Inside the Flows - Episode 18

Tom Nowak: I'm sure this group is very familiar with the K shaped economy situation. You know, there's the haves and the have nots and ever since the eighties that that that that that the d that disparity has gotten just wider and wider and wider. So what I find with with older clients, you know, there's there's ones that the seniors that have the pensions and have the four one Ks, ones and then there's the ones that don't, you know, they're at the bottom of the key. With with younger people is is folks that are companies that are doing equity offerings or matchings or stronger matches or stud you know, different cafeteria type things like we'll pay down your student loan. You know, th th it's kind of the cycle is kind of repeating back into into the mid seventies as companies are relearning that if you need employees you gotta compete for them and you gotta offer them something other than salary
Iyassu Essayas: So so are you s telling me that you're starting to have legitimate conversations about with clients about, hey, maybe I shouldn't retire in Palm Springs because it's gonna be too hot there for me to live and I should think about Montana instead because you know it's further away from the equator. It's a lot cooler climate. Like are are you you're starting to have conversations like that with your clients?
Tom Nowak: I've been starting this several years ago. Yeah,
Iyassu Essayas: Wow. Welcome everybody to Inside the Flows. I'm your host, Yasu Sayus, and I am here with founder and principal of quantum financial planning, Tom Nowak. How you doing, Tom?
Tom Nowak: Very good. Nice nice to be on your show.
Iyassu Essayas: Yeah, it's great. I mean, we were talking about this at the US CIF conference and and I was like, you know what, Tom, like let's just let's just bring you on the show. Let's let's let folks know who you are and what you do and you know, welcome to episode eighteen. we've been doing this for a while and it's it's a pleasure to have you.
Tom Nowak: Okay. Okay.
Iyassu Essayas: so so for folks, yeah, Tom has been part of the industry and for a number of years. And, you know, I've I met him back at God, were we calling it the SRI and the Rockies conference?
Tom Nowak: Probably, yeah.
Iyassu Essayas: man, this has been yeah, it's been a while. I'm showing my age here. I have a baby face, but I still have like the gray hairs. And yeah, you've been part of the industry, and the ins and outs, the ups and downs and whatnot. So it's really exciting to have you on here to. you know, talk about what you've seen and what you what you think about, where the industry's going and whatnot. But you know, rather than try to describe you myself, why why don't you introduce yourself to the audience and and let let them know who you are.
Tom Nowak: Okay. well thank you. well my name is Tom Nowack. My firm is Quantum Financial Planning. I'm a career changer. I was a scientist in my first career. I was an animal chemist for a big pharma company for thirty years. This is my second act, which is about twenty two years running now. opened up an RIA in about two thousand and five and And started as an hourly and still am an hourly fee-only fiduciary financial advisor. I you know took the CFP coursework when I was ending my first career, and I realized that this would be a good second career. And I didn't know you know, whether it'd be successful or not, so I didn't really plan on it being successful. You know, I I was prepared either way. but I was in northern Illinois most of my adult life s and and I moved out to the Washington area right at the start of COVID. I have two daughters. One of moved out to the Pacific Northwest years ago. Had another daughter on the east coast, and my wife and I wanted to be closer to one of our daughters and the one on the west coast said, Come to Whitby Island, northwest of Seattle. don't worry the fact that COVID is just starting up and it's gonna be a tricky move. but She she moved, you know, wanted us to move out here because we have a a five year old grandson now and you know, somebody grandparent duty a couple of days a week. So my part-time job is to be a grandpa a couple of days a week. The rest of the week I work f a lot of Saturdays and Sundays with my clients and and that works really well for them. So so it's a it's a full-time job, a lot of second career you know, their their their part-time jobs, things like this. As most advisors would know that run a one person shop. you can't do part time. You know, y you your fixed cost, you know, are just t too enormous. You know, you d you have to make it a full time thing in order to order to make it a a business. that being said, it's both business and mission. I do it because I love it. I don't do it because I have to do it. I could retire, but I'm seventy three years old and I tell told my clients that I'll retire my my eightieth birthday. I'm gonna shut the business down. be phasing out over the next four to six years. And and many of them are on board with that. New clients that I add, I let them know right up front that that we're gonna have to get you squared away or pass you off to another advisor down the road, that kind of thing. My journey to ESG, SRI started around 2010, 2011. You know, you don't know what you don't know until you know it. And I thought just like most people that you know it's it's just a bunch of extra fees and you pay more for subtraction, what do really get? You know, it's everybody's got a different definition. and so I went to a conference to figure out, well, let me find out for myself. I was a scientist in my first career, I still like experimenting. And I figured I'll go to a conference. There was this like SRA in the Rockies conference, and I went there. And the big thing at the time in Two thousand ten, I think two thousand eleven was citizens united, okay? corporations are people kind of bill. And I felt, you know, I'd have a lot of client you know, I would have a lot of clients that really don't like companies putting a lot of money into politics, and I felt that boy, if you have to pay to play, you're probably gonna underperform. So that might be a filter, you know. so I went to To the to the SRN Iraqis conference and I asked all the different fund managers at the different tables. And they says, Do you filter for political accountability? And the answer was no, not yet. they do not most of them do now to some extent, you know, but but they didn't. So at the end of the day, for some clients I had to build mini portfolios that would filter based on that. And I wrote a book in 2012 called Low Fee Socially Responsible Investing, essentially creating direct indexing funds that were very concentrated, equally weighted. it was about the same time Motif Investing started. and you know so that was a good fit. big firms like First Affirmative were already doing that kind of kind of kind of thing. 50 50 stock concentrated motif portfolios. and then I became a vegan around that time and in 2014 I realized there weren't any funds that filtered out animal cruelty, meat or dairy. So I wrote a book called Lofi Vegan Investing in 2014. And and those two books were pivotal because I was I was just another hourly advisor until that time. And there were people that were weren't former chemists, you know, that, you know, that, you know, they were in the industry longer and they would get more traction than I would. But once I I I created a niche, that took off my business and and now the last year I think I served 170 clients, one person shop. So, you know, as an hourly advisor that's pretty much maxed out. So I have like a three month waiting list for for new clients. I I don't advertise. I don't I I take myself off any kind of any kind of find the planner maps and stuff like that because I don't I don't need the extra phone calls. so that's where I'm at in my business. It's an enviable position for those that are just starting. I wish that would have been the first few years, but it wasn't, you know, the first few years are very slow. But it's more like I said, more mission now. And and that's that's why I I do it and I love doing it because as a former scientist, things like climate change, I I never thought I would use my first career near as much as as I did, but but actually I I I talk a lot with clients about climate change and and they feel very comfortable knowing that I know what carbon dioxide looks like, you know. So so
Iyassu Essayas: Yeah.
