Female Voice: Welcome to Creating Wealth with Jason Hartman. During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness then you ever thought possible. Jason is a genuine, self made multi-millionaire who not only talks the talk but walks the walk.
He’s been a successful investor for 20 years and currently owns properties in 11 States and 17 Cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman: Welcome to the Creating Wealth show. This is Episode Number 253and this is your host, Jason Hartman. Thank you so much for joining me today. Well, we have got a great show for you today. We will have our guest today who is going to talk — well, you’re just going to be amazed at what this guy has to say, frankly, and — and you’re going to hear with our guest about who is handling most peoples’ money and it is unbelievably shocking. It really is when you see the kid of slime and scum out there that is handling so, so many peoples’ money. So, we’ll get to that in a moment, but first I want to ask you, do you remember an old game show, it was called “Name That Tune”, and I want to ask you, can you name this tune? I’ll just play it — snip it up and see if you can name it. [Music Playing] Can you name that tune? [Music Playing] Okay, enough of that.
So, that tune is the score from Meet Me in St. Louis, and that is exactly what I want you to do next month. I want you to meet me in St. Louis. We’ve had a few people register so far. We just put it up on the website. I talked about it on the last episode of the Creating Wealth Show, and we are going to have our first ever Creating Wealth Boot Camp in the State of Missouri. In fact, our first ever Creating Wealth Boot Camp West of Arizona or Nevada. We did have one in Las Vegas a few years back, but yeah, this is going to be exciting.
Friday, you should arrive on Friday, May 18th and we’ll have a little welcome reception for you with some heavy appetizers, a little light dinner, which ever way you want to look at it, and that will be Friday the 18th in St. Louis, Missouri. And we have all the hotel information and everything on the website at Jasonhartman.com, including early bird pricing, only $197.00 and all day Saturday the 19th, we will have the Creating Wealth in today’s economy Boot Camp. I have had thousands and thousands of people come to that event over the years, and many have purchased the Home Study Course or you can see it live in St. Louis on that Saturday, the 19th of May. And then on Sunday we will have a St. Louis market tour or we’ll have a bus. We’ll go around — remember, I’ve been on this tour. I was on it a couple of months ago, but I wasn’t running it, I was just sort of a guest and we had a few clients of ours come along as well. But this time, it’s our event.
We will have that tour on Sunday and a little breakfast in the morning before the tour while we get going with our local market specialist. They’ll talk a little bit about it and what we’re going to see and so forth. And you will not believe the cash flow in this market in St. Louis. I mean, it is nothing short of phenomenal, where you can earn 300 to 1,000 dollars per month cash flow on these properties. I mean, quite possibly our very best cash flow market.
Now, I say that, you know for you newer listeners that may be uninitiated to the way I talk about this stuff. Cash flow is not the only thing but heck, it’s a really important thing. In fact, there’s an old saying, happiness is a positive cash flow, and I would agree with that, it is. So, we will see those properties on Sunday the 20th, and then on Monday the 21st, for those of you souls who would like to see our St. Robert market, we’re gong to have transportation over to St. Robert. That’s about an hour and a half drive, I believe. I’ve done it the other way into St. Louis, but not out of St. Louis, and we’ll start that at 9:00 o’clock in the morning on Monday the 21st and you will be back by about 5:00 o’clock that day so you can still — if you fly into this event, you can still catch a flight that night and go back and be back at your job — JOB — what’s that stand for, just over broke, right? Hopefully, that’s not your job but it’s so many people’s job, unfortunately, and you’ll be back on Tuesday for that, getting back Monday evening.
This should be a fantastic event. Again, we’ve never done on in the mid-West before, so we’re very, very excited about it and I hope you’ll join us. All the information, discount room rates, the hotel rates are only $09.00 a night. I’ve stayed at this hotel myself and you know, it will just be a fantastic event. You’ll get to meet all the players, see the properties, just see how you can get unbelievably good cash flow in St. Louis. So, that’s the gateway to the West.
And you know, if you haven’t been on it, and — and — been on it like it’s a ride, it is sort of a ride, but if you haven’t been up in it or whatever I should be saying, the St. Louis Arches — you know, my first time was last time on the tour a few months ago, and wow, that is quite a marvel of engineering. So, be sure to treat yourself to a trip up to the St. Louis Arches and go to the top and feel it sway and look down and that is just an amazing, amazing piece of engineering. It really is, and there’s a little museum there. You can see how they built it all and — and just — wow. That’s up there with the pyramids is to — pretty incredible in terms of engineering.
So — wow, we have got some great shows coming up for you. We mapped the next several shows, and today we’ll have Jack Waymire, that’s what with Investor Watch Dog, and I kind of eluded that earlier, so we’ll be with him here in just a few minutes. And then our next show, we have Harry Dent back and we have Ken, our Local Market Specialist from Atlanta, talking about some of our exclusive inventory. Remember, we have a lot of exclusive inventory folks, that you will not see anywhere else. Why do we have this exclusive inventory? Why is it only available to you, our customer, and not through any other group out there, not by going directly into a market. It is only available through us, and that is because we are funding many of the deals, and our clients are funding some of the deals too, and — and that’s you. And the deal I work out with our providers is that we bring the funding for the deal, then you’ve got to make it exclusive to our clients. So again, some really unique properties, unique inventory there and you can see a lot of that at JasonHartman.com and you’ll see a lot of it on the St. Louis tour and we’ve got it in other markets, as well, Phoenix, Atlanta, etc.
So, we’ll have our land market specialist along with Harry Dent, not at the same time, but on the next show with an economic update from Harry and H.S. Dent and therefore casting — you know, he wrote so many great books. A great Boom Ahead, The Great [inaudible] Ahead, The Great Crash Ahead, The Roaring Investor 2000, etc., etc., etc. I’ve been following him for about 15 years.
Again, I’m — I’m not a fan of everything these people do. You know, I don’t agree with everything my guests say on the show, but by and large, Harry Dent’s work is very insightful and I think you’ll really like his second appearance on the show, which will be the next episode. And then on Episode Number 255, we’re planning to have our newest market specialist on board, a guy we’ve been talking to for about eight months or so, I think, and he will be on talking about Memphis Tennessee, yes, where you can see all the sighting.
And again, Memphis — we’ve been really hesitant about that market because we think it’s a spotty market in terms of the neighborhood. So you’ve got to be very, very careful in Memphis. The neighborhood’s very — they vary greatly in every City, the micro markets, the submarkets, but in — in some markets they vary more than others. In some markets you have to be especially careful, and this is one of them and — and we felt confident about our provider there after doing a lot of due diligence — after actually getting a couple of referrals from you, our listeners, who had purchased there from our new providers. So, thank you for that.
Again, we don’t know everything. We don’t pretend to know everything at my company, but I’ll tell you something, we learn a heck of a lot from you, our clients, and we thank you so much for contributing to us and letting us contribute back to the rest of our clients through your experiences.
And then we’re going to talk on Episode Number 256 about IRAs, which we’ve talked about many times, but we’ve got a new subject, 401Ks. We’re going to talk specifically about breaking out of 401K jail. We’re going to talk about the self directed 401K. Very, very few people are familiar with that. So, you’ll like that, and then on Episode 257, we’re planning to have Greg Farrell, he’s the author of Crash of the Titans, and you’re going to hear some really interesting stuff about Bank of America, about Merrill Lynch and all of these dirty dealings that goes on at the — in the big corporate world there. And we’ve got Bernie Baumohl on 258. He’s going to talk about the Secrets of Economic Indicators, which is a great book I picked up in Austin, Texas a few years ago. It just talks about what you should see and understand in — in these various indicators that you hear about on the economy. And his book covers hundreds of them, so very insightful there, as well.
On 259 we’re planning to have Dan Amerman back. And again, we’ve already recorded all of these episodes, by the way. We’re just ordering them as we put them out to you and publish them. But Dan Amerman this time is going to talk about rental cash flows and arbitrage, and he’s got, as always, a really interesting take on that stuff. And on Episode 260, our tenth show, we’re going to have Heidi Grant Halvorson talk about how — how to reach our goals and how to succeed some unique ideas on that.
