CARL ICAHN, — ALAN GREENSPAN, - · PDF fileFinancial Freedom Playbook. PICK UP YOUR COPY...

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Financial Freedom Playbook.

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They are often brokers in disguise and not legally

required to put your interests first.

Page 3

#1Fees Matter! Hidden fees, backdoor payments and other tricks of the trade

could permanently damage your financial future.

Page 6

#2 #3You are typically overpaying for underperformance. The

average investor only receives a fraction of what the market returns and this is devastating

to long term growth.

Page 9

TABLE OF CONTENTS

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THE 3 THINGS FINANCIAL ADVISORS DON’T WANT

YOU TO KNOW

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THEY ARE OFTEN BROKERS IN DISGUISE.

“It is difficult to get a man to understand something when his salary depends on him not understanding it.”

— UPTON SINCLAIR

Doctors, lawyers, and certified public accountants in the United States are legally required to act in the best interests of the people they serve. Yet financial advisors get a free pass!

According to the Wall Street Journal , there are more than 200 different designations for financial advisors, including “financial consultants,” “wealth managers,” “financial advisors,” “investment consultants,” “wealth advisors,” and (in case that doesn’t sound exclusive enough) “private wealth advisors.” But the reality is, of the roughly 310,000 financial advisors in the U.S., less than 10% are legally obligated to put your interests first at ALL times on ALL of your accounts! Said another way, the other 90% are simply brokers in disguise.

Many of them work for enormous Wall Street banks, brokerage houses, and insurance companies—the kind that splash their names on sports arenas.

Why does this matter? Because brokers have a vested interest in hawking expensive products, which might include actively managed mutual funds, whole life insurance policies, variable annuities, and “wrap” accounts.

Don’t get me wrong, this is not an indictment on the good people that work in the industry. I have lots of friends and clients in the financial industry, so I’m speaking with firsthand knowledge when I tell you that they—and the vast majority of their colleagues—are people of real integrity. They have good hearts and good intentions. The trouble is, they work in a system that’s beyond their control—a system that has tremendously powerful financial incentives to focus on maximizing profits above all else. This is a system that richly rewards employees who put their employer’s interests first, their own interests second, and their clients’ interests a distant third. And for folks like you and me, that’s a recipe for disaster—unless we take the precaution of learning how the system works against us, and how to counter it. Wall Street has evolved into an ecosystem that exists first and foremost to make money for itself. It’s not an evil industry made up of evil individuals. It’s made up of corporations whose purpose is to maximize profits for their shareholders. That’s their job.

Even the best-intentioned financial advisors are often working within the confines of this system. They’re under intense pressure to grow profits, and they’re rewarded for doing so. If you—the client—happen to do well, too, that’s great!

But don’t kid yourself. You’re not the priority!

Things Financial Advisors

Don’t Want You To Know

#1



THE ALTERNATIVEAs I mentioned, of the approximate 310,000 financial advisors in the US, there is small minority (about 10%) that are legally required to put your interests first. What a concept! These are called “Registered Investment Advisors” or RIAs for short. RIAs don’t accept sales commissions. Instead, they typically charge a flat fee or a percentage of your total assets for unbiased financial advice. It’s a cleaner model that removes awkward conflicts of interest and hidden agendas.

All things being equal, wouldn’t you want someone to be entirely unbiased and conflict free when making a recommendation for you and your family’s financial future?

HOWEVER, I want to issue a strong caveat. Its not enough that your financial advisor is an independent RIA. One needs to be careful that the RIA is not ALSO a broker. Yes, you heard that’s right. In a strangely allowable arrangement, an RIA can be both a broker AND a fiduciary in a process called “dual registration.” When I learned that this was possible, I about pulled out my hair. I had long been an advocate of using a fiduciary (vs a broker) but it wasn’t as cut and dry as I had thought. When someone is “dually registered,” at one moment, they play the part of an unbiased advisor, reassuring you that they abide by the fiduciary standard and can provide you with conflict free advice for a fee. A second later, they switch hats and act as a broker, earning commissions or kickbacks by selling you specific products.

