Mark T. Hebner is the founder and president of Index Fund Advisors, Inc., (IFA), author of the highly regarded book Index Funds: The 12-Step Recovery Program for Active Investors, focused on investor education. Mark is a Wealth Advisor (Series 65) and has an MBA from the University of California, Irvine and a Bachelor’s in Nuclear Pharmacy from the University of New Mexico. He was a member of the Young Presidents' Organization for over 20 years and is currently a member of the World Presidents’ Organization and the Chief Executives Organization.

Prior to founding Index Fund Advisors in 1999, Mark was President, CEO and co-Founder of Syncor International (previously a public company - SCOR) from 1975 to 1985. In Jan. 2003, Cardinal Health acquired Syncor for approximately $850 million. As a division of Cardinal Health, it is the world's leading provider of nuclear pharmacy services.

Joining us on the Rational Reminder today is one of the pioneers in the space of evidence-based investing, and someone who has been a massive inspiration to us, Mark Hebner! His website, Index Fund Advisors, was one of the first to start explaining the ideas of an evidence-based approach and the power of indexing, way back in the 1990s. We get to hear from Mark about his transition from misled active investor to his discovery of indexing and how this led to him founding Index Fund Advisors. One of Mark's mantras is to replace speculation with education, an idea he has held dear since his first forays into passive strategies and a message he delivers to his new clients repeatedly. Mark also tells us about the niche he filled with his business, visually presenting the evidence that was being ignored, in a way that was both easy to understanding and also convincing for investors. Our conversation covers the troubled waters of DIY investing, why Mark believes that an advisor is a necessary part of a good approach, as well as the parts of wealth management that are not actual investing. Mark unpacks his definition of risk and how best to think about it before we get into the topic of taxation. So for all this valuable information from a true authority, be sure to listen in with us and hear what Mark has to say!  

Key Points From This Episode:

• The events that led up to Mark founding Index Fund Advisors. [0:03:18.7]

• Mark's 12 step process for getting out of active investing and the importance of the first one. [0:11:41.3]

• Advice for avoiding the allure of active management — the idea of the Ulysses Pact. [0:16:12.2]

• Thoughts on large-cap growth stocks and the lessons we learn from history. [0:18:34.6]

• You cannot cheat risk; rules that have remained the same since 1720. [0:22:37.3]

• The folly of market timing and Mark's approach for explaining this. [0:27:55.1]

• Understanding tax and how it should impact and propel passive strategies. [0:33:10.1]

• The best way to think about risk — the uncertainty of your expected returns. [0:36:16.6]

• Important lessons that Mark has learned while educating clients over the years. [0:39:02.4]

• Aspects of wealth management apart from investing; saving, withdrawal rates, spending, and more. [0:43:28.2]

• The indispensability of an advisor — why DIY investing is not the way to go. [0:47:08.7]

• Mark's personal definition of success: Freedom of choice and the opportunity to help. [0:51:04.4]

• The public company that Mark had and exited before he got into investing. [0:54:23.8]

Read the Transcript:

Can you share the story about how you came to set up Index Fund Advisors?

Well, it kind of started off with the fact that I was the CEO of a publicly traded firm and I had the opportunity to basically sell out of that firm at a ripe old age of 32. Would I be close to one of you guys? I'm not sure. Anyway, it was a while ago for me. And I ended up with this big chunk of money and I was cold called by a Morgan Stanley broker who monitored those kinds of sales through public companies.

And he informed me he was Steve Jobs, stockbroker. He was up in San Francisco and told me all these wonderful things they were going to do for me. And so I thought, okay, well, I'll give him this big chunk of money that I just received from the sale of the company. And 12, 15 years go by, and one of my friends was killed in a car wreck and it took a few years, but the widow finally called me and asked if I would help her with her investments because she knew I was a business person.

Well, as many of us know now, just because you know something about business doesn't mean you know jack about how stock markets work. And when she asked me to do this, I felt this tremendous obligation to help her, but I also knew that I didn't know much about this and basically been listening to my broker for all these years tell me which stocks to be in. We went through gold and oil and we bought a bunch of muni bonds.

