Enhance Client Outcomes Through CPA and Financial Advisor Partnerships

The Young CPA Success Show: Episode 35

Adam D. Koós, Founder and President of Libertas Wealth Management, joins the show and delves into the significance of fiduciary responsibility in financial planning. They discuss the benefits of fee-only advisors and the necessity of transparency and ethical behavior. The conversation also explores the evolving role of CPAs, the importance of collaboration with financial advisors, and strategies for managing highly appreciated assets. The episode emphasizes the need for proactive relationship-building and holistic financial planning.

Intro 00:00:00 Welcome to the young CPA Success Show. If you're a young accounting professional, this podcast is your ultimate guide to navigating your early career. Join us as we share valuable insights, expert advice, and practical tips to help you kickstart your path to success and excel in the accounting industry. Let's embark on this exciting accounting journey together.

Joey 00:00:22 So I think, like I guess where I'd like to start is there's a lot of different ways, I think, to talk about financial planning. There's a couple of different avenues. One thing that I picked up from your website is and you're very I think this is a huge thing. You are a fiduciary. And that's a word that I think carries a lot of weight, and people don't really understand what it really means. Can you explain why that's important? And you know what that means for clients and people that are working with you.

Adam 00:00:53 So you're going to start with my hot button and just get me all fired up just to start the whole thing. I mean.

Joey 00:00:57 We're going from we're.

Hannah 00:00:59 Going from how we do things here. We don't mess. That's right. We're gonna talk about that.

Joey 00:01:02 Because I think it's important.

Adam 00:01:04 Yeah. No, it's crucially important. You hit my launch control button and the floors to the pedals to the floor. Now I love it. Yeah. This is something that I'm extremely passionate about, because first of all, I'll just start by saying that before we even talk about what if. What if a new theory is in our field? I'll start by saying that the way the laws are written in Washington right now is that any financial advisor can say they're a fiduciary, as long as they disclose when they're not working in a fiduciary capacity, which to me blows the whole thing up. I mean, just it's like if everybody I don't know, I can't think of a really good analogy right now. I'm usually pretty good at that. But it's like, if everybody can say they're a fiduciary all the time, except they're just, you know, they're supposed to put their hand on a Bible and promise they're going to disclose when they're not acting in a fiduciary capacity.

Adam 00:01:50 You know, when they're essentially selling somebody an investment that's going to charge a huge commission to put a new deck on the back of their house? I don't I don't think that person is a fiduciary by definition, but that's the way the law is written. So I think, I think I had to say that to get that out of the way right up front, because you can't just sit down over coffee with somebody in the financial advisory world or financial planning world and in your area or your city and say, hey, are you a fiduciary? And have them say yes and have that be the end of the conversation, like there has to be more questions asked. And the big question really is, well, two questions. And they're the same. The same question but asked in a different way. The first is you a fee only financial advisor? and the other way of asking would be, do you have the ability to legally charge commissions? And if you are a fee only firm, the answer should be yes.

Adam 00:02:37 If you ask that question, yes, I am. Okay. You're done. There's nothing else to ask. I mean, you're, you're sitting down with a good person who has no conflicts of interest. Not to say there aren't lots of great people, by the way, who are hybrid, you know, Ria brokerage firm, hybrids, insurance agency, then captive advisers. There's tons of great people out there. But the issue in the industry, in our industry, is really the commissions. At the end of the day, you know, it doesn't matter if I'm brand new, a brand new financial advisor coming out of the gate that needs to be put food on the table, which I was at one point, by the way, broke, you know, going door to door, business to business, literally in the snow. It wasn't uphill both ways, like our parents and grandparents said. But, you know, I found a way to make it downhill sometimes. But it was, you know, it was rough, but you have to put food on the table.

Adam 00:03:27 But if you're an experienced advisor, 15, 20 years doesn't make a difference. And let's just say your spouse is like, you know, hey, I really want to get this kitchen renovation done. And you have a choice between this million dollar client you've just brought on board who trusts you between putting a portion or all for that matter of their money into something that's going to pay you maybe an annualized fee that's smaller, or a big, huge upfront commission that's going to pay for that kitchen or that bathroom. It doesn't matter. It's the. The problem is it gets in your head and it creates that conflict. And you have to be you have to do the right thing. And I'm confident there's lots of advisors out there that do the right thing. but I think it's best to avoid that conflict altogether. So, are you a failing firm? Yes. This is the answer you want. And then do you have the legally? legally? Do you have the ability to charge commissions? No. Should be the answer to that question.

Adam 00:04:14 I have no brokerage licenses. No insurance licenses. I did, or they were waived for whatever reason, like CFP. You know, when you get the CFP, it's waived in series 65, for instance. but yeah, but a fiduciary in a nutshell, is somebody who, in the financial advisory world, is going to do what's best for you, the client, even if it means less revenue for the firm. And the way it's upheld is you have to if you're in this business and you've had brokerage licenses, like I had a series seven, series 24, 31, 63 life health, variable annuity and insurance licenses, I had to drop them all. And it was a terrifying day. You know, my birthday of what was it, 2013? I think it was when I said, okay, I'm cutting. I got to take all these tests over again if I if I want them. But, you know, it was I think it was the right thing to do. Oh, so that's what a fiduciary is.

Adam 00:05:00 Long winded answer. Sorry.

