Open Windows Investing by TPFG

Matt Sommer: Very Insightful Research for Financial Advisors

January 27, 2022 Season 1 Episode 3
Open Windows Investing by TPFG
Matt Sommer: Very Insightful Research for Financial Advisors
Show Notes Transcript Chapter Markers

In this Episode, host, Julie Mochan talks to Matt Sommer, Ph.D., CFA, CFP®,  Head of Defined Contribution and Wealth Advisor Services as Janus Henderson Investors.   
Listen to Matt  for Amazing NEW Insight Into:  

✅The Secure Act 1.0 and 2.0

✅The Effects of COVID-19 on the Advisory Business and Advisors

✅New Research on the Value of An Advisor!

✅ Diversity within the Financial Services Industry

New Studies on ESG Investing

✅ Financial Industry or History Major?

TPFG, our success depends upon your advisory business flourishing 🌳, by doing what is in the best interest of every customer.  Sharing In-Plan advice to those who need it most, no matter your zip code, status, or hairstyle.✨ Since 1984, The Pacific Financial Group, Inc. (TPFG) has built a rich tradition of serving financial advisors and investors with best-in-class investment solutions and unrivalled customer service. The firm was founded on the single premise that everyone, regardless of their account size, should have access to high quality investment opportunities and independent expert advice. Today, we are a dynamic Wealth-Tech firm that blends over three decades of traditional asset management experience with leading-edge financial technology know-how, to provide products and services that empower financial freedom for advisors and their clients.
Want to hear something on the podcast?   Make it Happen  - Contact 
Julie Mochan today.

Find additional backlinks in transcript.
Janus Henderson Investors
Three Essays Investigating the Bequest Intentions and Expectations of Older Adults
Value of An Advisor
Embedded Finance
Financial Therapy Association
Original🎵 by  Ma’aM

Important Disclosure: This podcast recording has been prepared and made available by The Pacific Financial Group, Inc., also known as TPFG, a Registered Investment Adviser (RIA) offering advisory services. Information in this podcast is to be used for informational purposes only. The information contained herein, including any expressions of opinion has been obtained from, or is based on sources believed to be reliable, but its accuracy or completeness is not guaranteed and is subject to change without notice. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service. Any expressions or opinions reflect the views of the speakers and are not necessarily those of TPFG or its affiliates. TPFG does not provide tax or legal advice. Investors should consult their financial, tax or legal professionals before investing. Past performance is not a guarantee of future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss.

Open Windows with Guest, Matt Sommers of Janus Henderson Investors

[00:00:00] Julie Mochan: Hello podcast listeners in the land of podcasts.

 Hello, financial professional looking for a podcast that can help you. Today is your lucky day. This is Open Windows, my name is Julie Mochan, Open Windows is a podcast created especially for financial professionals, looking for opportunity that they may or may not have known existed before. 

[00:00:31] This episode and every episode hereafter will be brought to you by The Pacific Financial Group, Inc., otherwise known as TPFG. The firm that was founded in 1984 on this single premise that everyone, regardless of their account size,

[00:00:44] Should have access to the best investment opportunities and the best independent expert advice. 

[00:00:50] Here at TPFG, we are able to help advisors help their clients that have access to brokerage account windows within group retirement plans. 

[00:01:06] And because we do that, we have been able to build relationships with many world-class strategists that help us in this space. Therefore, we have many models for advisors and investors to use. 

[00:01:12] One of those great companies that works with us as Janus Henderson Investors, and they were gracious enough to allow me to speak with, their Head of Defined Contribution and Wealth Advisor Services, Matt Sommer, Ph.D., CFA, CFP®. Matt has lots of initials behind his name and has done tons of research in the industry over the years. His dissertation for his doctorate degree was: “Three Essays Investigating the Bequest Intentions and Expectations of Older Adults”. 

I am going to have links to everything that we talk about today as well as everything, whom you may have seen on  CNBC or Bloomberg television. Or read his contributions industry publications such as The Wall Street Journal, Barron's, Investment News, [yadda, yadda, yadda 😊] Today we get into the Secure Act, we get into, the effects that COVID has had on investors. The effects that COVID has had on advisors. A lot of behavioral finance type things like financial therapy. We get into a couple of different research papers that he refers to as well as ESG. Some really interesting ESG research. So, join me as I talk with Matt Sommer from Janus Henderson Investors, and I promise you, you will not go away without learning something. 