Episode Number 261, wow we’re getting way up there, we’re planning to have Kirk Elliott talk about inflation and precious metals and investments and so forth, like that. So, I think you’ll really enjoy that. But you know, I was in a pretty inappropriate place last weekend, but I will admit that I was there as much as I — I kind of don’t like the city. I have to be honest with you. I was up there once every year or two for a convention or something like that, but it is Sin City, Las Vegas, and I tell you, talk about a place where they are just taking your money every time you turn around.
You know, I don’t gamble. I’ve never been interested in gambling. I — it just doesn’t excite me, I guess thankfully. I’m pretty conservative in terms of money. I — I think you know that from listening to my investment philosophy all these years, how I’m skeptable, conservative and well, some would say even a little paranoid. But you know, I was in Las Vegas and because I don’t gamble and my friends there were gambling, I was reading the Wall Street Journal, which is well, another place where people gamble on Wall Street, but you know, I was reading an interesting article about employment and this was interesting because I like the chart they did and you know there’s so much to this.
We had John Williams on the last episode. He’s the founder of Shadowstats.com and he’s pretty revered in — in the world of people who really want to like get through the statistics and see through them and see what they’re really, really saying, and how the Government misleads and blinds the statistics. But when you look at unemployment, it is — it is complicated because there are different aspects to it. There’s the size of the labor force, there’s unemployment claims, there’s all these different like aspects to what people commonly call unemployment. And I just though I — I — I share some of the stuff on the chart of the Wall Street Journal because I thought it was interesting, and it divides up the U.S. population and this was pretty simple. Of course, I’m — I’m going to just round these numbers off for simplicity because you’re not looking at the chart and — and — and just kind of divides it up this way, which I found pretty interesting.
The employed — how many people are employed, okay. Well — so, first of all we know that there about 311 million people in the United States and again, I always talk about how population is growing so quickly, really faster than ever, where just a few years ago I remember when we surpassed the 300 million mark. Now we’re already up to about 311 million. You know, in the next 30 years or so, we’re going to be up to 400 million people in this country and you thought the freeways were already crowded, right?
What that means is — I mean, what do they have in common? Well, there’s going to be a massive demand for housing. Huge implications on the housing market, of course. And — and so, when you look at the labor force, okay, here’s the way the labor force divides up in this chart. One hundred and forty one million employed, unemployed about 13 million and then not in the labor force.
Now, there are many reasons people aren’t in the labor force and I think they’re kind of hard to count, but here’s what the Wall Street Journal says. There are 80 million people not in the labor force and then of those people not in the labor force, they — they consider that there are over a little over six million people that are not in the labor force but they want a job.
Now, I don’t know how they really know that, but that’s what they say. And then there are another 865 thousand people who are not in the labor force, and they search for a job but not in the past four weeks, and they’re available to work, but they’re discouraged. And then the next group is — of not in the labor force, is search available but have logistical issues. That’s about 1.5 million people.
Now, I bet those, and you’ve heard me talk about this on prior episodes, but I bet those logistical issues, and I bet those include one thing that causes high unemployment. And again, this goes back to that Time Magazine article that was an interesting way to look at things, how high home ownership rates create higher unemployment. I know that seems counter intuitive. I get it, but remember, the best thing you can have on a resume today is mobility. The ability to go where the jobs are, and we as landlords, as real estate investors, as income property owners, hey, we provide a great service to people because we give them mobility.
Just like when you go on vacation, where you go on a business trip, well there was a time when people drove across the country and they camped out in their cars or horses and buggies and wagons, there was a time when we really didn’t have hotels. I mean, that was not that long ago, really. And then hotels came in and gave people mobility to go and investigate new areas, to vacation, to travel and of course we had inns and some hotels, but it wasn’t like the industry, the mature industry we have today, obviously. Okay.
We give tenants mobility. They can sign a one year lease and they can move after that. They can replace themselves, renegotiate with landlords and change — renegotiate the lease. And you know, you might be completely amenable to that, especially in this market where rents are going up. Sometimes I love it when my tenants move because that just means I’m going to get higher rent from the next guy. Rents are on the rise. But what’s interesting about this chart and what they totally fail to mention is that, when you add those numbers up, those numbers that I just mentioned, that adds up to 242 million.
So, there’s 311 million in a country, so we have a deficit there. Now, does that mean that it just doesn’t count retired people and children who are maybe under say, 16 years old and not in the labor force, or — I — I don’t know exactly how they count that but I just thought it — it was kind of interesting.
That — that’s just an interesting breakdown on it. Of course the article says many more things. There’s another whole chart but you know, without you seeing the visual of the chart, it’s just going to be confusing as an audio presentation, so just interesting to share that.
There’s this thing called U.N. Gender Twenty-One and it’s — its pretty interesting because — pretty interesting and conspiratorial really, but I interviewed a guest who will be on my holistic survival show who had some interesting things to say about that, and in the same Wall Street Journal article, I thought this was really interesting, my former home state the socialist republic of California, there’s an article here that says, California declares war on suburbia. It says that Planters want to hurt millions of people into densely path urban corridors. It won’t save the planet, but it will make traffic even worse. This is an opinion article, by the way. But what’s interesting about that is that there is a war on suburban style development by largely from the left, by the environmental movement and so forth and they have some points, I’ll — I’ll admit that, but when you look at what we do as real estate investors, and how we provide — usually most the time, lower density housing and — and what they’re saying here is that California is going to require that all new housing be built. Like Governments are adopting plans to say that you must build 20 or more housing units per acre, which is at least five times more dense than the traditional quarter acre per house type of situation. And an acre is about 43,000 feet — square feet or so.
And you know, your typical lot might be you know, 10,000 square feet or — or even 5,000 square feet. So you’ve got eight per acre for example. Well, they’re saying they want minimum of 20 units per acre. Do you know what — I say that will do to our values as time goes on and they’re not building more suburban style housing, as there’s more and more pressure to do this dense — high density vertical sprawl style of housing, high rise style housing or just crammed together two story condo units? It’s really going to make our type of product that — the one that most of us are investing in, far more desirable and far more rare. So, that is another good thing.
You know, you see all these mega trends sort of favoring what we do here. So, let’s get rid of this newspaper. I got a couple of other things to share with you here.
We talked a lot about the student debt. I interviewed a guest just yesterday and I’m not sure what show I will put him on. It might be the Creating Wealth Show, or it might be the Holistic Survival Show or one of the others, but he is an advocate for reform of student loan debt. And this student loan debt folks, I tell you is the biggest opportunity for us. It — it is the next big giant bubble. It represents about one trillion dollars with the [inaudible] in doubt out there, and I shared with you on the last episode John Burns’ newsletter. They say here the fact that wages for college students have gone — college grads have gone down. It says, the piling on of debt and a significant increase in monthly expenses in comparison to their parents, think I phone, Premium Cable, gym memberships, Starbucks, will permanently make it more difficult for the boomerang generation — that’s GENY, the boomerang, may come back, okay, a lot of times, to purchase a home throughout their lifetime. This along with the fact that inflation adjusted wages have actually declined for college graduates over the last decade adds further credence to our growth outlook for renter households. And this is a huge opportunity.
The student loan debt thing, it is largely a huge, huge scam and I talk about that on my interview with the gentleman I interviewed yesterday who was really trapped by that and decided to take up the cause, thankfully. But listen to this. At one trillion dollars, outstanding student loans equate to roughly 6.5 percent of the entire U.
S. gross systematic product, the GDP. To put this in prospective, U.S. student loan indebtedness now exceeds the GDP for all but 15 of the 184 Countries tracked by the IMF, the International Monetary Fund. Whoa. Can you believe it?
