, rather than a short term perspective, where it's easy to fall into the trap of instant gratification. Health is probably not all that different. So if I by nature, my personality makeup is that I'm I have a high levels of conscientiousness, then I'm more likely to be preventative. I'm more likely not to miss doctor appointments. I'm more likely to do the things that I need to do to stay healthy. Okay,
13:36
so we've got longevity, literacy, that's a good one in terms of building financial education. What about transferring wealth to the next generation?
Matt Sommer 13:46
So that's one of my favorite topics. And Sonia, you talked about our time together at Kansas State. My dissertation was about the bequest intentions and the bequest decision making of older, wealthier Americans, and some of the different things that they think about. And when you think about passing wealth to children, I like to think of it as a spectrum. You have people where this is a very important life goal, it's an important priority. They are definitely going to leave wealth to their children. And then you have people on the other end of the spectrum where they want the check to the funeral home to bounce because they plan on spending every last cent. And then most people probably fall somewheres in the middle. So the very first thing that you need to think about is, what is your your personal philosophy? What Where do you stand? And there's certainly no right or wrong answer, but that's probably a starting point, and then from there, one of the decisions that many families are going to have to grapple with is relative amounts between the children. So if you have two or three or four children, one of the questions that families. Must ask themselves, is, are fair and equal the same? Thanks. So in other words, if I have two children, should it be 5050, or should I take into account the facts and circumstances of one child versus the other, and maybe leave more or less to one child versus the other, again, depending upon those facts and circumstances, I will share with you that 80% of individuals who plan to leave a bequest leave it in equal shares, so everyone gets the same but still a meaningful percentage of people take into account the facts and circumstances. The key thing to remember is the the unsaid message of a bequest. So in other words, if you have two children and very different in terms of economic status, and you decide to leave equal bequests because you just feel that that's the right thing to do, the children, the child who's less off, may misinterpret that as less love and affection. So it's really, really important to make sure through the process that these this is what I'm doing. This is why I'm doing it, and let me assure you that this has nothing to do with less love and affection. The other way to think about it is, if you have two children, or three children or four children, and maybe the parents are philanthropically inclined. I'm not suggesting Bill Gates where it's all going to go or Warren Buffett where it's all going to go to charity, but maybe a substantial portion, or a meaningful portion is going to go to charity again, they could feel maybe slighted. So the important lesson to be learned is once you sort of figure out based upon your personal preferences, and what works best for you is to sit down and have those money conversations and communicate and give the children an opportunity to ask questions. And these are hard conversations, and not everyone's willing to have those hard conversations, and so what ends up happening is you have unsaid messages and misinterpretations of what the bequest actually means to the children. And unfortunately, it all happens too late, because you're no longer here to explain why it is that you did what you did, and so they're left wondering. And so part of the literacy is to sort of think through some of these issues and think through what may be the best ways to communicate these messages. It may be as simple as sitting down and have a conversation, but there's other ways to do it. It could be in the form of a letter. It could be in the form of a video message. There are a lot of different ways to do it, but those are some of the key takeaways that I got out of my work four or five years ago at Kansas State.
17:42
Those are hard conversations, and I know a friend who's grappling with this very issue with biological children versus adopted children, and should it be the same? Because, I mean, there are implications both ways of how you want to think about that and and that's hard to talk about with your significant other, let alone bringing the children into that conversation. So I love the idea of talking about it just
Matt Sommer 18:09
a couple of thoughts. First and foremost, there's there's no right or wrong answer, because what we're talking about is a reflection of one's values. And when it comes to values, there is never a right or wrong answer when it comes to these sorts of topics, and then secondly, this is really where the value of outside professionals comes into play, because most people who are grappling with these issues, they're going to grapple with it once and then never again. But whether it's an attorney or a CPA or a financial advisor, they've they've seen this. They've seen this movie play out over and over and over and over again, and many of those professional service providers are more than happy to moderate or facilitate or mediate a meeting between the parents and the children, or at a minimum, to provide pointers or tips or suggestions to the parents about what they've seen with other families and different ways to think about how to go about having these conversations. So a lot of people think of financial advisors as perhaps a place to go to get stock tips. I would say that here in the year 2024 it's not about the stock tips. It's more about some of these other things, and being able to help people think about their wealth holistically and the transfer to future generations is a big part of that.