[00:02:29] Alright, here we go. Matt, welcome to Open Windows, a podcast from TPFG. 

[00:02:35] Matt Sommer: Well, thank you very much for having me today. 

[00:02:37] Julie Mochan: I'm excited to talk to you. I know there's so much in your brain, so let's start with what's going on in Washington, DC, legislation, the Secure Act.  What can you give us there? I think you call it your “State of the State”. 

[00:02:50] Matt Sommer: Sure, so let's start with a legislative update. The piece of legislation that many people within the retirement industry are excited about is known as Secure 2.0.

[00:03:02] So to take a step back a few years ago, something called the Secure Act, which is now called Secure 1.0 was enacted. And, it's our position that any legislative efforts that help people save more for retirement is generally going to be a good thing. And although there were a number of different provisions in Secure 1.0, perhaps most important is the provision to allow small businesses to pool their retirement accounts and have one big retirement so that they achieve economies of scale, which essentially means lower fees, more services. Those types of arrangements came on board January 1st, 2021. So by all accounts Secure 1.0 was, was a huge success. To build on that, there's been a movement, a foot in Congress to pass Secure 2.0, in fact, this was passed by the House Ways and Means Committee back in May of 2021,

[00:04:04] but unfortunately if fell to the wayside. So, it's our hope This will get picked up again. There are very few things that have bipartisan support in Washington these days; Secure 2.0 definitely has bipartisan support and it'll essentially do three things:

[00:04:23] The first thing it'll do is for new (not existing, but new) 401k and other types of employer retirement plans moving forward is to make auto enrollment mandatory. So today, if there's a 401k plan, it's entirely up to the business as to whether they have auto enrollment. And of course, if they do, participants always have an opportunity to opt out.

If this is enacted for new plans, this would be mandatory. But again, always giving participants the opportunity to opt out. 

Secondly, would be greater catch-up contributions. So, for people who are older, they would have the ability to put away more. 

And then Thirdly, it would allow employers to make matching contributions to employees who are paying off their student loan obligations but may not necessarily be in a position to make contributions to the 401k.

Because of those student loan obligations, but they would still get the match. So those three things, we think would allow more people to put more money into the retirement system. And as I said a little bit earlier, there is bipartisan support that this is something that the country desperately needs.

[00:05:39] So what's our hope that this becomes law later in 2022, but it's all going to depend upon how many priorities Congress's juggling, particularly in a year that we're going to see midterm elections come November.

[00:05:53] Julie Mochan: All right. That makes sense. You said something that intrigues me. So did you just say that if I'm working and I have a lot of student loan debt that I can pay. The student loan debt and use the match to pay the student loan debt as well. Or wait a minute. 

[00:06:08] Matt Sommer: No, the way that it would work is, you would be entitled to the match, even if you don't put any money into the 401k, as long as you're satisfying your student loan obligations. So that way you don't miss out on the matching contribution. Right. 

[00:06:25] Julie: That's really cool. All right. And then the first edition of Secure Act, I just need to understand better, when it comes to annuities and the insurance industry being now, a part of - or will be part of every plan.

[00:06:42] Matt Sommer: Sure, so there is growing demand for guaranteed lifetime income in 401k plans and we know historically that's not the way 401k plans work. 401k plans offer predominantly mutual funds, and then when people retire, they would take a lump sum, roll it into an IRA and effectively decide what they want to do at that point in time. But we know that sometimes when left to their own devices, people might outspend their resources. People might outlive their resources.

[00:07:16] So, there's sort of this yearning for days past when people had a pension and there was a check in the mailbox every month, and regardless of what happened with inflation or the economy, that check would be there every single month. And so the question becomes, well, how do you get those sorts of things inside of a 401k plan?

[00:07:37] And it's, it's complicated. And so one of the things that secure 1.0, did, is it essentially said to plan sponsors. If you're interested in adding guaranteed income solutions (i.e., annuities), here are some things that you ought to think about and incorporate into your process. So if the worst should happen and 20 or 30 years from now, that particular insurance company goes insolvent, you will have fiduciary protection

[00:08:06] because you had a process, and you had diligence in making that decision and making that selection. So it has lowered some of these barriers and some of the objections that plan sponsors have.