And so anyway, that got me digging into the information a little bit and I went to the local Barnes & Noble here in Newport Beach and picked up 20 books or so, I think it was 22 books. Walked out of there and I had random walk and all the bulk of books, I had a bunch of other indexing related books by Scott Simon and a bunch of other folks.

And so I started plowing through those. And interestingly enough, one of the first things that hit me is gee, why didn't I read about this before? And I used to call myself, I was like a thoroughbred waiting at the gate because I was 32 and I here I was the CEO of this publicly traded firm. And really all I cared about was finding another company to run, but I didn't realize my real job was learning about this big pot of money that I just earned.

So after going through all those books, it's now 1997, 98 probably, and the Internet's out there and you could start going up and comparing your portfolio to the S&P and look at all these charts and graphs that you could create. And that was probably my first foray into the whole idea of using charts and graphs to educate somebody else because they provided such an education to me.

But the bottom line was after I did my investigation, I figured my opportunity costs, now this is not a lost amount of money. It's amount of money I would have had had I understood this when I got my money in 1985, was in the vicinity of $30 million. So that was quite a rude awakening, and I remember I wrote a 20 page letter to the stockbroker because we became kind of buddies.

I think like a lot of people end up being with their stockbroker, where he was calling me almost daily about this or that, because I was kind of a whale for him and it was an opportunity for him to generate a lot of commissions. And so I started digging into all this. I went to the widow, I explained to her what I found out.

And then I said, I've been thinking maybe there's an opportunity to use the internet to tell the story to the world because I don't see anybody out there doing. It was indexfunds.com, had a little discussion board and there was a little information there, but these were people just talking to each other and the business of indexfunds.com was to sell ads, sell banner ads that they were doing in the old days.

And that basically failed. I ended up buying indexfunds.com from those guys. But anyway, that was the primary source. William Bernstein, Jeff Trautner, a lot of the same old guys that we talk about and that you talk about and talk to, were posting on indexfunds.com back then, but nobody was really making what I would call an advisory business out of this. So then someone showed me Flash, okay.

Steve jobs killed Flash, but Flash allowed us do these incredibly dynamic charts where you can click and choose and move stuff around. And I thought, oh my God, that's what's missing here is this ability to be able to rapidly change this information from one portfolio to the next, from one asset question and basically create a lesson right there in front of the client.

In my original business plan in 2001, I think I wrote one up finally, included a Zoom-like presentation, what we're sitting here doing now. It was called Microsoft NetMeeting, if you recall. That was their video software. And my original vision was having advisors video conferencing with the clients. I wanted 100 advisors sitting on their computer screens, video conferencing. I didn't get there. I got 12, but that was sort of my grand plans back then.

So the widow also had a pretty good chunk of money. And I told her, I said, listen, the last thing I want to be accused of is taking advantage of a widow. One of the worst things you see brokers do. So I told her, you need to read this John Bogle book. I gave her one of Bogle's books, I can't remember which one.

And she was traveling all the time and she had a college education and she loved to read. So she says, I'm going to do it. So she took it on an airplane. And I said, I want you to write in the book, take notes. So I have evidence that you actually did this. She brought it back to me. She says, Mark, this is fabulous. You should start a business and I'm going to be your first client.

You wrote a 20 page letter, what was the conversation with the stockbroker like?

Well, it was basically explaining how the S&P did better than all his stock picks over this period of time. Also how he had me in this heavy bond portfolio. I found out later there was a group of brokers at Morgan Stanley where this was their strategy, get the client in, put them all in bonds, make them feel comfortable and then slowly start trading more and more stocks, is exactly what he put me through.

I had somebody who interviewed with that group at a later date and he told me about it. I went through and I explained all this stuff. It was 20 pages. It was probably the first version of my book really, to put all that information down. And I just said, I'm leaving and I'm moving all my money to Vanguard. And that's what I did.

Then I ran across some other books that started talking about dimensional and this, what do they call it? Select group of advisors who have access there. And then I thought, man, that's an interesting business opportunity and decided to set up the advisory business. And it's what I think of is really the first robo-advisor because I had this whole online advisory business.