Joey 00:05:01 No, that's a great answer. And you hit on a lot of things that are really important to me. I don't I don't know if you know this, but I know most of our audience doesn't know this. At one point, I did have my series 65, and I was kind of going down that Aria route, and it was, again, a lot of great people at this firm doing a lot of great work. But there were some things that you start to notice, like, oh, well, the firm owns the bank that's housing all the investments and all of these percentages are getting rolled up. And I start to get started to get very uncomfortable with sitting there saying, like, I am I going to be pushing people to this model because it's what I actually think is best for them? Or am I going to be pushing this to this model because it's what's best for the firm? And if it's best for the firm, that's what's best for me, and that's how I'm going to learn and grow.

Joey 00:05:48 That was my big fear. I it might have been a little bit unfounded. I don't want anybody who. I'm not going to say what firm it was or any of those types of things like it's a great firm, great people. They do great work. It was a relationship that I was a little bit uncomfortable with, and I was worried for myself about, you know, would I have that integrity at the end of the day to tell that client, hey, maybe you shouldn't go with us, maybe you should go somewhere else? And that was.

Hannah 00:06:15 Like, there's so much opportunity for the lines to get blurred in that, like, as much as somebody I think wants to go like, Jerry, I know, like your heart. Like I know that you would have gone into that, like, with very good intention. But then, like you said, Adam, like, you know, your wife comes to you and is like, hey, like, I want to put in a pool in my backyard, and then you've got a choice to make.

Hannah 00:06:36 Like, even subconsciously, I feel like there's just opportunities for lines to be blurred. And I love Adam that you gave us some questions, because I don't even know that I would have known the right questions to even ask in in that environment. But if somebody were to answer the first question as, no, I'm not a fee only fiduciary, is there still a way to leverage that relationship in a productive way to where the like you feel safe and respected in, in that environment? What or is it like Nim you run the other direction?

Hannah 00:07:11 It's such a.

Adam 00:07:11 Good question, and I've never been asked that before. and I think that goes back to the, you know, you have to dig deeper. I think that we've all in our lives done a pretty good job of judging character. and then every once in a while, like in my life, if I, I mean, I've been alive for, what, almost 46 years now, and I think there's been 3 or 4 times where I've really been screwed.

Adam 00:07:33 You know, where I really trusted somebody I once I trust somebody, I tend to put all my trust in them. And like, unless, unless you do something, they really screw that up. Like, I trust you. and I, there's been a few times where I've been really taken to the cleaners and, and it, you know, whether that be personally professionally, a couple times professionally. And so, I think that you have to go into it understanding that the probability of vetting that personnel, asking all the right questions and feeling good about them personally, because I think that's really more what it's about. It's like their morals, their ethics, like, what are they passionate like that's always joking. Like, oh, you're going to hit my hot button, Joey. Right when we start here. Because like my what the reason I do what I do is to save people. That's what I do. I protect and I save people. That's the only reason we bring on new clients these days.

Adam 00:08:17 So, I think that if you're working with somebody who or sitting down with somebody who is not a phony firm, or feeling fiduciary, I don't think that's a bad thing at all. I think you can still work with them and engage with them. I just think you want to spend some more time with them. Not that you wouldn't with the only person anyway. You are of course you'd want to, but you want to spend some more time asking them questions about, you know, you know, tell me about a story where you were faced with a conflict of interest. You know, where you had a choice between a commission and doing something else. Tell me about a situation. Give me a stereotypical portfolio that you would build for a client, you know. And what does that look like? And we could do a whole second podcast on building portfolios and ones that maybe look a little fishy and ones that are, you know, ethically sound. Because I think that there's one thing, there's something to be said for diversification.

Adam 00:09:04 But then I've seen portfolios where, you know, you know, there's some mutual funds, there's some ETFs, there's some stocks. I have no problem with any of that. Then you start seeing units and then you start seeing. And it's like there's usually a commission tied to that unit. And then and, and I start thinking of the things that I was taught when I was young about, you know, diversify portfolios, get more products in the mix to make the relationship stickier. So, is the portfolio good or is it a sticky portfolio? Are we trying to create more perceived trust and even experience, I think. You would ask any professional about their ethics, their morals, what they, you know, ask about stories. Tell me. Tell me a situation when you saved a client. Tell me a story about when you've built a portfolio that you disagreed with when they come in from another firm, why you like. And. I think they're all way smarter than me. And that, Okay.

Adam 00:10:27 Where? Which part? The whole thing.

Joey 00:10:32 It started when you were talking a little bit about kind of that portfolio building. And is it a is it a good portfolio or is it a start their folio. And then it got. Yeah. Sort of getting just a little bit robotic.

Adam 00:10:44 Okay. So, I think like when you're looking at portfolios that that come in your office as a CPA, you're going to see them. You're doing your taxes, you're looking for taxable, you know, taxable gain short term, long term. You're looking for, you know, how to build that tax return out. I think that you can look at the portfolio and start to ask yourselves questions. When you're talking to a financial advisor you're working with. Let's think, okay. Do they own some mutual fund, some ETFs, some stocks. There's not that's usually not that big a deal. There's no red flags there. You start to see red flags. There's nothing wrong with annuities. They're good investments for some people for some of your money.