[00:08:20] Julie Mochan The onus gets put back to the insurance company. If they become insolvent… not the plan sponsor.  

[00:08:26] Matt Sommer: Right, so what is the legal liability of the plan sponsor if in fact these guaranteed income promises don't come to fruition. So, this certainly makes it a little bit easier for plan sponsors who want to go in this direction. But as we all know, plan sponsors move very, very slowly, so there's interest there's discussion.

[00:08:47] Is there a mad rush for every plan in America to incorporate these guaranteed income solutions? No, not at this time. And there's also sort of a philosophical decision that plan sponsors need to make some plan sponsors are of the opinion. Look, when my people retire, if they want guaranteed income, they can do an IRA rollover and buying an annuity inside of their IRA.

[00:09:07] Why do I need to provide this through other planned sponsors that take a different view and think it would be helpful to bring the resources of the 401k plan to bear to offer those sorts of solutions. So, a lot of discussion, some debate, but adoption, has been slow at least up until this point.

[00:09:28] I've learned so much, we were like 10 minutes into this. This is great. Well, that's good. 

[00:09:34] Julie:  Let's pivot now. And talk a little bit about what you’ve found, either in your studies at Janus Henderson Investors or other studies. The effects of the COVID pandemic on the average investor or the retirement plan investor or that industry, a well as, advisors in the industry; what have you seen?

[00:09:54] Hmm. Well, let's take, let's take the 401k and the plan participant first, and then he could talk a little bit about the impact of COVID on advisors, which I think a lot of your listeners would be very interested to hear about.

[00:10:07] So as it relates to 401k and individuals and plan participants and retirees and savers, the individual investor; there's good news and there's bad news. Let’s do the good news first. The good news is. Is that, yes, a lot of companies suspended their match in 2020, but a lot of companies reinstated their match in 2021.

[00:10:28] So that's good news. Secondly, a lot of companies, recognized that employees were going through an extraordinarily stressful time, and it was really incumbent upon employers to offer various types of wellness. This could be financial wellness. This could be health and mental health and physical health.

[00:10:55] And so we saw an upswing in not only interest, but adoption of, of offering those programs. Thirdly, although the majority of companies adopted a provision to allow employees to take an in-service distribution due to COVID, that would have been exempt from the 10% penalty of a hundred thousand dollars.

[00:11:14] Adoption was low single digits. So, although a majority of companies offered this, the vast majority of participants who had the ability to dip into their retirement savings and take an in-service distribution as a result of COVID did not take their employer up on that. Lots of good news, lots of good news, but there's also some bad news.

[00:11:34] So, let me explain what the bad news was. The bad news was when the markets corrected in March of 2020; people in our industry call it a correction, the average investor calls it losing money. What we saw, is the self- directors, the people kind of manage their own money without an advisor. We saw our shift, like we always do, uh, from stocks to bonds.

[00:12:00] What ends up happening is, if history has taught us anything. The markets eventually rebound, and when you fall victim to those sorts of behaviors, you sell low and you, buy high. Morningstar did a great study, and they compared those who stayed the course versus those who sold in March of 2020, 

[00:12:21] And the underperformance was somewhere in the neighborhood of 750 basis points. Now, people who were in managed accounts, advisory programs, receiving help, they were significantly less likely to do that. So I really liked the study that Morningstar did, and happy to send it over because it really speaks to the power of being in those programs and having that type of real time help.

[00:12:53] It's not necessarily about the particular funds or the particular stocks or bonds. It's really about the behavior, and whether it be a target date, which is what I call it an “embedded advice product” or a managed account, which is a true advice product, the proof is in the pudding, and we've got a great data point in March of 2020.

[00:13:12] Julie: Yeah, definitely, go ahead and send that link over. I will have it in the show notes because I think advisors, as you said, it's not as easy to show your value in a long running bull market, nor is it necessarily easy to show your value when younger clients well, all clients really, are inundated with embedded finance products.

I'll put a link to a blog post that I wrote about embedded finance and, and you know, we're talking about Uber, Walmart, you mentioned target date funds for an embedded advisor. Whereas management is real advice, real time advice. My article is more on the engagement that you need to do digitally with clients at an earlier age, meaning that, that some people are actually listening to the likes of, you know, of Elon trying to sell you Doge coin and thinking that that's real advice versus a financial plan. So that's pretty huge. I'll probably get into that on another podcast, but another quick thing…I want to make sure our listeners understand a 401k managed account (I'm using air quotes here) versus a self-directed brokerage window managed account. They are two different “buckets” that the plan sponsor can add. 