Wes Brown 19:27
I love the way you said that I've been through this with clients in the past, and, you know, I've had all sorts of reactions. You know, I think some clients are extremely defensive of the decisions that they've made or the goals that that they've landed on because they don't feel as though they need to justify their decisions to anybody, right? And let alone their kids. They only it's, it's our money, we you know, I think there's also an apprehension, because in those conversations, both sides need to be prepared, right? Because even if the parents prepare really well, the kids might not be mature enough. To receive what they're telling them in a manner that's going to avoid conflict. They might not be able to process it, or can even understand, really, why someone might do what they why the parents might do what they decide to do. So it's for that reason I've seen a lot of clients write letters, just plain English, letters that are sort of like cover letters to their estate documents, just explaining here, here are my intentions when I when I drafted this, and that seemed to go really well.
Matt Sommer 20:27
I call it the I Love You letter. So you have your wills, you have your trusts, you have your health care proxies, you have your durable power of attorneys. You have your living well, you can also include an I Love You letter. So if there's anything that you want to say to loved ones, I think your suggestion is a great one. It takes the uneasiness of having these difficult conversations out of the equation, but at the same time, it gives you a opportunity to convey those thoughts and feelings in a way that is perhaps a little bit more comfortable for many people.
Wes Brown 20:54
You know, one one question I'd have for you. Maybe it's not a question, maybe it's more of an observation. You know, you said it. There's no right or wrong answer. This is a, this is very personal, very subjective. It's it's really about the values that someone might have around, around their money, even in a mediated situation. So with an outside professional, do you think there's ever risk? And I'm saying this sort of, this is somewhat of a loaded question, because I have seen this also where the where the the mediator, has their own biases that sort of get moving into if they're a true mediator, they shouldn't. But you know, if we're talking about attorneys, CPAs, advisors, brokers, I don't know you name them, someone who's not really a professional mediator, you know they may not be self aware enough to know that they're bringing some biases to the conversation. Have you seen anything like that happen? And who do you feel is best suited for that?
Matt Sommer 21:46
Yes, I think that's I think that's an excellent point. And one of the hardest things for financial professionals, whether it is a CPA, an attorney or financial advisor, is to leave your biases out of it. It's not about you, it's about your client. And so for high net worth, and even ultra high net worth families, when they're shopping for an advisor and and I touched upon this a little bit earlier, it's not about stock tips, it's not even about asset allocation. It's about finding someone or team of individuals that has expertise and can point to a proven track record in helping families who are facing similar situations navigate these waters. And so if someone does happen to be shopping for a financial advisor, what a great interview question to ask a prospective advisor. Can you tell me a little bit about Of course, I'm not asking for any confidential information, but can you tell me a little bit about your philosophy for helping families, especially as it relates to some of the emotional and some of the non quantitative issues when it comes to wealth transfer, solving for the federal estate tax is not terribly difficult. Yes, you need an attorney, you may need some trusts, you may need some life insurance. It's not hard. What we're talking about today is really hard, and not every financial advisor has this sort of experience. This is what really separates some of those practices that work with ultra high net worth families that have to deal with this, versus other families, where it's more about making one's IRA or one's retirement nest egg last through the lifetime, and the bequest becomes more of a luxury item.
Wes Brown 23:35
Yeah, you bring up a great point, because I know that, and I don't know if your dissertation was specific to any one particular wealth level, but I do know that a lot of your work, as you mentioned earlier, is in the high net worth and in mass affluent sort of segments. But this, this seems to be an issue that transcends all wealth levels.
