Will AI Displace Financial Advisors? | Animal Spirits 455
Summary
AI and Advisors: Extended discussion argues AI enhances advisor efficiency but won’t replace human advisors, with tech shifting time toward deeper client service rather than adding more clients.
Private Credit: Guest contends private credit is not in a bubble, citing two decades of index data, steady income, and base-rate default expectations that remain below average.
Software Exposure: Private credit’s largest sector has historically low defaults; AI may disrupt legacy software, but senior lenders are protected relative to private equity first-loss positions.
Liquidity and Redemptions: Elevated redemptions, BDC NAV discounts, and negative headlines were noted; robust liquidity management (revolvers, semi-liquid structures) helps avoid forced selling.
Manager Dispersion: Over 300 direct lenders create wide dispersion; rigorous underwriting and diversified portfolios are key as a credit cycle would expose weaker lenders.
Return Expectations: Long-run private credit returns are framed as 8–10%, with income as the anchor; 2022’s double-digit yields were not a permanent baseline.
Market Context: Hosts flagged recent volatility (crude oil spike, futures swings) and frequent intraday reversals, yet markets kept stabilizing as buyers stepped in.
Business Model Stability: Despite decades of tech advances, advisor fees and margins remained stable while client loads fell as services deepened (more tax, estate, and planning work).
Transcript
Today's animal spirits is brought to you by Tukrium. Looking to diversify your portfolio beyond stocks and bonds. Commodities are getting more and more attention as we enter 2026. Tukrium's agricultural ETFs offer way to access the futures prices of essential crops. These funds may help manage inflation risk and add diversification to your portfolio. Ask your financial adviser or explore Tukrim ETFs on your own. Visit tukrim.com. Click the link in the show notes for more. Welcome to Animal Spirits with Michael and Ben. We're live from Miami. >> That's right, Ben. >> It is I don't know what time it is. It's the afternoon. We recorded a live Animal Spirits at 11:45 a.m. And we tried to do something different this time. >> We did some AI stuff. Listener email sparked that conversation. Listener email sparked a roast. Ben and I roasted each other. This guy told me that I say, what do I say a lot? >> Anyh who. >> Anyh who. And I said, you know what? Let's roast each other. I don't know that I say any who, but I take his word for it. I believe it. Um, and I thought I thought the jokes were okay. I mean, listen, we're not professional comedians. Obviously, Ben's certainly not. Um, and I'm told so we couldn't hear it and we couldn't hear it on stage, so it was like pretty awkward that it's it felt like they landed like with a thud, but apparently there were some laughs. We just couldn't hear it. >> Yeah. The wind just carried them away. >> Yeah, it was the wind. It was it wasn't our jokes. >> I blame the wind. So anyway, we're doing an intro because um it's Monday and last night at dinner, >> the futures market opened and the only thing that people cared about was um crude oil futures. We're up 27%. And the S&P was down 2.2%. And I'm sitting with uh friend of the show, Dan Aves, and I said to Dan, and this is true, you weren't there, but trust me, people could verify it. I said to Dan, "Bitcoin's flat." Like, not to and obviously I'm just talking about for the market. If if Bitcoin's down 8% and the SP was down two, I'd be like, "Oh." >> So, you weren't worried? >> Not that I wasn't worried. I was worried. Like, I you know, I'm worried. >> Everyone around the table was kind of quietly freaking out like, "Oh my gosh, this this could be bad." >> Not me. Dan was there. Alex was there. I I have I have witnesses. Um anyway, the market crude is now flat on the day. Um the S&P has Where's the S&P? Uh futures are flatish down 30 basis points. I uh listen I I feel like the market can only take so much. Like at some point one of these punches will land. Like it just feels like that there's just we're very vulnerable. There's giving every excuse the market to sell. It's like why not already? Why does market keep rebounding? >> It's like the economy. People just won't >> It's very bizarre. It's very bizarre that the buyers just keep on stepping in again. I think that the more this goes on, like we had a chart last week on the show on TCAF that showed 1% intraday bullish reversals, 1% in reversals are bullish obviously, right? >> Okay. >> But not if they keep happening in succession. So if you get a down 1% day that closes green and it happens for the first time in a three-month period, historically that's very bullish, right? It's a sign that buyers are stepping in. and the fear is overblown. But the more of those you start to stack up like eventually the market breaks and you saw that in the previous breaks. I'm not going to name which names because it which