[00:14:24] A managed account is treated differently than a self-directed brokerage account when it comes to regulation. I just wanted to differentiate, whereas TPFG does a hybrid between the two where we supply a “managed account” within a self-directed brokerage account window.


So everything will be in the show notes, including my back link to embedded finance. Let's, let's go back to the value of an advisor because it's such a great topic, and also what you found on the impact of COVID on the advisory business and actual advisors.

[00:14:54] Matt Sommer: Okay. We have done some research on trying to quantify the value of an advisor, and you're in the 12th or 13th year of a bull market, investing is sort of easy. And so one of the things that I think it's important for the general public to understand is that it's not just about picking stocks, bonds, or mutual funds. Because eventually, the market is going to correct, and it's not about returns, but it's about being able to meet your goals.

[00:14:26] So we, engaged, on to research efforts, to better educate the public about how, when you engage an advisor it's not about the fee that you pay and the returns that you earn. Yes, that's part of it, but that's not the whole story. So the first thing we wanted to look at was whether or not those who work with an advisor have more confidence than those who don't work with an advisor.

[00:15:50] And we found a significant positive relationship. So people who work with an advisor were more confident in their ability to invest in, meet their goals than people who. And you might say, well, why is that important? Well, it's not just about having confidence in feeling good. people who are confident are people who stay the course, even during peer short-term periods of investment disappointment. People who are confident are more likely to implement the recommendations that are made.

[00:16:23] So there's, tangibility to confidence. And we also found some other interesting things in this particular study that we weren't necessarily looking for: One was when couples make decisions collaboratively regarding the investments for their household, husband, and wife, they're much more confident than when those decisions are delegated to either the husband or wife.

[00:16:48] So the key takeaway for advisors and their clients is you need to engage the spouse who may not necessarily be engaged. 

Julie: Yeah, because sometimes the spouse. Doesn't understand, or maybe that's not the way it is, in younger couples, but sometimes in older couples, I've, I've experienced those generational differences for sure.

[00:17:12] And the reality is, is that it's inevitable that, that spouse who may not be engaged. They may not want to be engaged. They may, for whatever reason, there may come a time and a place where they have to make those decisions. And so by not participating now, they're losing out on all this hands-on experience.

[00:18:17] So the first is that there's a positive relationship between using an advisor and having confidence, the second research that we did is we looked at beneficial intention. So what do I mean by beneficial intentions? Well, uh, beneficial intentions means that you're going to have. Positive new year's resolutions.

[00:17:48] You're going to save more. You're going to pay off your debt. You're going to reevaluate to make sure you have the right insurance policy. You're going to check your withholding. So you're not over or under withholding. You're going to start an emergency savings account. If you don't have an emergency savings account, it's all the thoughts of things that we know one ought to do, but it's easier said than done.

[00:18:11And we looked at a couple of different things. We looked at life events. And what I mean by a life event is you started a business. You retired, you got married, you had a child, you sent your child off to college. And one of the things that we found is that when there's life events, people tend to have beneficial intentions.

[00:18:28] Matt Sommer: That's a good thing, it sort of. Eating well and exercising, we all know we should do it, but it's really, sometimes, unfortunately it sort of takes a health scare to get people really motivated, to do those sorts of things. Well, same sort of thing in the financial world. Sometimes it takes one of these life events to get people to begin to form these behaviors. Now here's the punchline. When you have an advisor on top of these life events. You have more intentions than when you have the life events alone. So another benefit of using an advisor is to help clients think about their finances during periods of difficult life transitions.

[00:19:12] And so I just think that for advisors, and I hear advisor value propositions all day, all the time. And they talk about comprehensive planning. Everyone has a financial plan, holistic advice, and that's all fine. That's all good. Um, but what really resonates with people is when life throws you a curve ball and things change, whether it be for the better or for the worse.

[00:19:40] I'm able to help you navigate those transitions, especially as there is, as they relate to your underlying goals. Uh, those that we have found from this research really, really resonates with people. 

[00:19:52] Julie Mochan:  That's like a financial therapy. Did I hear that either the CFP or CFA Institute, or somebody is now putting more of that psychological behavioral curriculum into their overall curriculum?