Matt Sommer 23:55
It does because even for a mass affluent middle class, if you will. It's all about it's all relative. And so whatever does get transferred, if anything gets transferred that that could be substantial, that could be the down payment on a home. So we're not just talking about ultra high net worth. The other aspect to this is the heirs preparation. Are they ready? So for a lot of people, this involves getting a will and a trust, and that's that's a great start. But then the question becomes, how equipped are your adult children to handle this inheritance? Are they equipped to make good decisions? Now look, some people take an extreme point of view, where it's their money, they can do whatever they want with it, and if they spend it all in a week, then all in a week, then that's on them. Other people take an extremely different point of view, where everything is left in the trust, and there are very strict rules in terms of distributions from the trust to the children, maybe certain career milestones that they need to achieve in order to qualify for a distribution from the trust. Because I think most people are somewhere in between. But again, the these are other services that financial advisors, CPAs, attorneys, can offer families, not just working with mom and dad, but also preparing the adult children, or age appropriate children, I should say, for that eventual transfer of wealth, so that they're at least in the best position to make good decisions.
25:24
You and I both know from all of us, know from prior experience and research that overconfidence in investments financial matters is rampant, and that's across all wealth levels as well, I think. And part of that overconfidence, I think, is tied to the emotions that get mixed in with the process of dealing with money. And another really interesting finding from the data that you have, Matt, is the percentage of people who admit to making a mistake because their emotions got in the way. This isn't even including the people who didn't admit to making such mistakes, because we know that's a fair bit of people too. So I mean, we're probably close to 100% I would guess, in reality, of people who are making mistakes with their money because emotions got in the way. And I'm wondering if part of that could be within this financial education component, or what are your thoughts on that?
Matt Sommer 26:26
So we were surprised by that number as well, and there wasn't a whole lot of difference between people. The number of people who admitted mistakes among high net worth as compared to mass affluent, the number was around 70% so we asked, have you made investment mistakes? Because you let your emotions get the better of you. You sold too soon. You chased the hot dot, something like that. And it was extraordinary. 70% of people said yes. In fact, I'm guilty of that. Now, I think you're right. Sonia, I think everyone, we've all made mistakes. I think what you want to do, though, when it comes to the preservation of wealth is avoid the big mistakes. It's avoid the big mistakes. And so there are a lot of reasons for overconfidence. There are a lot of emotional sort of drivers or triggers behind overconfidence. It's good for people to be confident, because sometimes it takes confidence to be able to raise your hand and say, You know what? I think I need to learn something. I think I need a little bit of help. I think I need to be better educated. So high levels of confidence is not necessarily a bad thing. It's the overconfidence that leads to various types of investment mistakes, and the literature is just littered with different examples of how overconfidence gets in the way. So a couple of examples that we see, particularly as it relates to higher net worth individuals, corporate executives and company stock. Oftentimes, the way that corporate executives are compensated is through company stock, and there are rules and restrictions in terms of when they can and cannot sell that stock, and if they do decide to sell some of their stock, they have to go through certain procedures that other investors don't necessarily have to do. So there's there's some complexity, but given the green light to go ahead and diversify out of that position, a lot of times they don't. And so they become what we call concentrated. And so now not only is their career and their paycheck tethered to the fortunes of that organization, but their balance sheet is tied to the fortunes of that organization. And should the worst happen and something happens to that company or something happens to that organization, it's not good it's not good for them from a retirement perspective. It's not good for them from a wealth preservation perspective. And so the question in hindsight is always, well, gee, why don't you diversify? Well, we all know about the benefits of diversification. You don't want to have all of your eggs in one basket, but what we find is that many times, corporate executives are overconfident in their company's ability to continue to thrive, to exceed expectations and to continue to do extremely well. So why not tie a significant portion of my wealth to the stock. So one technique that sometimes financial advisors use, and I would recommend that listeners think about this, I call it pre mortem planning. So this was written up in the Harvard Business Review about 1516, years ago, and it wasn't in the context of investments, but it made an impression on me that I sort of continue to borrow it. When I do talk about investments, we all know what post mortem is. We do something and then we sit down and reflect. Okay, did it work? Did it not work? If it didn't work, why didn't it work? What do I do better next time pre mortem is to have that sort of discussion, either with trusted advisors or even with oneself in advance. Making that decision. So if I go ahead and make this decision, what's the best thing that can happen? What's the worst thing that could happen? If the worst thing should happen, why does it happen? So it forces me to consider non optimal outcomes. It forces me to take off the rose colored glasses, if you will, and consider all the possibilities, even the bad possibilities, and maybe that will give me pause in making my financial decisions initially, before it's too late. So just a little bit of overconfidence and how we see that play out with with advisors and clients. Yeah,
