Do you have financial goals? How does your retirement plan look? If these questions are making you squirm, then do yourself a favor and watch this podcast episode today. Peter Lazaroff is the author of “Making Money Simple” and the CIO at a $4 billion wealth management firm. Peter brings a great deal of knowledge to this episode that can change your future financial trajectory in a big way.
Josh Fonger: [00:00:00] Welcome, everybody, to the Work the System podcast, where we help entrepreneurs make more and work less using systems. And I'm your host, Josh Fonger. And today I have a special guest. It's Peter Lazaroff. Peter is the author of Making Money Simple The Complete Guide to Getting Your Financial House in Order and Keeping It That Way Forever. Peter is a CFA Charter House and certified financial planner. He is the chief investment officer at Plan Corp, a multibillion dollar wealth management firm serving clients across the country. He also serves as a chief investment officer for a bright plan, a digital adviser that builds customized financial plans and goals based investment portfolios. Peter is a nationally recognized speaker and a regular contributor to The Wall Street Journal and to Forbes. Okay, Peter, very excited interviewed you today and learned about wealth management. But first, tell us how you got into this line of work.
Peter Lazaroff: [00:00:54] Well, I got a share of Nike stock for my grandmother for my 12th birthday, and that sparked an unusual interest in stocks. Which when your twelve there is a you know, that could mean a lot of different things. But what I really liked was will this dividend check coming in the mail and Nike stock split a lot in the mid to late 90s. And so I keep getting more shares of it without doing anything less. Fascinated by that ensue in high school. When I was looking at colleges, I still had this in mind that I definitely would do something with stocks, with finance when I graduated from college. I started with an independent registered investment advisor. And I was very fortunate that all these little dreams that baked in my head at the age of 12 and throughout high school and college turned out to be true. And so I started as an analyst and a trader worked my way up to be a portfolio manager. And when I came to Plan Corp., I had been working directly with clients, but ultimately came here to become the CIO eventually. And as I am today and we manage a little over four billion dollars in assets for our clients across 44 states.
Josh Fonger: [00:01:55] Awesome, it sounds like a very clean transition straight on the way up. So in terms of investing and you know about our audience, our audience is made up of small business owners. What is the I guess the blueprint, you would say, or the system to managing your wealth? So if you're kind of a beginner and you're starting to build up some wealth in your business, what what would you recommend? What's the plan?
Peter Lazaroff: [00:02:16] Well, so financial success, it's not magic. It's simply a matter of engineering. And so I'm a really big believer that my own personal financial success was mostly about putting systems in place that allowed me to make the right choice with my money very easily and consistently and on an ongoing basis. So that my finances are nudged quietly in the background without any effort on my part. And so I think that a big part of financial success seems intimidating because there are so many different places to start. And even if you do choose a place to start, the number of underlying options within that particular decision might become a little overwhelming. And so a lot of what we try to focus on at Plan Corp, what I focused on within my book Making Money Simple, was trying to just focus on those most important areas and narrowing down the choice and narrowing down the options. And again, just implement a system in leveraging the power of time, the power of compounding, not just in your investment accounts, but in all areas of your financial life.
Josh Fonger: [00:03:20] So let's say you get a small business and you got 20 grand the bank. I say you're just starting out, you're not in debt, you're actually making some money and you've got no investment. You got no retire, no insurance. What was kind of the first steps you'd want to put into place to be prudent to prevent disaster?
Peter Lazaroff: [00:03:41] Well, think if you're a business owner and this guy sounds super biased because I'm a financial adviser, you ought to seek out professional help because you're pouring all of your effort into this one thing. And it's a highly undiversified bet on yourself and your business. And that's OK. You have to acknowledge your time is extremely valuable and you need to outsource where you can and find trusted resources where you can. So if someone comes to us today, that's a business owner, we do have an exit strategy line here Plan Corp even that always starts with building our financial plan. And I think the top two priorities for a business owner is having some sort of contribution towards your retirement because you don't want to rely on the exit of your business as the sole source of your retirement income. Hopefully that business grows and that's great. And that really becomes what will support your lifestyle and give you that financial independence. So that's part one is to make sure there are some sort of contribution towards retirement. And part two is making sure some sort of contribution towards an emergency fund. Because when you're a business owner and something bad happens in life. If you don't have the liquidity to take care of that. That can often derail a lot of opportunities when something comes up in the business. So an emergency fund for a business owner is not just about an unexpected medical bill or a car repair. It allows you to take more risks financially. It allows you to be more opportunistic. And when I mention the importance of a good financial plan is leveraging compounding everywhere. The other important piece of it is that you don't interrupt that compounding. And I think an emergency fund and, you know, maybe people don't like that term. You can call the safety net or just, you know, a cash reserve. That is an extremely important component of a financial plan for a business owner.