Tom Nowak: so that's that's kind of my my my my backstory. And I also have a dog that you can see over my shoulder that's taking a nap.
Iyassu Essayas: Q cute pup. yeah, for audience members that are too young to remember Citizens United, what that essentially did was there was a ruling by the Supreme Court that said corporations are allowed to spend unlimited amounts of money as part of their freedom of expression. so dollars can equate to freedom of expression, and what that did was that. open the floodgates to billions and billions of dollars running into the you know our political system. And yeah, the way the corporations would do that is that they would give to a separate party, so a separate entity I should call it, and that entity would then spend it on you know, for political reasons. And it was that's where the the rise of what's called super PACs or political action committees came from. And that really did change the game, when it comes to politics. We went from just federal elections at the presidency level going from maybe a couple hundred million dollars to like tens of billions of dollars, to today. So that was a pretty big moment in our our political history. And I think at that time that also created the rise of shareholder resolutions, where they were I think it was like Tim Smith actually, he's the one that that really started it. where there were sheltered resolutions that companies would face that said, you know, report on your political contributions, you know, on an annual at an annual level. And so, you know, Tom, you you experienced that first hand. So that was that was I I saw it too. I was like, wow, this there's a lot of money going into politics now.
Tom Nowak: Yeah. Yeah. And and a shout out to the Center for Political Accountability. right around that time, even before that, you know, they put together a public database of who who gives what to which party, you know, and and that type of thing. So you literally could could look at that as saying, Boy, I don't wanna invest in this company because they're they're they're they're funding things that I don't like, you know, or the you know or th or they're putting a lot of emphasis on that. And then there are other parties that are neutral at nonpartisan, things like that. So it was really nice to have public a awareness. So so a broad class of investors, you didn't have to have access to a big research department. You know, a whole spectrum of folks could could use that data. So so you know, but it's so much like in our industry there's others that have taking the taking the torch on so many other things like you know filtering out fossil fossil fuels, you know, those kinds of tools. Filtering out animal cruelty, those kinds of tools. So it's it's very good to supplement your your your other other data sources with these very specific ones. And you know, I I have my personal reasons why I do that based on c the clients that I tend to find and what their needs are, because I think every firm i y you you you kind of start merging your you know your firm towards what clients are tending to be attracted to you. You know that the the two become inseparable till till they meet and and then it's a straight you know straight line going forward but but you kind of shape yourself based on the people that tend to get get find you. So
Iyassu Essayas: Yeah, absolutely. And and and the other thing to think about is, you know, you have like a a cap almost on how many clients you can service, right? And I keep telling folks there's so much money to manage in the United States that advisors and wealth managers are aren't really competing with each other. so what ends up happening is you start to get a concentration of the kinds of clients that are attracted to your business and and what you provide for them. And then there's a cap. So you're like, okay, like I don't have to do much anymore because I got the best kind of clients that I want and serves my purposes and you know, I'm good good here.
Tom Nowak: Yeah, and whether it's a one person firm or a ten person firm or you know, it's the same kind of thing unless you're a mega firm, you know, then then
Iyassu Essayas: Yeah.
Tom Nowak: then it's a different different story. But there the very large firms I I think you know, clients don't identify what their you know, what their mission is. You know, you know, for instance, you know, I yeah, I'll use Americas as an example. You know, it it it's a kind a a lot of our like it's a franchise, so there are some advisors that might have good conversations with clients that that are ESG SRI related, others not. Nobody goes to Meriprise for ESG, you know, you know, or for
Iyassu Essayas: Mm-hmm.
Tom Nowak: you know, for a certain thing, you know. So so so this the smaller firms that are the ones that are allowed to to to hit the niches, micro niches and stuff like that and make you know, make a good symbiotic relationship.
Iyassu Essayas: Would you have any advice for some of the like the next gen wealth advisors who are, you know, maybe one year they just got their C F P designation and they you know, they're one year and they're like just hungry for clients. do you have any advice to for them to kind of grow?
Tom Nowak: Yeah y y yes. I get you know, I'm a member of the Garrett Planning Network, organization of hourly feeling advisors. And to to me it's all about having a niche. You know, i i if you want to distinguish yourself, especially w if you're you know, newly minted CFP or relatively new to the industry, like in my case, until I I was able to Get a certain amount of business just because I was hourly fee only. Hourly fee only was just about taking off. It you know, it's still there's still more demand for hourly, you know, than there is, you know, that that's left unfilled because there's just not enough capacity. There's not enough people willing to work on an hourly basis because of the scale. You know, you can't get twenty, thirty grand per client on an hourly basis. It's just impossible. so so there's an unmet need there. But for because I was a career changer that wasn't enough to really take off my business. I I the ESG SRI when I you know when I focused on ESG S R I, I did it because I wanted to. It just you know I didn't do it because while this is a great marketing tool, no, it was just it was just a a co a one wonderful coincidence. But once I was an hourly ESG advisor, okay, then I
Iyassu Essayas: Okay.