30:38
it's a great technique, and I will bring up your earlier point to where it's hard to do this by yourself, so having that financial advisor to have these conversations with really helps. But when you're struggling with overconfidence, it's also really hard to hire the financial advisor to do that thing for you. Yeah, that's
Matt Sommer 30:57
right. When you're struggling with overconfidence, one is likely to take the position while I have all the answers, so I certainly am able to pick my own stocks and bonds and mutual funds, or whatever the case may be. And again, I know I keep bringing this up, but the value of a really talented and helpful financial advisor is not picking the stocks, the bonds and the mutual funds. There are a lot of different ways to find good investments. The value is being able to provide peace of mind, being a sounding board, helping people maintain a long term perspective. I'm going to call it behavioral coaching, and I think just last week was a case in point in how valuable behavioral coaching could be. Just last week, we saw a lot of volatility in the markets. This week is a better week. We're back to where we were. So people are feeling better last week, people were not feeling very good about the state of the market and the big drop in the Dow and the S, P and so it's really at those critical points in time where where a financial advisor can come in and help people see the bigger picture. The other aspect of this, I call it Life events, or life transitions, people tend to get really serious about their finances when they go through a major life event. So it could be a move, it could be a marriage, a divorce, a birth of a child, it could be a whole host of things, but in any event, when people go through these life events, which are typically associated with a tremendous amount of stress, one thing we know about stress is that we don't really make great decisions when we're under a lot of stress, so helping families and individuals think about the financial implications of those various life transitions in life events, and helping them work through that stress that may be bubbling as a result of those transitions is just another way That advisors help their clients,
33:01
and how many advisors are actually doing that? Matt,
Matt Sommer 33:04
so we asked of the 1000 people we surveyed, how many of you have a financial advisor, and about two thirds do, about two thirds do. And then of those two thirds, what are the things that your financial advisor does for you that result in satisfaction in the relationship, and about 60% says peace of mind. So not all advisors, the majority, the majority of advisors, are very good at this, but not all advisors are very good at this. And so again, for people out there who are shopping, who are thinking, who are considering hiring someone, or actually maybe making a change. Some of the different attributes that you want to listen for is that behavioral coaching, and to the extent that that advisor is able to help me maintain peace of mind and a long term perspective, yeah,
33:57
it is a big deal, and if you dig into that, a little bit more about a third of advisors are able to keep emotions in check, yes, and
Matt Sommer 34:08
1/3 said, Keep emotions in check. So really interesting that 70% of our sample, about 700 out of 1000 said they made a big mistake, because they let their emotions get the better of them. Yet among those who use an advisor, about a third said one of the things my advisor does for me that I really appreciate is that my advisor helps me keep my emotions in shock. This really separates good advisors from great advisors, to be quite frank,
Wes Brown 34:33
it's interesting. I've read the paper that Sonia was just referencing the two of you worked on together, and you know, a couple of things that stood out to me. So, higher net worth individuals have a higher engagement rate with advisors, right? So, in fact, much higher percentage of advisor use among investors with $3 million or more, right? I think that's what the paper said. 91% the more likely to have a financial plan, yep. So the wealthy you are, the more likely. It is that you've had a plan that you've been executing to or that you follow over time, and probably not said out loud, but fundamental to that is that you have a planning mindset, which is really important. I think it's interesting. And I think you also called out that the higher net worth individuals have a self assessed, higher, greater financial knowledge. Sorry, Matt, I'm going off the trail here for a minute. Two questions, is chicken and the egg? This is a chicken and the egg. Question, what comes first? Is it the plan? Is it the is the planning mindset? Is it the adoption of professional advice that led to people being wealthier, or is Was there a point at which people had enough money that it became too complicated and then they engaged an advisor? Did you see anything along those lines? Or do you know anything about
Matt Sommer 35:48