Adam 00:11:19 The problem is when they're they look like they're great investments for all people, for all your money. You know, when you start seeing big, huge annuities in portfolios, when you start seeing like annuities and Roth IRAs, I question whether that makes sense at all. college savings with life insurance. I'm not so sure that makes any sense. If you see units, units or something, I don't see a whole lot of anymore. But typically you'll see in conjunction with a bunch of different types of investments. And I think that the goal here could have been to create the illusion of expertise or the illusion of diversification, when in reality it was just let's put a bunch of different stuff together to make a really sexy portfolio. that's maybe really hard to understand, you know what I mean? So, and then, you know, I feel like, I was saying earlier, CPA's, you know, from our side of the fence, we when I was starting my career, I was so terrified of CPAs, I was afraid that they knew everything, and I knew nothing.

Adam 00:12:17 And, it took me a while to realize, that, like CPAs, they know their tax stuff and their audit stuff, like the back of their hand, you know, like, that's. And I don't I know very little about that. That's not my wheelhouse. It's not my lane. I stay out of that lane. But when it comes to what we do, I think that financial advisors need to do a better job of educating and kind of having a, a two lane road educational Conversation about the investments in portfolio management and financial planning strategies, because I think that as financial advisors, one thing CPAs need to be aware of is that we think you guys know it all. You do. And then we won't educate you. We'll make a big assumptions thinking you just you already know it because maybe for instance you might say the phrase cash balance plan. And then a young advisor might know what a cash balance plan is. So, if you know what a cash balance plan is you must know everything else underneath it then, which isn't true, right? You just happen to know what a cash balance plan is because it's.

Hannah 00:13:14 Huge mirrors.

Hannah 00:13:16  Like it's all smoke and mirrors. Fun fact I literally just learned about a cash balance plan on Friday in a conversation that I had. So yeah, I could say yes to that. And I'll trick you into thinking I know all the things.

Hannah 00:13:29 Sure, but.

Adam 00:13:29 That's exactly right. I mean, as soon as you say something, whether it just in conversation, there's a pretty advanced technique. The advisor is going to think, you know, everything underneath that. Like, like it's like, you know, math 101, 104 252. Like, you know, all the math, all the way up to derivatives and calculus, you know, at all. And we're just like, we're just like the stupid person that doesn't know anything, and now we're just terrified of you. So, I think that there needs to be more dialogue back and forth with CPAs and advisors, and they can really teach each other a lot.

Joey 00:13:56 Well, and I love that you kind of explained it as a Venn diagram where there's a lot of overlap.

Joey 00:14:01 But, you know, again, I'll use cash balance plans because that is one hand we've talked about in the past before, too, about what's the appropriate vehicle for this person. You could take two companies that have identical panels, right. Everything about the business is structurally the same. One has an owner who's 60 years old. One has an owner who's 35 years old. You might change the calculus on a cash balance plan because actuarially it doesn't make sense. And that's where you need as a CPA to start developing those good relationships with CSPs and other folks who can start to help you pick the right vehicle for the journey that you want to go. I've had some situations where we've set up a cash balance combo plan and really driven some big, big, you know, really good financial planning, using the tax planning, using things to transition to business from owner one to owner two. But structurally speaking, that worked because we did 15 other things behind the scenes before you get to the cash balance plan.

Joey 00:15:00 So again, it's we go into it thinking it's a one size fits all solution. Oh, this is the magic thing that works. And you're like, hey, kind of it works for certain things, but maybe something else works differently. And that's where that dialogue really has to come into play.

Adam 00:15:14 Yeah. And in the simple stuff too, I mean it's like really simple. I wish earlier in my career I would have talked more to CPAs about portfolio management and building portfolios and how, how that really how it, how it I mean, because they know the basics, but, how does it how does it look when it looks right and how does it look when you start to see red flags? What are those red flags? You know what I mean?

Joey 00:15:34 I've got I've got one for me that I always, always gets my antenna going a little bit when I see with a fee only firm a lot of mutual funds in there. I always want to know, like, hey, tell me about what other fees are coming from this mutual fund.

Joey 00:15:48 What's the fee load on those like again, one thing. If we're talking about proper diversification and the and the and the fee only planners helping me with investment allocation, or we're really doing more of a long term kind of play on figuring out, you know, I, I love those things from I can't remember what was it TD Ameritrade that had like the what's your number where like people would walk around carrying their retirement number.

Adam 00:16:13 It was either fidelity. It might have been even John Hancock might have been I know what you're talking about.

Joey 00:16:17 I just love that analogy because it is so easy for people to understand like, oh, I just know what my number is. Right? But how do you even calculate the number? Right? Like there's 15 things that need to go into it before that. But figuring out and having that conversation and helping someone understand, like, okay, this is why we've got a certain part of your thing over here. Because this is helping with this specific part of the plan.

Joey 00:16:40 And, yeah, you're going to pay 1% to that mutual fund. But, you know, this is why I think it's worth it. Like, those are some of those conversations that CPAs can help. Yeah.

Adam 00:16:49 Really philosophically speaking, like I don't we don't use mutual funds at our office at all. We haven't since oh eight. And then we use all individual stocks and ETFs because I don't see any reason why you should use a mutual fund if you can use an ETF. Personally. That's my personal.

Joey 00:17:03 Opinion with you on that just FYI. Yeah, I think that's a great way to do some people don't.

Adam 00:17:08 So I don't be fair obviously. But yeah.

Hannah 00:17:12 Well so CPA so the accounting industry in general is moving very much towards advisory services. I think that the way that our industry used to function was very much like churn out the tax return, turning out the audit, you know, whatever that might be. We were just, you know, a cog in a machine a lot of times.