Tom Nowak: would start getting some more clients. Once I did the vegan thing, okay, there's only one or two hourly fee only advisors that do vegan financial planning in the United States. I mean you're going I have clients in thirty different states, you know, so you can get you can get clients very fast that way. The other thing that is a is kind of hushed a lot in the industry and and and for good reason, not everybody's a career changer that has a pension and a four hundred one K and and stuff like this behind them and and it and it's on Medicare and and and Social Security, you know, I I've got some backup, right? You know, so I can keep my fees low. What I find is is there's a a a lot of shaming for somebody that chart doesn't charge enough. It's kinda no, you're worth more. You should charge with the traffic cool bear. You should you should you should charge, you know, if you're not getting three, four hundred thousand dollars a year, you know, you're you're you know you're you're shortchanging yourself. Okay. I get that. I'm not going to shame anybody that wants to make a very, very solid living doing this. Okay, I get that. But for me, if you choose to do a mission and you don't really need a a a crazy amount of more money, there's a certain benefit of having low cost because the first person people will ask you when they call you, say, Are you still taking new clients? They're gonna see what your fee is and they're gonna say, This is a very attractive fee from what I can find, and I have little to lose. You know, so and the and the thing is from my standpoint, it's a lot less stressful if I'm charging eight hundred dollars an hour. if people are like looking at their wristwatch and and looking for golden eggs every three seconds,
Iyassu Essayas: Yeah.
Tom Nowak: you know, that type of thing. You know, if I'm charging a couple hundred dollars an hour, it's kinda like, okay, I can relax. This is my massage therapist charges the same, you know, you know, you know, I I can relax and have a good conversation and and what have you. So so there's a certain thing, you know, what what what s some advisors do, you know, they'll charge, you know, a say X amount and then as they as they go up in and and establish themselves and then they could start increasing their fees above the rate of inflation, you know, if if they feel they have the confidence and they don't feel they have any imposter syndrome issues to take care of or anything like that. You just kind of Alan Roth, you know, famous hourly advisor did that. You know, he started off at two three two hundred or whatever. And then he as as he tells the story at conferences, this is public domain information, he he tr raised by fifty bucks and didn't lose any clients. Then he raised another fifty bucks. Got more clients, you know, you know, and
Iyassu Essayas: Yeah.
Tom Nowak: then he said at four fifty or something like that, he said, I don't need any more money. And he I think he froze it there ten years ago. You know, and he has clients that are worth millions of dollars, even you know, hundreds of millions of dollars, you know, because they he's a niche hourly advisor for for very wealthy people that want very simple index funds. You know, so so it's I think his model, you know, is is one that a a person that really wants to b build a business based on a niche. Good do it. If you want to become a go right into it as an AUM advisor, ESG advisor, okay, you're competing against a lot of people that have been doing this a long time. you're gonna have to fish very hard for those clients to to give you that twenty, thirty thousand dollar a year commitment. Granted, you only need about ten of them, so good for you. But the thing is it's a high stress finding those first 10 or 20. You know, so there's just different ways to play it. You know, different ways to play it.
Iyassu Essayas: So what I'm hearing is figure out what that Venn diagram of client demand, like you know, whether it's ESG
Tom Nowak: Yeah.
Iyassu Essayas: or veganism or climate, and then be very cautious about how you charge those clients. because you can it's
Tom Nowak: Yeah. Yeah.
Iyassu Essayas: kind of it's kind of like the grocery store versus the jewelry store, where a grocery store you make money off of volume for a gross the jewelry store you make volume off of like, you know, one good sale.
Tom Nowak: Yeah. I mean there's like all advisors that do the d charter divorced analyst type thing, so they focus on divorce clients or they i they they they focus on women clients, they focus on athletes and stuff like that. If if you basically go out there and just say, you know, I'll I'll I'll you know, I'll work with anybody, okay, that's that's okay, but y you just have to i y i it y you're all everybody's also competing with you. You know, you're you know, they don't know who you are. You know, I think
Iyassu Essayas: Yeah.
Tom Nowak: that's what it was. It wasn't that when I p self published these books, you know, they weren't they weren't gonna win any prizes. it the fact that I went through the extra effort, you know, told people, Okay, you're willing to put yourself out there. You know, now sometimes you do that through your website. You know, y you put yourself out there as far as, you know, if if they don't know who you are, then yeah, they're not gonna feel as comfortable.
Iyassu Essayas: All right. So you young fellas and ladies out there who are jumping into the investment advisory space, you
Tom Nowak: Yeah, yeah. Yeah. Yeah.
Iyassu Essayas: you heard it from Tom Nowak. You've got you got your you got your strategic go to market plan right here. All
Tom Nowak: Yes, there we go.
Iyassu Essayas: right, moving on to our our weekly recap. before before we dive in though, just a quick reminder that these discussions here are for educational purposes only and do not constitute investment advice. And I say it every at every show, if you need investment advice, just go hire a financial advisor. Like they're really good at what they do. That's the whole purpose of them. You know, I
Tom Nowak: Yeah, yeah. So we hear
Iyassu Essayas: I find it hilarious whenever I watch YouTube videos of, you know, fin fin influencers who say the same thing as me, but then they go on and give like 30, 45 minutes of investment advice. I'm like, how is this how is this allowed? but yeah, just go hire a wealth manager or financial advisor, they'll they'll help you out a lot. but yeah, moving on to the weekly recap, Tom, you know Share some articles with you about some of the highlights that that happened this week. And on Monday, Bloomberg wrote that article about institutional pension funds and Meg Insur's openly modeling climate change events. Like and I would say like cataclysmic climate. I think they use the word tipping points. Like what is the tipping point on climate? and I I always found that interesting in the asset management space. Yeah, my old shop, we we would call it physical risk, right? When you have an extreme. Weather event, like what does that do to the portfolio and how do you model it? And it's nice to see that you know, I've been out of the asset management space for a little bit now, and we're still talking about it, so folks still care, but pension funds are institutional pension funds are a little different and their investment horizon is really long, you know, think 50 years because they gotta, you know, pay out their pensioneers at some point. And I don't know what you know, using your your background, you know, your scientist background and caring about climate. Wha what'd you think about the the article and kind of like the notion of, hey, there's some tipping points that we should be concerned about that are coming up pretty quick.