Just the student loan debt alone in the United States of America is exceeding all but 15 of the 184 Countries around the world that is track — that the IMF tracks. That is just insane, folks. That represents a huge opportunity for us to serve these people with good quality rental housing and make a small fortune, if not a big fortune, for ourselves in the meantime. Gosh, do I love real estate or I should say, do I love income property. Remember, that’s the proper name for it. It’s called Income property, not real estate, because not all real estate is created equal.
Another interesting article here — I’m trying to work through that stack, it’s about an inch and a quarter high, and I’m getting to it over the next several shows, JP Morgan fined 20 million dollars to settle U.S. charges. So, this article is an AP article. It says, JP Morgan Chase has agreed to pay 20 million dollars, my comment. It’s like me giving somebody a nickel or a quarter. It’s nothing to them, right, to pay a 20 million dollar fine to settle federal regulator civil charges and illegally handling funds of failed Lehman Brothers that were deposited with the bank. The commodities future’s trading commission announced settlement Wednesday. It involved JP Morgan’s handling of customer funds from November 2006 to September 2008, when Lehman Brothers collapsed.
Lehman was a customer of the Future’s Trading firm, LBI, which deposited its customer funds with JP Morgan. The handling of customer funds at Future’s brokerages has drawn more and more attention since the failure last fall of, you guessed it, MF Global and there ate MF Global about 1.6 billion dollars in MF Global customer funds are missing. Wow! Folks, be a direct investor. What have I been telling you, which brings me to my next little point here before we get to our guest, tonight. I really sincerely hope you’re not too sick of me talking about this, but I got into another little debate on Facebook the other day, with a friend of mine who posts some great posts. I love some of this guy’s posts, if he’s listening. Hey, I love some of your posts about Ron Paul and politics and everything else, but your stuff about gold, you’re just way off. So, he posts this thing. He’s — he’s selling this thing, I guess it’s a multi-level marketing or network marketing deal and it’s a company called Carrot Bars, right, where they get people to invest in gold, and I talked about it before, but this little salvo will be interesting because it’s educational. It talks about being a direct investor and I don’t know what it is with me. I just love sort of debunking these gold bugs, okay, and there’s several angles in which to debunk them, but one of them is the physical gold issue.
Like I said, even Peter Shiff, he comes on my show and he talks all about you know, their premise is all correct. He talks all about the virtues of gold and precious metals and there are some virtues, I’ll admit that, but there are many, many complete failings of — of — of metals. And this is one of them. So this guy, you know, my Facebook friend here, is saying you know, sign up for Carrot Borrowers, blah, blah, blah. So, I — I’m the first comment and we’re out of here pretty much the only one. I write, in my humble opinion, if you don’t have physical gold, it’s just another form of fiat money. Fiat money that’s by authority, by fiat, by decree, it’s our money, the money of — it’s not money, but currency. There’s a difference between money and currency. The currency of any Government on earth is fiat money now days, because it’s backed by zilch. Just a promise, right.
So, he replies back, that is why I exchanged my fiat or carrot bars real 999.9 percent 24 carrot gold bullion, LBMA Certified, I don’t know what the heck LBMA is, but you know, who cares? I — and I respond, yeah, but your fiat dollars are just converted to carrot bars, fiat paper, your statements from the company saying that you have the gold, right, unless you actually take possession of the physical gold. So he writes, what??? It’s gold! And then he writes again before I can respond, I do take possession of some, but the rest is secured in storage not on paper.
Well folks, my little comment here is wasn’t that the promise of the Federal Reserve? Wasn’t that the promise of — that there’s gold in Fort Knox? Do you actually trust some independent company more than you trust the Government? He goes, you know I don’t trust the Government. I’ll be the last person to trust the Government, okay, but the history is riddled with gold scams and silver scams and schemes of independent companies. I mean, that’s worse than Government. At least you know what the Government’s crime is okay, and you’re not really expecting it to be real. The problem is this sorry guy, he’s really expecting that something’s going to be there.
So, I go on to say, if you don’t take possession, it’s just paper, fiat paper, that’s it. He writes back, where do you get your info, my friend??? No! It’s REAL GOLD stored in a real vault! Not paper! Get a clue.
Then he goes on to say, storage, deliver to carrot bars. You can store your gold for free at Secure Log Storage Vaults in New Isenberg. I guess that’s a place. Office hours, 9:00 a.m. to 17:00 p.m., CET — this is just crazy. My response, have you been to the vault to inspect your gold? How do you know it’s actually YOUR GOLD and that it hasn’t been sold several times to other people? How do you know that it will actually be there later? How do you know that you’ll be able to access it when the S. T. hits the fan?
I say, you’re just investing in fiat paper. Be careful. There have been so many gold scams over the years. He writes back, do your own due diligence, my friend. I did. Then he writes back again, before I respond, you might like to go to the corporate website, www.carrotbars.com and get the truth. I write back, can you answer my questions first? Let’s keep the threat cohesive. I’ll respond on your due diligence comment after you answer. Thanks.
Here are the questions again. Have you been to the vault to inspect your gold? How do you know it’s actually your gold and it hasn’t been sold several times to other people? How do you know that it will actually be there later? How do you know that you will be able to access it when the shit hits the fan? I say, you’re investing in fiat paper. Be careful. There have been so many gold scams over the years.
He goes on with the next threat and he says, you’re a Christian, aren’t you? How do you know that God exists? I say, oh my gosh, this is ridiculous, right. I ask him again, can you answer my questions? I’ll be happy to answer yours. Just answer mine. Now, this is several days ago I left — I am left there hanging with the last question or the threat. He won’t answer my questions because he can’t.
Folks, how is it that all of the gold bugs with all of their premise of you know, invest in gold, fiat paper’s a scam, blah, blah, blah. The Federal Reserve is a scam. The world is coming to an end. Yet, they don’t take possession of their metal. I say, you’re doing nothing more than investing in paper. I’d frankly rather have dollars than those pieces of paper from some independent company. And I don’t even know this company.
And you know what else I was going to respond had he ever answered my questions, which he never did? I was going to respond and go to the carrot bar’s website and look at the resumes of all these great people, right. Folks, MF Global was run by John Corzine. He was Governor of New Jersey. He was — what was he — what was he — I mean, Bernie Madoff was President of NASDAQ, right, and John Corzine — I think he was President of the NYDE or something like that. And I also think he held some big time position. I think he was — wasn’t he CEO of Goldman Sachs? I can’t — you know, I just can’t remember right now.
All of these guys have great resumes. I mean, folks do not believe in resumes. That’s what I’ll say, do not trust a resume when you are relinquishing control of your money to somebody. Heck, don’t you think Ken Lay of Enron and Dennis Kieslowski and all the other guys like Jeff — what was his name, Jeff — I can’t remember, with Enron, didn’t they have great resumes? Didn’t they hang out with world leaders? I mean, Ken Lay was like buddy, buddy with George W. Bush. I mean, he had a great resume before everyone figured out that Enron was a big scam.
I mean resumes, folks, these criminals — these criminals, they all have good resumes until they pull their final scam. Bernie Madoff had an incredible resume. They all have big resumes. And I’m not saying you shouldn’t take a resume into account. I want you to consider my resume of all that I’ve done in the real estate business, helping investors for so many years, but folks, I’m not asking you to give me your money. I’m asking you to invest and take my recommendations and my company’s recommendations when investing. But I don’t keep your money. You buy your own thing. You control it. You’re a direct investor. I’m just making recommendations. These people, you’re relinquishing your money to them and you have to trust their resume. And I say, that is a very, very, very dangerous thing to do.
Be a direct investor. Follow Commandment Number 3, thou shall maintain control. When it comes to your money, you be a control freak. That’s what you should be. Do not relinquish control to somebody else.
