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Financial Planning > Charitable Giving

David Bach Has Some Advice for Advisors

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David Bach - The Latte Factor David Bach displaying his latest book, “The Latte Factor.” (Photos: Courtesy FinishRich Media)

“A latte spurned is a fortune earned,” proclaims bestselling financial author and media personality David Bach in his new book, “The Latte Factor” (Atria-May 2019).

It’s aimed at teaching millennials how to build a million-dollar nest egg by giving up nice-but-not-necessary daily outlays — for frills like fancy coffee, a bagel with a shmear, taxi rides — and instead, saving the money and watching it grow through “the miracle of compound interest.” The former financial advisor discusses all that and serves up stern advice to FAs in an interview with ThinkAdvisor.

As for the 52-year-old Bach himself, he made a million dollars by age 30 — and then much more — not by salting away a few bucks a day but largely by making shrewd investments. He talks about two of his most recent successful ventures in the interview.

Bach is best known for writing nine consecutive New York Times bestselling books, starting with “Smart Women Finish Rich” (1999). “The Automatic Millionaire” (2004) was his breakthrough work, residing on The Times’ bestseller list for 31 weeks. Further, as a public speaker, a series of “FinishRich” seminars remain intrinsic to his enduring success.

The self-described “crusader for women’s financial empowerment” argues that his new book, told, surprisingly, in story format — about a fictional female magazine editor, 27 — is not aimed at women but at millennials of any gender.

Indeed, that’s the demographic FAs must connect with right now for “the security of [their] business,” Bach contends. He strongly recommends that they meet clients’ children and even host events for them.

Moreover, the marketing master is open to partnering with a major financial services firm so its advisors can hold his FinishRich seminars for clients’ kids and millennials in general.

Apart from helming FinishRich Media, the former 8-year Morgan Stanley Dean Witter FA is director of investor education at AE Wealth Management, a flourishing RIA he co-founded in 2016. The company is a subset of insurance and annuity marketers Advisors Excel. Both the FMO (field marketing organization) and RIA are based in Topeka, Kansas.

With more than $7 billion in assets on its platform, AE Wealth already has 313 investment advisor representatives (IARs) and 119 registered investment advisors (RIAs) — none are acquisitions — in more than 200 markets.

Bach moved into financial services in 1993, joining his father Martin Bach’s advisory practice at Dean Witter, in California. Within 60 days of joining DW, he delivered his first seminar, to which he invited the elder Bach’s female clients. He came up with the idea after sitting in on Dad’s meetings with traumatized widows who had no clue about handling finances.

In 2001, Bach, by then a $1 million producer, handed over his practice to sister Emily Bach and ventured forth to write books and hold seminars to help women get money-smart.

His mega-successful career seems to have had only one misfire: a brief stint as vice chairman of Edelman Financial Services (now Edelman Financial Engines), 2014-2015. The fit proved less than perfect. Three years after he left, Ric Edelman reportedly threatened to sue him for allegedly appropriating proprietary information. In our interview, Bach declined to comment.

But he had lots to say about “The Latte Factor,” which was co-authored with multi-award-winning writer John David Mann and is No. 2 on The Wall Street Journal’s bestseller list as of May 19. The personal finance expert insists that this is his final financial book: “I’ve written 13 books [including updated editions]. I feel I’ve said the things I need to say when it comes to money.” Maybe.

ThinkAdvisor recently interviewed the Moraga, California-born celebrity author, speaking by phone from his New York City office.

Here are highlights of our conversation:

THINKADVISOR: Your new book is called “The Latte Factor.” What’s “the latte factor”?

DAVID BACH: It’s a metaphor. People spend small amounts of money, like $5, $10 or $20 a day, on little things — what I call latte factors. Instead, they could save and invest that money. It’s figuring out what you have to give up to get up. You have to come up with how to find the money to save.

Like, not buying cups of fancy coffee?

You can make your own coffee at home for 20 cents.

You first started talking about “the latte factor” on Oprah Winfrey’s TV show about 15 years ago.

And I haven’t impacted coffee drinking at Starbucks! But I’ve impacted savings habits.

Well, it takes self-discipline to give up little pleasures with which people reward or soothe themselves. You’re asking a lot.

We know that discipline doesn’t work: You need to save money taken right off the top of your paycheck and then live off the rest that’s coming in. The message of this book is pay yourself first: Save money automatically. Use your 401(k) plan. And that’s not just for millennials — it’s for all people.

You’ve invested in Acorns Securities. Does that company relate to your “latte factor” concept?

The moment I saw Acorns in 2015, I said to myself, “This is the latte factor made automatic.” Acorns came up with a platform solution to help anyone invest their change in minutes using their phone: You round up your change and put it into a diversified portfolio of ETFs. So the second I saw that, I thought, “This is genius!” Millions of people can invest literally a dollar automatically off their phone.