Tom Nowak: Y i y it's yeah, a very yeah, very familiar with the climate space. As a matter of fact, it's a family type concern is my wife just flew out yesterday to the annual Citizens Climate Lobby conference where they have eight, nine hundred people lobby both sides of the aisle to to act on climate. the group was partially responsible for getting the inflation reduction act. you know, in place some years ago, working with working with both sides of the aisle to push it over the goal line and stuff like that. So my wife's a retired scientist, you know, so we're both very concerned and and you know the one thing that people in the climate space or or the aware space know that the only way to to keep from getting distraught distressed distressed about it is to do something about it. If you're doing something about it, it's kinda like that movie Don't Don't Look Up where the meteor is coming. You know,
Iyassu Essayas: Yeah, yeah.
Tom Nowak: you know you know, if the tipping point comes, you know, those that have been doing something will take our our glasses, we'll raise them high and say, We did our best. You know, you know, what else can you do? If you do your best, you do your best. it's it it's it's it's a little bit of it's a little bit like that. You could you could say that's the case. On the other hand, Being a scientist, you know, you know, I'm a a financial planner full time in my second career. I was a financial person well when I was a chemist the first thirty years, I was a serious hobbyist. I just didn't magically just change careers. I I had this on my mind for some time. So now I still at my my lunch breaks and stuff like that, I'll usually look at a good video about the latest battery technology, the latest nuclear technology, the latest this. I think even Bill McKibben. is at a point now with this third act situation to to to know that there's certain things we've missed the boat on. You know the the carbon pricing i in a gradual way isn't going to solve climate change. It could have done it ten years ago. We we we we've reached a tipping point. We need we need we need Project Hail Mary you know for climate. a bunch of Hail Marys, but fortunately a a rosary, if you will, for the Catholics
Iyassu Essayas: Yeah.
Tom Nowak: in the crowd, I guess. And you know, one of those rosies are nu you know, beads is nuclear, one of them is is solar, one of them is wind. You have all these things going forward. Fortunately the rest of the world, except the United States, is accelerating, you know, in that regard. So so the the electrification, the balcony solars, all these things together, give me hope that we could like the movie The Martian we could we can science the hell out of it. You know, I think he said it a little differently. you know, you you know, we could we can do a lot, at least to minimize some of the worst cases of tipping points. Because one thing that I as a scientist, I knew what was gonna happen, even even in the you know, when I first heard about climate change, you know, the first earth days and all this other kind of stuff, I knew we would underestimate How soon it would come, it did not surprise me how soon it came. It was supposed to be 2050 or 2100. No, it's here today. You know, that type of thing. If you're out in the southwest and you're running out of water, you know it. but I also know, I think inste intuitively, that we we we over we underestimate some of the positive things that could be done. You know, so so so I think that's that's what gives me some hope. But in in discussions with clients, I do find that the clients that ki kinda come to me, we we do talk about and have been talking about for years, where they should loc locate and whether it makes sense to to to move to Florida or or Arizona, that type of thing. I in a local high school had adult ed programs back when I was in Illinois and and an advisor friend and we we did a social security one like a couple of times a year for a couple hours and stuff. I thought I'd figure this was about eight years ago. I did a a offered a class on investing personal investing in the age of climate change. This was eight years
Iyassu Essayas: Mm.
Tom Nowak: ago. Okay. I had four people show up. Maybe five. You know, it was a very small class. It was a little too early. Now I probably would would fill the room. and I did t talks at the Garrett conference, I'm a member of the Garrett Planning Network about five years ago on science for financial advisors. You know, what is the keeling curve? You know, w what's carbon dioxide? You know, wha how this is going out of control and stuff like that. So there's a lot of science that advisors should be aware of if they w want to be relevant, I guess, to some clients.
Iyassu Essayas: So so are you s telling me that you're starting to have legitimate conversations about with clients about, hey, maybe I shouldn't retire in Palm Springs because it's gonna be too hot there for me to live and I should think about Montana instead because you know it's further away from the equator. It's a lot cooler climate. Like are are you you're starting to have conversations like that with your clients?
Tom Nowak: I've been starting this several years ago. Yeah,
Iyassu Essayas: Wow.
Tom Nowak: I've been having this conversation several years ago. Yeah. Yeah. Yeah. No. No. No, I I this is
Iyassu Essayas: It's it's it's Go ahead.
Tom Nowak: Yeah, well.
Iyassu Essayas: It's really fascinating to hear that because if you're starting to have those conversations, I'm sure other folks are too. And you know, they the wealth manager, advisor, I I look at them as like a holistic solution to the client. They're not just thinking about the dollars and cents, you know, they're thinking about everything else, family formation, you know, transfers, all that stuff. And if you're talking about, hey, we're gonna hit four hundred and fifty. parts per million of CO two in the atmosphere before twenty thirty. And you should start thinking now about how like how hot your summer is gonna be, or how cold your winter is gonna be, or how wet your rainy season's gonna be. That's that's pretty and you're just having that several years ago.
Tom Nowak: Yeah.