Josh Fonger: [00:05:26] Yeah, often I work with clients and they there's no margin of error. They spend everything they make. And if an opportunity comes up, they have no way to jump on it. And if a bad thing happens, they just get into panic mode. And because they're running so, so lean. It's interesting. So if somebody is let's say they're running, this doesn't lean business, but there's really enough to survive. There's not a ton of extra money. Would you recommend some kind of debt financing or some kind of line of credit or would you recommend some other way to kind of get beyond that hand-to-mouth mentality?
Peter Lazaroff: [00:06:00] Well, there's a certain point in any business's growth where you are going to probably have to rely on debt. It's an efficient way. It kind of super charges the power of compounding, assuming the business grows and assuming you continue to pay your loan. Certainly having line of credit available, having a really good understanding of your balance sheet. And what are parts of the balance sheet dedicated for and what are those liquid parts where there's not liquid parts, but also just having a real good sense of what is it that you're trying to get out of life? And I think that, you know, I'm a business owner myself here, and you do get lost in your business and sometimes you for it. That's you know, what you wake up thinking about. You think about growing the business or making the business better. You do need to think about the big why sometimes. So, again, there is a life beyond that business and we do tend to identify it's a big part of our identity. We think it's all wrapped up in there. But when you look at your balance sheet and you understand what are the goals I'm actually trying to achieve in my life? Is it having a family or sending kids to college? Is it retiring at age 50? Is it just having the freedom to do whatever I want when I wake up every morning within reason, that makes a big difference. Honestly, in the type of debts you will take, the types of debts you won't take in the way that you would leverage your balance sheet.
Josh Fonger: [00:07:19] And so what I'm hearing is this in today's world, there are lots and lots options. Sounds like there's a lot of ways, a lot of places for your money. And so, I mean, you wrote a book on this. So what if someone's trying to do it themselves? Are there certain things they'd want to do or do you just say you basically the advisor if you can actually do it without making mistakes?
Peter Lazaroff: [00:07:39] Well, I don't think that money management like investment management is rocket science. I think it's more like mowing your lawn. I can mow my lawn. No problem. I do occasionally get lazy and I'll not do it on Saturday, not realizing it's going to rain that night and then I can't do it Sunday. And then I suddenly have to wait all week because I'm too busy to do it during the week. Or, you know, I don't know how to do some of the things that professional lawn service knows how to do or would think to do. And I remember when I hired someone to mow my lawn for the first time, they were cutting the grass in different directions. They were seeding strategically. They're cutting grass at different lengths based on the sun exposure. I would have never thought to do any of that. And I think that's an important part. Is the book Making Money Simple is designed to give you everything you need to achieve financial success. However, I do think that you can benefit from an adviser from a couple perspectives. One is that they typically will have more knowledge than you do about a wide range of things from estate planning and tax planning, which is crucial to business owners on the investment side of things. They will also have some kind of marginal value adds that you might not execute as well on your own. Whether that's rebalancing between asset classes or tax loss harvesting or asset allocation, which is really just putting tax efficient assets in taxable accounts and non tax efficient assets in non taxable accounts, those little things make a big difference. And then perhaps the biggest value add that an adviser has is that they're that behavioral babysitter, because our natural instincts are deeply ingrained in our DNA and they do not align with making good investment decisions. And so I think that for a business owner, again, you can do it. Anybody can do it if they dedicate the time to learning. The problem is that your most valuable asset is not on your balance sheet and it's your time. And so I think that's really what you're getting when you hire a professional, just like you probably hire a professional to do your taxes. Or if you have a lawsuit against the business, you're going to hire an attorney to go argue your case on your behalf.
Josh Fonger: [00:09:41] So what are the common dumb errors that people make with their finances when they try to do it themselves? What are some things that you see like, wow, you've been doing this for five years, you really, really shouldn't have done that. Like, have you seen some common things, mistakes people make?