Hannah 00:17:28 And sure, there were certainly opportunities to advise clients within a tax Attacks relationship. But there are specific like client advisory services that we now offer within our industry. So, speaking to our younger professionals who are just starting out in their career and they're like, okay, I see where this is going even within the tax and audit space. And I know that I need clearly after this conversation to develop a relationship with a CFP or at least learn something from someone like, how would you recommend even like initiating that conversation? Because like, like I kind of like you said, like I think that there's some misconceptions of bias around like some intimidation. And, you know, really we want to bridge the gap here, I guess, is what I'm looking for is like, how would you recommend that somebody who recognizes the need go in and try to bridge that gap, to have the conversation, to learn more and to develop the relationship?

Adam 00:18:23 Well, part of the problem, you're going to run into a CPAs, is that you're going to be prospected a lot by financial advisors.

Adam 00:18:29 So, it's going to be I think you want to be two things, I think. One, you've got to be careful what calls you take, because you're going to have no shortage of phone calls and emails. So, it'll be easy. And then I guess that's number two. Number two is don't be complacent and just wait for people to come to you. I would rather I rather if I were you, if I were in your shoes, I'd rather you just go out and find the right person or people you know, and probably always good to have. Maybe two. I always have what I call my starters and my bench. You know what I mean? Like the person that I like, I'm more monogamous. I don't believe in that whole, like, you know, when you start in the financial advisory world, they teach you to cast a wide net. That's what they call it. Like get a bunch of CPAs and then treat them all really well and hope you get a referral. That's not good business, in my opinion.

Adam 00:19:08 I think you want to find somebody that you like. You respect them, you trust them. They good at what they do. And you like hanging out. And then you build a great relationship. You share ideas. And if referrals come great. I mean, but if really, it's more about if I send a client to them, that client's going to have their socks blown off so that, you know, they're going to send me referrals, having nothing to do with the CPA. But that all aside, Outside the first place that I would go if I were a younger CPA or any CPA. is to the Exit Planning Institute API. I would, at the risk of sounding maybe a little bit biased here. I'm a CPA, you know, a certified exit planning advisor. So, the API is the industry or not, the industry, the organization that sponsors the CPA designation. And they're growing really, really fast. And so, these are not only financial advisors, but I think if you find somebody who's a certified financial planner, who has that kind of elite designation from a strategy and planning standpoint.

Adam 00:20:04 And then on top of that, they've got the CPA designation, which is a business advisory designation they're not going to have. I don't think they're going to do what you do. Like we aren't going to do what you do. You're going to do what you do. We're going to do what we do. Then there's going to be business brokers that do what they do, corporate attorneys that do what they do, business bankers that do what they do. and then implementers, you know, transition plan and business transition and consulting implementers that do what they do. Like we don't do that. So, it's like I think there's lots of synergies to be had there. So, if you went to the API and I know they're not the only organization out there, I know there's another one. I think it's headquartered in California, actually. But, if you just do a search on their website there, I think you can do a search and just literally search for by designation, search for CPAs that are CPAs.

Adam 00:20:48 Reach out to them, send them an email, grab coffee, lunch, whatever, drink after work and just get. And then the next step I would take is I would not that you want to hear this, but I would go through a questionnaire like I have one. I'd be happy to share it with you guys. You can share it with your CPAs. But I have a big, huge questionnaire. I take all my professionals with, you know, first and foremost, get to know them personally, professionally, and there are lots of great questions. And then from there, I share what I like. Here's how I work with my client step by step. And that way we all understand how we work with people. So, there's trust. But not just trust from the standpoint of do we like each other? And do you do what you do, and do you do I think you do it well, but how do you do it? So that that'd be the first thing I would do, I guess, and I think you'd probably be good to go there.

Adam 00:21:29 I don't know that you need to go any further. Well, I think.

Joey 00:21:31 That's great like the exit planning thing is, is one of the, one of the things that always cracks me up. If someone's like, hey, I'm ready to sell my business. And my response is, great, that's at least a 2 to 5 year process depending on where you are and my personal preference how I like to practice. And that is I want to get as many of the relevant stakeholders in the room as early as possible so we can plan. You know, I think I can't remember if this fact is still true. At one point it was true. You were always, at least in the certain industries that I worked in, going to have a higher sales price if you were able to sell to somebody internally versus externally. So, we would go down that route with our clients and say, okay, look, is there anybody within the business that could do this normally for us? We worked with a lot of medical professionals.

Joey 00:22:17 That person existed. But yeah, you know, if it's not then okay, now you start going down again. That checklist of like, okay, here's how we're going to do this. We're going to list it here. We're going to do this. We're going to try to get this price or, you know, maybe, maybe the financial planner says, hey, you need to sell your business for I'll just make up a number here, $5 million so that your financial plan works. The CFO is looking at it saying, well, in order for us to do that, we need to grow over the next two years to hit this EBITDA. Like that's those are the types of things where a CPA could be really great at quarterbacking all those different moving pieces and, you know, getting the right person in the right spot to execute the plan. So, I think it's creating those relationships upfront is so huge.

Adam 00:22:58 I also think we need to get especially young CPAs, doing it all over again. We need to get the phrase exit planning out of our vocabulary.

Adam 00:23:06 Yeah, just get rid of it. Because there I like to call it business transition planning or transitioning you from wherever you are today to wherever you want to be, wherever that is. Yeah. de-risking, reducing customer concentration, creating continuity. obviously increasing profits, but, getting the business owner out of the business, making it run like a real business so that it's going to grow faster, it's going to grow more efficiently. And if somebody walks in a competitor one day, never mind continuity, and says, hey, I want to buy you, it's like I always joke, it's like CrossFit. Be ready for anything, anytime. It's like if somebody walks in a competitor and says, I want to buy you and then they walk in, they're like, wait a minute, you've got continuity plan in place, you've got golden handcuffs on your employees, your managers. Business doesn't need you. Your customer concentration is diverse. I mean, buy sells are in place. That company just became exponentially higher in value.