Iyassu Essayas: That's pretty shocking.
Tom Nowak: Yeah. No, there's like what b at least ten ten cities in in Arizona that are are starting to get lose significant real estate value because of water situations. s and yeah, there's a l a lot of areas you know, have know people in California that have you know, they had fire damage, which is ki is not solely a a climate change thing, but climate change is a magnifier, a force multiplier, that type of thing. And yeah, they've they've had life changing impacts and stuff like that. But you know what I have found surprisingly and it's and it's accelerating with each passing year is it's not just the portfolio or the tax planning. It's where do I live and and whether I rent or buy. because there's a there's a there's a bubble there's not just an AI bubble. You know there there's there's a still a reset real estate bubble. If you look at the at the K Shiller index, you know, we're really technically above two thousand eight valuations, you know, for housing. And you know, so so so so that area has kind of bubbled up too. And you know so there's the potential for infrastructure issues, you know, that are related to climate just really r wrecking somebody's retirement, you know, that type of thing. So so a a lot of times is that rent versus buying, because a lot of times people will, you know, they want to be close to their kids or whatever, you know, but thing is you could rent a house in in in Florida or the Southwest or something like that, usually less expensively than you could buy it. So why not just allocate your resources? and have a little bit of resiliency. So so I've had yeah I I I include that as part of my conversations if the if that's what the client wants. Every client defines what scope they're going to have.
Iyassu Essayas: Mm-hmm.
Tom Nowak: and a lot of folks find that valuable. it it just gives them you know a lot of times they they're thinking along the same lines. But just like in investing, you know, a lot of the do-it-yoursolvers will be thinking along the same lines but Boy, do they want to hear from you that you think it's an okay idea to, you know, to to to do index investing. You know, they may say, I've read about it, but they need to hear from a human, not an AI bot. You know, in my opinion, you know, they need they need to see a person say, Yeah, people do this. This is real. You know, Jack Vogel did it.
Iyassu Essayas: Yeah.
Tom Nowak: Warren Buffett is a big fan of it. You know, don't don't worry about that, you know, kind of thing. Yeah.
Iyassu Essayas: I I do think your point about real estate is is pretty interesting because I've we've talked about this on the show before, where basically the home builders stopped building at the same volume after the 2008 financial crisis. And there's just all the for what is that eighteen years now? there's been a a like a a huge lack of housing supply that that's not come online, which Basically it's a supply and demand thing. If there's not enough houses, then the price goes up. And you know, I think the rent to rent or buy question is a really hard question because if the housing supply is always constrained, then you know, rent prices are gonna go up as well. It's just people can't buy a house and they're gonna rent, and then a lot of people want to rent, they're gonna you price goes up. And you know, I was just on Instagram the other day and I was looking at this watching this video of like a almost like a a zoning meeting in San Francisco where there's this really wealthy district called the Marina District and there's a developer who wants to develop two high rises and and some more housing units at market rate on top of a safeway in a very popular area. And the entire neighborhood is just like up in arms, right? They're like NIMBY, like not in my backyard. This is super ugly. I've lived here for 30 years and whatnot. But then it's, you know, that community in San Francisco and and the Bay Area in general is all about, you know, eliminating homelessness. And you're like, okay, well Something has to give. Like you either build more houses or or you get more homeless.
Tom Nowak: Yeah. Yeah. Well I've I've seen I've seen you you've probably you've probably seen a lot of abandoned malls, you know, re retail malls. They're finding that that's a they've got the perfect infrastructure for becoming low income housing because because you can still have some shops there, you know, you know, so you still keep some of the stores and some of the stove connections and restaurants and stuff like that, but then you then you build a a bunch of bedrooms and and bathrooms and and and you you have lower income housing. without having to break new asphalt and and farmland and stuff like that. So so to me, that that it it seemed like a a promising solution because yeah, very few communities. I'm on Whidby Island and and I see, you know, and I was in northern Illinois and a a suburban, a semi rural area. So I've seen you know, NIMBY battles up close and personal, you know, all of my adult life, you know, you know, of all kinds of flavors. Yeah.
Iyassu Essayas: Yeah, it's for me, it's this is my own personal opinion. It's it's a perverse incentive with the the NIMBYism. It's it's really they're trying to protect the value of their their house that they've spent, you decades in. Right.
Tom Nowak: Yeah. Yeah.
Iyassu Essayas: And any kind of any it doesn't matter if it's low income housing or or not, any kind of additional housing brings that value down, right? Because there's just more units on the on the market. So I I don't know how you break that. I mean, somebody has to be very brave and just say, you know, I'm gonna be a one term.
Tom Nowak: Yeah. Y yeah, yeah, yeah.
Iyassu Essayas: kind of person and do it. but anyways, move moving on to to the midweek, yeah the Wall Street Journal put out a a piece on how companies are incentivizing employees to either join them or stay longer by contributing to their 401ks or just like non non-salary based you know compensation. And that that one you know kind of touches me you know to the heart because I I really believe in Companies doing well for their employees because the employees are going to do well for their companies. So rather in including just having a 401k program, I think they use Costco as like an example where Costco will give a contribution of four percent of the total pay or sorry, it's either ta salary or total pay in addition to that 408k contribution. And I don't know, Tom, I'm I always think about you know great places to work and how companies can succeed by creating that great. place to work environment for their employees and you know, it's just a like a nice story to read after, you know, reading a lot of like scary things like, you know, physical risks and extreme weather events. do you have does that help you out when your clients work for, you know, pretty good corporations or or or companies that treat them well?
Tom Nowak: Yes, yes, yeah, yeah. No, I I lived lived through a lot of this is you know, in the in the seventies w you know, when I s mid seventies when I started with this big big pharma company, we it was a f four one case started, the pensions were already in place, and then extra day vacation the following year, every year around the holidays, it was wonderful for the f like six years. There'd be like, wow, we got an extra benefit. great, we got that you it was like candy just raining down, you know, that type of thing. It was
Iyassu Essayas: Ha ha.