that? We didn't look at that specifically, I would suspect in just thinking about the life cycle of most people. We graduate college, we find our first job, we're trying to pay off student loan debt, we get into our 401 k, we begin saving in our 401 k. Now the marketplace has emerged where not everyone needs a full service financial advisor. For a lot of people who are just starting out in life, they're first saving in their 401 K, and most, if not just about all 401, K's have these things called target date funds, and it's designed to be what I call embedded advice. So it's not advice based upon you as an individual, but it's advice based upon your situation. And the way that they work is you make one investment, and as you age over time, that investment becomes a little bit more conservative, so it just tends to naturally make sense. There does, however, become a point in time where people now have paid off their college debts, and now they have accumulated a little bit of wealth, and now their situation does a little bit does become a little bit more complicated, and there are a lot of moving pieces. And not only are there a lot of moving pieces, but there are a lot of competing priorities. One of the biggest challenges for many people is, well, where do I put my first dollar of savings? Do I put it in my 401 K? Do I put it towards my kids college education fund? Do I pay down some of my mortgage? Because all of us, except a fortunate few, probably have more goals than resources, and so you need to make some tough decisions. And so there becomes an inflection point where people do need that customized, more full service advice. So I don't want to suggest that people hire a financial advisor and become wealthy. It's more the other way around. As people acquire wealth through their lifetime, their situation tends to become so complicated that they need that sounding board, and that's really when they begin to search out and look for a financial advisor that would be right for them.
37:57
Well, now you've got me back on this track of the financial education needs based off of wealth, because I think there's still a need for financial education through a novice cert or not at those levels that you were just talking about. And then you get to the high net worth, and then the ultra high net worth, and we haven't even touched on the needs of the ultra high net worth, but I think while some of these things transcend all wealth levels, there are likely different financial education needs amongst at least those three groups. Let's say they
Matt Sommer 38:31
are indeed. And one of the questions that we asked is, here's a list of services. It didn't make its way into the paper, but it's nonetheless, it's important. Here's a list of services and what, what are you looking for? What would you want? And so at the at the lower end of the wealth spectrum, there's a lot of well, I could use some help with budgeting. I could use some help with saving for college. I can use some help managing my debt. And then at the opposite end of the spectrum, the wealthier part of the sample, you saw some charitable planning, you saw some estate planning. I really want to minimize my taxes. So yes, in fact, the education needs of individuals change as their wealth profile changes over time.
39:14
So as a reminder, 85% of people want some of this financial education. It might vary. It might vary. It might vary. Yeah, they want it, and yet, only about 50% of financial advisors are offering any we did
Matt Sommer 39:30
ask. Here's a litany of different services for those of you who use an advisor, does he or she provide financial education? I think it was 52% said yes. So to us, that's a disconnect. That's a big disconnect. Clearly, the overwhelming majority of people, almost everyone, wants some type of financial education, and even those who are working with an advisor, many aren't getting it. So that is one of the opportunities that we pinpointed for both individual consumers as well as advisors. To think a little bit more about moving forward,
Wes Brown 40:02
Matt, for a second. Could you go back to the overconfidence topic for a second? Where does that come from, you know, and what are the types of overconfidence? And you might have touched on that a little bit before, but you know, things like attribution of returns being related to my stock picking ability, or, you know, the transferability of my success in my career field to my ability to pick stocks or things along those lines, am I? Are those some root causes there? And those
Matt Sommer 40:30
are some root causes. And I also think there's also some demographics as well, not in my paper, but research has found that males tend to be more overconfident in their financial abilities, their investment abilities, than females. Okay, so what does that mean? That means that males tend to trade more rather than be patient and buy and hold, which we know you can't time the markets. It's time in the markets, from a risk adjusted perspective. The reality is, is that all things being equal, females are better than males when it comes to investing just because they don't have that overconfidence and they tend to be patient. So yes, you do have some root causes regarding ones, maybe their education level, maybe the success that they've enjoyed in their chosen profession. But there's also links to certain demographic groups, and the one that really jumps out to me are males compared to females. And so advisors who are able to think about incorporating what I call gender smarts into how they service their clients and how they communicate with clients and different things to look out for can really, really be helpful in tempering those overconfidence. And in the case of females, they tend to be more risk averse than they should be given where they are in life, so they tend to invest a little bit more conservatively than perhaps they should be. So in the case of females, it's giving them the self confidence, that boost of self confidence that they need in order to move from the conservative to maybe the moderate spectrum on the risk return framework, again, this type of delivery by a financial advisor to his or her clients that could could just be an absolute game changer.