Adam 00:23:59 Enterprise value just because of the intangibles. Never mind profits, never mind. Bottom line, never mind EBITDA. So, I think that we need to, you know, young CPAs, young advisors and young business owners need to stop thinking, oh, I'll sell when I sell, you know, I'll get around to it because they talk about the terrible T's or the terrible T's. Sorry. That's real estate. the terrible the DS. You know, the divorce, Disability. Disease. Disagreements with partners. I mean, these are all the things that like when you're 72 years old, it's all of a sudden, you're selling it a fire sale or dissolving. There's another D because you didn't do any planning.

Joey 00:24:34  Well and to and I love that because I told our as part of our CFO practice that, hey, we need to review all of our operating agreements to make sure those four D's are addressed, because that's, you know, again, something that we need to just have in place that's kind of permission to play, in my opinion, on that.

Joey 00:24:50 Having, you know, I think there's a lot of misconceptions, too from, from business owners about like what the actual thing is. And I have this conversation with my clients all the time. Sure, you can grow some revenues, but I think you're better off maybe having you know, if your ideal revenues 100. Right? I'd rather you have 80% of the revenues at good profit margins than 100% of that profit. But your profit margins are terrible. You don't have the infrastructure in place. One of those is a good business. The other one, you're just driving a valuation, Evaluation, but you're never going to get it. If the intangibles of the business aren't there requires all the pieces.

Adam 00:25:27 And most owners don't know any of that. No, they don't. And that's the part that that's the other thing that fires me up is, you know, the statistics that 80% of businesses don't sell, they dissolve. And that 75% of the 20% sell for less than market value. I mean that that's a reason to go out there and save the world, you know, make, first, bring awareness so that owners understand this problem and then get them engaged in fixing the problem, not treating it like exit planning.

Adam 00:25:50 But let's get your business running like a freaking well-oiled machine now so that not only will you make more money, not only is the business safer, not only is it more efficient, but by the way, you're gonna have more fun. You're gonna have a life, or at least more of a life. You know, owners are kind of addicts when it comes to work, I think. So I was gonna say there's not much.

Joey 00:26:05 We don't always turn that off, but it is. That is very similar to some of the coaching I've given to my clients is like, look, let's create a legacy business for you. If you sell it, great. If you not, if not, you've at least got to have annuity stream of income that you can kind of keep around for a while with not no effort, but certainly a lot less effort than what you were doing before. It's never going to be perfect, but.

Hannah 00:26:28 We can try it.

Hannah 00:26:28 I like that you mentioned like, getting all the right people, like in the room as early as you can get them in the room.

Hannah 00:26:34  I think that that is where I was saying with my client, some of the most productive conversations happen is people that you would not normally think to put in a room together, being in a room together and just saying all the things in one space versus these one off conversations happening without everybody there to hear the context around it. So, we've talked about the almost exit planning, business transition planning piece of things with this. What are other conversations, Adam, that you see from our lands that you'd like to be a part of? throughout the advisory like client business life cycle that we could be more aware to bring you in sooner.

Adam 00:27:12 I think one of the things that I, that we talked about a little bit offline, that I think is huge right now and it's not going to be around forever. I don't think it is the use of it's a strategy. It's the use of Delaware statutory trusts in 1031 exchanges. here's, here's the situation just to make it a story instead of like a technical discussion. grandpa owns a bunch of real estate, commercial, residential.

Adam 00:27:39 It doesn't make a difference. It doesn't matter what kind of real estate it is either. one of two things happens. A he doesn't want to own it anymore. It doesn't feel retired. It doesn't matter that property management companies are taking care of it. Just still feels like he's too busy. You know, he's not just busy all the time. That's option one. Option. And just once out. Option two is he doesn't mind it, but the kids don't want to deal with it. Like when dad, when you're gone, the last thing I want to do is manage all this real estate, you know? But he does want to pay the capital gains tax because he's owned these things forever. Rent's gone up, you know, I mean, there's these are great investments. They're increasing in value. You know, heaven forbid interest rates to come down and they go up even more. And then there's more capital gains tax, right? So, what you can do, everybody knows I say everybody, everybody who buys real estate investors in real estate.

Adam 00:28:24 You know you can do a 1031 to a kind property. You know, sell a commercial property, buy another property, defer the taxes. Right. Most people don't know there are these things called Delaware statutory trusts which are like instead of owning active real estate as I call it, which is literally owning the real estate yourself and managing it yourself. There are private placement real estate companies out there where you can say, sell a commercial building for $1 million. It's got a profit of 800,000. You take the entire proceeds, you 1031 it into a DST, and now you're going to be a fractional owner of a hospital in Dallas. Now you defer all the taxes. Now you're going to get, say, 3 to 4% passive income. You don't have to do any property management anymore. Now, if you are lucky enough to live long enough to where that thing needs to be liquidated now, you can just do it again. Now you can 1031 to a new DST and you get to choose the property, by the way, that the type where it's at, you know, it's your choice and there's lots of them out there.

Adam 00:29:20 And then you keep getting that passive income when you pass. Now it steps up in basis, just like the real physical real estate would. So, you avoid all the taxes, but you also avoid all the work and the kids are happy. So that's a pretty cool strategy. Well, I think.