Peter Lazaroff: [00:09:57] So I think that one mistake people make is there's not very much intentionality behind their savings. So the business owner, who's a good saver, they know that they should max out whatever retirement plan is available to them and they know they should be putting money away beyond that. And they're just accumulating money without real thought and strategy. And so they're not defining what the goals are with the end goals are in advance means that you're going to miss tax opportunities. You're gonna miss estate planning opportunities. From a strictly investment perspective, people do all sorts of things that are not good. They chase performance or they prefer investments have done well recently to those that have not done well. And investments are very cyclical. Whatever has done best this past decade is probably not going to do as well going forward in the next decade. They try to time the market and that can take a lot of forms, but it generally takes the form of have been building up this big amount of cash. And I'm going away to invest it until things feel more certain. We'll wait till the market drops. The challenge with that is that. As the market starts dropping, they say, well, I'm going to wait till it really stops dropping and then it rebounds and they've missed it. They're still holding cash. Cash is really plays a lot of mental games with you and your portfolio. Another common investment thing that people try to do is just beat the market, whether they know they're trying to beat the market or not. They do it in a number of forms where they'll buy mutual funds that are more expensive, but promise to beat the market, promise to give you all the upside and minimize the downside. Maybe they buy individual stocks and even if they're not thinking of it as beating the market, when you buy an individual stock, you are competing with the collective knowledge of millions of traders. And I think one of the biggest things I've learned throughout my career is how much competition there is in markets. And every time you place a trade, there's somebody on the other side of that trade, and they might have better information than you. Given that most money is traded by institutions these days, you can pretty much count on the fact that whoever is on the other side of the trade knows more than you do. And so I think those are some of the common mistakes. People maybe don't understand the differences in the types of advice they're they're receiving. They don't understand the conflicts of interest that a lot of people in the financial services have, that those can be common mistakes and people do eventually decide to engage. But the behavioral, both cognitive and emotional, errors on the investment side. We could talk for hours and hours on that on everything we do. And I'm no better than anybody else. I'm also human. I suffer from the same errors. The key with any sort of financial system is to create some barriers. And when you hired advisor, it's like tying yourself to a flagpole and making sure they're to steer your ship in the right way and they won't listen to you. They'll plug their years with wax. They don't. They know where you're trying to get to. They know the end destination is.
Josh Fonger: [00:12:45] So I guess that brings me into my my next question, because, I mean, you're in a very competitive market. There's a lot of advisers out there. What would someone need to do if they're going to interview and find a good adviser that they actually can trust to guide their ship for them? Because I guess our clients who are well, Andrew's advisers and I always hear this emotional aspect and how clients really have a hard time doing it themselves. So if I'm going to hire somebody, what would I do?
Peter Lazaroff: [00:13:11] It's a great question. And I actually dedicated a full chapter at the end of the book, which I wasn't planning on doing to hiring an adviser, because so many people giving me feedback and comments like, hey, you have made this simple, but how do they actually do any of this stuff? And so there's really just I say four steps that you would take if you're looking for adviser. I think the first thing is that you're looking for people who have professional expertise. And it's really difficult to tell from a job title. But typically advisory designations such as a CFP, which stands for certified financial planner or CFA, which is a chartered financial analyst or a CPA, which is a certified public accountant. Those are the type of certifications you're looking for in someone who's giving you financial advice. Most people may say CPA. That's just taxes. Now, you'd be quite surprised that wealth managers more and more of them have CPA backgrounds, which is great for a business owner because they have the ability to help you with things that your average adviser who just knows stocks and bonds is going to be able to talk with you about. So looking for those three designations, creating a list of advisers, whether they're people you know or people you get referrals from. You can also go to a Web site called Let's Make a Plan dot org. And that helps you look up CFP advisers across the country and you can really designate the type of person and type of skills you're looking for. But once you have your list, I'd say go to adviser websites. It's a little bit like judging a book by its cover, which is OK. But, you know, look at the team page. Look at the content they've written. Does it look like this service clients like you, you'll narrow down your list to two or three advisers. And then I think this is the most important part where you have something called a structured interview, which was first introduced by Nobel Prize winner Daniel Kahneman to allow you to interview different advisers while removing a lot of our mental biases. And then also removing the fact that if you're interviewing two or three advisers, it's probably not all happening. One hour after the next hour. If the next hour is probably spread out over a little bit of time and our memories are actually surprisingly bad. You may think you have a good memory, but you're still going to have errors and flaws in the way you think it biases the outcome. And so I create a score sheet on my Web site. You can get it at Peter Lazaroff dot com Slash Resources that has how to interview an adviser. And this is that last step in that it's a detailed scoring system where in the end you have something that's very objective. And if you have a significant other, I'd highly encourage you to do it with them. And if you don't have a significant other, I'd even encourage bringing along a trusted friend to score just that you are making a decision in isolation.