And the only difference from what you see today is I didn't go to a Apex or RBC and create my own white labeled brokerage business. Thank goodness, that's a real big headache. But also I was just funding myself. You look at Wealthfront and Betterment, what are these guys... What did they raise? 400 million or some $300 million or something.

And that's kind of the other unique thing about what I did is because I made money in another industry, I had money. So I didn't have to bring in all these partners. I didn't have to go raise capital. And so even today I'm the sole owner of this company and it makes it a lot easier to make choices. I only have to deal with me, myself and I, but that myself and I, oh, they're horrible.

In your book Index Funds: The 12-Step Recovery Program For Active Investors. Of the 12 steps, which one do you think is the most critical for people to grasp?

I think step one really is the most critical. Step one kind of summarizes the whole book in little bits and it lays what I call a really good solid foundation to then go on to the other steps. But quick little story about the 12 steps is one of the things I just couldn't believe when I finished all this reading is that so many people continue to be active investors.

I thought, what the heck? Then it just hit me that they're gambling. And then I Yahood, there was no Google back then. I Yahood gambling in the stock market. It took me to the New Jersey alcoholics anonymous website where there was a tab for stock market gamblers. And I said, ah, ha, I'm going to use that. I was looking for some structure for a book because one of the things I didn't like about all the other books and I probably read.

You might've seen them, I have a library of 2,500 financial books now. I didn't read them all by the way, but I read many books and I didn't like the way they kind of mixed stock-picking throughout the book that it didn't work, market timing throughout the book.

And what I wanted to do is I wanted to have all that evidence in one place in a step or in a chapter so that if somebody had that particular issue they wanted to tie in the market, I could take them there and it would all be there in one condensed place. So I was looking for some structure like Stephen Covey's 7 Habits of Highly Effective People.

Can you talk us through the behaviors of an active investor?

I can knock through some of them here. Owning actively managed mutual funds, that's obvious one. You're trying to pick a manager to beat the market, that's part of the active investor. Picking individual stocks, picking times to be on the market based on market timing. Picking a fund manager based on some recent performance, a little bit like the first one, but there's this whole track record investing that goes on.

I'd like to remind people, you can't buy yesterday's returns. Picking the next pact investment style. Today, get into those large growth stocks, hyper large growth mega stocks. Disregarding high taxes, fees, and commissions. So this is not probably so obvious for everybody, but the active investor basically says, hey, listen, I'm going to double my money or I'm going for a 10 bagger.

What do I care about these fees, taxes and commissions? And then also risks. Same thing, they're willing to concentrate their investments in a few things taking on enormous risks. And risk isn't really a concept for them. It's pre Markowitz 52. They're only looking at returns. Somehow the variance of returns hasn't recurred, there has to be a big deal.

And then investing without a clear understanding of the value of longterm historical data, that ties back to my risky chapter. And one of the really important conclusions that I've come to after 21 years now of doing this is that if people don't have some understanding of statistics, even a basic understanding, it's going to be really hard for them to be a, what I'll call a good passive investor or client of a passive advisor.

My test is, I say, if I flip a coin and get 10 heads, what's the probability of tails? That's my first test. If they say 50/50, I know, oh, I've got a chance. But when they say, oh, it's 80% tails now after all those heads, gambler's fallacy there.

What do you think investors, particularly investors that don't understand statistics, what do you think they can do to avoid that siren song of active management or high past returns?

Well, first of all, I think they need to get help. They really need the advisor, right? We're the ones with the ropes here. We're going to tie you up. So my subtitle on all my investing videos is replacing speculation with an education and it's really about getting a good quality education.

And it's one of the reasons I wrote the book, but then I found I couldn't get a lot of people to read the book, so that's why I got together with Robin Powell. And I did the film that was basically just based off a script from the book. And it turns out that has been pretty successful because a lot more people will sit and watch our video then try to plow through a book.

It doesn't have all the information. It's not going to be as good as watching the film, but they'll get the general sense of what's going on from the film. But the education I think is the key. They really have to spend some time learning these concepts. And I also tell people, you got to hear it three times, at least. So the first time is when they're a prospect.

Probably the second time is when they invest and their first market crash comes along, then I kind of got to start over. And then the third time is when kind of like we're seeing now, is when their portfolio is not outperforming the market as they like to call it. So we just recently did a video about what is the market and what is the proper benchmark for your portfolio.