breaks is the pre the particular breaks don't matter but the market can only take so much. So we need to find stable footing. I'm happy that the markets are flat. I'm happy that the VIX came in that crude oil is flat but my god like it's so give the bulls credit but how much can they withstand? >> It's like Rocky four. He's >> when all the mov What did I say? He's made of iron. Yeah, >> this market is made of iron. >> It seems like it because all the movement is happening after hours when there's no liquidity and then the market opens and things are fine. It's bizarre. >> Anyway, we didn't do any market stuff on the show this week. Um, so we couldn't like not talk about it because there was a >> Yeah, but we had two interviews. We had Michael Kitsus come on who talked about AI at our dinner last night. We had to bring him on the show because it was so compelling I thought about is is AI going to be an extinction level event for advisers? And then we talked about to Phil Huber about private credit. So, we're covering everything here. And then the roast. >> And then we roast each other. Duncan's gonna have to do a scoreboard to see who won. I don't know who won the ro. It was pretty even. I think it was a tie. >> Dun says it was a tie. >> All right. Um, split the baby. >> As always, thank you guys for listening. Personal emails, personal responses. We'll see you in the inbox. >> How's everybody feeling? >> Good. All right. So, the past couple of live animal spirits that we've done at Future Proof, whether it be here or California, I would say like B minus, like hit or miss, touch and go, so to speak. >> In our defense, last year we did Animal Spirits Live at 8:45 a.m. after your 40th birthday party. >> Yeah, not not great planning. Although, we did get a gem out of that. That was the This guy. There he is. I'm sure you guys remember that was that landed. I see a nod. There we go. Okay. All right. So, here's what we're going to do this time. We're gonna change it up a little bit, make our lives easier, hopefully get a few chuckles, make this smoother for everybody. We're gonna do some AI stuff. We're gonna bring Michael Kitsus out to uh engage the audience and us and give us his his take on where we're going. We're going to bring out a surprise guest and then Ben and I are going to roast each other. Okay. All right. Cool. All right. Cool. All right. Okay. Here we go. So, I got an email. We got an email. uh a couple weeks back. Hey guys, regarding the effect of AI on jobs, one area I think you discussed briefly is how AI will affect financial adviserss. I've been doing some experimenting by taking questions that you and other online financial personalities answer and asking various AIs. Its answers are very good, more thorough, and often better than the human quote experts quote. Okay. Um provided for the exact same questions. Not only that, but I can import every financial document, my personal information, my feelings about risk or market downturns, and any other thoughts I have for the AI to tailor an investment exactly for me instantly. I can then ask questions um about anything and everything further I can have adjusted and recalibrate it whenever I want in an instant. It shows expertise in seemingly every area. Uh retirement withdrawals, tax implications, inheritance, etc. >> AI didn't help this guy summarize his email better. I Yeah, seriously, I'm almost done. Um, I know you'll say people want face-toface human interaction, and I'm not trying to be a dick, but financial advice seems like the perfect prey for AI to take over almost immediately. >> Listen, you had this freak out five or six months ago, and you called me in the morning and you were like had a hot sweats and you're like, what if what if AI really does disrupt financial advisors? And I think there's a lot of people who are having that existential worry right now. >> Yeah. So here's I think where I am today and I'll probably change my mind 10 times between now and next week. But the there have this person is not your client. I mean obviously right and we are getting these questions from prospective clients. I'm sure everybody in this room is too. Um whether they're curious or pointed like why would I use you or how do you where do you think this industry is going? And here's where I am today. There have always been do-it-yourselfers, right? We've all spoken to them. Most of the time they don't become a client and if they do, it's like a it's it's difficult for them to take their hand off the wheel. There are always those sort of people and the tools that are available to them, it's true, are incredible and doing a lot of the work that traditionally financial adviserss would have done or do do. I said do do. Um, and uh, so it is, I think, going to get incrementally harder because there will now be more potential do-it-yourselfers. Okay, you could say that about anything. So, for example, I can go on YouTube and I can figure out step by step how to do anything, how