Josh Fonger: [00:15:46] Intresting. So we do the interview. You find you get the adviser. And then once you have an adviser, it's like an adviser for life. Are you married for life or do you shop around different advisers, different different phases of your career or different phases? Your your age towards retirement?
Peter Lazaroff: [00:16:02] You know, I think that the ideal situation for both client and adviser is if it's an adviser for life situation. The questions in the survey has to do a succession plan. And so if you go to an adviser who is 65, you might be worried about that adviser retiring at some point. On the other hand, you don't necessarily want the advisers 22 because they may not have had many experiences that you can relate to. And so, you know, you're looking for someone who has access to a lot of people. I think that advisers that are operating on their own and don't have a deep bench of other advisers as well as experts, they can draw on, you know, operate at a disadvantage. And so generally speaking, you would hope that who you're going to work with will be around through most of your working career. And even better if the people servicing you on your service team are also going to be there throughout your entire retirement. It builds a lot more trust. It creates a lot more efficiencies. And it is better for both sides because the better and you know somebody, the more proactive you can be in the planning. And a really good planner is proactive. If a business if a business owner has an issue, you the business owner would like your adviser to anticipate that that issue is going to come rather than reacting to your needs. And I think once you find someone you trust because it's a relationship business in general, you tend to stick with them for a long time.
Josh Fonger: [00:17:20] So what about this? I'm just curious about this. So the actual investment advisory business as a whole, how is it changed in the last 20 years because you guys been around for a long time? From what I was just off physical face to face. And now you do a lot of work online and nationally. How is how is it changed and how is technology changed the way you work with people?
[00:17:40] That's a great question. So in the last 20 years, there has been a large shift. There's been a couple large shifts. There's been a shift from strictly asset allocation advice and well excuse me. 20 years ago, people were mostly getting mixed, you know, sold mutual funds, maybe some individual bonds and stocks, some time, maybe 15 years ago, asset allocation advice where the appropriate mix of stocks and bonds and other asset classes. What is that for you based on some assumptions that start happening maybe 15 years ago, but in the last 10 years, I think you're seeing investment advice become a little more commodities because the technology, it allows you to manage a portfolio and manage a client relationship is pretty standard across the industry. And most advisers you go to going to say they're long term investors that believe in being diversified and trying to keep costs low. And there's some digital advisers out there that do it for an extremely low cost. So that's a big change that our value add as the adviser can't just be about investing. And you mentioned we've been in business for a long time. Playing Corp. was founded in 1983 and it was a financial planning firm. They didn't manage investments for the first 10 years, in part because the founder didn't love that there weren't products that didn't have a kickback that, you know, all the products had kickbacks. And he didn't want to be a part of that. So as the products changed to be more client friendly, consumer friendly, it allowed people to be less biased in their advice. And so I think you're seeing more and more firms emphasizing financial planning and we have the good fortune of having done it for more than three decades. But to your point, we service clients in 44 states. Video technology, meeting technology, our client portal or client app, all those things allow us to have a much more intimate experience with somebody who is not in one of our four cities that we're operating out of. And then and what an old phone call would have been in fax machines. And I think it just generally allows you to deliver a much more customized experience. It also allows for the adviser to focus more on things than just the nuts and bolts of the plan. There's a concierge service level of service that allows that is allowed because of all the technology that's our disposal.
Josh Fonger: [00:19:55] So even more so now is the I guess the relationship and the connection of all the pieces and the deeper bench than just maybe 20 years ago; It's just the face to face. And that's interesting how technology has changed the market. Hey, I know you've got to run, two more quick questions. What's one thing that I should have asked you but I didn't, that you really want to make sure that this audience of small business owners gets a chance to hear about?
