Have you ever been given a ton of disclosures and paperwork in the name of financial transparency, only to find yourself drowning in confusion and uncertainty? In the latest episode of Simply Why, hosts Dennis Morton and Katie Brown dive into the world of financial transparency and its impact on your financial well-being. The episode unpacks the challenges clients face in understanding financial information and navigating through potential conflicts of interest. Through their candid conversation, these seasoned financial advisors emphasize the importance of open communication, education, and trust-building in fostering transparency within advisor-client relationships.
Transparency is a fundamental strength of any relationship. It builds trust and the more it’s fostered in the beginning, it just sets up the whole relationship for success. – Dennis Morton
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Transcript
Welcome to simply why, a podcast about money and purpose, where we pull back the curtain on running a financial advisory business focused on providing intentional advice to couples and families. I'm Dennis Morton. And I'm Katie Brown. Welcome back and thanks for tuning in.
This is a good topic. I like this one. We've already discovered we approach this from two different angles a little bit, but we're going to talk about transparency today. Just that conceptually, we live and work in a very untransparent environment in this profession sometimes, and I think it's worth talking about. What's your take on transparency and money?
In order to be successful, feel successful. Feel confident in the decisions that you're making. There has to be transparency. And our industry does struggle with what that looks like. But we know the pitfalls for when it's not there.
Where does that show up? I mean, it's a lot of places, but where do you think it shows up most consequentially for our clients? I think it shows up in conflicts of interest, and I think that goes in a lot of different directions. I think that there can be a lot of conflicts of interest that are unknown, that aren't disclosed properly. So whether it's somebody having products that are recommended to them, where perhaps the advisor's receiving a nice commission that's not disclosed or some sort of kickback from the company that's putting the product together, you know, a quick pro quo, quid pro quo latin on this podcast.
You're excused. That's. Thank you. Struggle with one Latin and Greek as much as we can.
But if there's an existing relationship in some way that may influence where that recommendation is coming from, and if that conflict is not disclosed, then the client may end up with something that's maybe not in their best interest or not helping them to accomplish the things that they are trying to accomplish. To be clear, there are disclosures. In fact, there are a ton of disclosures. And sometimes our clients will say, why am I getting all these papers? Because that's what passes for transparency sometimes in finance is reams of disclosures where you can't figure out which end is up, who's getting paid what and when and how, and who are the parties involved.
And they say, we want more transparency, we want more regulation, and it just turns into more confusion and more paperwork. And I don't know which end is up. No, you're exactly right. You're exactly right. It's that ceiling of complexity, almost like there's too much to look at.
So I'm just not going to look at it all, at any of it. And that that does come up, because we are. We're trained that whatever piece of information is over here, it's going to be followed by ten pages of something else. But I think that there's a responsibility of advisors to verbalize some of the conflicts that may exist in our firm. So we are a registered investment advisory firm, meaning we're held the fiduciary standard.
We put our clients best interests first. We are required to disclose any conflicts, and we have all of our regulatory documents that we file and that we give to our clients to disclose any conflicts. One of the biggest conflicts that we have in our firm is that we are also life insurance agents. And where appropriate, we may make a recommendation to purchase life insurance. I know that at the onset of relationships, and, Dennis, I think you do this, too, and other advisors in our office do this, too.
I'll go through our documents and say, hey, I'm going to highlight for you where the biggest possible conflict may come up. And I'm going to talk you through where our recommendations come through. We're going to look at pros and cons, but just know this could be a potential conflict that I want to make sure I'm disclosing. I think there's a responsibility of advisors to highlight those things that may pop up for clients, or if you do have a recommendation, let them know. I just think that's important to go above and beyond the ten pages of jargon that they just might get.
You're exactly right to highlight at the inception of a relationship with your advisor, the transparency is really important. How does it start with transparency and how does that continue? Like, how do we make sure that throughout the relationship, transparency is kind of part of the culture of your advisory relationship? Not always the case. It depends on how you're invested, how you're doing, the planning, where the incentives lie.
I think there's a lot of follow through. It's not a one and done. Like, here's my disclosures. Now we're off to the races, right? I think it has to be embedded into the culture.