[00:20:05] Matt:  it's a bigger part of CFP, it's a bigger part of there's also something out there called the Financial Therapy Association, which is really a blend of what you would think therapy is with financial planning, a really interesting organization that does some really great work. so, again, in a bull market, it's kind of easy, not for everyone, but for a lot of people,when markets correct, or when markets flatline over an extended period of time, Uh, these behavior issues become so, so important in order to help people meet their goals.

[00:20:44] Julie:  I love it because you know, as an advisor, you see people sometimes at the worst times in their lives, because of those life changing events, you know, someone passed away. Uh, we got married now we got to like, merge these assets it's really stressful for them. And for the advisor as a practitioner, the advice community should understand the psychology of it all. Obviously, it's stressful , for clients. Let's talk about, let's , just backtrack a little bit and talk about the pandemic, . Let me ask you, Matt, where were you when the lockdown went in place? 

[00:21:19] Matt Sommer: I was here in Denver, Colorado. I was home.  I was actually getting ready for a business trip for Janus Henderson and I was informed you're not going anywhere. And shortly thereafter we were all sent home for, if I remember correctly, upwards of a year. 

[00:21:37] Julie Mochan: Yeah. Right. it's funny because I happened to be in Denver also at the time. I had gone with my family in February 2020, we took a ski trip to Breckenridge…I managed to dislocate my shoulder and spend some time in the ER, but, we had just gotten off of the plane from Denver and got home and we're like wait, what, there was no school. There's what that's going on? Right, I just thought of that because it's one of those, you know, life-changing events, right. That causes some stress and you gotta figure out how to deal with it. But as an advisor, what have you seen, or what research have you seen where it's had obviously a detrimental effect on all of this, but the advisory business as a whole, and then just, you know, down at the psyche of an advisor? 

[00:22:25] Matt Sommer: Yeah. So, certainly everyone has been touched in, in one way, shape or form, but a really terrific study was done, in late 2020, not by us, these were other researchers, They interviewed 500 advisors, all different types of business models, by the way. And the question was, what impact did COVID have on their life satisfaction? So a bunch of questions were asked about the impact of COVID and a bunch of questions were asked about their current life satisfaction. And then a statistical analysis was conducted to see whether or not there was a relationship. And so one of the things that I've seen, and that this research has found is that as advisors you not only have your professional life and your personal life and all the things that are going on, and good times and challenging times, but you also take care of your clients.

[00:23:29] Uh, 2-3- 400 of them. You're sort of in that, in that role. it may not be a physical caretaking role, but it's, but nonetheless, it's, a type of care taking role. Sometimes advisors tend to internalize the struggles that their clients are having. So now, as an advisor, you not only have your own struggles in life, you have 2, 3, 400 other people's struggles in life.

[00:23:56] we saw this in 2008, during the great recession when all clients lost 20, 30, 40%. Um, and, and advisers, in many cases, we're internalizing those financial losses. And then what we've seen here with COVID is that many advisors are internalizing. It may not necessarily be a financial loss because the markets came back,

[00:24:18] Uh, people may not necessarily have lost their jobs. We know that the recovery albeit uneven, tended to hurt lower-income people who may not have a financial advisor, the most. But the point is, is that there's definitely a connection between COVID and life satisfaction. And the connection is even more pronounced for the female advisors.

[00:24:39] Julie: Because they are more nurturing maybe? 

Matt:  Perhaps they didn't look at that, but that is probably a very good explanation, uh, but more pronounced for the female advisors. And so the takeaway is, is it's really important, whatever it is for each of you, for some people it's journaling for others, it's meditation for others, it's exercising, whatever it is it's, it's just really, really important for everyone to make sure that they're taking care of themselves and to keep up those practices. And it just seems like here we are in January with the on again, off again, Omicron, nobody knows. even, when things start to get better, as most people predict it well, to keep up those practices, over the long run.

[00:25:20] Julie: That's awesome advice obviously, I think a lot of times just people don't take the time to take care of themselves and don't realize it until it's, too late. That they've been so emotionally stressed by this, by taking on all of the weight of all of their clients and , back to the, , the therapy, thing, it's kind of like, Bartenders might be the same way. They hear like a lot of struggles in people's lives, and people open up to them. And it's hard to compartmentalize that and keep it away. It's hard to do that, but it's interesting that you said it affects the female population of the advisory business a little bit more.

