When new families bring in their investment statements, Dennis Morton and Katie Brown often see the same thing: complexity that doesn’t serve the client. In this episode, they pull back the curtain on why portfolios so often include dozens of overlapping funds, how fees can feel stuck in 2006, and why simplicity paired with planning is far more valuable than a confusing stack of statements.

“If you suspect your investments are more complicated than they need to be, you’re probably right.” – Dennis Morton

Key Moments

00:02:45 – Statement sprawl

00:04:17 – NVIDIA everywhere: the hidden overlap

00:07:08 – Added complexity = STRESS

00:11:28 – How technology can help

00:12:53 – It's all “Window Dressing”

00:16:45 – Providing reassurance

00:17:49 – Signs you may not have the right advisor

Links & Resources

• Looking for guidance in your financial journey? Schedule a free consultation today: https://calendly.com/d/5gf-ryf-vq5
• Listen on your favorite podcast app: https://simply-why.captivate.fm/listen

Connect with Katie & Dennis:

• Connect with Katie: https://www.linkedin.com/in/kathryn-m-brown/
• Connect with Dennis: https://www.linkedin.com/in/dennis-morton-jr/
• Subscribe for more: https://www.mortonbrownfw.com/subscribe/
• Give feedback: info@mortonbrownfw.com

Important Disclosures: https://www.mortonbrownfw.com/important-disclosures/

Welcome to Simply why, a podcast about money and purpose, where we pull back the curtain on running a financial advisory business focused on providing intentional advice to couples and families. I'm Dennis Morton. And I'm Katie Brown. Welcome back, and thanks for tuning in.

Hi, and welcome back to the Simply why podcast. I'm Dennis Morton. Hi, and I'm Katie Brown. Katie. I think this is gonna become a recurring theme on the podcast.

We're gonna entitle this episode One of the things we see all the time. We see a lot of stuff. We see a lot of stuff. We're pulling back the curtain on what happens in a financial advisory business. There are things that we talk about all the time.

It's just recurring themes that come up. A lot of it is stuff where we think, oh, my gosh, we've seen this before, and here it comes again for new relationships entering the firm. I think today we're gonna talk about just the statements we see across our desk and what that tells us about the financial industry, where it is today, where it's been. You need to talk about kind of how we got on this topic. I think both you and I have had some recent experiences with prospective clients that have come to us, and they might start with, I'm not sure I know what I own.

I'm not sure how engaged my advisor is. I'm not sure how this all works for me. And by the way, we're not having certain conversations we should be having mostly related to some type of planning. And so we both had a couple experiences recently where we're digging into the statements and we'll get to those stories a little bit. But I think, as you mentioned, Dennis, I think it might be helpful to just kind of talk about the evolution of our industry a little bit and maybe why some of this stuff is showing up or how we're seeing things maybe in a different light from how they may have shown up before.

Yeah, I think. I mean, this goes back decades and decades as far as what people saw their advisor's job to be. The job was, well, you're the person who picks the investments, and you pick the stocks or mutual funds. And I think advisors wore that mantle for a long time because there were barriers to entry. You know, you couldn't just go out and buy.

Buy a Vanguard fund. You couldn't. You couldn't put it all together, didn't have the information that maybe your advisor had. A lot of that's been democratized. And as we know, because of the work that we do, the advisory role has shifted into really deep, holistic financial planning.

And investments are a piece of that. But there's a big swath of our industry that still defines itself on the kind of the black box style of we're the investment managers, and this is how we define success. This is where we add value. And it becomes a challenge of how to prove that value. And where we see it show up is in the statements.

Is financial advisors trying to prove their value? Tell me an example of, like, what, what you see come across your desk when somebody comes in and says, hey, could you take a look at my statements and tell me what's going on? So I'll give one recent example of a lovely couple that I sat down with recently and they shared an investment statement from a large institution. And let me say this is a very financially savvy couple. They understand the foundational elements of investing.

They understand the different types of investments, whether it's mutual funds, ETFs, stocks, individual bonds, and, and kind of how things should be working together, and also the different types of account structures. And they're on it. But even they were looking at it and saying, I think this is fine. I seem to have good returns. But when I, I cracked open to look inside of it, there was, you know, probably 40 different positions.

And in. In, at first glance, say, all right, 40 positions. That's a lot of diversification, right? But then the, the more I dug into it and, and this is where clients are at a disadvantage because we have some wonderful tools available to us where we can dive into an analysis and we can kind of figure out how, how these things overlap, what it actually, what it all looks like when you put it together. Whereas even myself, looking at the statement, I say, all right, I see a lot of stuff here.