Like, if you think about a culture, maybe that's. That's rooted in education. Step away from the jargon or try to break down the jargon, because there. There's going to be pieces out there. And so to say, you might be hearing x, which might sound totally confusing.
So you know, whether it's price to earnings valuations. Okay, what does that mean? Or yield curves. Like, what does that mean? I'm just throwing some things out there.
But I think if you have a culture that's rooted in education, then you're breaking down the pieces of what you're doing and why something makes sense in an understandable way. I think you naturally provide more information on this might work for this reason, or this could be the downside for this reason, and it's kind of educationally based. I think that if you. If you have an advisor that's unwilling to give that education or really kind of hangs their hat on the jargon, that's a little bit of a red flag, because things can be hidden then behind that jargon. Yes.
We've talked before about a lot of times, complexity is kind of the fortress that advisors build around themselves to protect their role. Like, if it's complex and no one else can understand it, then it justifies what I do. Transparency is the same way. Like, if I can kind of keep a veil or a curtain in front of what I'm doing, then it can justify my position. I can decide what information gets passed.
But we spend a lot of time crafting the language and making sure that it comes through the right way. There's also transparency that goes the other way. One of the hardest and most challenging parts of the financial planning process is the initial gathering of information. It's one of the things that can be. It can take some time.
It could be an obstacle, both emotionally and operationally to gather information. But we also need clients to be transparent with us. Right. Yeah. You know what I think is really interesting, because we have had occasions where you can see there's something withheld in a client relationship, and every once in a while they might mention it.
Like, we'll go through a whole financial plan, and then at the end they'll be like, yeah, and then I have my play money over here. That's another $100,000 kind of sitting over here. And some stocks I play with, like, okay, that's good to know. It would be really great to make sure that we're including everything in the big picture. You can have your play money.
We'd love to know how you think about it, and we'd love to know, like, how you think it fits into the picture. And let's make sure that we're accounting for that in whatever way makes sense for you. That's great. But I think sometimes some of that lack of transparency in some things that are not disclosed to us often come from a place where maybe they were burned before, and now there's a lack of trust going forward and to be aware of that, like there was something that influenced them to say, I'm going to hold onto this piece of information. Right.
It really is. One of the obstacles in the work that we try to do, which is comprehensive holding holistic planning, is that maybe the obstacle is they had a bad relationship with an advisor. So I'm never going to tell anyone all the story again and I'm going to be the control person that keeps it all intact. The challenge is maybe you're not communicating that with your spouse, maybe you're not and you aren't communicating that with a professional who can really help you. And every once in a while we'll discover something.
And the reaction is, I'll give you the reaction that I have and you name the movie our favorite game that would have been nice to know yesterday. Wedding singer. Of course, a wedding singer. That's it. Big Adam Sandler fan.
That's right. We're going to keep tying it back to wedding Singer and happy Gilmore. For Katie's benefit. We migrated from the Christmas movies. I think that was our conversation this morning.
Yeah. Yeah. How everything life can be explained through three movies is it's a wonderful life, national Lampoon's Christmas vacation and elf. Just test that out in your life and come back and tell me if it's not true. Now, we all know Dennis's side hustle.
That's right. If I could use my powers for good, I'd be dangerous. But seriously, there's certain things that when withheld, when they do finally come to light, like the truth naturally seeks the light when they do come to light. It's like, wish we would have known that in advance. And especially when it comes to sharing within couples, I think that's one of the most valuable parts of the financial planning process is it just, it puts everything on paper, it gets it out in the open and it lets somebody else take a look at it.
Transparency doesn't just mean between two people necessarily. It's just get it out in the air and see what happens. And a lot of positive things come from that. But it can be painful. It doesn't feel good always to have that moment of authenticity, of transparency.
It takes a little work. Yes. You have a transparent moment right now.
I think it is interesting feelings of transparency. You are exposing yourself a little bit. And oftentimes that apprehension to expose yourself does come from being burned in some way or another previously or some experience that you had. When we think about transparency, I think about how does that show up for clients like how does that show up in the hardened facts, the pieces maybe that they own or have owned? But then also, how does that show up for them emotionally?
And what are those ripple effects of it? Because I think it can show up in a lot of different places. Where have you seen elements of lack of transparency? Maybe for some of the families that we've worked with, how do you recognize that a lot of it's in spending and not having an awareness on who's spending what. We always want transparency from the other person.