When they’re playing this broker role, they no longer have to abide by the fiduciary standard. In other words, they’re sometimes obliged to serve your best interests and sometimes not! How warped is that? These arrangements are perhaps the most dangerous for consumers as it creates immense confusion.



#1

WHAT PERCENTAGE OF ADVISORS ARE

BROKERS OR “DUALLY REGISTERED?”

RIABiz: http://riabiz.com/a/2015/11/11/how-many-rias-are-there-no-seriously-how-many

Over 300,000 financial advisors

are brokers or dually registered

Approximately 5,000 advisors are “pure” fiduciaries

NEWS FLASHA new regulation passed that is partially going into effect on June 9th, 2017 that requires advisors to act in your best interests solely when dealing with retirement accounts. However, by the time lobbyists were done, the regulations had lost many of their teeth. Brokers can still charge commissions, sell you their own overpriced name-brand funds, and whack you with front-loaded sales charges. They can even ask you to sign away your rights. It’s a “kind of/sometimes” fiduciary rule, if there’s such a thing.



1. Are You a Registered Investment Advisor?If the answer is no, this advisor is a broker. Smile sweetly and say good-bye. If the answer is yes, he or she is required by law to be a fiduciary. But you still need to figure out if this fiduciary is wearing one hat or two.

2. Are You (or Your Firm) Affiliated with a Broker-Dealer?If the answer is yes, you’re dealing with someone who can act as a broker and usually has an incentive to steer you to specific investments. One easy way to figure this out is to glance at the bottom of the advisor’s website or business card and see if there’s a sentence like this: “Securities offered through [advisor’s company name], member FINRA and SIPC.” This refers to the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation, respectively. If you see these words, it means he or she can act as a broker. If so, run! Run for your life!

3. Does Your Firm Offer Proprietary Mutual Funds or Separately Managed Accounts?You want the answer to be an emphatic no. If the answer is yes, then watch your wallet like a hawk! It probably means they’re looking to generate additional revenues by steering you into these products that are highly profitable for them (but probably not for you).

4. Do You or Your Firm Receive Any Third-Party Compensation for Recommending Particular Investments?This is the ultimate question you want answered. Why? Because you need to know that your advisor has no incentive to recommend products that will shower him or her with commissions, kickbacks, consulting fees, trips, or other goodies.

THE 7 QUESTIONS YOU MUST ASK YOUR FINANCIAL ADVISOR OR ANY ADVISOR YOU MIGHT CONSIDER

For your convenience, download our standard letter template at UNSHAKEABLE.com to get started.

5. What’s Your Philosophy When It Comes to Investing?This will help you to understand whether or not the advisor believes that he or she can beat the market by picking individual stocks or actively managed funds.

6. What Financial Planning Services Do You Offer Beyond Investment Strategy and Portfolio Management?Investment help may be all you need, depending on your stage of life. But as you grow older and/or you become more wealthy with various holdings to manage, things often become more complex financially: for example, you may need to deal with saving for a child’s college education, retirement planning, handling your vested stock options, or estate planning. Most advisors have limited capabilities once they venture beyond investing. In fact, most aren’t legally allowed to offer tax advice due to their broker status. Ideally you want an advisor who can bring tools for tax efficiency in all aspects of your planning—from your investment planning to your business planning to your estate planning.

7. Where Will My Money Be Held?A fiduciary advisor should always use a third-party custodian to hold your funds. For example, Fidelity, Schwab, and TD Ameritrade all have custodial arms that will keep your money in a secure environment. You then sign a limited power of attorney that gives the advisor the right to manage the money but never to make withdrawals. The good news about this arrangement is that if you ever want to fire your advisor, you don’t have to move your accounts. You can simply hire a new advisor who can take over managing your accounts without missing a beat. This custodial system also protects you from the danger of getting fleeced by a con man like Bernie Madoff.