Trying to teach people it's a blended benchmark. You need a blended benchmark. I remember Sharp talked about this early on in some paper he did for some finance society is that you've got to put together a blended benchmark. One benchmark is rarely appropriate, certainly for a whole portfolio, but even for funds, that's basically what you're doing in your multi-factor regression.

What do you tell someone when they've had it with maybe their value portfolio or they just want to go where the returns have been?

First thing is, is a good lesson in history. So let me just try to pull up a little chart here. This is basically the 10 years of data before I started my firm. If you look at the subtitle up here, this is January 1 of 1990 to December 31st of 1999. We did our first trade in November of 99. And this is what we were looking at. And here we see the S&P at 18%.

Here's large growth for 10 years at about what 21% and NASDAQ at 25% per year for 10 years. And so who wants to buy all of these sort of DFA diversifiers down here, if I'm a French factor loaded type portfolio of international small value, which basically had zero for 10 years, international value down here at seven.

And so basically nobody wanted to buy this and back then was a lot like what you see now, if you think about it. In fact, let me go forward now to the 2000's. This is basically my first 10 years of doing this. And now you've got the S&P at minus one for 10 years. The last decade, you've got large growth and NASDAQ all down here below, and they completely reversed from the 10 years prior.

Well, wait another 10 years and you get something else. This is the last 10 years, the second decade of my doing this. And you can see, it looks a lot like the first chart that I showed you 30 years ago or three decades ago. And it flipped again. And so the real lesson in these, and I did a recent video, I'm looking at five decades, is that 10 years is not enough information from which to draw conclusions.

Which gets back to our point about understanding statistics with all this volatility even in asset class returns, forget about stock returns, but among asset class returns, you're probably best looking at least five decades of data to start to draw conclusions. And so to look at the whole 50 years of data, I've got here the 70's. And so here's now 50 years.

And when you're looking at 50 years, you see that S&P, that large growth, that small growth that NASDAQ all again down towards the bottom and these sort of DFA factor, diversifiers of large value, small value, emerging markets, small and value. Now you have to get, dig into how we create these indexes because that data doesn't go back to 1970, but you can look at that in our back-tested disclosures.

Anyway, you can see that the value over the whole 50 years was there had you known this. Of course nobody did in the 1970s, and you couldn't even invest in these in the 1970s, but just as a reminder that you see this flip-flopping of large growth and small value type of investments even 10 years at a time.

What was it like in the business and what was the client experience like for that first decade? And clients that you've had since then, are they kind of saying, well, yeah, we've seen this movie before? Because it feels you're really similar in many ways today to the way it did back in 99, 2000.

Also in 1720, by the way. The growth stocks of 1720, the East and West Indies companies and the South sea companies. And this is a story that's repeated over and over, over 300 years where people basically think they're going to cheat risk. That's what I like to call this. They're going to get rich quick, and they're going to cheat risk by hopping into some stock that's had some great return for some period of time.

It was very difficult. In fact, as you asked that question, one thing that came to mind is I remember sitting actually in a lawyer's office after we were working on an angel deal with a gentleman who had basically run up, maybe he had a million dollars. He ran it up to like $13 million in these .com era stocks.

This is probably 1999. And I'm showing him all this from a French data that says that's a really bad idea that you're also tilted towards these stock. Of course, he told me I was crazy. He said, no, that's all academic nonsense. He says, look at my portfolio. Well, that portfolio dropped back down to about 750,000 from 13 million. And he was literally crying on the phone to me over his whole world turned upside down.

That's one anecdotal story, but these kinds of things happen. People get incredibly rich, a few lucky people get incredibly rich and then everybody wants to jump on that bandwagon. And the data just doesn't support it. One of my favorite things to do when someone comes to me with the theory, you've got these arc funds. What's this girl's name? Catherine Woods.

When they come to me with these incredible stories, I say, can we just compare resumes to whoever's in charge of that strategy with Eugene Fama's resume? And let's just see who you might want to accept their recommendations, which one of these do you think is more valid? And we have an article on our website Fama, one of a kind where we literally list every Fama paper with a link to about 90% of them.

