Looking At Fees And Commissions In A New Way – Episode 305

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[00:01] Welcome to the Prosperity Podcast. In this episode of the Prosperity Podcast, we’re going to be talking about why every business earns a commission and why you need to look at fees and commissions in a completely new way. So Kim, this is going to be an exciting one. Let’s jump into it. I love this subject. So let’s think about this. You walk down the street to your brand new food truck that is in your area and you’re so excited about this because you’ve heard how awesome the hamburgers are and you pay $10 for a hamburger, which I mean you can buy $50 hamburgers these days. Does the guy, there’s just a guy, it doesn’t matter guy or gal, but the guy in the food truck earn a commission? Well, I would say yes.

[00:56] It’s kind of a strange way to think of it that way because that’s just an hourly job, right? Well, I think the answer is absolutely yes because you know that the guy might not be the hourly worker. He might actually be the owner because that’s how food trucks work, right? A lot of times the guy is chief cook and bottle washer and service person as well. And so you’re right. It is a weird way to think of it. And yet I have no idea what has happened in our society, why the word commission has gotten such a bad rap. And there are definitely times, and we’re going to talk about that, where compensation is seriously problematic. And yet I want our society to really think about this word commission and whether it

[01:48] is as bad as so many of us think that it is in light of not only compensation but also the verb of sales. So sales is an act, sales is a verb, and we all know that every single business is involved in selling. In fact, every single human being is involved in selling one way or the other. It might be selling your spouse on the idea that you want to go eat at said food truck on one particular night, or it might be selling your employer on the fact that you want to work from home one day a week, or it might be selling your friends on movie A over movie B. In fact, one of my favorite books is To Sell as Human by Daniel Pink. The name of the book is To Sell as Human by Daniel Pink. And so whether it’s the idea of sales or whether it’s the idea of every business

[02:46] earns a commission or every person sells, I just think that this idea is something that we need to really think about and not just be blindly saying, oh, all commissions are bad or all sales are bad or compensation is bad. I mean, good heavens, compensation is money moving from point A to point B. And that’s a good thing. Yeah, you know, if you think about it, there’s a lot of industries that are going through disruptions right now. And the compensation models are attempting to change. And we’re seeing it work maybe in a few areas and we’re seeing it fail. So one of the items I was thinking of is my brother, for example, last year was trying to sell his house and he went with a fixed fee real estate group.

[03:36] And it was absolutely knew what the price was upfront. And here’s what happened. He got his house, staged it. He wasn’t living in it and the house didn’t sell. And it was just problem after problem to get it to go. And so it ended up costing him a lot of money because the house wasn’t selling and he’s in another house now. And he decided to then go after a competent real estate group. And quickly, the house sold for full price. And so he looked at that and realized he paid a commission and he got the value from it. And it actually cost less than the fixed fee because he got what he wanted and a better quality service. So are we kind of on that same page, I think? Absolutely. It’s interesting.

[04:20] My husband, Todd Langford, has been on a rant to the degree that sweet Todd can do such things lately about the fee based fiduciary environment under the financial planning and financial management arena that a lot of very well known people are promoting. And I, of course, as many of our listeners know, love the fiduciary platform. I think that there is a lot of good and a lot of good potential in it. And yet, there is a problem in it in that, let’s say, similar to your flat fee real estate deal, let’s say somebody’s charging a flat fee for financial advice. And I’m not talking robo advisors that are managing your money. That’s a different issue. But I’m talking the chance that you get to speak with a human being.

[05:16] If that person is flat fee oriented, then they, the advisor, are going to want to run as many clients through every single hour as they possibly can. And they, the advisor, are going to want to speak with you briefly, get you moved along so that they can generate another flat fee from the next client and the next and the next and the next. And so, I really have to ask the question, is that in the client’s best interest when supposedly the fiduciary platform is built on putting the client’s interest first? Yeah, you know, if you think about that, the only way that they could increase their income is increase the volume. And that might, obviously, in many areas, that’s going to lower the overall experience and care of that person.

[06:08] The other thing it makes me think of is the medical industry. Notice how out of control our medical world has got because what they do is they find additional fees to tack on that don’t make sense. So, if an advisor that’s only charging fees wants to increase their income, they’re going to increase their inefficiencies, not actual performance. Very well said. I just spoke with somebody that lives in Canada, and they said in their medical world, they are not allowed to take two issues to a doctor on the same appointment. So, if your eye is hurting and your knee is hurting, you can only go to the doctor for your eye, and he cannot talk to you on that appointment about your knee. That is awful.