to fix my sink. I will never fix my sink. Ever. Ever. Ever. ever because people who value their time and are not that sort of like brain to import their documents, whatever, they're going to pay somebody for it. And that's never ever ever going to change. >> Wealthy people aren't going to trust robots. That's kind of where I've fallen on this. >> Not yet. I mean, we've got a couple of years. >> So, any So, we had dinner last night and we we had a big discussion at the table about it and Michael Kitsus gave a resounding no, everyone needs to settle down a little bit. So I said, "All right, you're coming on the stage to talk about us and make the advisers of the world feel better." So when we bring him out, let's hear his take. >> Let's go, Michael. >> Michael, we were talking last night and you kind of said you guys are a growing firm. What's your biggest issue? Like what's your bottleneck? What's your roadblock? And I said, well, we're since I've joined the firm, we've gone from seven people to almost 90. And you said, so what's what are you doing now? and you said managing people and you said is AI gonna help you manage people better and I don't think that job is going away for AI. So maybe you could just give your take that you gave me last night about like why people need to settle down about this. >> Oh I mean there like there's so many parts I have a challenge to sort of this like a AI is a threat narrative. Um I mean I start by like very much where Michael where you did and just there's always been do-it-yourselfers. They don't hire us. They never hire us. I mean, I'm just I was listening as you were as you were reading the email like I trusted all the different AI platforms. I ran all the stuff against all of them. I have all my financial information sorted out and documents and file folders which I uploaded to each of them and I read through each of the all the different analysis. Like my goodness, that sounds like that took a lot of time. I guess you must like really like doing that. That's awesome. You probably don't want to delegate that to an adviser >> because you know what people who don't like handling all that stuff do? They're like that sounds like an awful lot of [ __ ] I'm just gonna hire an adviser and have them do that for me because I don't want to I don't want to do that or I don't want to deal with that or I could do that at one point, but now my life is more complex and I don't know if I really want to keep doing that. >> So, what about the idea that okay, fine, the people who had wealth management advisors are probably going to still go to them. The people who had DIY, there's maybe just more of them. But what about the idea that okay, we won't need to hire as many adviserss though. The young people are never going to have a job and maybe you could go down that route. I >> I am in that camp for the record. I think the power planner role is basically done. So, so I like I like to look at these things through the like the lens of history, right? History never repeats, but it often rhymes and gives us a lot of of guidance. So, I look at this in the context of of my own career. So, the second firm I was at 25 years ago, um, was an independent broker dealer office, uh, three advisers, about $1.3 million of GDC, which back then, like that was a a pretty good like sizable, very successful advisory firm practice. Uh, and and they had eight support staff for the three adviserss. So, we had this wonderful woman named Betty. Betty's primary job was to collect all the mail every day, open every client envelope and pull all the paper statements so that she could file in every single client's file folder so that we would be certain that we had up-to-date information for the next client meeting. She would also check to make sure there were any paper checks in there cuz heaven forbid you hold on to one of those for more than 24 hours for anyone who's in the business. And then uh she would then prepare um Morning Star Principia Pro reports of all of the mutual fund holdings in our clients portfolios so that we could have review meetings with them. So Betty's job doesn't exist anymore, right? Betty's job is Orion or Black Diamond or uh uh one of the other portfolio management software platforms that pulls all the information. Money moves electronically. um statements are continuously updated. Frankly, it gives much better performance reporting than Betty did. I mean, we didn't actually report on a client's portfolio performance. We pulled the report for each fund in their uh portfolio and showed them fund reports because we actually like didn't even have tools to do the calculation and Betty was not doing that kind of math. So, Betty's job is gone, right? We can say like it got technologied away. So, then I reflect on that for a moment. Um, first of all, if I adjust for inflation, Orion for three advisors today costs more than Betty salary used to. So, we didn't save any money on this technology transition. We have I