And we go, okay, what do you got on the other side here? Just because they had a great return in three years or something. It's just incredible.

Of course, none of these people understand the distribution. This is the problem. Or do they accept the fact that all returns are kind of starting with the same expectation? Fama once told an advisor group at a DFA conference, he sees the primary job of advisors is to teach clients about the distribution of returns that they're in for, in essence.

And that's the great thing about something like this is you have an expected return up here, but down here you have a realized return. And there's a very wide range of realized returns relative to that expected. And that is such a hard concept to get in people's heads. First of all, they don't accept randomness.

They don't accept efficient markets, which sets a fair price, which positions these expected returns to be essentially constant over time. Everybody wants to argue with that, but I don't see anybody really profiting. I saw your thing about Cliff Asness, but even he says that's not a good idea to try to time these factors.

Over the years, there's always another chart that I latch on to. Over time, there's different charts I use to teach people about the dangers of stock picking, but this is my current favorite chart. So this is a study part of the SPIVA study that looks at persistence about performance by actively managed mutual funds. And they break these out by asset class here.

But because most people who are doing this like the stocks, you mentioned Apple and Facebook, whatever, they're doing it among the large cap stocks. So let's look at 938 large cap mutual fund managers over just three years, how many of them beat their benchmark? Only 99. So right off the bat, that's horrible odds.

But what I really like about this study is they follow that 99 for the next three years and zero continued to outperform. And so when these professionals who I like to say, get paid, I don't know, a million to $5 million to do this when they can't do it, what makes you think you can do this on your own?

To me, that's really strong, compelling evidence. And if you look down here, it's pretty much the same in a lot of these asset classes.

How do you articulate the folly in trying to find the perfect time to get into the market?

So I like to use a little diagram I came up with in 2008. Here, the market had crashed multiple times. Please make note, when I talk about markets, I always like to speak in the past tense. Gerardo Riley is now correcting a lot of other people at dimensional that they're using the wrong tents when referring to the market. A lot of people say the market's going up or going down.

There is no such thing because the future is uncertain. So you can only talk in the past tense. But what I like to use is this little diagram that is my way of explaining the way markets work. And in essence, why do prices change? And so what I'm showing here is let's just put this on a 60/40 portfolio. That's something more common for investors.

If I was to look at a 60/40 portfolio, and this is one of the things we do at the company is we create this historic data of these blends of indexes and funds when the funds became available. So you can get a characterization of a risk of return for various asset class mixes or whole portfolios. And if you look down here for over 50 years, the way hypothetically back test this data, the monthly return for this portfolio has been 0.81%.

Well, for me, that's a pretty good way to set your expected return going forward. If it's that way for 600 months, it's probably that way in the future as long as prices are fair. And so what we like to say is we've got every day, every moment, new information coming along and sometimes it's good news, sometimes it's bad news.

And I think of the intersection of that is being the uncertainty of your expected return. So if I've got really bad news, my future returns look really uncertain. I got really good news, my future returns look really certain. What's the job of a free market is to set prices so investors will be positioned to earn a fair return given the risk they have in their portfolio.

So in a inverse way, the price is set inversely proportional to the uncertainty of your expected return. And that price is set by 10 million buyers and sellers every day around the world, roughly, and because of so many active participants in price setting and price discovery really, we think that prices are fair all the time. And so the prices are changing so that the expected returns remain essentially constant.

You might've seen in a recent little DFA video they put out, somebody said... Who was it? It was Noby Marks. Noby Marks says, I get up every day with the same value premium expectations. Every day I have the same expectations. Well, how could that be when we see prices moving all over the place? That's why the price is moving is so that these expected returns stay essentially.

I use the word essentially constant because I know everybody's got all their ways of talking about what expected returns are. And so to me, this is a reason not to try to time the market. If every day has the same, or every month has the same expected return, what are you doing? What are you betting on? You're betting on an outcome.

I have a little button here for the active investor. The active investor is forecasting what that future return's going to be. And they don't think that it starts in the same place all the time. It's going from minus five to plus five or even more, extreme than that. And they don't think prices are fair either.