[00:25:58] let me pivot from there. And talk a little bit about, what you've learned about the diversity of the industry currently any trends that you see. And if there are some inequities how maybe we could fix those.

[00:26:11] So, a lot of the research was done by the same people who looked at the COVID and the impact on advisers with some of this, some of these diversity issues and people are surprised to hear that it's very difficult to have an exact count of how many financial advisors are there at any given time of the.

[00:26:28] So you really can't use the FINRA series seven because not everyone who series seven is an advisor. You can't really use CFP. Uh, you really can't use the department of labor bureau of labor statistics. So it's hard to get an accurate count. There are estimates , and there were good estimates, but it's hard to get an accurate count.

[00:26:47] It's even harder to know what the racial composition is. And we know that the industry is behind, and it doesn't necessarily reflect the face of the nation. but if you don't know what the racial composition is, then how do you even know if you're making progress? So, some really, smart people, used an algorithm.

[00:27:09] And this is an algorithm that's used, uh, by consumer product companies by pollsters, where if you put in some bits of data, zip code, a name, it spits out what the ethnicity is within a pretty narrow margin of error. And so they sought to sort of answer this question and it's really no surprise, but here it is in print, white.

[00:27:31] Advisors represent three quarters of the advisory community, but yet whites represents 60% of the country,

[00:28:35] 15%. So what does that mean? It means African-Americans, Hispanics and Asians are dramatically under-represented in the advisory community. And so again, I think, I don't think that comes as a surprise. I think everyone knows, um, oh, on the gender front. I think everyone knows that the industry's behind and the industry needs to do a better job, but at least as it relates to racial composition, uh, at least here it is in print so we can see it.

[00:28:12] And so now the question becomes, okay, well, what do we do about it? And I just think it's important, at both the home office level, as well as, individual advice. who's sitting in his or her office, wherever that may be somewhere within the United States, to recognize that the country is changing.

[00:28:31] Matt Sommer: The reality is, is that 51% of the wealth in this country is controlled by females. And that's only going to increase over time. the share of GDP attributable to black, Hispanic, and Asian consumption in this country is, is greater than the GDP of entire nations. Wow. So I'm going to say something that's a little bit controversial, and I know it's going to make people a little bit uncomfortable, but if you look at your team website or your, your homepage, whatever that may be, and it's three middle-aged white guys in this.

[00:29:05] Look that that doesn't necessarily disqualify you from having female clients or non-white clients…um, but it certainly doesn't reflect the changing nature of wealth. And so we believe that through teams and mentorships, that's one of the, best ways to begin to address this, uh, to bring people into the business, to give them the tools that they need to be successful.

[00:29:35] Um, not to just throw them into a bullpen and give them the white pages and ask them to cold call, really, really teaching them and setting them up for success. Um, and, and the other thing that's happening, we talked a little bit about gender. We talked a little bit about racial composition. The other thing that's happening is as the boomers age, all this money is going to.

[00:29:50] And that somewhere is going to be to their children, their adult children, and the industry's statistics on maintaining those relationships. When the children inherit mom or dad's money is less than 5%. I mean, they're, they're really 

Julie:  Say that again. So when, when assets pass from mom or dad or the children, the retention rate in our industry for the advisor.

[00:30:23] Matt Sommer: and so again, does that preclude a 50 something or 60 something year old advisor from working with a millennial. Uh, no, not at all, but how about having a millennial on the team? maybe just me. They, that may be a more natural connection with the ultimate inheritors of that wealth.

[00:30:34] Julie Mochan: great advice again.And that's something that I talk about a lot when it comes to the self-directed brokerage, marketplace because. If you can engage with someone at a younger age, when they get to the point in their life Where they do inherit money. It's not like they, uh, come to you with zero clue of their goals and how to invest because you've already been engaged with them for.  quite some time. Alright. Quickly before we wrap up here. I know you have a ton of research, but I wanted to get, Any research on the ESG market., who's interested, who's using it. Are they using it? What's going on there? 

[00:31:20] Matt Sommer: I personally hear a lot about ESG, but rather than someone's opinion, what we thought we would do is go out in the marketplace and empirically try to figure out what really is the level of interest in where is that interest coming from? So, we did a study of self-directed investors. So these are people who work or at least have part of their money, directly with transfer agent.