So, we’re going to talk about that here with our guest and check out some of the properties where you can be a direct investor at JasonHartman.com. Check out some of these unbelievable properties in St. Louis. You can come. Spend the weekend with me. Spend the weekend with our investment counselors and our local market specialists, and the property managers and the whole team in St. Louis next month, and you will not be — I mean, if you go to the website and look at some of those properties right now, you will not believe the cash flow. You will not believe the cap rates afford of 10, 12, 14 percent sometimes. The cash on cash return above 10 percent. Sometimes 13, 16 percent cash on cash, overall return on investment projected into the 30s and 40 percent numbers. Unbelievable. Direct investor. You own it, you control it, you decide what to buy, where to buy, when to buy, when to sell, who to sell it to, how much to rent it for, when to refinance it, when to sell it? It’s your deal. You’re a direct investor.
So, let’s go to our guest Investor Watchdog and let’s hear about what goes on with some of these financial advisors. You’re not going to believe your ears. Okay. We’ll be right back with that in just about 60 seconds.
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Jason Hartman: It’s my pleasure to welcome Jack Waymire. He’s the founder of Investor Watchdog. Investorwatchdog.com, as a website, and this is an interesting service. He’s done a lot if research on financial advisors and we’re going to talk about how to avoid some pitfalls, scams and what you should look for, what questions you should be asking and what qualifications you should consider to be legitimate and illegitimate. Jack, welcome, how are you?
Jack Waymire: I’m doing great, thank you.
Jason Hartman: Good. Hey, where are you coming to us today?
Jack Waymire: Northern California. We’re located right outside Sacramento.
Jason Hartman: Fantastic. Well, my aunts and uncle own a lot of properties. They’ve become very rich in real estate in Sacramento, so a good place for them. Not lately, but overall they sure have.
Jack Waymire: Yeah, it’s — it’s making a small comeback like the rest of the Country, so —
Jason Hartman: Um hmm. Well, good. Well hey, tell us about Investor Watchdog and maybe first of all, what prompted you to start this, just all of the frauds and scams on Wall Street, or —
Jack Waymire: Well, I’d say there’s two — two things, both — both of them tied to stock market crashes, and between 2000 — 2003 when people lost trillions of dollars. I saw a lot of people get really badly damaged by investment — bad investment advice during the crash in 2000. So, I wrote a book in 2000 — 2002 that was published in 2003 titled “Who’s Watching Your Money”, and — and that book was literally tied to how do I avoid bad advice? How do I avoid bad investment products? How do I select quality advisors? And we went along for a number of years, basically providing services to investors in — in how to pick advisors and how to avoid bad guys? And then along came the stock market crash in 2000 — 2008 — 2007 and 2008, and what we did was we launched a second website called Investor Watchdog, and it launched as a blog site, primarily tied to investment scams and deceptive sales practices, basically things that advisors did to — to take advantage of the clients.
And now what we’re doing and on the — in the middle of April, is re-launching that Investor Watchdog website, because it’s riddely designated with investors. We’re re-launching it as a go to website, loaded up with free tools investors can use to select new advisors and for the first time, we give them the ability to monitor their current advisors.
And — so, it’s all tied to advisors much like the rest of our history, but now we’ve got a site that’s really got a lot of comprehensive tools on it.
Jason Hartman: And — so, you’re dealing with basically — when I look at Wall Street oriented investments, there are so many layers to them. There are so many layers as yet peel back the onion, as it were. You’re — you’re dealing only with that — we’ll call it the first layer, the advisor themselves, right. So, it has nothing to do with the Board of Directors, the CEO, and mutual fund manager or anybody else back there behind the advisor who could be skimming the profits off the top? Paying themselves big pensions and you know, exit bonuses and things like that, right? It’s strictly the upfront — the point of contact or the storefront with the public, right?
Jack Waymire: A great question. I — I think what really, really confuses people is, when you look at the companies on Wall Street that produce the products, then you’ve got the companies on Wall Street that distribute the products. And somebody like a Merrill Lynch does both. They create products. They distribute products, but you have other companies that are more specialized. They do one or the other, and then when you think about the distribution system, now you’re getting into the advisors that are actually the sales reps for the — for that company. We really focus on the professionals, because the professionals are licensed with organizations. They may be employees. They may be independent contractors, but we really focus in on the individual, because these companies are so murky and complicated and you know, they’re very, very good at hiding information they don’t want investors to have, that it’s frankly just a lot easier to deal with then with the professionals at those firms.
Having said that, we’re moving more now in the path of firms, as we go forward, because once we’ve got all of the functionality built out on Investor Watchdog, the next step is to start looking at firm. However, we’re going to limit ourselves to small, independent, registered advisory firms, as opposed to the big broker dealers and the Wall Street firms. I mean —
Jason Hartman: And — and you know, one of the things when you say the Merrill Lynch, they create products, and they sell or distribute products, they’ve come under a lot of fire for that. Not enough, in my opinion, but they’re doing investment banking, so they’re — they’re puffing up stocks, and then they’ve got their own customers they’re selling them to and they weren’t disclosing it. They probably are now, but no one reads it anyway. So, it’s irrelevant. It’s — it’s disclosed in — in — in mountains of disclaimers and 50 — 90 page documents nobody ever reads anyway. But —
Jack Waymire: Don’t — don’t forget the four point type, either.
Jason Hartman: Yeah, right.
Jack Waymire: [Inaudible] buried in a lengthy document, but there’s a type size. I mean, when you look at somebody like the Goldman Sachs, I think they’re the — they historically have been one of the most prestigious firms on Wall Street. A lot of people just literally viewed themselves as lucky to work for Goldman Sachs —
Jason Hartman: Why wouldn’t they? They get a 600,000 dollars a year bonus.
Jack Waymire: Yeah, they — they make large sums of money but when you say, Goldman Sachs, package up one billion dollars of basically toxic mortgages, turn around and sell those toxic mortgages to their clients as safe investment, their clients then proceed to lose 700 million of the one billion dollars in less than two years, and obviously they’ve been fined for this and everything else, Goldman Sachs, and they paid a fine of about 250 million dollars. But to package up toxic assets and sell them is safe. I mean — and that’s one of the more prestigious firms on Wall Street. If that isn’t a huge red flag to investors, I don’t know what would be.
Jason Hartman: Yeah, and I — I couldn’t agree with you more and you know, we won’t hammer on this too mulch, but just since you mentioned it, Goldman Sachs — I mean, one of their execs left and wrote a scaving letter on leaving — on why I’m leaving Goldman Sachs, you know, I — I don’t if you saw that in the New York Times —
Jack Waymire: Oh yes.
Jason Hartman: — and it’s been floating around the media because that just came out last week, but these companies, really what they do, and I’ve seen it in other industries as well, they just literally budget into their business plan the paying of fines and it’s — it’s — it’s a better deal for them, unfortunately, to just pay the fine then it is to d the right thing a lot of times.
Jack Waymire: We’ve been — we’ve been preaching exactly the same thing. They — at some point these fines — well, right away you see — I mean, Citigroup just paid a huge fine for doing the same thing Goldman Sachs did, and these are the biggest names on Wall Street, and if they have to cheat to win, you really got to wonder what’s going on. But the bottom line is, the fines have not been a deterrent. The fines have been functioning more like a cost doing business for these companies that are willing to scam their own clientele, but there’s a big issue sitting in the background. We keep referring to companies. It’s not companies. It’s the executives that run the companies. Somebody at Goldman Sachs, somebody at Citigroup, somebody at Bank of America, somebody made these decisions to scam their own clientele by virtue of the fact that the company can pay a fine without admitting guilt means none of those executives go to jail. And so what’s the bottom line here?
You’ve got a very greedy, corrupt group of executives running very prestigious Wall Street based companies and the bottom line is, they’re insulated from taking — you know, from any responsibility of the outcome. So, when they decide to go build a one billion dollar CD — CDO made up of toxic assets, somebody made that decision. Nobody at Goldman Sachs has gone to jail and that’s — so, paying fines is a way, in my opinion, it’s a way to insulate those executives from accountability when they make decisions to rip off investors.