Joey 00:29:32 That's another thing too on that, that, you know, speaking of like using the professionals, that's one to where, when, when I used to work at real estate. So we did a lot of ten, 30 ones and like having a good 1031 facilitator to help you kind of put those pieces together is massive on that. And you hit on something there that I thought was really interesting. And I think we're going to agree on this. We haven't pre showed on this. So, I'm curious if this is going to go the way I think it's going to go. Oh boy. One of you mentioned your kind of hot button topic. My hot button topic from a perspective is like thinking about taxes and thinking about how investments relate to taxes.

Joey 00:30:07  One of the things that I've constantly tried to talk about myself, but also to my clients, is like, okay, look, you can manage your taxes, but I, I have this thing against, you know, liquidating stocks that might be good investments to harvest losses just so you don't have to pay taxes and gains and stuff like that. I think it's really important for you to look at the entire picture and say, what's maximizing my after tax wealth building, not what's minimizing my tax in this one year? Those types of things with DST are akin to that thing. What makes the most sense for the long term? Not just for me, but for the future generations, for my family? I've seen some stuff with real estate where you can do something similar, where you start using a gifting approach to maybe gift some ownership to other generations in those types of structures as well. Thinking about those types of things, maybe you do pay a little bit more tax today, but you get something worth so much more on the back end.

Joey 00:31:11 Security is kind of your thoughts about how CPAs can help you have those conversations with clients.

Adam 00:31:16 I love that because I hadn't, I would never have thought of that. So, to talk about that today anyway. So, I have two thoughts. The first thought I have is to directly answer your question about the tax loss harvesting. It is something we do, but we throw a loophole into it. So, let's just say we've got a client who's got, I don't know, $100,000 in gains in summer from realized gains. And then it's December. Fourth quarter has been terrible. A perfect example is 2018. Fourth quarter market goes down 20%. You know, so you've got good gains from earlier that year. But you just got a bad fourth quarter. It's baby and bathwater. It's not that the investments are bad. It's just that it's been a bad quarter right for the market. I what I would typically do is we would take, say, a portion of the assets to wash out part of the gains.

Adam 00:32:00 Let's just say we can sell and get a $70,000 loss. So now all of a sudden they're only going to pay tax on 30 grand of profits. But I don't just go to cash. What I'll do is we use software to find out what ETF owns the highest holding of, say, if we sell Amazon at a loss, I go and type in Amazon and I find the highest holding within an ETF to get exposure. So, we're not just sitting on our hands. So, we still participate in any appreciation because what tends to happen in the last quarter of the year, especially December, is small caps are usually at small caps, but a lot of stocks that have been beaten up tend to get beaten up even further for tax loss harvesting purposes. And it's just it's very simple supply and demand. If there's more buying enthusiasm than selling enthusiasm, price must rise. And if there's more selling enthusiasm than buying enthusiasm, price must fall. So, if you get a lot of tax loss harvesting going on because of a bad fourth quarter, then what you're going to see is the price going down even further, which can create an opportunity where you miss an opportunity to buy low, right.

Adam 00:32:55 That's where you pivot and you buy the ETF, let's just say, or if it's backwards, maybe you sell the ETF, but you buy the stock or a portfolio of maybe the top five stocks in that ETF to remain exposed to that sector or industry group. So that's the first thing. The other thing is which.

Joey 00:33:07 I think is a brilliant strategy, by the way. I love that because again, you're capitalizing on all of you're looking at the holistic picture, not just what makes the most sense to minimize our tax today. It's what makes the most sense to maintain exposure to this market, but maybe also take advantage of a structural thing that has gone on with how the portfolio is structured.

Adam 00:33:27 It's like you said earlier, it's like taking advantage of the looking at the holistic big picture and saying, what's the best net after tax opportunity here, all things considered. Yeah. not just implementing the strategy and sitting around and waiting for day 31. Right, right, right. But the other thing is, and this is a big pet peeve of mine, it's the inverse of what you've mentioned.

Adam 00:33:46 It's the client that says, you know, and I'll take two things that we just talked about and put them to one. My mom gave me this stock, you know, 20 years ago. And it's and because she gave it to me, gifted it to me, it's got a, a really low basis. And now I have to pay tax. I adopted her basis. So, I don't want to sell it. I'm married to the stock, but it's a third of my net worth. And I'm sitting here going, Jesus, you know, I don't. It's freaking me out because their financial plan is based on a, you know, assumptions that we're making. And there's so much risk in that concentrated position. And in this particular real that's real life story, by the way, happened to be a small cap like a regional bank. And it's like sometimes I think CPAs might think, well, let's hold on to it, you know, don't pay the tax, but as soon as you've lost 20% in market value, why not? You're gonna wish you would have paid the tax.

Adam 00:34:43 Right? So, I get it. It's almost like there's no way to win. And but the joke I always tell is that if you have highly appreciated stock and you don't want to pay the tax, just hold on to the stock and the market will take care of your gains. You won't have to pay your tax. But in all seriousness, I think that there's a lot to be said for putting a plan together, a distribution plan to say if this happens. Mr.. Mrs. Client and we lose this much. Then we need to have a distribution plan of reallocating this money and paying the tax. Otherwise, you're going to. And when the real-life story in this situation was the stock ended up falling like 60% and I mean appointment after appointment after appointment just could not get them to sell. And at the I mean we lost way more than the taxes cost us; you know. So anyway.