would argue much better end result to the client like the the end experience for the client is much better. The portfolio management process is better. The there's like all sorts of quality improvements here. But we didn't we didn't make any margin. We didn't save any dollars directly. And when I look at that on like a whole long list of changes that have played out, if you then go back and just look at like industry benchmarking studies back then because uh this was when Mark Diver, you know, Moss ABS like just started coming out with with industry benchmarking studies and the median and back then like the median advisory firm had was charging 1% fees and today they charge 1% fees. The media advisory firm had about a 40% overhead expense ratio plus or - 5 points. Today the media advisory firm has a 40% overhead expense ratio plus or - 5 points. The median advisory firm had about 30% margin and the medium advisor firm say it's about 30% margin. So nothing change like I mean we weren't even using the internet. I mean it was technically 2001 we had the internet but like no software ran on it yet in our business. Like we had the internet, the smartphone, robo, AI, like all of this technology, automation, and we charge the same fee for the same overhead expense ratios for the same for the same margin. We did slightly change staffing. A three advisor firm today does not have eight support staff. So, we did shift some of the jobs a little bit, but in general, the jobs rotated up. Like Betty was pure admin. We have fewer admin now because we actually have more pair of planners and associate advisors doing just like higher level more complex work than what Betty was doing. >> So do you think all the note takingaking and the email stuff that's going to do for you is that going to give advisors at least more efficiency to have more clients? >> No. Well, so so if I look back to like the firm of 25 years ago, it's like same same advisory fee, same overhead expense ratio, same average profit margin. Almost every metric of a firm today and a firm 25 to 30 years ago is the same except one major metric is really materially different client load and it's dropped massively. I mean for anybody who remembers back in the business 20 30 years ago I mean like everyone had like 200 to 300 plus clients. The first firm I was at there was like a guy who'd been there for 30 years and he had two offices. His office and his client file office. His client file office was the bigger of the two offices because the dude had like 1,500 clients, which was basically 1,500 people he had ever met and sold a product to over the preceding 30 years. And we called them clients. But the only thing that's actually shifted is client loads went down >> because we do more services. >> Because we do more services, because we go deeper, right? Average average revenue per client went up. we offer a deeper value proposition than what we did because the technology lets us go deeper and do more and be more awesome for clients. But to me, I mean just it's the striking thing when you look at the landscape. The the only material thing that's changed in our industry in 30 years of technology evolution. It's not fees, it's not margins, it's not overhead costs, it's client loads. And they went down very steadily in a straight line for like all the years of the benchmarking data. They didn't they didn't go up because when we get the time I mean for most advisors you early on any any clients to revenue you can get is good because you're like just trying to make it and survive and then eventually you get like you get past survival stage you get past like Maslo's hierarchy of like you know security survival needs and some other priorities start kicking in. You say like I I make pretty good money now. What do I you know okay I got some tech. save me a little bit more time. What do I want to do? Like A, go get another client. B, go to my kids soccer game. >> B, right? It's always B. >> Yeah. >> Yeah. >> So, what happens even as technology starts to lift up? Working hours go down slightly once advisers are at a crucial crucial level of income that they feel comfortable and safe. Or if you're like, no, actually, like I do want to work a certain number of hours. I'm enjoying the work that I'm doing. I don't go get another client. I go deeper with the client I've got. Like there is always some clients like I would love to be more proactive with some of my top clients. I know I should be calling them more and doing more things for them and I'm kind of time constrained because of all the other stuff. So what do I do if I do actually manage to free up a new moment? I don't go get a new client once I'm at a comfortable level. I go deeper with the clients that I've got. >> All right. So uh last question. We've got two minutes for this. McKenzie did a study recently about the future of AI and the advisers and the work etc. And one of the things that they listed, I actually thought it was a decent report was