Jason Hartman: Well, it’s — it’s interesting how you — how you explain that, because the other thing that this has the effect of doing the net effect here is they basically can go out and act illegally and at the very least, unethically, but illegally in most cases, and they get the shareholders to pay their bail. It would be like — well, I guess that happens in all the cases, really. Look at Bernie Madoff, he — he used the money that he made illegally to make his life more comfortable to do his defense. You know, he didn’t really have a trial, which is to me in and of itself, very suspicious. I almost think there was collusion there because a lot of that stuff would have been made public and never was, but you know, that’s sort of another issue.
Jack Waymire: Well, let me give you an example of Madoff. We would have caught Madoff. Our due diligence process that we use for screening and reviewing advisors, I guarantee you we would have caught Madoff in five minutes. All you had to do was go into the [inaudible] records on Madoff and you would have seen one complaint after another from investors. Every one of them settled very quickly for cash.
Now, why a Finra or an SCC would have come in and said, this is fairly suspicious behavior. Obviously, he had a lot of great contacts and a good relationship with some of the regulatory agencies, but the bottom line was that evidence was there, but I mean, bottom line somebody — you know, people with billions of dollars obviously never looked at the Finra records before they submitted their money to Bernie Madoff. So, I think — you know, you can say Madoff obviously was a criminal but you can also make the case that investors — and a lot of cases are their worst — own worst enemies because they won’t take a little extra time to go out and really analyses who’s going to be handling their money and whether or not they’re ethical or whether or not they’re competent, whether or not they can trust them.
Jason Hartman: Fair enough. Yeah, very good point, very good point. Do your homework folks. So, what should investors look for when they select a financial advisor and you know, we’ve already touched on some of the mistakes, but ‘m sure there are many more of them. I — I like what you said before we started about these fake designations and — or these sort of meaningless designations. Tell us about all of that. Start with what should they look for when they select someone?
Jack Waymire: Well, okay. The easiest thing for them to do, starting the 17th of April, is go to InvestorWatchdog.com and set up a user account. What Investor Watchdog does is it give an access to a number of different tools that they can use to identify and evaluate the quality of financial advisors. One example is a deceptive sales practice. A lot of advisors go out and put a lot of initials after their name. Some of those initials are extremely valuable. And example would be CFP, CPA, SEMA, CFA. Those are very valuable credentials. They’ve done a lot of work to earn their credentials, testing, class work, ongoing education requirements, etc. That’s one end of the spectrum.
The other end of the spectrum is, they went out and spent $195.00 to buy a bogus certification. This certification, they put after their name and then they go out and tell investors, look, I’m an expert in my field. Look at all these initials after my name and the investor has no idea that they paid $195.00 for each certification and did absolutely no work. And a lot of investors, they — they might fall into the category of easily impressed go, wow, this guy must be an expert. Look at all those initials, when in fact it’s — it’s purely a deceptive sales practice.
Jason Hartman: And — and let me make one comment on that —
Jack Waymire: Yeah.
Jason Hartman: — just for a moment if you would? Just to back up and — and look at the broader concept here is that this pre-supposes the smarter advisor is even the better advisor in the first place. And here’s what I mean by that. It may sound like a crazy comment but, if you look at some of the biggest financial scams that have been perpetrated, I mean, you know at one time I was kind of bashing Harvard because it seems like every crook comes out of Harvard. You know, you look at Enron — it’s like — nothing against Harvard University or anything. I — I’m sure it’s a great school but, it’s like all of these guys are highly educated. That doesn’t make them ethical. It doesn’t make them follow the law just because they’re smart.
Jack Waymire: But if you — yeah, and let’s go down that path. If you were smart and also extremely greedy —
Jason Hartman: You’re going to be better [inaudible].
Jack Waymire: — because you wanted — you wanted the park — you know, the Park Avenue apartment and the summer house out in the Hamptons and the private jet to head down to the Caribbean. If that’s the lifestyle you aspire to, the question then is, can you achieve those goals by doing what’s best for investors, or can you kind of go in an manipulate the system and do what’s best for you? And I would submit in a lot of cases, it’s the latter.
The other thing that’s true is, you know, the reason you might spot a Harvard in all of this is, Harvard, and on Wall Street, it’s kind of a little bit industrious to the extent the Harvard NBA hire the Harvard NBAs and the guys from Yale hire the guys from Yale. And so they’ve got a little bit of a network going, especially through the business schools, and the bottom line is, you may see a company that is dominated by executives that come from particular schools because they’re all hiring each other, but that also creates a culture that can be a little poisonous because I’m bringing you into a culture that I basically dominate, and then my expectation is you’re going to adhere to the rules of the culture.
Jason Hartman: Right. It becomes a peer pressure sort of fraternity environment.
Jack Waymire: Absolutely.
Jack Hartman: Yeah.
Jack Waymire: All — all built around enormous, enormous sums of money. When you’re talking about executives that can earn eight, nine, you know figure bonuses and the only way they achieve those bonuses is a lot of short term Profitability. That’s why you know, a lot of them have made mistakes out of just pure greed, but where’s the downside risk? If I take a big risk and I win, I make a lot of money. If I don’t — if I get caught, my company pays a fine, nothing happens to me. I go on to the next — the next business opportunity, if you will, and I’m not even sure on Wall Street if it — you know if it doesn’t make you less employable if you do get fined. And I should go to prison. I mean, prison changes the rules because now you got a disclosure item, but it’s a — it’s a crazy environment and I think when you — whenever you’ve got, you know, tens of trillions of dollars floating around, there’s a lot of people that got into the financial services industry to make a lot of money, as opposed to help investors achieve their financial goals and then the risk for the investor is, when they hire an advisor, if they get one of those advisors that came into the industry to make a lot of money, they have a potential problem on their hands.
If they get an advisor who really does subscribe to the ethical standard of putting the investor interest first, right. And so, going back to your question about what to look for in an advisor, one of the absolute keys is that your advisor is an acknowledged fiduciary. In order to be an acknowledged fiduciary, the advisor has to be a registered investment advisor or an investment advisor representative. Those are the two registrations that allow an advisor to provide ongoing advice and services for fees. So, that’s another characteristic that you’re comp — compensating your advisor with a fee verses the commission, but the real key is, you want a fiduciary handling your money, not a sales rep.
And that means you look for the RIA for the IAR after their name that these guys are registered. What that means is, they’re held to the highest ethical standards in the industry. So, if you’re a stock broker, your ethical standard is called suitability. You’re supposed to make suitable recommendations to your clients. Suitability, if you think about it, is a fairly vague standard, because it’s going to vary from client to client. And older client may be more at risk versus a younger client and they have a higher risk tolerance and I’m supposed to make suitable recommendations.
When you go in and you look at the RIA, IAR giving advice, by law, they have to put the investor’s interest ahead of their own. That’s why you’ll see organizations like Merrill Lynch fighting basically the regulators and others and — and some of the industry’s organizations. You know, they’re fighting the whole idea that stock brokers are going to be named fiduciaries, and the reason they’re fighting it is they don’t want their stock brokers held to a higher ethical standard. They like the low one called suitability, and again it’s vague and subject to interpretation.
So. I — I wanted fiduciary handling my money. I want somebody who’s compensated with fees. I want somebody who’s got a clean compliance record, which I can check going to [inaudible].org and brockercheck. I can learn more about their — their compliance record. I want somebody that’s in the wealth management business so he’s not trying to sell me mutual funds and annuities and life insurance. He’s basically there as a –see if — if I view the financial advisor the same way I did other professionals, CPAs, lawyers, doctors, dentists, you name it, architects, basically these are specialized professionals that have knowledge that I’m willing to pay for, because it helps me achieve my goals and that’s the same way you should think about a financial advisor.