Joey 00:35:28 Yeah. No, it's, I've seen it too. I've seen the inverse of that to where someone had a gifted basis that was significantly higher than the stock was ever going to hit because it had just plummeted.

Joey 00:35:40 So, built in losses that you know could not, you know, they were like, well, we've got to get it back up to where it was. And my response is, you're never going to it's never famous last.

Adam 00:35:50 Words, right?

Joey 00:35:51 Yeah. So, you know, I mean maybe it will, but not in your lifetime. And this was I mean, it was a very significantly depreciated stock that we were able to convince them to use to take the inverse of, like, do you think the stock is ever going to get back up. I think it was like the original basis was 100. It was trading at like two bucks a share. It's like, will it ever be that again? Probably not. Okay. Let's find another way and another avenue to do this. So, it's the problem is.

Adam 00:36:15 Money is such an emotional thing. And we all have to deal with those emotions because not only do you have people that say, I want to wait till it gets back to even before I sell, but you get you got somebody else on the other side of the trade going, you know, I'm not.

Adam 00:36:29 I want to buy until it gets down to this, this point, you know, and then it just never gets there. or I'm going to leave my money sitting in cash until the market goes down and then market goes down like, well, I don't want to buy now. Things aren't going well. I want to wait for them to get better. So, you want to wait for prices to get higher before you buy? Wait a minute. You know, it's just a lot very emotional, very emotional.

Joey 00:36:47 Well, I think that's the hardest part too, Hannah, about some of our CFO work that we do is we look at these things and it's like, look, these are just I don't want to say they're just widgets. They're not just widgets. We're not that thing. But it's a lot easier for us to make unemotional decisions about people's businesses. You know, we talk about, you know, if the economy isn't going well for a certain sector of the of the economy, we'll have to have conversations with clients about, hey, I know we look at this and we see ten employees.

Joey 00:37:17 You look at this and see ten people that you know really, really well. So, we're not we're not unaware of that of that challenge. What strategies do you do to kind of help bridge that emotional gap, where for you, as much as you love your clients, it's still just numbers and facts and stuff like that. You're able to divorce yourself from the emotions. How do you help bridge that, that gap?

Adam 00:37:43 I think the first is just tons and tons of education, like just always walking into a meeting with this is what I do and what we tell our staff. So, when you walk into a meeting and somebody's worried, they're upset, they're confused. Just always know they don't understand. Start with that and then you have to teach them, right? Because they don't do what we do all day. We see it all day long. So, it's almost like sometimes I think we forget that we're repeating this 4 or 5, six times a day. They're hearing it once a year, maybe twice a year.

Adam 00:38:12 Right. So, I think education is the first time. And I think the second would be lots of analogies, trying to draw analogies between something they do for a living, like their business, and make it make it kind of draw lines of comparison so that they would understand, based on what they do for a living with their selling, their service, their selling, whatever. I think that's the third. And this is probably the biggest one. And the one that works the best for me is telling stories about what it didn't work so real. I mean, you can if you don't have real estate stories, ChatGPT will make one up for you. You know, it's like, I use ChatGPT like ten times a day. I don't do it to make up stories. Unfortunately, I'm old enough to have plenty of my own, but it's it's if you make up, if you tell stories like, you know, we have a new client who has, created in a very, very large basket of wealth at a very young age, 20 years of age is all.

Adam 00:38:57 Oh, and we're trying to tell him the story about the investments he's buying that he's done very well with, about another story about another client who had, you know, eight figures in cryptocurrencies and lost it all. So, it's like analogies, stories like don't be, you know, learn from other mistakes, you know. So, I think that's the best you can do. And then and then I think it's, it's giving them I often say in meetings, here's your financial answer. And by the way, here's the emotional answer. The biggest, hottest topic when it comes to that is doesn't matter if it's a business owner or not. It's should I pay off my house or not? Always. Should I pay off my house or should I just keep making payments? And the answer is, well, is it a great investment? Are you going to live there forever? Well, I mean, I'm not living there forever. I'm like, why do you want to pay it off is a great investment then is it like the best investment you own? Well, I don't know.

Adam 00:39:48 I mean, probably not. I guess it's like, okay, what's your interest rate? 2.5. Why you want to pay it off really makes me feel good, right? I don't want that bill anymore. Well, if you're if your financial plan looks so phenomenal that it doesn't really matter whether we pay it off or not. If it makes you feel good to pay it off, it's not the right financial decision, but I'm okay with it. But if your financial plan says it's too tight, like we're riding these guardrails, like way too tight, then we probably need to make the financially smart decision here for a while until things get until those guardrails get wider, at which point maybe we can create some choices for ourselves.

Joey 00:40:19 But yeah, and here's a plan on how you can do that. You know, execute these three things. Let's talk again about this in two years. Once you've done these things and see where we sit, have an annual check-in. I love that you mentioned.

Adam 00:40:31 Owners like employees or I like.

Joey 00:40:33 To, you know, or just like, you know, if you're working with someone saying, hey, we're touching the guardrails too much, like, you know, maybe, you know, maybe there's a spending problem, right? Okay. Like, you guys are spending maybe a little too much on, on vacations. Let's cut back on the expensive vacations a little bit and check in in two years and see where you sit. I love having some action items that you can take away from that conversation and say, I hear you. This is a goal. I'm telling you, it's a little too tight. Here's what you can do to make it a little bit less tight. I think if you can do that, you're going to be so sticky with your clients.