Peter Lazaroff: [00:20:17] Oh, that's a good question. I would say that for business owners that don't have a financial plan in place. It's a problem, because if you know that someday you're gonna want to sell your business or you'll pass your business off to employees or kids or merger somebody, it's really important to know what you need that business to be worth in order to achieve financial independence at some age. And just because you know what the number is, doesn't mean that your business is necessarily worth that. And that's also important to know. Maybe it's less, maybe it's more. And so I generally think that the reason you ought to be doing financial planning is that you need to know what you need to get out of the business so that there is a specific goal other than a vanity number. To be honest. Or just growth. Growth. The sake of growth. So that's one important thing. What is good financial planning? It's comprehensive. It includes everything it should. People should be helping you with your estate planning documents, with your taxes, with your insurance, with your just general system, your saving system. That's all something you ought to be able to find. Under one roof and ten years ago, you couldn't necessarily nationally. But I think that's really important for business owners to keep in mind. They probably look at financial advisers, a person to manage investments. But your meetings with your financial advisers probably be like 80 to 90 percent financial planning and maybe 10 percent investment focused.
Josh Fonger: [00:21:36] Actually, one of the question I want to ask you.
Peter Lazaroff: [00:21:37] Yeah.
Josh Fonger: [00:21:38] This is a important one, so what if you already have a financial planner in working with somebody for a while and be a friend, family member, adviser when you know, when you really should leave them or fire them? I believe that's a hard thing to do. You can have this marriage with them for five, 10, 15 years. But, you know, they're not really serving you. I kind of feel in your gut. Is there is there some warning signs, indicators where you think, you know, I really should make a move. I'm getting hurt by this person. I just don't I don't know how yet. Like, what would you what would you look for warning signs?
Peter Lazaroff: [00:22:07] Well, I think that certainly if there is like a regulatory issue, that's a big red flag. So that's an obvious one. I do think that if the adviser you're working with is being paid anything other than the feed, you agreed to see if they're being paid by the amount of activity or the referrals they make or the products they sell you. That's probably a sign that they're a little bit behind the times. And what's accepted under what you call a fiduciary standard, acting as a fiduciary just means putting the client's interests first at all times. And I think getting that fiduciary commitment in writing is extremely important, because if it's not in writing, then you can't hold them accountable. I would say that advisers without a clear succession plan is a little bit of a warning sign. So I mentioned earlier you've been working with somebody for a while and if they're older than you, well, they're going to retire before you get to retirement, even if they're your same age, but they're going to have to retire. You want to know who is going to be servicing me? If you get hit by a bus or, you know, or B,retire, you need to be able to see what's their plan. So the warning sign is that that business owner that doesn't really have a backup plan is really just growing their business. And they care deeply about their clients, but they don't have a plan for them. They'll probably just sell to some big firm who rolls up small shops. And do you want to be a part of that? What does that look like? So I think that that's a pretty important thing to consider with your existing adviser.
Josh Fonger: [00:23:30] This is that very helpful to me, I've taking a lot notes, as always. And this one very helpful, hopefully for those are watching as well. And we don't have an adviser yet. Hopefully learned a few things. And you can the apply it. So, Peter, I want to thank you for sharing. Where can People find you if they want more information?
Peter Lazaroff: [00:23:45] Sure. We'll Plan Corp dot com is an easy spot. But if you go to Peter Lazaroff dot com or I also developed an assessment called Smart Money Quiz dot com and Smart Money Quiz, if you're trying to figure out where to start, it gives you three or four areas to focus your finances. And it also gives you a direct line to me that's sometimes easier than spelling the last name Lazaroff.
Josh Fonger: [00:24:06] So which is spelled L A Z A R O F F. I have a right front of me. Well again, Peter thanks again for making the time. I enjoyed it a lot and thanks everybody for tuning into the work the system podcast and make sure to tune in next week. I'm going to be interviewing other experts like Peter or our previous client, sharing with you some systems that you can make more and work less. And also for those of you who still here. Make sure leaves review either on iTunes or Facebook or wherever you're watching this or listening to this, leave us a review. Take a little image of a screenshot of that email to info at work the system dot com. And once a week or any point out one of those reviews and mailing out a copy of the book right behind me. The best book Work The System The Simple Mechanics of making more and working less by Sam Carpenter, we will be mailing out one of those books. So make sure to leave us review and I will catch you next week. Thanks, everybody.