I want a professional that has a lot of knowledge, integrity, somebody I can trust, that is basically there to help me achieve my financial goals. I do not want a sales rep — a salesman handling my money and that’s the single biggest thing because you know, salesmen are there to basically move products, collect commissions. And what I want is somebody that’s a real advisor that’s held to that fiduciary standard. I pay them a fee just like I pay my CPA or my attorney but actually a financial advisor is a better deal than a CPA or attorney because when I pay a fee to a CPA or attorney, I would call that a cost center. What I pay a fee to a financial advisor, I expect performance in return. I could almost feel my advisor as a profit center, but I want to basically compensate them similarly. They’re paid fees for their knowledge, for their advice, for their services, but I do not let sales reps handle my money, and so if I limit myself to the IRA, IAR, Registered Investment Advisor, Investment Advisor Representative, now I’m dealing with a real advisor who is compensated with fees, who’s held to that higher fiduciary standard in my odds of achieving my goals just one way up.
Jason Hartman: So — so, does that mean that they are — talk about how they/re paid so everybody understands that for a moment. I mean, when someone says — a lot of them brag about the only financial advisor. That means what, that they’re getting a percentage of portfolio value? They usually take that out quarterly?
Jack Waymire: There’s — there — there are three types of fees, all right, three types of fees. So, when I say, I’m fee only, basically I’m telling you I don’t accept any type of commissions. Keep in mind there are two types of commissions. One type of commission is when I sell an investment product like a mutual fund. Another commission is when I sell an insurance product like life insurance, annuities, long term care, etc. So, when I say, I’m fee only, I’m not accepting any commissions. When I — fees now, there are three types of fees. The most popular fee for investment advice is call an asset based fee, so if you put $500,000 with me, and my asset based fee is one percent, then you’re going to pay me $5,000 a year for my knowledge, my advice and my services. That’s an asset based fee percent of assets. A lot of planning professionals that really promote the fee only, they may charge an hourly fee, three hundred bucks an hour, two hundred dollars and hour, or they may charge a fixed fee. I’ll do you financial plan for $2.500. So, when they say, fee only, they could fixed fee, hourly fee or asset based fee.
Jason Hartman: Yeah, and I find that one of the other sort of maybe smaller rip offs out there, because a lot of times I think it is kind of a rip off, they just try to sell you these plans. I mean, I’ve — I’ve literally met with advisors over the years, that it seems like all they’re trying to do is sell me a twenty five hundred — they want to charge me like $2.500 just to do a plan, and it — it seems like half the time they don’t even really care that much about my business or that’s their way to sort of —
Jack Waymire: They’ll keep the money just —
Jason Hartman: — to sort of hook so — so that you’ll be — you’ll be kind of in with them already. They just want to sell you that plan, half the time, but go ahead.
Jack Waymire: You know, but every — just think about it. Ninety nine percent of those plans are sitting on boiler plate. They’re sitting —
Jason Hartman: I know, so —
Jack Waymire: — software program.
Jason Hartman: — software yeah. They — they just use —
Jack Waymire: [inaudible].
Jason Hartman: — their software, you know, whatever they use and spit those plans out with pretty graphs and charts.
Jack Waymire: Yeah, and I mean you can have small plans, big plans, complicated plans, simple plans. I mean, a lot of range in the plans, but a very high percentage of the content of the plan is sitting inside computer software that all the advisor has to do is identify the variables, how many children do you have and how old are they and are they going to college, where they go — you know, stuff like that. I just identify the variables and put them into my program and it spits out a plan, but the one to watch out for is the plan that’s designed to sell products because it used to be some years ago, 70 percent of all financial planners were insurance agents, and they decided — insurance agents was — was kind of a — you know, was a pretty onerous title to have like a business card insurance agent. Selling insurance was not a high prestige job. What they found was, if I quit calling myself an insurance agent, and I start calling myself a financial planner, I’m going to have a lot less sales resistance. So, one reason to be a planner was less sales resistance. People weren’t as resistant to the planner as they were to the insurance agent.
The second one is, when I produce this plan — what if I produce the plan that recommended that investor put a lot of money into annuities and life insurance? So now I can go out and buy software that was designed to basically sell all those insurance products for me. What a sweet deal, and I got to tell you, it worked — it worked like gang busters. A lot — a lot of investors fell for kind of a scam, if you ask me, that I’m using cookie cutter — I call myself a planner even though I’m an insurance agent and there’s absolutely no law that prevents that, just for the record. So, that’s perfectly legal. If I want to call myself a planner, no regulation out there says I cannot do that.
And then secondly, for me to use software that is basically designed to sell insurance products, or other products like front end low mutual funds, products that are designed to generate substantial commissions from me and now it’s almost a case where, hey I’m not selling you these products. Look at the plan, it’s the recommendations of the plan and this plan represents what you told me. You gave me the input, I ran the plan, here’s what the plan looks like. And so the fact that you need a five million dollar life insurance policy, it’s the plan saying that, not me, so they let the plan do the selling for them. And they sell all of this — should the major red flags for investors. When I pick a planner and he’s asking me a few questions and then comes back with an 80 page plan, and it’s loaded with insurance recommendations, in particular, because insurance products pay much higher commissions than most other types of products, when it’s loaded with insurance recommendations, be careful.
Jason Hartman: Yeah, yeah, yeah, I think a lot of those insurance products are just abject scams. It’s so popular now days for these planners to be selling these life insurance policies as an investment. And I’ll tell you, I — I remember one of those guys came into my office — I’ve — and I’ve known this guy for a long time, okay. We used to serve in a — a charity together on the Board and he comes into my office one day and he says, hey, I want to — I want to pitch this stuff to your investors, and he was a little more tactful than that, but basically that’s what he meant, and he’s — he’s talking to me and I’m kind of resisting it. I’m like, no, I don’t — I’m not really interested in promoting insurance products and stuff like that. He pulls out a — a copy of a check and he puts the photocopy of the check on my desk and it’s over $250,000 and it represented one of his commissions on a life insurance policy he sold. You know, a big policy, albeit, but give me a break. I mean, that’s just incredible.
Jack Waymire: Yeah, the largest check I’ve ever seen was $750,000 for one sale of a seven million dollar survivorship policy to a lady in Aspen, Colorado. So again, if you get back to all of the greed that drives Wall Street, keep in mind all of these financial — I mean, I just wrote a blog titled the — [inaudible]. I wrote a blog on our website, I think just yesterday, and The Botanists, this was a guy that I interviewed some years and I can remember very distinctly, he had a degree in botany. Like what does that have to do with financial services?
Jason Hartman: Right.
Jack Waymire: He — he then got out of college and he goes to work for a company and it sold fertilizer to nurseries. Now, there’s a lot of different words that you can use for fertilizer —
Jason Hartman: Yep.
Jack Waymire: — and that’s basically what he did. At some point, he got tired of selling fertilizer and he heard you could make a lot of money in the financial services business. So, he got a sponsor from some little local BD and he went out and he took the Series 6 license and in one week he went from selling fertilizer to selling mutual funds. And because he had passed the Series 6 exam, he went out and told investors he was a financial expert because he was a licensed professional, and obviously I wouldn’t have this license if I wasn’t an expert. And anybody who bought anything from this guy, was — was probably serious risk. I mean, he had no clue what he was doing. He was selling the product of labor of the month. He was doing what his boss told him to sell. He was selling the product that made him the most money, but just think about an industry now that when you think about ethics, let’s go over on the side of competence. There is absolutely no minimum education requirement to be an — to be an advisor, not even a high school diploma. So, when you think about the CPAs and what they went through to earn that designation, the lawyers in law school, the doctors with internships and residencies —
Jason Hartman: They — they had some real education.
Jack Waymire: They had some real education. Now you’ve got an industry that wants to handle your pension fund and your roll over IRA, and the bottom line is, there is no education requirement, not even high school. There’s not one day of experience requirement. There are no training requirements. The minimum age is 18 and convicted criminals can obtain securities licenses as long as their crime was not securities related —
Jason Hartman: Unbelievable, I had no idea.