I don't really know how this all fits together. And the thing that we recognize is there's almost this layering of complexity. And, and I think you're exactly right, Dennis. It's. It's like kind of a proving, perhaps by the institutions to, like, prove their.

Their value on the investing side. But as I went down deeper, I realized there are so many positions that are overlapped. There was a dozen large cap growth funds that are all tracking the same index, all performing within spitting distance of each other. Did they have any Nvidia? That's the joke, right?

That's every single fund. So. So individual stocks are showing up a dozen times inside the portfolio. Once again, just unnecessary complexity. You know, you could strip out a lot of those funds and still get that overall exposure, but it shows up as complexity and ultimately confusion.

You know, how many times have you been asked in recent years shouldn't I own some Nvidia? And we have to talk to people and say if your largest position in your portfolio, which many cases might be, is a large US Core index fund, Nvidia is your largest position. And there's a dollar figure to that. Once you show em the dollars that they own, like really I own it. But then you get somebody who says you have 13 funds that own it and neither one of them knows that the other is in your portfolio.

Exactly. And what happens if you want to pull back then on some exposures that you have now, rather than having one to two moves inside the portfolio, you have to move all of these funds. You're navigating all the tax implications of doing that because they were probably layered on at various times. And it just, once again it creates more work, more oversight, more management. And quite honestly, it's not as nimble as most people should have for their financial plans because the financial plan should be driving what happens inside the portfolio.

And things happen, you, you need a certain level of flexibility to be able to support what happens in everybody's day to day life. And when you have this complexity on the other side, it kind of, it kind of fights against what you need to, to run a smooth plan. Yeah. A client recently asked me, or actually he'll ask me anytime the market this gets volatile, he's like, how do you handle this? How do you handle the stress of just everything's moving in different directions at different times or you get, you know, sell offs in particular sector.

And as we were preparing for this conversation, I thought about that question they asked me. I think one of the ways I do that is we don't have a lot of overlap in the way that we invest. We have a dedicated strategy in each sleeve and there's broad diversification and everything else. So if Nvidia reports earnings, Nvidia reported good earnings yesterday and the stock went down, that's a topic for another conversation, like how that happens. But you know, when, when Nvidia stock goes down or any given stock, I know where that is.

I have a sense both for my personal portfolio and for our client portfolios, what is the impact of that going to be? Or if interest rates go up? I kind of have a sense because we don't own a thousand things. And I don't have to wonder, is fund number 7 out of 13, did they sell Nvidia? Did they buy more of It.

What are they. What are they doing here? That's a lot of stress, even on me. And I'm. I'm a professional, so there's that simplicity.

I think it avoids some of the anxiety. And when I see some of these statements across our desk, I think, who. Who can handle this? Who does this? And I think sometimes it's in the quest to look sophisticated, like we can do things that you can't.

We know all these 13 funds, you know what, you. You touched on something there when you said, like, you know what to look for. And sometimes we'll get calls from clients that are maybe watching, like, intraday movements inside of their portfolios. And the more red they see, the more concerned they are. Well, this is creating a scenario where all of a sudden there's a lot more red than there should be.

Do you know what I mean? So I feel like it creates unnecessary stress as well. Whereas if you could isolate it a little bit better to. Now, small cap stocks, we are recording this in. In August.

We had a great couple of days in. In small cap stocks, you know, about a week or so ago, and they jumped up really high. So the next day, we know exactly where to look in the portfolio to see, all right, where do we capture that? What did it look like? But if it's spread across 10 different positions, it is very difficult to understand.

Okay, what was the real impact of that? Yeah, you know. You know, another thing, Katie, you talked about this when you were telling me this story about this prospective client. The other thing that was interesting about it was the level of detachment between the people doing the investing and the actual client themselves. We asked them, do you have an advisor?

And their answer answer was kind of interesting. Yes. Yes. And they do have an advisor. Geographically, does not live within our time zone.

And so I had gotten the impression there was not a whole lot of communication. The institution will have regular calls or video correspondence where the investors can log into it and you can kind of hear what's happening. But that's the institutional investing team talking about how they're investing or what they're doing across their portfolios. That's not the advisor. So saying, well, this is what it means for you or for you, Mr. And Mrs.

Client. We need to make these adjustments personally because of what's happening in your life and in your world. It was. It was very sort of detached between, this is how it's done at the institution. And if you have any questions about the institutional approach, go ahead and ask it, but not brought down to the client.