Wes Brown 42:17
Is there a difference between genders in terms of engagement with outside with professional advisors, are women more or less likely than men to work with an advisor? I
Matt Sommer 42:28
have seen research that has suggested that women are more likely to maybe raise their hand and ask for help. But on the other hand, I've also seen research that suggests in order to ask for help, you need to have a certain level of confidence to begin with, because asking for help sometimes isn't easy to do, and so because males tend to have more confidence than females, I've seen it the other way around as well. So I'm not sure that there's something out there as definitive as there is with overconfidence. I don't know. Sonia, let me. Let me ask you, in your readings, have you seen anything out there that definitively says that males or females are more likely to engage in an advisor?
43:09
The same thing with help seeking literature in general, and it's what I've seen is more on the mass affluent or even lower income level that women are much heavier users of those services. I don't know, once you get up into the wealthier spectrums, what that looks like, but my guess is it would be similar. Anecdotally, I would say that women are more likely to be willing to accept help.
Matt Sommer 43:36
Well, that could be a great part too. For our paper, we could go back and we can look at the data a slightly different way and see if there's any differences between advisor adoption, between males and females, particularly for that high net worth cohort, yeah, I
43:52
do think that's interesting, and I don't know that this is necessarily related overconfidence or even the gender piece, but we do see that among the wealthier who are generally more confident in their financial affairs, they spend their leisure time differently than people without those levels of wealth. So I do think there could be some connection there. And more specifically, the people with wealth high net worth, they tend to follow the markets more. They tend to look at their investments and keep track of those more than the mass affluent. Whereas the mass affluent, their leisure time is generally spent watching streaming services, Netflix, YouTube, whatever, and social media. That was one of my favorite.
44:42
There it is. There's
Matt Sommer 44:44
no difference between high net worth and non high net worth when it comes to time spent following your favorite sports team. So wealth levels and regardless. Of what type of fan you are, or who your favorite team is, or what sports you follow, everyone seems to follow the same amount. So that was really interesting.
Wes Brown 45:07
That's really funny.
45:08
It is funny. It's been a really fun paper to work on. Matt,
Matt Sommer 45:13
yes,
45:14
lots of new directions we could go with it, for sure. It's
Wes Brown 45:16
Sonia, I want to, I want to go back to your comment about the leisure time. Oh, yeah, can we pull out of that? You think that implies a greater level of of intention around finances or attention? You know, there's something there, right? I mean, to some degree it could also be negative. I don't acknowledge that, right? We often tell clients like, Stop, just stop looking at the market. Don't check your accounts every day. You know that, I'm sure, Matt, I'm sure you guys say the same thing. But it seems, it seems to be that what you're implying, or what you're sort of noticing, is that there's a, there's some positive aspect or impact from paying attention to your money more frequently or intently.
45:56
Yeah, potentially, and you know, something that it might be. And this was Matt's idea. Is potential under utilization of separately managed accounts, and maybe that's playing into some of that, paying attention to the markets and accounts if they are engaged in the SMEs. But even if they're not, I wonder if maybe there's a desire or interest in that, and maybe that's the association, but I do see that there could be some positive, but I don't think we should be looking every day.