FEES MATTER!Hidden fees, backdoor payments and other tricks of the trade could permanently damage your financial future.

“The corrosive power of fine print and buried fees can eat away like a chronic illness at a person’s savings.”

— FORMER SECRETARY OF LABOR, THOMAS PEREZ

Fees matter! And the impact of excessive fees can be devastating. Investment legend and founder of Vanguard Jack Bogle wrote the forward to my book UNSHAKEABLE. During one of our interviews, he spelled it out clearly. “Let’s assume the stock market gives a 7% return over 50 years,” he began. At that rate, because of the power of compounding, “each dollar goes up to 30 dollars.” But the average fund charges you about 2% per year in costs, which drops your average annual return to 5%. At that rate, “you get 10 dollars. So 10 dollars versus 30 dollars. You put up 100% of the capital, you took 100% of the risk, and you got 33% of the return!”

What Bogle doesn’t mention is the taxes that are due on those returns which makes the example even more gloomy.

The nonprofit organization AARP published a report in which it found that 71% of Americans believe that they pay no fees at all to have a 401(k) plan. Nothing could be further from the truth. Another study by NerdWallet shows 92% of Americans have no idea what they are paying in fees.



#2

THE WHITE HOUSE ESTIMATES

THAT HIDDEN FEES COST

AMERICANS OVER $17

BILLION PER YEAR. THAT’S

THE EQUIVALENT OF THE

GROSS DOMESTIC PRODUCT

OF HONDURAS

$17B



Three childhood friends, David, Tyler, and Joe, at age 35, all have $100,000 to invest. Each selects a different mutual fund, and all three are lucky enough to have equal performance in the market of 8% annually. At age 65, they get together to compare account balances. On deeper inspection, they realize that the fees they have been paying are drastically different from one another. They are paying annual fees of 1%, 2%, and 3% respectively.

Same investment amount, same returns, and Joe has nearly twice as much money as his friend David. Which horse do you bet on? The one with the 100-pound jockey or the 300-pound jockey?

When it came time for retirement, David, Tyler and Joe each needed to withdraw $65,000 per year. As you can see from the chart below, David (with the highest fees) ran out money by age 74. Tyler ran out money by age 79, while Joe’s money lasted all the way to age 95.

Below is the impact of fees on their ending account balance:

- David: $100,000 growing at 8% (minus 3% in annual fees) = $432,194

- Tyler: $100,000 growing at 8% (minus 2% in annual fees) = $574,349

- Joe: $100,000 growing at 8% (minus 1% in annual fees) = $761,225

THE TALE OF THREE FRIENDS


THE REAL COST OF OWNING A MUTUAL FUNDA few years ago, Forbes published a fascinating article entitled “The Real Cost of Owning a Mutual Fund,” which revealed just how expensive some funds can truly be. As the writer pointed out, you’re not only on the hook for the expense ratio, which the magazine estimated conservatively at just less than 1% (0.9%) a year. You’re also liable to pay through the nose for “transaction costs” (all those commissions your fund pays whenever it buys or sells stocks), which Forbes estimated at 1.44% a year. Funds also keep cash on hand, which doesn’t earn much of a return, and actually hurts the performance. That’s called “cash drag,” which is estimated to cost investors about 0.83% a year. And then there’s the “tax cost,” estimated at 1% a year if the fund is in a taxable account.

The grand total? If the fund is held in a nontaxable account like a 401(k), you’re looking at total costs of 3.17% a year! If it’s in a taxable account, the total costs amount to a staggering 4.17% a year!

FEES WILL ERODE YOUR RETURNSDalbar, an industry leading research firm, revealed the gigantic discrepancy between the market’s returns and the returns that people actually achieve. For instance, the S&P 500 returned an average of 10.28% a year from 1985 to 2015. At this rate, your money doubles every seven years. But while the market returned over 10% per year (on average), Dalbar found that the average investor made only 3.66% a year over those three decades!