[00:31:43] that doesn't say that doesn't mean they don't have advisers. They very well may, but at least part of their money is self-directed. 4,400 responded to our survey. Now I will tell you that half of these people had investments greater than a million people with some, with some considerable money. And we asked them whether they have incorporated ESG, if not, do they plan to incorporate ESG?

[00:32:05] If they already have ESG, to what extent they've incorporated ESG, what percentage of their portfolio? We asked a bunch of demographic questions, and then we asked a bunch of lifestyle questions, things like, do you eat organic? Do you drive a hybrid? Do you regularly recycle those sorts of things? So this is what we found.

[00:32:30] This is the punchline. about a third, have a favorable impression of ESG. That means they've already incorporated it, or they plan to incorporate that. So it's not everyone, but for people who like say, yeah, my clients, they're not interested in this. Well, I would suggest we have evidence to the contrary.

[00:32:43] it's like most things in life. It's not no one. It's not everyone. It's somewhere. So we came up with about a third. The next thing that we found, and this basically confirmed some of the research that's already out there is that females, nonwhites and younger individuals are leading the way. So, females, nonwhite.

[00:33:04] and younger being interested in adopting. As compared to males, whites, and older individuals. Uh, but the really interesting part is that if you want to get right to the crux as to whether or not someone's a, uh, pretty good ESG candidate, you can ask them about their shopping habits.

[00:33:22] You can ask them about something called conscious consumption. So what do I mean by that? Someone reads something about child labor practices in Asia, it turns them off and they refuse to buy that brand of  tennis show. That's what I mean by conscious consumption, there is a very, very high correlation between people who sort of think about those things in terms of how they select brands and products and everyone, not everyone invests, but everyone shops, and whether or not they're going to be interested in ESG.

[00:33:56] And by the way, and this is really what's most interesting people who are charitably inclined either with time or. They're less likely to be ESG adopters, 

Julie: get outta here!

Matt:  Yes. We don't know why we could hypothesize that. Perhaps they feel well. I've already do my part. I don't know why I'm guessing, but the point is, is that ESG and philanthropy are two very, very different things.

[00:34:33] That's pretty wild because. That's one of the questions I would think that you would ask like, Hey, are you donating to, uh PETA or, you know, whatever, but that's really interesting. Wow.

[00:35:37] Matt Sommer: So the three takeaways are, don't discount this there's someone in your client list  who's going to want to hear a little bit more. Um, number two, ask about those shopping and spending habits and number three, be sure not to equate ESG investing with philanthropy. They appear to be two entirely different things.

[00:34:57] Julie Mochan: Thanks for that. I would love to have you back again, because I feel like you should have your own podcast.  Well, we would love to come back. So thank you very much. Um, before you go, a couple personal questions and if you don't like them, that's okay. We’ll you move on The first one,

[00:35:20] Julie Mochan:  So when did you get started in the industry what year would it have been, that you decided to be in the financial services industry who influenced you, and where did that start 

[00:35:27] Matt Sommer: so I graduated college in the early nineties moved to New York city. went to work, uh, for a firm called Shearson Lehman., which is a name from the past. And I started in retirement planning. And then just over, over the years, got experience, not just doing 401k work, uh, but in financial planning and wealth management and, was there for sort of the birth of things like Roths and 529s, which was pretty cool. And then made my way west  to Denver back in 2010 to join Janus Henderson Investors.

[00:36:05] Julie Mochan: I haven't heard Shearson Lehman in a long time. I came from like the Smith Barney, Citigroup back in the late nineties. So I think we're,

[00:37:04] Matt Sommer: well, we probably, we were colleagues, then

[00:37:07] Julie Mochan: I feel like you look familiar 

[00:37:09] Matt Sommer: Because, um, it became Smith, Barney, Shearson, I think.

[00:37:13] And then ultimately, uh, city Smith, Barney, and then, uh, then the merger with Morgan Stanley. So. 

[00:36:29] Julie Mochan: I always thought they had the best commercials that remember the old Smith Barney commercials with like the dude on the phone, like telling everybody to shut up because his advisors calling him.

[00:36:40] Matt Sommer: I think those were the E.F. Hutton commercials. Yes, yes, yes. You're right. You're right. John Houseman. Nice. Yeah.