This is one of the reasons that people don't understand that statistics applies to the markets. They don't understand that a fair price actually allows a statistical analysis to be useful.

How big a role do you think taxes should play in the decision to avoid active management?

That's huge. Most traders are recognizing short term gains. They're not holding much longer than a year. And so they're all paying, I don't know about in Canada, but in the US it's all ordinary income. Which is for a high net worth high earner, you're talking, especially in California, it's almost half your return.

So you thought two and 20 was bad in a hedge fund, try paying 50% of your gains in taxes. It's what I call in my siloed partner chapter, the government is your siloed partner. You don't even know they're there until it comes tax time. And I've yet to see an investor who really could even calculate their after tax returns, went to the trouble to go back after they filed their taxes and adjust all their returns accordingly.

So actually many of us at our firm often comment on the fact that few clients really even appreciate how much taxes they are saving. Especially with the tax loss harvesting that we're doing in client accounts, that's enormously beneficial for those who are in a position to harvest those losses. So anyway, taxes are huge.

It is one of the key reasons that you become a passive investor is so you're not recognizing these gains. We see this sometimes in clients. I remember there was a client with oil had gone. I don't know what, to $99 a barrel. And he was all freaked out and he sold his portfolio. Then he called me up, I don't know, six months later. He says, man, I didn't realize the taxes I would have to pay for liquidating my portfolio.

Because he'd been there for quite a while and had all these unrealized gains built into the portfolio. And of course down here, if you die, then you get a step up and then you never pay tax on those gains.

The tax laws are going to vary. Even vary by state down here, so that's why we're also... We hired a CPA. We're actually doing tax advice and tax returns for clients now. And I have to say, I don't know why I waited so long to do that. I think it is a huge advantage for the client. I always try to do what's best for the client because if the client's happy, we're going to be happy.

But we've seen such synergy between having an in-house CPA and bookkeepers. We're actually doing bookkeeping for a lot of clients. And I learned about that at a DFA conference. And that has been a wonderful addition as part of our service that we offer to clients.

When you explain risk to your clients, how do you define it? I mean, risk is such a broad term. How do you think people should think about it?

I'm kind of old school there. I really like to think of risk as the uncertainty of your expected return. Let me go back to one more chart. Sorry to keep going to all these charts, but this is what I been doing for 21 years. Usually I have people on the other end of the line. We weren't even doing screen-sharing half the time, more than half the time because we couldn't get the clients to do it.

And so we try to make our site easy enough where we just tell them, go to chart number six on the charts page and they can do that. But what I always like to think of standard deviation more simply is the uncertainty of your return. When you've got this high standard deviation investment, going back to the bell curve, it's just a reminder that there's a very wide range of possible outcomes and it's even less likely for you to get this average or median return.

So anyway, that's the main way, I know, the main way I like to talk about it. I've read the 20 other definitions of risk that talk about running out of money and all those other issues. And certainly those are also very important. But we were doing evidence based investing before the term was out there, that I had heard anyway.

To me, it's all about showing people evidence, and data, and information, and the more interactive, the more clear we can make that to them, the better I think they understand it. And so we call this the big chart here at IFA because it's kind of the whole story.

And I always remind people that a 20 year old said at the University of Chicago library in 1951 or 52, and all of a sudden it hit him that the uncertainty or the volatility of your return should be just as important as your returns in the historical basis. And that's why it's really important that you consider this chart. And there's just this pretty straight line relationship here between that uncertainty and the return.

If we turn off and we just look at the portfolios and not all these individual indexes, there's almost a one for one relationship. Here we see a portfolio 60/40, the return's 9.58. This is 50 years, and the standard deviation is 9.9. So a unit of uncertainty is a unit of return and you can, I think make this relatively easy and simple for people to understand even though they don't have a lot of background in financial science.

What have you learned by developing this content? Both from just in general, but what have you learned about communicating this message? What resonates with people? How have you changed through this over time?

I think the first thing that comes to mind is how difficult and expensive it is to maintain this information. I remember I had one of my advisors who left and then he set up a website. I said, oh, darn, he's doing the same thing I'm doing, but he never updated. He did it one time. 10 years later he had same ten-year-old data. The maintenance of this is incredibly difficult and complex.