Adam 00:41:05 Yeah. And then the owners thing you mentioned employees like ten staff. We see this ten employees, they see this ten people they know like yeah, know like trust, love. Maybe I think that you have to almost like look at it from a, you got to show them the numbers.

Adam 00:41:16 And then you say another thing is, you know, you love these people, I get it. But if you were to start your company all over from scratch. Oh, yeah. And you were interviewing all the new people, would those be the people you hired? And if the answer is maybe for any of them, there's your answer. You know, that's the first people that probably need to go. But.

Hannah 00:41:34  Well, I think this conversation has proved that we are far more alike than, we came into this conversation likely thinking, because your answer to that question, in terms of how you communicate this and take the emotion out of that and divorce yourself from it, with your clients is the same way that we too like to communicate with our clients, especially delivering difficult financial information to them. So, I love that we've made bridge that gap for us and made that connection. So, I think that's really cool. we have I feel like Joey, like, especially with your background, like.

Hannah 00:42:08 Y'all can, like, I was tailor made for this for a whole.

Hannah 00:42:12 Other, like, podcast in and of itself. but we have come to the end of our time together. Adam, thank you so much for coming to the show and chatting with us about this. We like to wrap up our podcast with a totally, like out of left field, like different type of question. Change the tide of the conversation a little bit. And so, I'm just gonna throw this question out at you. And I was asked this question on a podcast I did recently, but I want to hear from you. What was, your favorite concert you've ever attended?

Adam 00:42:46 Yeah. Wow.

Adam 00:42:48 Yeah, that is out of left field. I'm a huge music fan. I actually have a music studio in my basement, so I used to produce music. Okay, so, I'm, I like all. I'm going to out like somebody. Somebody's going to get upset on this episode, for sure. I like all kinds of music except country. I just can't do it. I cannot do country.

Adam 00:43:05 Can't do it.

Hannah 00:43:05 My heart. Sorry.

Joey 00:43:07 No, sorry. This was just meant to be a Joey and Adam joint. 

Hannah 00:43:13 Okay, friends.

Adam 00:43:14 By I mean, I don't know if I can pick one. I mean, it's like the first concert I ever saw was Aerosmith. And it was. I've seen him three times. I loved Bruno Mars the first time. The second tour wasn't as good, but when, when he could play, he has so many hits now that it's hard to play all the great songs so he can only he can't play them all. I don't know. I'm a huge R&B and hip-hop fan, but I would say I love Brian McKnight, so I've seen him several times. But, God, best, best concerts ever get you to think about the performance too. Like, I thought Dua Lipa was amazing. man, I don't know. I'm all over the place. I've seen Revolution reggae concert. They were amazing.

Adam 00:43:52 If you just want to chill out. But that's it. Was there a part to that question? Was it was there or.

Hannah 00:43:57 Was it that that is that is the question. I mean, I'd love.

Joey 00:43:59 To get into it. I'd love to get into the why I think that's important to, you know, what it is about music that that speaks to your soul.

Adam 00:44:06 It's probably the same thing that everybody for everybody. Right? and it's I mean, it's a it's an outlet. It's a, you know, and Sharon was great. Have you guys seen his special? No. It's special is how he does his concerts. He literally is out there by himself with paddles, pedals, sorry, pedals. He starts with one, like, rhythm records a loop. Then he records another loop of him playing another part of the rhythm. Then he records us like a solo that loops it. The drums are his, him hitting his drum and. And then he makes the whole song by himself, like, as if he's in a coffee shop.

Adam 00:44:37 It's incredible. I.

Hannah 00:44:39 Still remember the first.

Joey 00:44:40 Time I saw that YouTube video. My mind was blown when he did. I mean, this was back in like 2013 when he was first getting started, and I was like, oh, that dude, that dude's a musician. Like, he just.

Adam 00:44:50 Does not mess around.

Joey 00:44:50 He does not mess around at all. See, that was such a better question that I was going to ask, which I was going to ask Adam. Which of his favorite, Cleveland Browns quarterback over the last 25 years? But,

Hannah 00:45:02 Yes, yours was a much better question that you and Adam, you don't need to answer that. There's too many names. Oh, well.

Hannah 00:45:10 I'll love it if our listeners want to connect with you outside of this podcast, what is the best way for them to do that?

Adam 00:45:21 Just kind of general education. We also have a company called elevate. The website is Elevate and exit.com. We do all our business advisory stuff there.

Adam 00:45:31 Do like we're doing actually a 1031 DST podcast and webinar this Thursday. We're recording it, redistributing it with Greg, Greg Smith, who's 1031 exp. So, you're talking about an intermediary. So, he's a great intermediary for 1030 ones. We also have a podcast for elevate. We do webinars for elevate. We do podcasts for Libertas. And then we're doing next month we're doing a whole webinar and podcast on, esops. So, you know, kind of just dissecting one of my favorites.

Hannah 00:46:03 I have lots of questions about that. So, I will definitely be tuning in.

Adam 00:46:07 Yeah, most people don't understand them. So, we're just trying to educate people. Like I said earlier, just bring awareness to owners so that, you know, they can continue being rockstars in their businesses. But don't forget to work on that business too. You know, don't forget to do that transition planning and make it a well-oiled machine so that you can have a life as well. Not to manage building enterprise value and a legacy for yourself, your staff and your family.

Joey 00:46:29 Awesome, Adam, thank you so much. This has been a real pleasure.

Adam 00:46:32 Thank you.

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