[06:58] I can’t believe. So, that could really creep into other industries if you think about it because if that’s going to become a standard, other industries are going to adopt that. It is the race to the bottom. And as we know, there is no winning the race to the bottom. It’s just like all of the retail stores out there. And again, I won’t mention names, but there are, especially in our part of the country, this is very rural. So, we have the normal sort of big names that everybody would know. And then we have the dollar store types of which there are five or six of them all under slightly different names, but the same idea. And then we actually have so much for not mentioning names. We actually have something called Dirt Cheap, a store called Dirt Cheap.

[07:54] And it is also a race to the bottom. Quality suffers drastically. Your experience inside the store is so jam packed literally because the space is overflowing with the stuff that they have in there. And of course, absolutely zero service. So, if we think of this race to the bottom, the fees, what I would love to do is just take a moment and create somewhat of a mental checklist of what are the signs that I’m finding service in a person or a corporation that isn’t going to be racing to the bottom and that’s going to give me the best for my time and best value and the best overall experience so that it’s going to be a long win-win. What kind of things can we put on that list, Kim? I think the very first thing needs to be your own value system because for some

[08:55] people going into Dirt Cheap and grabbing a cooler for the weekend as an example is perfectly acceptable. Like that’s exactly what they need and that’s their value and nobody can judge that. However, if you then want to turn around and get frustrated because your pop is not cold or your onion depth or whatever it is, then those two don’t connect. And so we as human beings want to always be conscious of our values and making sure to the degree that we can that we’re spending money based on those values. So that’s not an easy thing to have on a checklist and I’ll just shortcut it maybe for people. The easiest way to have your values clear is to look at a list of values like literally a hundred values on the web and pick 10 and write them down

[09:45] and just pay attention to the purchases that you spend your money on the next 30 days in light of these values and see what matches and what doesn’t match. Ooh, that’s a good one. So I’m gonna, I’m gonna add another one to the list and mine is going to be longevity. And what I mean by that is when you enter into a relationship with someone be it the business transaction, whatever it may be, and they’re in it for the long run, the relationship, they tend to treat you a lot better and you treat them better because they know that this is something that’s going to last for a long time. And there may be a lot of referral business, but the relationships that are just transactional, it’s impersonal.

[10:31] It’s going to the doctor and only getting one of the two things checked out. Right. I think another thing that can support that just a quick story on longevity is we were actually given one of those Yeti coolers and there’s a variety of brands out there now that are literally for our lifetimes. That thing has been beaten up and still performs so amazingly. And so if longevity is important to you, and again, sometimes it is, sometimes it isn’t then pick your products the same way you pick your relationships. And I have to say, I honor the fact that we have in our business world, some really long-term relationships like Carrie Putman, our bookkeeper over 20 years, Gabe Mendoza, our IT guy over 20 years.

[11:24] Like those are cool places of longevity for Kim and Todd and partners for prosperity. And I have clients over 20 years and those are very special relationships to me. Absolutely. You know, that’s a wonderful way to think of it. And so I think even just having a short mental checklist this way is able to help people gauge how they want to move forward with certain transactions. And you know, there may be times when be it for a car insurance that you’re looking for that bottom line. But if you really zoom out and you say, okay, well that’s serving this reason here. And maybe it’s a temporary fix or whatever, but you look at something like life insurance or you look at wealth, or if you’re thinking that’s much deeper,

[12:20] well having relationships for a long term is critical. And one of the, my final thought before we jumped to you is I saw a quote the other day and it said, poor people plan for the weekend, wealthy people plan for the next generations. That is good. So as we’re wrapping up, I’ll add one more thing to the list and I think this could probably go on for a while. And yet it is something around your experience that you want to have. So as an example, we all know that when we go get fast food, there’s a certain experience with that. Like the person maybe doesn’t speak good English at the order desk or you know, the food is whatever, because it’s fast food. Okay. That’s an experience. You must know that going in versus a sort of mid level restaurant where you

[13:15] can go in and sit down and get a little nicer experience and atmosphere versus a high level restaurant getting, spending more money and getting nicer atmosphere, better service, et cetera, et cetera. So just be conscious of the experience that you’re choosing and again, vote with your dollars, vote with your values and understand. And I think this is important enough to have it actually be a fourth item on the list that it’s not all or nothing every single time. Like, of course, we’re all going to eat at high end, middle end, and low end restaurants as our lives progress. And so we need to be conscious of that and know what we’re getting into so that we don’t get frustrated at the drive-in because we know that

[13:59] that’s a certain type of experience. That’s very well said. Well, listeners, you now have a valuable mental checklist and we’ll put some show notes together for you as well so that you can know what you can do as you move forward, as you look at your principles, and as you decide what type of relationship you want with the businesses, the people you interact with or any of that so that you can have something that’s a lot more fulfilling and you can understand this fee versus commission world. I think this is valuable and I haven’t heard other people talk about it. So thank you for having this conversation today, Kim. I enjoyed every minute of it. Thank you for listening to the Prosperity Podcast.

[14:47] To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.