Tom Nowak: it was great. Until until that sector, you know, got hit hit government price controls and then all of a sudden, you know, look to the right, look to the left, you know, one of you isn't gonna be here tomorrow, you know, kind of kind of
Iyassu Essayas: Yeah.
Tom Nowak: reckoning and stuff like that. So it's it's a it's but what I find is is, you know, I'm sure this group is very familiar with the K shaped economy situation. You know, there's the haves and the have nots and ever since the eighties that that that that that the d that disparity has gotten just wider and wider and wider. So what I find with with older clients, you know, there's there's ones that the seniors that have the pensions and have the four one Ks, ones and then there's the ones that don't, you know, they're at the bottom of the key. With with younger people is is folks that are companies that are doing equity offerings or matchings or stronger matches or stud you know, different cafeteria type things like we'll pay down your student loan. You know, th th it's kind of the cycle is kind of repeating back into into the mid seventies as companies are relearning that if you need employees you gotta compete for them and you gotta offer them something other than salary because because the big secret is salary is pretty expensive and you know they
Iyassu Essayas: Mm-hmm.
Tom Nowak: they rather give you a a a pat on the back or you know a a fruit basket rather than three percent
Iyassu Essayas: Yeah.
Tom Nowak: over the cost of living race, you know, that type of thing. So so so that type of thing. But then the bottom side of the young people that that don't have companies like that, you know, they'll have the student debt, they won't have any inheritances from from their folks and stuff like that. So we're perpetuating the K shaped economy by by feeding in n new members of the lower part of the K and the higher part of the K. And you know y y you know, I don't wanna to say what boy we gotta We we gotta create a class war between the two between the two t the two branches, but I think we have to recognize the numbers and we have to recognize that we can't forever go to income inequality to where there's just one multitrillionaire and everybody else is paupers. You know, that's the ultimate direction if you just keep on extending it. So so you you have to kind of You know, I I saw I think it was an economist or something like that, an article of where all the billionaires live. And you would think the US was the only place with billionaires. If you look at China and stuff like you look at the communist countries and you add up the number of billionaires, it dwarfs the US billionaires.
Iyassu Essayas: Mm-hmm.
Tom Nowak: So so if you're accused of being a communism, ask that person, what do you mean? What is communism? I don't I don't understand it. You know, I how do you get billionaires, you know, i in a in a in a a communist society. So so it just it it just it just you have to kind of yeah so it just kind of strikes me it's a little bit off on a tangent, but but basically yeah companies are obviously i in in sent in sent you know trying to provide the incentives and that's great. but they'll continue to do more to be competitive. Is is what they'll have to do. It's just the supply and demand.
Iyassu Essayas: Yeah, and and it just it's a good transition into the Friday's article on Barron's because that whole K shaped economy. There are folks who are situated, I would say the baby boomers pretty well in retirement, but the next generation is, you know, the millennials, the Gen Gen Xers are probably okay, but like the Millennials, Gen Z, Gen Y's, they have a an issue that they're gonna deal with, which is their parents or grandparents who are baby boomers are starting to have some medical debt that they or just like medical issues that they're gonna have to like deal with. And there was that report that came out from the EBRI that highlighted three in ten Americans are taking on massive debt and draining their personal savings to support their family members. which is like basically, you know, there's this whole great wealth transfer that everyone talks about like, the baby booms are gonna move like I don't know, what is it, 140 something trillion dollars. to the next generation. But then there's this emerging story that a lot of that's gonna go to healthcare spending to take care of those, you know, retirees who are living longer. And so like that gets drained, you know, that that retirement readiness for those baby boomers gets drained in in, you know, in the healthcare spending. And but to the point where family their kids are taking on debt to support them. So I don't know. It was a a pretty eye opening article to hear about, you know, hey, healthcare spending is gonna go up a lot while these baby boomers are transferring wealth and who's gonna take on the the debt? It's probably gonna be the next generation. It's like how much more does the next generation have to shoulder?
Tom Nowak: Exactly, exactly. Yeah, yeah. No, is is yeah, what we had is after after World War two we had the same debt to GDP ratio, you know, a very unsustainable amount building all that equipment to to to fight World War Two with. And the way society ended up getting out of that is ver you know, relatively high tax rates for corporations and individuals for a fairly extended period of time. nineteen up until around what nineteen sixty something. what was it? The top tax rate, marginal tax rate was ninety percent if you made a million dollars. you know that that paid for a lot of infrastructure. You know, we've got this interstate system that we're still riding on. You know, it it it it built it built a you know a generation of of boomers like me that w were able to go to college on on a state scholarship and and just just take on a few dollars worth of debt to pay housing or or be able to work at a minimum wage which was three times to in today's dollars or four times you know than what it was. You know, I mean you know you you know I I worked a minimum wage job that e there were people raising families of four on that same thing back in back in back in the seventies. that's not the case now. So so you y so So society built this infrastructure back then, you know, based on taxes. we and and and that paid the debt. Back in the in the 70s, to pay the debt, you know, we we we let inflation do the dirty work. For three years we had 10% plus inflation, stuff like that. So now the next precipice is going to be this debt to GDP ratio. We're about that same tipping point to where I saw an article today that the Treasury is not positioned to be able to handle six percent notes because they're borrowing short term. You know, th th you know, they they they they didn't
Iyassu Essayas: Yeah.