Jack Waymire: — which means more or less an expert can get a securities license. What kind of an industry are you looking at when you look at the — the absolute lack of minimum requirements? Minimum requirements now that would protect investors from the Botanists, right, the Botany majors. I mean, that’s what those requirements —
Jason Hartman: Here’s — here’s — and by the way, I want to just mention the transnational issue to that to some extent. The reason the minimum requirements and that education is so important and obviously as you just told our listeners, it’s totally lacking in the financial services industry, but the reason that’s important is because it — it makes the advisor have something to loose. It puts them at stake. If a lawyer spent — they got their Bachelor’s Degree, they spent another two or three years in law school, or if a doctor got their Bachelor’s, spent another five, six, eight years in medical school and residency and internships and all that, they’ve got a lot at stake. If they lose that and they’ve got to start over and get other specialized education or training in a whole other field, they’re going to be careful to treasure that big sacrifice that they made, whereas these people — like you said, you could be just out of prison, you could be an ax murderer and you could become an advisor. That is amazing to me.
Jack Waymire: And to support — and to support what you’re saying, the turn over rate for new advisors in the industry is somewhere in the 50 to 70 percent range because these guys are paid straight commission just like a used car salesman. They have to pay their own expenses most of the time. They get very limited support from the company, therefore it’s sink or swim. If — you either sell enough products and you make enough commission that you can afford to stay in the business, or you don’t, and so when you think about the turn over rate and the lack of minimum requirements, what this does is create huge risk for investors when they select financial advisors. And so now you’re back to why didn’t we create Investor Watchdog. It’s a go to website. Everything on the website is free to the investor. Nobody’s trying to sell them anything and these are tools that they can then use to check out an — an advisor they’re thinking about hiring. There’s tools that they can use to — to monitor their current advisors, because that’s a big issue too.
If I — if I’ve got a bad advisor right now — let — let me describe probably the most core strategy that’s used, and I call it friend, trust, expert, sell. The first thing I want to do as an advisor is I want to get you to like me because — and I call it rapport building, relationship development — I got names for it but I want you to like me. The reason I want you to like me is I know you inherently trust people that you like. So, if I can get you to like me, it’s much easier to get you to trust me.
Now, once you trust me, bottom line, it’s going to be easy for me to convince you that I’m an expert in my field and once you believe I’m — and now you trust me so you believe me when you say I’m an expert, with all that — those initials after my name. And then once you guy into the fact that I’m an expert, slam dunk for me to sell you whatever I want to. And the reason is, just like you trust people you like, you do not question the advice of experts.
You don’t question your doctor. You don’t question the lawyer. You don’t question these experts because they all know more than you do. So, I may be the botanist with two weeks of experience, but if you like me then you trust me, and I use trust to convince you I’m an expert, it’s a slam dunk for me to sell you whatever I want to because now you believe I’m an expert and you’re not going to question the advice that I give you. And that is exactly the way most advisors are trained. Like, trust, establish yourself as an expert, sell whatever makes you the most money.
And — so, that’s — that’s what the investor’s up against. It’s a very, very slick process. If you look at the Stamford guy down in — in Huston that scammed people out of a seven billion dollars, you look at the Bernie Madoff guys, I mean these are very, very slick marketing programs and investing — one of the biggest lameness of the 11,000 people that invested with Madoff was, I thought we were friends, right. You hear that over and over and over again from investors.
Jason Hartman: Well, you — you know, people — people should remember something. You know, I was talking to a guy that he — he went into a fund that invested in a property, so this is a real estate deal, but it’s pooled money which I always advise against and say, pools are for fools. And he likes the guy still, even though he knows he got scammed. The promoter of this, he’s just — he just likes him. And — and I said to him — I said look, this is the — this is the stock and trade. This is the major survival tool of a con artist is rapport. They’re good at it.
When you’re legit and you run a legitimate business, you — you don’t need to use the likeability factor as much. Of course, you should be reasonably likable, always, but you know —
Jack Waymire: The way we — the way we represent it is, do you want the doctor with the best bedside manner or do you want the doctor with the greatest degree of confidence? And I would say, personally I don’t care what his bedside manner is, I want great advice and I want a good surgeon. I want the best doctor I can find. So personality kind of takes a back seat to confidence, but here’s the problem, very few investors know how to measure the confidence of advisors. So, what they fall back on is the advisor’s personality. If he’s likable, he must be trustworthy. If he’s trustworthy, then I believe him when he tells me he’s an expert. And once I believe he’s an expert, look out. He’s now in a power position of — and if he’s ethical, he may use that position to recommend really good quality and give me great advice, recommend good quality products, etc. If he’s unethical or he’s just out to make as much money as he can from my assets, then I’ve got a huge risk sitting there, a very big risk. And let me give you one other tid bit. I don’t know that risk exists. Why, because Wall Street spends over three hundred million dollars a year on lobbyists fighting regulations that would benefit investors. And the purest example of that is the amount of money Wall Street firms have spent fighting any form of full disclosure by financial advisors.
So, the fact that I’m botany major with two weeks of experience, there’s no rule that says I have to disclose that. So, if the investor isn’t smart enough to find that out on their own, that investor has got a big problem on their hands. So, Wall Street has created the risk by hiring these guys, then Wall Street hides the risk by fighting any form of transparency or full disclosure. So, it’s up to the investor to uncover the risk. So, that goes back on these Watchdog tools I’ve referred to.
These free tools, basically are designed to uncover this information before the investor hires the advisor. Not only does it ask the right questions, it forces the invest — the advisor has to respond in writing. So now the investor has a written record of that — that advisor’s responses. So, the fact that he was a botany major, the fact that he’s got two weeks experience, the fact that he only holds a Series 6 License or the fact that’s got all these compliant — complaints on his compliance record, all of that has to be disclosed in our system. And anybody that refuses to respond, there are two choices for the investor. Walk away because whatever he’s hiding, chances are it’s not good news, or they can use us to do some due diligence for them on a one-on-one basis.
Jason Hartman: Let me take a brief pause. We’ll be back in just a minute.
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Jason Hartman: What about just performance as an aspect of it? We talked about character, trust and competence trust to Stephen [inaudible]. He calls it Seven Habits on Highly Effected People in his books but what about just performance itself, because some of these advisors that have pitched me for my business, of course they all say, you know, you’ve got to have at least $500,000 to invest with me because they only want the bigger fish, right. I’ll ask them about their track record and they’ll give me some sort of glib response about it, orally, but when I — when I say I want to see it in writing, they — they just don’t produce anything. They just disappear, you know, I never hear from them again.
Jack Waymire: Well I mean, that makes it a great question though, right?
Jason Hartman: Yeah, right. Of course it does.
Jack Waymire: Because they just won’t deliver and they disappeared, you just avoided potentially, a big risk, right. Here’s — here’s the bottom line. Money managers and an example of a money manager might be a mutual fund. Money managers have track records because they provide the same service to a lot of clients. Very few advisors have track records, because they tell you their service is varied by client. Everybody’s different, therefore they don’t have one track record. That is half truth and half not truth, because obviously they could pick their clients and put them into categories and develop a track record for each category.
The bigger risk is, the advisor with the bogus track record, because they’ll come in and show an investor hot mutual funds and then claim the performance is their own. And what they really did was they picked the funds after the performance occurred so they only pick big winners, but then they go out and sell the investor on the idea that I picked those winners before the performance occurred. And of course the investor has no way of knowing when they picked the funds. So I look like, wow, I’m great at picking these hot performing funds, when in fact I picked them after the fact.
If you look at legitimate track records, they have two core characteristics. One is their incompliance with what’s called Gips, G-I-P-S, Global Investment Performance Standards. So, if somebody shows you a track record, you ask them if it’s GIPS compliant, and if they have a strange look on their face, like they have no idea what you’re talking about, it’s not a legitimate track record.
The second characteristic is, it’s been audited by an independent third party and ideally that independent third party is one of the big five accounting firms, somebody that you would recognize. Keep in mind now the track record generated by Bern — Bernie Madoff, was generated by two accountants out on Long Island. One was 75 and retired. One of them was in his 20s. And so they went in and said, our track record was audited by this XYZ CPA firm. Nobody ever bothered to check out, is that a legitimate CPA firm, right and obviously he owned the VD so he could generate fake brokerage statements and that type of thing. But his track record was all manufactured, all fake, but he did have that little extra element to make it look more real that he had it audited by the CPA firm, except the CPA firm was to people and one of them didn’t even work there.