Specific level and their fee. Were they, were they paying less for that level of detachment or. And the lack of financial planning that they were receiving. Yeah, let's go planning. It's just investing.

Just investing 1% for just investing. And I'm sorry, I'll put this out there. That's really expensive. If you're just getting investing advice. 1% is way overpaying it.

It just is that, that, that's, that's like straight out of 2006. Like that's the stuff we were seeing back then. You know what the funny thing is? This morning I, I went for a run and as I was running, somehow another. It.

It popped into my head. I had these flashbacks from more than a decade or so ago. And Dennis, I don't know if you remember this, but we used to have, you know, like a Bloomberg machine and. Oh yeah, I remember that. Yeah.

To fax that. And we would. Because it was all about getting the information, advisors getting the information that the public can't get. And you touched on this in the beginning of the podcast, that the flow of information, anyone now can log anywhere online and get real time data. So before you actually did need to put a lot of work and energy into finding that real time data, paying for the, the access to it and then running the analysis because it was still incomplete.

Whereas now so much of that is just in the blink of an eye. It's just so streamlined that it's. You're right. The, the cost of managed a portfolio a decade ago was about on average 1%. To pay that cost now for just investments just doesn't make sense.

No, no, there's so much, there's so much context around it. And you just brought up a really interesting point. Flashing back to days of yore. The technology that we use to gather all the information. Do you remember that, that prospective client that had come in recently who said I just don't understand what I own.

And he's a successful business owner, just very intelligent person and always wants to understand kind of things around him. And I said, well, let me take a look at your, your holdings. So he sent over a spreadsheet that was nine pages long of his holdings. Only like the first 20. A lot of holdings only like the.

No, there were, I think there were like 10 that were more than 1% of his portfolio. And some of them were like a couple thousand bucks here, a couple thousand bucks there, all these individual stocks and funds and it was just a hodgepodge. But here's the, here's the thing about where we are today. I didn't use technology or, like a Bloomberg terminal to try and understand that. I didn't, like, dig in and say, well, stock number 174 is something you probably shouldn't own.

Kudos to our friends at Nitrogen. I uploaded that, that spreadsheet into Nitrogen, which is our riskalyze platform, and it'll come up with an analysis. And within, like, 90 seconds, it had the whole thing broken up by account, showing all the holdings that, you know, the. The overlap between them, the historical performance expenses, tax drag, all of that stuff. It was done in 90 seconds.

And I wasn't using technology to add to the complexity. I was using the technology to try and understand what the heck somebody else was doing in this portfolio. What is this? What am I looking at? And that's.

That's the real benefit of utilizing technology on behalf of the client, not working against the client and not trying to overwhelm them and show them how smart we are and everything else. Like, no, I'm trying to understand this along with you so that we can get to the real purpose, which is to make good decisions about all this stuff. Right. And like we said, to have it positioned in such a way that it can actually support the other things that you're trying to achieve and can be nimble enough to do that. Yeah.

Quick, quick comment on just seeing, like, a lot of individual stocks, especially just kind of a hodgepodge of various positions, many of which are already owned in other mutual funds and everything else. There's a. There's a term that we've heard used for what that is. When you see an advisor doing that sometimes, especially if they're not like, specifically a portfolio manager, if this is just Joe Schmo, the stockbroker down the street, there's a. There's a term that we use for it, isn't there?

Yes, there is. That's window dressing. Window dressing. And what do we mean by that? Look pretty, make it look pretty, look pretty, make it look like we're putting a lot of time and energy and work into kind of peppering in some special little pieces that might enhance something.

Like you said, at the end of the day, a lot of times those individual positions are already owned, but it's not always understood that it's owned. So a lot of times that's done to kind of appease an individual without actually having the conversation and the analysis to say, hold on, is that necessary? Because it's already here. You're right. And to be equally cynical about this, it also Gives them something to talk about.

When you come into a meeting, we're going to talk about the stocks that went up. That's a, that's a good way to avoid having a conversation about financial planning. Going back to my training on Wall street, that's they, when they sent us to training up in Hartford, Connecticut in 2005 and six, a lot of that was like learn how to talk about individual stocks. I remember pick, they said pick a stock and then call somebody up and talk about it. And I picked intel and I called up and I had at that time did not have a very good understanding of, you know, Intel.

I just had to pick something and to do a little quick bit of research. But that's what they trained us to do, is talk about stocks and that's what people want to hear from you. How much time do we spend on the portfolio usually in meetings anymore? I mean if it's an hour long meeting, 15 minutes. 15 minutes.