Tom Nowak: forget, but they don't want to borrow long term because four and a half percent, five percent is too high. So they're cheating and and and and they're not the they're they're they're they're they're in a debt spiral. So if if the n if the bond market decides that five or six percent is the going rate, we either have the nineteen eighties all over again, you know, or or we have higher taxes or a combination of both. You know, so that to me is the is the big mystery, you know, of of of how how society as a whole plays it out this time. but it it's the medical part of it is, you know, as you I'm sure are aware or have heard, you know, well fifty percent of like long term care patients are on Medicaid. You know, they don't you know they they they're tapped out. so So the bottom part of the K, that's their their plan is is to go on Medicaid, you know, one way or the other. The top half, a lot of clients of of you know, I work with, you know, my average client, you know, n nobody's average, but when you look at all my clients and I divide it by number of clients, about two million dollars. So if a person's got two million dollars, they're in a good self self insure that risk kind of mode to where they're probably going to die with a million dollars, which is their buffer for the 20% chance that they're going to need memory care for many years and have to spend that down because they've got that nest ache so either the kids or or the or the nursing home will get that. But the bottom part of the K it's going to be it's going to be a Medicaid situation, most likely, you know, that type of thing. Or, you know, a lot of families they they rally around and pass the hat until until the hat is is is empty. You know, to try to prevent having to go to a Medicaid facility. You know, so there's a lot of different a lot of different strategies out there, I guess.
Iyassu Essayas: There are, but these are real conversations that folks are starting to have. I mean, you know, they
Tom Nowak: Yeah. Yeah. Yeah.
Iyassu Essayas: it's yeah, there's the there's the human aspect to it. You don't want, you know, your uncle, you know, living on the street, right? Because they went into so much debt, that the bank had to, you know, foreclose on their house and and all that stuff. So like these are actually like real conversations. And I don't it sounds like, you know, a lot of families are not prepared to help, even the states are not prepared for that. And You know, for folks that don't understand why the you know, debt to GDP is really important, you don't the the the big picture is you don't want your government not to be able to afford supporting its citizens. That that's that's the big picture. So if debt if if if the amount that the government borrowed is too expensive for it, then they either have to raise taxes for everybody, which means your pay goes down or your take home pay goes down, or they have to cut services, which means they'll have to cut The military budget, they have to cut Medicaid, Medicare, Social Security, like all these social safety nets, you know, budgets, which means less services for you, which is really scary. but you don't you don't wanna you don't wanna move backwards in society. You wanna keep moving forward. So that that's why the you know, this this whole like the treasury comment that Tom just mentioned is that's that's pretty scary to hear
Tom Nowak: Yeah. Whenever I see articles of that tone, it it it's sobering 'cause the debt market's bigger than the equity market, right? I think, you know, and and y you know, I mean n everybody takes it for granted until it's until it's real, like it you know, like it was during during two thousand eight situation, you know, you know, housing, you know, I you know, I had trial by fire when I first entered the industry. A couple of years later I I had a client and they said they bought two seven hundred thousand dollar homes on left you know with mortgages, one for an investment, one to live in, and they were both worth three hundred and fifty thousand dollars. And and the bank was asking him to come in for a meeting
Iyassu Essayas: Yeah. all right. So that's our that's our weekly recap. very
Tom Nowak: Yes, yes.
Iyassu Essayas: you know, a little sobering in the beginning, a little little bright spot in the middle and then a little more sobering
Tom Nowak: Yeah.
Iyassu Essayas: at the end. but I I do want to talk about our our special topic. ESG and impact investing across the the private channel. So like there was a report I shared with with Tom earlier. It was basically this company called Fentrix that did a study and long story short, it study revealed that the average advisor, planner, wealth manager firm adopted ESG or sustainable investing. at basically like seven point two percent ha of all of the independent RAAs had adopted sustainable investing as part of their practices. But then when you compared that to the single family offices and the multifamily offices, for folks that don't know what those are, those are basically customized investment advisory shops for either families or individuals who have a lot of money. So somebody o that has twenty five million dollars or above in liquid assets. you know, they'll they'll usually hire an advisor to work just on their their money. and this goes into the billions. So like, you know, like Jeff Bezos and you know, I'm sure Elon Musk has a a family office that that works for him directly on his investing. So those family offices adopted sustainable investing, particularly impact investing. And if you took all of them, 26 to 34% had some flavor of that. So seven percent for the average client versus twenty six to thirty-four percent for these like really, really, really rich, you know, households and and and families and individual like investors. And that's it's a pretty big divergence. So a lot of times the single family offices and the multifamily offices are are much more resource much less resource constrained than the individual shops like like Tom like I'm sure you don't have like a $20 million budget, Tom, but these single family offices can have sometimes $100 billion budgets. And it's it's interesting to see that they are adopting or have adopted impact investing and some flavor of sustainable investing at a much, much higher clip. So, like, does that mean that, you know, wealthy individuals, you know, the smart money is basically in sustainable investing than just like the average. investment advisory shop. Is that is that the kind of key takeaway or is there something else that that we're missing here?
Tom Nowak: Yeah, is is yeah, I you know, I don't Obviously deal in in the family office space. I do have clients that have twenty five million, you know, one or two with in in the in that area. You know, but they th they're do it yourselfers. They they're literally just they just they already know what they want, they just need a few hours of of conversation to pressure pressure test themselves and stuff like that. but you know, maybe half of my clients do ESG out out of you know out of the hundred and seventy a year of some degree. about ten percent go filter filter down to animal cruelty, you know, vegan investing, if you will, and stuff like this. And why they do it is is is the dilemma is they're they're not anything close to traditional impact investing. You know, they're they're they're They can't afford that. You know, they don't have the bandwidth for that or th you know, they just don't have the comfort level or the the full awareness of of all that entails. But the folks that do it on a retail basis, they intuitively get the idea of that you don't want to have perfect be the enemy of the good. You y you know, i it is they'll come to me with with a a set of funds that you know, are are you know, very familiar in the in this space, you know, names and stuff like this. You know, they'll they'll they'll come to me that way or they'll ask, you know, is that a thing? And what I boil it down to, because I'm agnostic, I don't have a particular fun family that I represent, or a particular you know favorite i if you will is I tell folks that The average advisor is just like me. They they can't tell where the stock market's going tomorrow. You know, they probably not really have a clue what's gonna happen next year, you know, otherwise they'd be lying. You know, who who really knows, right?