Matt Sommer 46:30
Yeah, so a couple of things I learned recently that the Bureau of Labor Statistics thinks about how the average American spends their 24 hours in a day. So as you might suspect, it's eight or nine hours sleeping and time eating and working and whatnot. The average amount of time that Americans spend on household finances is less than two minutes. So one has to wonder, Is that a good number, or is that a bad number and across different demographics? We don't know, because this, again, is the the average American. So I thought that was kind of interesting. And perhaps as a next step, rather than ask people, here are five activities, which one is where you spend most of your time, is to actually fine tune that a little bit and get a little bit more granular in terms of how much time people are actually spending on their household financial management, I think could be interesting also. Sonia, you mentioned separately managed accounts. Just just a little bit of explanation. This is an arrangement between an individual and his or her advisor where the individual says, You know what? You don't need to check with me every time you need to buy or sell an investment. You do it. You do it. And certainly, people are busy, both wealthy and non wealthy people. People are busy and not not everyone wants to be engaged. And so this is a vehicle beyond tax benefits and some other things that it does for you. This is a vehicle which can really free up people's time by providing discretion to his or her advisor when it comes to choosing various investments. It's interesting.
Wes Brown 48:11
See, I think I'm I'm biting my tongue a little bit here because I know we're at the top of our our time together, and I have several more questions, but we maybe we can do a round two, part two that. So this always happens, Matt, Sonia hasn't told you already. We're always like, Hey, Matt, come back in three weeks and let's finish the conversation. No, I know we're at the top of our time together, and this has been super insightful and enlightening and and I really enjoyed the paper as well and that you and Sonia were working on. So we always like to sort of end our conversations with with two questions. And first would be, what book you're currently reading, or books, if you're like the rest of us that have five or six, yeah,
Matt Sommer 48:52
the book that I'm currently reading is a book that I'm reading a second time. It's Daniel kahnemans Thinking Fast and Slow. So this is all about investor psychology, and I read it six or seven years ago, and based upon a lot of the key findings in that book, we developed some financial literacy and some financial education. And as we're getting out there in the marketplace and talking to people about Dr kahnemans findings, I thought I could use a refresher. So Thinking Fast and Slow, if you ever, if any listeners out there are curious about the psychology of investing, it's a terrific read.
49:31
That is a good one. Okay, I get to ask the last one Matt, because it always trips people up, okay? And I can't wait to see what you have for us. Oh boy, and we like to promote authenticity on the show. And we would love to hear, how are you promoting authenticity in your daily life?
Matt Sommer 49:52
How am I promoting authenticity in my daily life? I'm trying. I'm trying. I'm at a point in my life. I'm. I'm 53 so back nine, whatever you want to call it, I'm trying to be really conscientious and trying really hard to be of service to the younger people in the industry. Because I remember what it was like showing up at 2223 years old, and I'm at a point in my life where it's not what I can do anymore. I get more out of what I can help others do, and just trying to be set a good example, and trying to be a resource, and trying to be helpful, and trying to be service of service to younger people in our industry, both here in the Denver area, as well as some of the younger people at Janice Henderson, that's kind of, believe it or not, where I'm where I spend a lot of my free time thinking about so that's a little bit about me, something, something personal that's
50:55
really fantastic. And people can't see us, but I have seen you smile more in the last year, Matt, than your entire time in the Kansas State program. Well,
Matt Sommer 51:04
it's because I'm not writing a dissertation. We have to control but you know, you know better than anyone, you have to control for, for the district, you know, for other things, confounding influences, but, but I appreciate that, and I'm very lucky, and I'm at a great place, personally and professionally, and it affords me the opportunity to give back.
Wes Brown 51:29
So it's fantastic. It's awesome. Thanks, Matt. It's great talking with you. Yeah, thank
Matt Sommer 51:34
you for having me. You