And that's not to say that we don't put a lot of work and energy into the portfolio construction and how we are investing for our clients because we have a very defined process of ensuring that we are doing the due diligence, we are making good decisions, but we're not, we're not over complicating it. We're not trying to add in stuff to, to give a certain visual and, and I always say, you know, our, the investments are extremely important but they are a tool to help support the overall financial plan. Having a big pile of money is, is not going to help you in itself is not going to be the one thing that allows you to make good decisions everywhere else and to be successful in other areas of your life. Like there's just so much more connectivity than that. And I'll say just to be clear, that 15 minutes or so that we're spending on the investment portfolio, that's a hard earned 15 minutes because in the first year that we work with the family, we're spending a lot of time helping them to understand what they own.

We might be introducing things they haven't used before, like bonds or getting them to not hold so much cash or just diversification. We're spending a lot of time earning our keep there, building trust and learning to speak the same language so that we can right size the portfolio discussion for the rest of the relationship and get onto the other things like new developments in your financial life, you know, updates to the plan, that type of stuff. It's almost like a deprogramming and reprogramming. The kinds of things that you talk to your advisor about, because we're not going to talk about intel stock like Dennis wanted to in 2006. Well, and you know what the funny thing is?

It. It is typically just a few minutes of the conversation with clients. And quite honestly, I think they like it that way. They do, because that's if. If you're not at the right level of conversation, that's when you see the eyes glossing over.

That's when you see, you know, kind of like looking out the window. But as soon as you turn it around to what does this mean for you? And hey, by the way, how's work going? How's the family? What are.

What's happening? I have a. Another client recently. We had some great discussions around a large gift that they want to make to one of their kids to help them with a down payment on a home and can they do it. And by the way, they're contributing to their grandchildren's 529 plans, and they want to equalize, you know, that gift to the other child next year.

And. And all of that stuff is. That's exciting, fun stuff to talk about. The portfolio is really not that exciting. I mean, there might be elements that get us kind of keyed up, but most of the clients, for the most part, they just want to know that, you know, we're on top of it, that they have a lot of diversification, they have low cost, we're paying attention to taxes.

I mean, those are the three biggest things. And then they understand their risk and how that fits in. All right, so somebody who's listening to this might be saying in their minds, you know, I suspect maybe my investments are more complicated than they need to be, or I suspect maybe my advisor isn't overseeing my financial plan, or I suspect that maybe I don't understand my fees. If you're. If you have a sneaking suspicion, based on our experience of seeing statements across our desk, you're probably more right than you know, there's probably more complexity, and it might be just that legacy of this industry turning the battleship more slowly than it needs to, and advisors maybe not being equipped or even incentivized to provide financial planning advice.

And then that happens. That happens a lot. So I think those are the conversations that we like having, because there's nothing more rewarding for us than seeing somebody say, I now understand how all this works, and then you can go back to thriving in your own way, like just whatever. And not expending that emotional energy and saying, I wonder I wonder, you know, I would add on to that, too. Like, if you are finding yourself researching to figure out, should I take Social Security?

You're asking your neighbor, I don't know. Do you have a pension? What did you. What did you decide? You know, you might be asking another colleague, somebody else that you know.

Hey, have you heard about these Roth conversion things? If you find yourself doing all the legwork and the research and trying to figure out these things and figure out solutions, then you probably don't have the level of financial advisory relationship that you could have. There's a lot more that either your advisor can do for you or someone like Martin Brown could do for you. Yeah. Yeah.

It's really having the right expectations. So that. That's a very good point. This has been. This has been good, Katie.

I think there are things we see a lot that come across our desks, and this has been really timely as we've seen some prospective relationships come through. And. And I like sharing these ideas because it's how we think of how to refine what we're doing to address maybe some areas that really need improvement in the financial industry. Yeah, I love this. Thanks, Dennis.

All right, until next time, this is simply by podcast. Feel free to reach out to us at www.mortonbrownfw.com. take care. Thanks for tuning in to this episode of Simply why, a podcast about money and purpose. We hope you enjoyed getting to know us, how we approach leading a financial advisory practice, and the work we do every day to help families and couples make important financial decisions.

Morton Brown Family wealth is an SEC registered Investment advisor. This podcast is designed for educational and informational purposes and not intended as investment advice. More information can be found at www.mortenbrownfw.com.

it's like the hot goblin and the ice goblin at Christmas time, and they're fighting each other over, like, some Christmas. You ever see that one? It's like one. One's like a red guy. One's like, that's what this looks like.

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