Iyassu Essayas: Yeah.
Tom Nowak: so we're operating with some uncertainty. so there's a hundred good ways to invest to kind of not hurt yourself, maybe a hundred bad ones. We have to find the good ones. people will say, Well, what do you think about you know, like like you know, like SpaceX or you know, like he asked me two weeks ago, you know, asked me now, you know, same answer, but totally different environment, you know, as far as as far as w w what the prospects look like. Is what I tell folks, in my heart my harder experience is that I know I was a hobbyist. You know, I I would try picking stocks with my mad money and stuff like this and have some fun with it as a hobbyist. You know, I grew up and learned that The you know that that y y that has to be your play money account. You know, you can have some fun with it, but it's more your entertainment money. Your real money has to be have more of a a recognition that you don't know the future. And so it but that doesn't mean it has to be the straight up index with fossil fuels in there, with everybody with for profit prisons, you know, all the different things in there. You can filter out. You just you just pick out a an approach that is broad enough and and Up for you to not hurt yourself. what I tell folks, and because a lot of folks do like individual stocks, they come to me with individual stocks. I tell them, you what, I'm not gonna like some advisors, I'm not gonna make you sell them because I'm not gonna give you a model, A, B, C, or D. I'm gonna do a custom work and and and recognize your your where you are. I find that my my my go to expression is is that I don't know who the winners are. I've I've learned the hard way that I can't pick them. You know, fifty-fifty batting average at best. But I as a scientist, I know who the losers are. The fossil fuel industry, the meat industry, the dairy industry. If you look at climate change, where it's going, you know, you can you can look at the southwest southeast of the United States, there's a tick that it infects you and it makes you allergic to red meat. That doesn't bode well for the meat industry. Not that they need into any more bad news, right? You know, years ago it was mad cow disease, all this other kind of stuff. the cost of of that is it is gonna be just prohibitive. You know, you don't have to be a vegan. You don't have to be a vegetarian. You just have to be an economic actor. And you're gonna say, I have to heat affordably you know, you know, so I
Iyassu Essayas: Yeah.
Tom Nowak: s so I think fossil fuels forty percent of fossil fuel cost is shipping these things through the Strait of Hermuz and everywhere else. That's unsustainable going forward. You know, electrification, the rest of the world is is is eating their lunch every day of the week. So I think I think that is is driving individuals to ESG SRI is that most ESG SRI fun families have those sensitivities to know who who the losers are, plus additional losers that they choose. But from but but my my niche is is to is to is to kind of be able to speak to things that are in my you know, my comfort level. You know, you know, it's just you know, I I know there's a hundred different ways to get energy other than fossil fuels, you know.
Iyassu Essayas: Yeah, yeah. It's one of the lessons that I learned when I was working at my old shop is that stocks move for all sorts of reasons. you could I mean, like look at what is it, like Exxon right now. It's like half a trilli it's worth half a trillion dollars, right? And that's under, you know, a couple of administrations where, you know, fossil fuels were looked looked down upon. But the stock is still like half a trillion, right? In in in market cap value. You may not be able to pick a stock and understand exactly what its future is, but if you pay attention to the mega themes, then they give you insights as to where the economy, where the markets are going. So, you know, AI is a mega theme, right? Or, you know, the opioid crisis was a mega theme that you wanted to avoid a number of drug distributors and and certain
Tom Nowak: Yeah. Yeah.
Iyassu Essayas: pharmaceutical companies. so I I totally hear you on that. And I think that you know, I think the approach of giving your client what they're asking for is a really smart approach versus you know, trying to predict what they want. and I think like listening closely and creating a plan for them is is probably been very helpful for you amongst your clients. So I I really liked your your response there, Tom. The so we're we're wrapping up the show right now, and I always like to ask my favorite question to my my special guest which is what are you looking forward to next week?
Tom Nowak: Okay, yes. Well, I'm gonna be going to the Garrett Planning Annual Conference. it's it's a a conference of mostly hourly fee, only a financial advisors. It'd be my twenty second year in a row attending. so obviously I like I like the conference, a lot of a lot of great friends and stuff like that. But then when I get back from that, I'll be going to Alaska and taking the Alaska Ferry to Ketchukan for like a mini poor man's cruise on a on a on a on
Iyassu Essayas: Yeah.
Tom Nowak: a on a ferry route a day and a half up the inside passage. So so but but actually I always look forward to coming back home and I'm not a workaholic. I just love my work. You know, I love my work and I I n you know for the ever since I did the courage change I haven't haven't I I don't I don't really it's mission. It's not work. It's just reason for waking up in the morning.
Iyassu Essayas: Yeah, well I wanna thank you, Tom, for being our special guest this week on episode eighteen of Inside the Flows. It's been wonderful having you and love your insights and I'm sure our audience members are gonna appreciate the appreciate the ins and outs that you you gave them. for folks that are interested in some of the items that Tom talked about, I'll I'll post a link to the two books that he had he had mentioned. And if you are a advisor planner, wealth manager, family office, single family office, and you want to keep the conversation going, please join us on on Inflows. It's free to join and free to use. And we'll be having a conversation there about Tom's Tom's episode. So join us there and we will catch you next week. Thanks, Tom.
Tom Nowak: Th okay, well th and thank you. Thank you. Take care everybody. Have a great rest of your summer.