[00:36:51] Julie Mochan: I'm definitely putting clips of those in the show notes. Great marketing. If you were to give advice to a young person about getting into this industry, what, what would that be?

[00:36:57] Matt Sommer: Yeah, the simplest and easiest and, and quite frankly, most efficient thing to do is to join the local FPA. So that's stands for the Financial Planning Association and there are chapters, I think there's 90 of them. They're all over the country. They have discounted pricing for people who were in college and people who are just starting out their careers. So the dues are really is nominal and it's just a great way to begin to meet people and to network and to learn in a very, non-threatening uh, environment and even decide whether or not this is something for you.

[00:37:37] So there's all different types of those societies or organizations. But I would say the FPA is probably a great place to start. I wish I would have done that to stubborn, but I would go ahead and do that. And again, if nothing else. Um, you'll, you'll meet some really nice and some really interesting people.

[That's what that would be the first order of business. 

[00:37:59] Julie:  That’s super, so the networking. I'm thinking back when I got into the business, it was like, you know, you got handed those Rolodex cards or whatever -cold calling cards. 

[00:38:11] Um, lastly, if you didn't do what you're doing now, what, what would you be doing? Do you think? I mean, if, if you could do, if you could do, um, I don't know, a hobby, like let's say that the financial industry didn't exist. What could you see yourself doing like lumber Jack or like where I would, 

[00:38:20] I would probably be a history professor. I love history, I'm a big non-fiction reader, so I'm always reading, nonfiction things that don't have anything to do with the markets and finance. Right now I'm reading Empire of the Summer Moon, which is all about the Comanches, in the mid-1800s. I love this stuff, and I wanted to be a history major going into college and, someone, informed me that it's very, unless you want to be a teacher, you might find it somewhat challenging to find a job after college with a degree in history.] I took the finance business route but that's sort of my, my hobby and yeah, I'm a museum guy. There's a wonderful WWI museum in Kansas City that’s on the list. I'm waiting for an excuse to go to Kansas City for work so I can drop in and see that. So I would probably be a history teacher, at the university of just - fill in the blank.

[00:39:15] You just mentioned, uh, one book. Can you give us two more books that, someone who's, maybe a history buff that you loved?

[00:39:23] Yeah, so I would say anything by Eric Larson, very well know, everything he writes is great. And then, not necessarily history, but just someone who's extraordinarily brilliant. And just, thinks about things,about what's going on in the world. Anything by Malcolm Gladwell. So, a lot of you are familiar with Blink and Outliers, and I just read the Bomber Mafia, which is a world war two story, but it's really not about World War II. Uh, it's about, um, doubling down in the face of overwhelming evidence that suggests that you're wrong. So I like his writing because there's always a good lesson to be learned.

[00:40:00] He's the Tipping Point guy, right? He's the Tipping Point guy. Yup. All right. Well, I'm going to let you go and I'm going to thank you because I think this is fabulous. I think a lot of people can learn a lot of things from just, spend a little bit of time with you and, if you're open to it, I would love to have you back.

[00:41:39] Okay. Well, thank you very much for having us. It was a lot of fun. All right. Thanks, Matt. Okay. Take care.

Disclosures:  This podcast recording has been prepared and made available by The Pacific Financial Group, Inc., also known as TPFG, a Registered Investment Adviser (RIA) offering advisory services. Information in this podcast is to be used for informational purposes only. The information contained herein, including any expressions of opinion has been obtained from, or is based on sources believed to be reliable, but its accuracy or completeness is not guaranteed and is subject to change without notice. Any expressions or opinions reflect the views of the speakers and are not necessarily those of TPFG or its affiliates. TPFG does not provide tax or legal advice. Investors should consult their financial tax or legal professionals before investing.

Legislative update
Secure Act 2.0
Secure Act 1.0 and Annuities
Impact of COVID on Retirement Plan Investors
Research on Investors (with and without advice)
Embedded Finance
Managed Accounts vs Self-Directed Brokerage Accounts
The Value of an Advisor Research
Advisors - Investor Relationships = Confidence
Beneficial Intentions
Financial Therapy
Where Were You When the Pandemic Started?
Advisors Need to Take Care of Themselves Too
Diversity in the Financial Industry
Engaging Clients at a Younger Age
Demographics of ESG Investors
Conscious Consumption
Get to Know Matt Sommer Better!
Sign Off and Disclosures