ANNUALIZED RETURNS FROM 1985 AND 2015

S&P 500

10.28%

Average Investor

3.66%



#2

ADD ‘EM UP

Expense ratio: 0.90%

Transaction costs: 1.44%

Cash drag: 0.83%

Total costs: 3.17%

“The Real Cost of Owning a Mutual Fund,” Forbes, April 4, 2011

Total costs: 4.17%

Expense ratio: 0.90%

Transaction costs: 1.44%

Cash drag: 0.83%

Tax cost: 1.00%

Taxable AccountNontaxable Account


YOU ARE TYPICALLY OVERPAYING FOR UNDERPERFORMANCE.Stock pickers and market forecasters are continually wrong and their decisions are quite costly.

“Overwhelmingly, mutual funds extract enormous sums from investors in exchange for providing a shocking disservice.”

– DAVID SWENSEN, CHIEF INVESTMENT OFFICE

FOR YALE’S 24 BILLION ENDOWMENT

The majority of mutual funds in existence are run by stock pickers, also known as “active managers.” These fund managers try to generate superior returns by predicting which companies will perform best in the weeks, months, or years to come. They have lots of levers to pull. They can avoid or “underweight” particular sectors (or countries) that they believe have unattractive prospects. They can build up cash if they can’t find stocks worth buying—or they can invest more aggressively when they’re feeling bullish. But it turns out that the professionals aren’t really any better at predicting the future than the rest of us. The truth is, humans are generally pretty lousy at making predictions! Perhaps that’s why you never see a newspaper headline that says “Psychic Wins the Lottery!”

When active fund managers trade in and out of stocks, there are plenty of opportunities to make mistakes. For example, they don’t just have to decide which stocks to buy or sell, but when to buy or sell them. And every decision obliges them to make another decision. The more decisions they face, the more chances they have to mess up. To make matters worse, all this trading gets expensive (not to mention extremely tax inefficient). Every time a fund trades in or out of a stock, a brokerage firm charges a commission to execute the transaction. It’s a bit like gambling at a casino: the house gets paid no matter what. So the house always wins in the end!

It’s not just that actively managed funds are overcharging their customers. Its that their long term performance is appalling. Don’t take my word for it. SPIVA, the leading firm that tracks just how well these active manager perform, puts out an annual report that exposes their shortcomings. At the end of 2016, an astonishing 97.4% of all active fund managers failed to match or beat the S&P 500 for the previous 15 years. Keep in mind, these funds can be 10 to 30 times more expensive than a simple, tax efficient index fund that effectively matches the market.



#3





#3PERCENTAGE OF ACTIVE MANAGERS THAT HAVE

OUTPERFORMED THEIR BENCHMARK OVER THE

PAST 15 YEARS (ENDING 12/31/16)

60%

40%

20%

5.36%

SMALL CAP CORE

MID CAP CORE

LARGE CAP CORE

INT’L FUNDS

EMERGING MARKETS

HIGH YIELDBONDS

1.41% 2.52%

10.64% 10.11%

4.08%

ASSET CLASSES

Source: SPIVA

SO WHAT’S THE ALTERNATIVE TO ACTIVE MANAGEMENT?Instead of trying to pick the winners and losers, or paying a pinstripe suit to guess for you, you can simply own all the top stocks that make up a particular index; like the S&P 500 Index for example which is a basket of the top 500 stocks. One big advantage of owning an index fund that tracks a basket of stocks is that the weaker companies intermittently get culled and replaced by stronger ones. It’s survival of the fittest in action! The great thing is that you benefit from these upgrades in the quality of the companies in the index. Note that there a number of different indexes (ie small cap index, mid cap, real estate etc..) that one needs to achieve diversification. The point here is that you don’t need to be a stock picker. Also, index funds are typically very inexpensive and tax efficient. In fact, index funds will typically be .20% or less. Compare that to the average cost Forbes reported of 3.17% and your pockets instantly get a little fuller.