Jason Hartman: And — and I just ant to say — and I hate to be such a skeptic, but remember Enron was audited by Arthur Anderson, a huge, huge long standing accounting firm, so even then — even then, you don’t know, right.
Jack Waymire: No. And you — now — now you’re saying things like, well that’s an opinion that issue these quality ratings on a lot of these products and so forth and you know, they were being paid millions of dollars to issue Triple A credit ratings on toxic assets.
Jason Hartman: Yeah well, Moody’s —
Jack Waymire: I mean, Moody’s —
Jason Hartman: — came under my [inaudible].
Jack Waymire: — I mean, they — they all had their hand in the cookie jar and you know, the bottom line is, when you get down to who can I trust with my money, the bottom line is, if you can find a — an advisor that is an RIA, an acknowledged fiduciary, works for fees, has great education, good certification, CFP, CFA, CPA, that’s as good as it’s going to get.
Jason Hartman: Well, you know —
Jack Waymire: And you’re putting the —
Jason Hartman: — Jack, the other thing that really bugs me about that is that, they’ll never let you talk to their actual clients. I want to hear from the clients. Oh, that’s confidential. That would be a violation for us to give you that information, which is probably true, but my point is, they’re just hiding behind that. You can never actually get a reference on these people.
Jack Waymire: Okay. But let — let me tell you that’s a two edge sword because I may tell you it’s confidential. Everyone of my — you know — see, on the one hand, if I gave you a copy of a client’s portfolio to show you how well I was doing, and then I went in and blacked out their name and address so you had no idea who they were, some advisors might — might do that and — and it could either be a good thing or a bad thing.
Jason Hartman: It could be fake anyway. Yeah.
Jack Waymire: It could be fake. The other big issue though is, when I ask for references, I’m not so sure references are a great way to judge the quality of an advisor.
Jason Hartman: Well, because they might be fake references, or —
Jack Waymire: Well, no. The bottom line is I’m never going to give you a bad one, so I may have pre-screened my advice — my references. I may have coached my references. My references may not even be a real client. It could be my brother-in-law with a different last name. I may have a reciprocal relationship where you and I are both advisors and I agree to be your reference and you agree to be my reference. And then we’re both telling investors all these — this is the greatest advisor I’ve ever know. I’ve had several, and this guy is wonderful and delivers great results and — and some advisors will use references as a proxy for track records and aren’t really legitimate, etc. So I — I think, you know, references should come with a disclaimer that, unless you really know how to evaluate a reference, you better be careful because no advisor will ever give you a bad reference.
Jason Hartman: Yeah. I agree, I agree. A couple of things just before you go. First of all, what is the business model of InvestorWatchdog.com? I mean, how do you make your money? That’s a fair question, I think given a —
Jack Waymire: That’s an excellent question.
Jason Hartman: — given — given all of the conflicts of interest on Wall Street.
Jack Waymire: Bottom line, we have advertisers on the website, so we’re like a lot of other websites. We provide a lot of content to investors. We provide the content for free and investment firms and professionals can advertise their services on our website, and that is fully disclosed to the investor. Anybody that’s listed in our directory, etc., is — is a paid advertiser. So — so, we support ourselves with paid advertising. But everything we do for the investor, is free and nothing is paid by the advertising, it’s all arms length.
Jason Hartman: And what is Wall Street’s deepest, darkest secret, or have we been talking about that for the past half hour?
Jack Waymire: We’ve been talking around it, but to the large extent, 80 percent of all financial advisors are not financial advisors, they’re sales reps. But Wall Street — you know, just like we said when we’re — we’re talking around it, when we said insurance agents can call themselves planners, when that sales rep calls himself a financial advisor, legally, he’s not a financial advisor. Technically, he’s a sales rep because he’s got a Series 6 or a Series 7 License that limits him to selling investment products for commission. That’s all his license permits him to do, but that’s not what he tells investors. He’s like the insurance agent claiming to be a planner and helps sell product. The sales rep knows a lot of investors do not want sales reps handling their money, so the bottom line is — and it’s all done verbally, alright, so there’s no written record, but I’ll go out and tell that investor, I’m a financial advisor. That’s what I do. I give you advice. I help you achieve your financial goals. The reality is, they only have a Series 6 or 7 License. They’re not that RIA, IAR we talked about earlier and they’re only method of compensation is a commission. By law they cannot charge fees. So, that’s one way you can tell if they’re a sales rep or a real advisor, how are they being compensated for their advice and services.
And then we also mentioned the fact that Wall Street spends hundreds of millions of dollars on lobbyists to fight regulations that would require full disclosure. And that’s why it becomes the deepest, darkest secret. Just imagine if an advisor had to walk into your office and lay down a one page piece of paper and it lists education, experience, clients’ record, certifications, method of compensation, types of services they offer, licensing. What if they had to lay down one piece of page piece of paper on your desk? You would then have a level playing field because you would then know exactly who you were talking to. But the bottom line is Wall Street fights that tooth and nail. They want to keep the — the reality a big, dark secret and transfer all of the risks to the investor.
So, if you don’t know the right questions to ask, and if you’re not smart enough to get those responses in writing, then it’s your problem. That’s how the dark secret is maintained, lobbyists. The bottom line is, Wall Street has bought a lot of politicians. I mean, their one —
Jason Hartman: They — they own the U.S. Senate. I mean, Wall Street owns the Senate.
Jack Waymire: Yeah. Well, they own the — Senators that sit on the Committees that oversee the SEC and the financial services industry, banking, basically they own those politicians. So, when we say they spend all this money on lobbyists who then funnel the money to the right politicians, who then make sure the regulations favor — I mean, it’s the same thing, you know, big tobacco did for years. The big pharmaceuticals are still doing, you know, they basically buy the politicians. The politicians are more focused on staying in power then they are doing what’s for voters, investors, etc., and so Wall Street has been able to protect its big dark secret by making sure there are no regulations that would shine a spotlight on exactly what they’re doing.
Jason Hartman: Yeah. Boy, it’s — it’s really a jungle out there, I tell you. Well, this has been very enlightening Jack. Thank you so much for sharing it.
Jack Waymire: My pleasure.
Jason Hartman: [Inaudible] of course, InvestorWatchdog.com and keep up the good work out there. You’re — you’re basically fighting an incredibly difficult uphill battle and I commend you for doing it, but we’ve really only touched on today that sort of first layer of corruption and graph, which is the advisor themselves. Now, maybe they can protect you by being good ethical competent and knowledgeable, etc. From the other multiple layers behind the investment banks, the — the rainmakers, the fund managers, the CEOs, the Boards of Directors, all that stuff maybe, but even then you’ve got all these other layers behind the advisor. Any other comment on that before we go? I didn’t want to leave all that and not give it a chance to address it.
Jack Waymire: I — it’s all interactive. I mean, you know the — the analysts, the portfolio managers, the companies, the executives. You know, I — I think the real core here is, you’ve got the politicians basically being bought off so they protect the executives. That allows the executives — even — see and executive, like a Bernie Madoff, bottom line a criminal, then you’ve got the executives that are running Goldman Sachs and you’ve got executives at Citigroup and a lot of the other big Wall Street firms. They’re basically in a position to commit crimes and have absolutely no accountability for those crimes. And how do you fix this? You don’t because those interests are so imbedded and so powerful in New York City and Washington, D.C., the bottom line is, you and I investors, nobody is powerful enough to take them on and lend. All you can do is learn to protect yourself. And you protect yourself by making sure you’re dealing with the right people.
Jason Hartman: Very good. Well, good stuff, Jack. Thank you so much again and keep in touch. You know, let’s have you back if any big news comes up or — or you have any new developments on the side or in terms of your services. We’d love to hear from you again.
Jack Waymire: You bet. Thank you.
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