Also to have the data consistent across all these charts, I got 90 charts on this page, and to have it be consistent across all this information both in a color palette, a design, a chart formatting with the title, the subtitle, the font sizes. There's just so much that goes into creating charts that illustrate your ideas in an effective way.

That it's really, I think, difficult to appreciate how hard it is until you actually do it. The other thing that occurred to me is we did podcasts. I think I did 100 podcasts with a couple other guys from another firm, and it was just so difficult to try to explain some of these things without showing some of my charts as I'm doing with you today. I know you said you hadn't done that before.

Well, I hope that is useful for people to actually see some of the data. But what happened is in the podcast, because I couldn't show the chart, I found that it was so difficult to talk about them and try to transmit that information, that we then transitioned to a video type of formatting. And we built an in-house studio.

I think we were maybe the third, at least DFA firm that I'm aware of that built an in-house studio so that we could start producing our own videos in-house. And that's where I think it really started to blossom. And really the educational impact really started to break through with perspectives clients, even other advisors.

I mean, DFA likes to say, I probably brought more advisors to DFA than anybody in DFA did because they see this information on my site. But the transition into video I think was really important. Then the last thing I recently learned is that the data you have up in any advertisement, which my website is, cannot be stale. This is the SEC's term.

And so about a year ago, we actually took down 80% of the articles, charts, and videos that we had on our website, 80%. I went home and had a funeral for all of my data and articles that I had been collecting and creating over 21 years, which was really valuable. After we took it down, I had so many of my advisors calling up, where's that chart?

Where's that article? Sorry, we had to take it down. So we're now in a process of taking that 80% of the website that we took down and updating and refreshing and republishing that information.

Can you talk a little bit about the other aspects of managing money that people need to focus on?

The first order problem in investing is saving the money to invest. And so I think that's a key issue, but many of us advisors we're already working with people who have already saved enough money to have enough assets to become our clients. It's probably why we spend more time on the investing side. We also do 401k plans.

I think we have 55 401k plans. And in that division of our company, we spend a lot more time teaching plan participants, company employees who have literally no knowledge of investing. A lot of that focus is on getting them to save because they don't know an active from a passive fund even. And so certainly savings is a huge thing.

The other major issue, which I heard you speak about in previous YouTube videos and podcasts probably is the whole withdrawal rate issue, safe withdrawal rate. How much can a client take from their portfolio in their retirement and be in a position to not run out of money before they pass away, huge, huge issue. And then of course, there's the whole spending side, I have a lot of my clients.

By the way, I still manage almost a quarter of our $3.7 billion of clients. I'm personally involved in managing those clients. I work with an associate of mine, but I'm still doing daily client meetings with clients now doing over Zoom. But the spending is also a huge issue. And a lot of clients come to me and say, is it okay if I buy this?

Is it okay if I go on this trip or whatever, I spend this money on my kids? And so those are a few of the issues. I think the other thing that comes to mind is that they look holistically at their whole balance sheet really, we've been using eMoney for quite a while now. And you can aggregate the logins to all their various financial related accounts and pull on all that information.

Although that's becoming more and more difficult because of the security required by banks and brokerage firms. And so it's harder and harder to do this account aggregation. But those are a few of the areas, all of which I think are important. I would like to say that financial planning is a very difficult topic and a very difficult result that you end up with in this process in terms of interpreting it.

I really think the real value of financial planning is the process of doing it, making the client more aware of all of these elements that I just talked about, collecting that information for them, and then giving them the snapshot in time. But that's all it is because things are going to change for them. They're involved in a random walk through life.

Like the market is a random walk and there's going to be changes in their situation on an ongoing basis. And so these things have to be revisited and it just gives you a nice format to go back and update all of these aspects with the client on some routine basis.

What do you think it takes for someone to successfully manage their wealth as a true DIY investor?

They basically need to become an advisor. It reminds me of that lawyer joke, an investor who represents themselves in the world of the capital markets is a fool for a client. That's like the lawyer represents themselves in court is a fool for a client. There is a lot to this and it is evolving constantly. I mean the whole profitability factor, for example. How was someone supposed to be able to keep up with that?