SKEPTICAL ABOUT THE VALUE OF THE RIGHT ADVISOR?While the wrong advisors can be detrimental to your financial health, the right ones can be worth their weight in gold. A recent Vanguard study explored exactly how much monetary value an advisor can bring to your investments.

■ Lowering expense ratios: 45 basis points (0.45%) back in your pocket

■ Rebalancing portfolio: 35 basis points (0.35%) of increased performance

■ Asset allocation: 75 basis points (0.75%) of increased performance

■ Withdrawing the right investments in retirement: 70 basis points (0.70%) in savings

■ Behavioral coaching: 150 basis points (1.50%) for serving as your practical psychologist

The grand total: 3.75% of added value! That’s more than three times what a sophisticated advisor would charge. And heck, that doesn’t include reducing taxes and more.

Francis M. Kinniry Jr. et al., “Putting Value on Your Value: Quantifying Vanguard Advisor’s Alpha,” Vanguard Research (September 2016).

THE BUFFET BETWarren Buffett also advises regular people to invest in index funds, so they can avoid the drain of excessive fees. To prove his point that almost all active managers underperform index funds over the long run, he made a $1 million bet in 2008 with a New York–based firm called Protege Partners. He challenged Protege to select five top hedge fund managers who could collectively beat the S&P 500 over a 10-year period.

So what happened? After 8 years (early 2017), Fortune reported that these hedge funds were up only 21.87%, versus 65.67% for the S&P 500! The race isn’t over yet. But as it stands, these active managers look like contestants in a three-legged race trying to catch Usain Bolt, the world’s fastest man.



#3


Tony’s co-author is Peter Mallouk, CEO of Creative Planning. The investment magazine Barron’s rated Creative Planning the number one independent financial advisor in America in 2013, 2014, and 2015, while Forbes named it the top investment advisor in the United States in 2016 (based on 10-year growth), and CNBC ranked it as the number one US wealth management firm in 2014 and 2015.

A complimentary second opinion will help answer a number of important questions including…

1. Does your current advisor have any conflicts of interest?

2. Are you overpaying for underperformance?

3. Are you prepared for a coming correction or crash?

GET A SECOND OPINION.

#1 Wealth ManagementFirm in America(2013, 2014, 2015)

Top 100 WealthAdvisors in America

(2005-2007)

#1 RIA Firm (Fastest Growth over 10 Years)

(2016)

#1 IndependentAdvisor in America

(2015)

ADVISORSIN ALL

50 STATES

Note: Creative Planning works directly with clients

both in the United States and abroad. For residents

of certain countries, Creative Planning has partnered

with local advisory firms that share a similar

investment philosophy.

This report is designed to provide information that the author believes to be accurate on the subject matter it covers, but it is provided with the understanding that neither the author nor the

publisher is offering individualized advice tailored to any specific portfolio or to any individual’s particular needs, or rendering investment advice or other professional services such as legal or

accounting advice. A competent professional’s services should be sought if one needs expert assistance in areas that include investment, legal, and accounting advice. No warranty is made with

respect to the accuracy or completeness of the information contained herein, and both the author and the publisher specifically disclaim any responsibility for any liability, loss, or risk, personal

or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book. Tony Robbins is a board member and Chief of Investor

Psychology at Creative Planning, Inc., an SEC Registered Investment Advisor (RIA) with wealth managers serving all 50 states. Mr. Robbins receives compensation for serving in this capacity

based on increased business derived by Creative Planning from his services. Accordingly, Mr. Robbins has a financial incentive to refer investors to Creative Planning.

If you have over $100,000 in investable assets, Creative Planning will provide you with a complimentary second opinion by visiting:


“Creative Planning, is at the vanguard of a profound shift in finance: the move away from brokers and mutual fund companies peddling products for a fee, and toward firms offering truly independent, low-cost investment advice.”


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