And that idea prompted you to invest in the company?

Yes. I met with the founder and said, “I want to write a check and invest in Acorns.” At the time, the company had, I think, less than 500,000 accounts. Today it has over 5 million. Acorns is one of the fastest growing financial service companies in America. They’re changing the way people save and invest money automatically. They have competitors, but they’re certainly the leader.

Generally, what sorts of enterprises attract you to invest in?

When I see companies that are aligned with my values and what I’m excited about, I’ll often proactively reach out to either invest in them or invest in being an advisor to them. A lot of super-exciting companies are really changing how people track, save and invest their money.

What’s an example of another company on you’ve bet on?

I invested in Clarity Money along with [founder-CEO] Adam Dell; and in 2017, we sold that company to Marcus by Goldman Sachs.

AE Wealth Management, of which you are co-founder and director of investor education, is showing impressive rapid growth. What’s responsible for that?

We’re attracting entrepreneurial RIAs in growth mode who want to grow faster and grow bigger. Three years ago, we were looking at advisors with [AUM] of $25 million to $100 million; we’re now attracting [those with] $50 million to $500 million.

What’s a focus in working with these RIAs?

Helping them become CEOs of multimillion-dollar businesses: Running a larger RIA requires a different skill set from being a day-to-day financial advisor.

How, specifically, do you help the advisors grow?

They’re doing a minimum of 20 outward-facing seminars a year and constantly holding client appreciation events. We’re giving our advisors the tools to do these things, like my “Smart Women Finish Rich” seminars and others that we’ve created for them. We’re helping them produce radio shows. They do online marketing. All that helps them grow their businesses and get new clients.

How many RIAs does AE Wealth aim to add this year?

Our goal is quality. We’re looking for the right value set and the right type of person. We’re looking for nice people. We tend to have real nice financial advisors.

Getting back to “The Latte Factor,” which you’ve written as a parable about a 27-year-old woman’s financial enlightenment. So, is this book directed at women?

It’s not. It’s aimed at millennials. I skew females because that’s where my passion and heart lie. I’ve been a crusader for women’s financial empowerment and teaching women about investing for 26 years. So I’m biased. But also: Women buy 80% of all books.

Why do you choose to “empower” women financially?

It’s women that need help as much, or maybe more, than men. And let’s face it: It’s women who are going to control the bulk of all wealth in America.

“People have a spending problem, not an income problem,” you write. Please elaborate.

As we make more money, we typically spend more money. It’s called “lifestyle creep.” Unless you have a plan for your money, you’ll spend more as you make more. The system is set up for us to spend every dollar we make and more. Marketers are really good at targeting us to spend more. And it’s never been easier to target us than [to do so] online. People are spending more now because of online influence.

What shocking statistics can you point to that indicate people aren’t saving much?

[The Federal Reserve Board reports that] six out of 10 people can’t get their hands on $1,000 in case of emergency. And four out of 10 can’t get their hands on $400 in case of emergency.

Are financial advisors examples of those who have good savings habits?

There are many advisors who live beyond their means. If financial advisors were good with [their own] money, they wouldn’t have to constantly go from one brokerage firm to another for a check.

Is that failure to save money anything new?

Back when I was in training at Dean Witter, a retiring advisor came in to speak to our class [of 20-somethings] and showed us the power of saving $2,000 a year for retirement. Then he told us, “When you go back to your office today, you’ll be surrounded by a bunch of [brokers] in their 50s that don’t have a pot to piss in because the average financial advisor doesn’t do for himself what he tells his clients to do.”

What’s a pressing issue that FAs face in their business today?

Right now, the industry is geared toward working with retirees and is ignoring millennials. My message is: For the security of your business, you’ve got to be building a relationship with your clients’ kids now. They’re already opening accounts online with competing firms. They’re doing it themselves, using robo-advisors and new technology.

What will the impact be on human FAs?

If you haven’t built a relationship with your clients’ children, you’re going to see the assets [they’ll inherit from parents] fly out the door in 10, 15 or 20 years — literally with a click. The easiest way to show how much you care and love your clients is to make sure you care about and love their children.

Your father Martin Bach, now 79, was a successful financial advisor for 30 years. He started The Bach Group at Dean Witter, which you joined and which your sister Emily Bach took over running when you left. What was the most important advice your dad gave you about being an FA?

My first day, he said, “I’m going to teach you everything you need to know about this business. Lesson No. 1: Put the client first. Lesson No. 2: Put the client first. Lesson No. 3: Put the client first.” I’ve never been taught anything more important. If you put the client first, the business takes care of itself.

What are your thoughts, then, about the Labor Department’s fiduciary rule being scrapped and the SEC’s proposed Regulation Best Interest?

My position is that a financial advisor shouldn’t need a fiduciary rule to do what’s in the best interest of their client. Putting the client’s interest first should be a given.

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