It's a little harder to get it out of ourselves. So you might find that somebody might be more of a spender in a relationship, or somebody might be, might not be forthright about risk and how they feel about it and where they're taking risks. One spouse might be taking a much more aggressive approach with investing than the other spouse could potentially tolerate. And they've never talked about that. And it might not be wrong, but it might be a surprise.
It could show up one day and say, hey, wait a minute, why is our portfolio down this much? Oh, I didn't realize you were taking that substantial risk over there. We've said before, risk is one of the most misunderstood concepts when we talk to clients. And I think putting that out on the table in a transparent way is pretty effective and it helps the understanding to accelerate. I think it's interesting that you bring up risk because I think a very interesting place that I've seen lack of transparency come back to haunt somebody's financial picture is they got burned with an investment where they didn't understand the risk.
Perhaps the previous advisor was not transparent enough to let them know that range of risk reward, and they felt as if they lost money they shouldn't have lost. And then they come out of that with, I'm going to be ultra conservative. I'm only going to buy cds. I'm only going to buy treasuries. I'm not going to lose another dollar.
Not fully appreciating how that ultra conservative approach may actually inhibit their ability to reach their goals and may negatively impact their future financial goals. But yet that was rooted in I didn't understand something from a previous relationship or engagement, and now I'm hurting my future financial opportunities. That's right. Yep. Yep.
It's absolutely true. I think it's an interesting point is that there's so much background that comes into it. There's a reason why we hold things tight. There's a reason why we just kind of keep things close to the vest, taken to an extreme on the other side, you ever heard the concept of radical transparency? Yes.
Let me hear your definition. So Ray Dalio, the Bridgewater hedge fund, successful hedge fund history. So Ray Dalio, they had this concept of radical transparency, which kind of has showing cracks in the facade recently, but their organizational culture was like, everyone tells everyone everything, and sometimes it works. I think sometimes it doesn't. I think transparency has to feel safe.
It has to feel like if I share this, it's not going to come back to me. I remember going through years ago when I was in a corporate environment, I had an instance where you did like peer level reviews and everyone got to share what they thought of everyone else. And then it was presented anonymously. And I remember thinking like, is this going to be weaponized against me in a financial planning setting? I think people are afraid sometimes to share information because they're worried that they could be shamed, that they're not where they thought they were going to be and that somebody's going to tell them that it's all wrong or you're off track or things like that.
So I think transparency has to be in a safe environment. And it's incumbent upon the financial advisor to communicate that safe environment or how it's going to be safe or how it's constructive to be transparent. I think for a good advisor, we have a really unique place in that conversation and to be able to look at things openly, but also to have the experience of having those conversations with so many other families. And we've talked about this before, financial security. At the thought of financial security, it's a very isolated feeling.
You don't always know how everybody else is thinking about the situation. You don't know other decisions that other people are making. And we are in a unique spot where we see a lot of stuff. And almost every single time a client comes in with almost that fear of, did I do enough? Did I make a mistake?
Did I make a wrong decision? There are a thousand other families that has similar decisions and are in a similar place and have similar concerns and worries. I don't dwell or focus on the things that necessarily have happened outside of understanding how that influences what happens going forward. I love looking at it from the fresh perspective of this is where you want to get to. Regardless of what's happened there, let's make sure that we're putting the pieces in place so that your future trajectory looks as strong as it can be.
I think that's a great way to wrap up today, Katie, because transparency is a fundamental strength of any relationship. It builds trust and the more it's fostered in the beginning, it just sets up the whole relationship for success. I agree. Great conversation today. These are the things that we'd love to talk about and if anybody ever has any questions around whether or not they are receiving the transparency that they should from their advisor or even stumbling blocks for how do I become more transparent with my spouse, my family around the financial picture?
Please feel free to reach out to us. Until next time, thanks for tuning in to this episode of simply a podcast about money and purpose. We hope you enjoy getting to know us, how we approach leading a financial advisory practice, and the work we do every day to help families and couples make important financial decisions. Morton Brown Family wealth is an SEC registered investment advisor. This podcast is a designed for educational and informational purposes and not intended as investment advice.
More information can be found at www.mortonbrownfw.com.