I just had three separate conferences with DFA working on ways to try to explain the profitability factor to prospects and clients. This stuff is really very complex. To be able to look at this data, to update this data, to even be able to calculate what returns you earned in your do it yourself portfolio.

Come on, give me a break. I haven't seen a client in 21 years who've brought in a proper performance report on their returns. And I see a lot of do it yourself investors. Basically, they're coming to my website as part of their research. And then they kind of get to a point where they, well, maybe I'll just talk to somebody there.

I'll get a little more information that I can do on my own. But the real issue is we don't have a record of what these people have done. So how can we conclude that they have a good job at it? The evidence is so overwhelming that individuals, all their behavioral biases, their lack of information so much, I think... Listen to my own experience, I went all that time, what? 12, 13 years and here, I'm a CEO.

I'm a relatively educated person. I remember somebody telling me one time, you should really hire this advisor to help you. I said, oh no, I'll be fine. I got the stockbroker. And I'm sure that comment probably cost me a ton of money and maybe not all of that money I discussed otherwise, because this guy was probably active. 98% of advisors are still active, I think.

So, I just think it would be who've everybody. There are some lower costs, even if they did a robo solution. I think it helps them. But because the robo doesn't have somebody to talk to, although they're starting to add that, because they've realized how difficult it is. You just need someone to represent you in these capital markets, because it is very complex. It is brutal. It is so difficult.

You have to have nerves of steel. It's so hard on the mind. To stick with small value in what we see here, it's almost, I don't want to say it's impossible, but it's very difficult for somebody to do that on their own. We have other advisors to talk to. Who are they going to talk to? They're going to go to some discussion board where somebody is talking about their Tesla hit or something or go to Robin Hood.

Oh my God, there's Robin Hood, huh? We're right back to day traders all over again. And now they get to do it supposedly for free, but nothing's for free. I'm sure they've got some charges they're putting in in there, although I've never downloaded that app.

But how do you define success?

Man, there's a lot of books written on that. That's a tough one. I think the first thing that comes to my mind is freedom of choice. I just have a little more freedom to choose what I want to do, when I want to do it. And the other thing that occurs to me is I get to choose who I want to work with. This is really important. I think Michael Kitces was talking about the fact that some people slave away in a job they don't like to save enough money up.

I don't have to make those kinds of choices, but I think probably even more than all of that is I get the opportunity really to help other people through my charity, work with our hospital. And even through my website. In many ways, they jokingly call me St. Mark at the office because I put all this stuff out for free for everybody to have access to.

And I really get some satisfaction on being able to help so many people. And even when I talked to advisors like you guys, I like to think that I've helped your clients and that helps their children and their children down the way. And actually I'd like to compliment Dimensional on this about how many lives they've touched.

If you think about on a global scale, what they've done through educating all of us advisors and all their institutional clients they've helped as well. And I think that I maybe just did my little piece there. And then that help also goes to my family and my kids and friends that I've been able to help. And so those, I think are all elements of success, but success is a tough concept.

Those of us who work probably a little too hard, probably never think we get there. When do you ever reach that level of success? It's like when you get to a certain level, then you see something else that you want and if feels like we're always on a little bit of a treadmill. I often say I should probably write the 12 step recovery program for my work habits, but we're all...

You're probably in the same boat, a little bit workaholics, but I think it's required to really make a difference in this world. You basically have to outwork the others or outsmart them or some combination of the two to really make a mark.

Books From Today’s Episode:

Index Funds: The 12-Step Recovery Program for Active Investors — https://amzn.to/33xWlQG

A Random Walk Down Wall Street — https://amzn.to/33QblcK

Little Book of Common Sense Investing — https://amzn.to/3kCDhHW

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/ 

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Join the Community — https://community.rationalreminder.ca/

Follow us on Twitter — https://twitter.com/RationalRemind

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Benjamin on Twitter — https://twitter.com/benjaminwfelix

Cameron on Twitter — https://twitter.com/CameronPassmore

Mark Hebner on Twitter — https://twitter.com/mark_hebner?lang=en

'The Story Behind Index Fund Advisors' — https://www.evidenceinvestor.com/the-story-behind-index-fund-advisors/