um that advisers are going to become more life coaches, offers all sorts of other adjacent um things. That was the one thing that I said I don't know that I believe that part of it. Um what was your thought on that? And if there's anything else in the report that you wanted to rip apart, feel free. >> I I do think directionally it's probably right. Um, I mean, just life coach is kind of a loaded term. There's a lot there's a lot to that, but the I mean, the general arc is clearly more services. I mean, we're already seeing it, right? The uh by our kids research data, like one in six advisory firms has brought tax prep inhouse for at least some subset of their clients. Like, that was no one 10 years ago, unless you actually like came from a CPA firm and just already did that for your clients. We're going deeper on tax. we're going deeper on estate. Um, you know, CFP marks used to be like a special differentiating factor and now that's basically like a mandatory expectation for young people coming in today. So, that's becoming a new floor and then you're supposed to go and get deeper beyond that. So, the the increasing depth and the increasing service expansion I think is real. If you want to get kind of, you know, a little bit meta to it all, okay, when we leave like wives of one, when we lead lives of wonderful financial abundance because AI is making the world better and more rich and then we're just trying to figure out what the hell do we do with our lives and purpose on earth when I don't necessarily need jobs in the same way and money is abundant. What do I do? I'm like, I guess I have like a lot of life po life coaching questions at this point about what the heck is my purpose on earth more generally. I mean, I think a lot of us have had experiences that there comes a point, at least for a subset of clients, where if they're still in accumulation mode, they're trying to get to a certain accumulation, and if they get to a point where they feel like they're financially safe and sufficient, other other questions start cropping up about what am I doing, where do I want to spend my time? It's why retirees often have crises of purpose and meaning. Uh what do I do if I'm no longer attached to the work that was meaningful for me? So, that that dynamic still exists. and I think continues and if we make the other stuff simpler and easier, I do think directionally we probably spend more more time there, but I don't know if that means like full-on life coach that that's that's that has some other >> All right, this was awesome. Thank you for doing this. Your your uh report that you did on the stage this morning was fantastic. For people that are listening who didn't who weren't able to be here, is that available? >> Yeah. Yeah, it's it's uh it's available online. So, if you text um advisor tech all one word like advisor tech to was it 33777 uh you should get it. If for some reason the text get doesn't work kids.com/wwellbeing. >> Okay. >> Uh has the the print out of the full >> so advisor tech to 3377 3377. >> Okay. Okay. All right. Michael, thank you. >> Awesome. My pleasure. Thank you. >> You feel better? >> Uh Nicole. Um Nicole and Nicole. Do I feel better? Uh I feel great. I mean we're in Miami. Oh, the AI stuff. No. Yeah. How are you doing today? Do you feel better about the advisor space? Because there are a lot of AI pill, I'm not going to mention any names, Chris, who think that no, this really is going to change the world and it's going to make every more efficient and we're not going to need advisors. And >> you know, I think Michael's point this morning about when advisors get to a critical mass and they're serving 80 households and a lot of their um redundancies are stripped away and now now they have all this time. They don't want 50 more clients like that. Nobody wants seven meetings. It's, as Michael said, it is exhausting. It is draining. You have the time back and you're going to do other things with it. So, I I feel great about our space. I think this is a wonderful industry, a wonderful career. The the clients need us. They value us. I don't think that they're looking to replace us. And if they are, then fine. They're not your client anyway or you're not doing what they need. >> It expands for everyone. And I think the people who don't use an adviser, they're going to have a better experience. >> I think so, too. Okay. So, we're going to talk about private credit today. It's been in the news a lot. And I guess let's just start here. Phil, >> wait. We got to start with the fact that we a middle-aged man came out to wrestling music. >> Yeah. >> Phil, what did you do? >> What did I I didn't do anything. >> I mean, what did you do causing all these headlines? >> How busy have you been lately? >> Busier than normal, I would say. >> So, let's start here. >> Yeah. >> What do you think? >> Introduce Phil for the people. >> Oh, I'm sorry. Phil is a good friend of mine. I just feel like everybody is in my inside my brain that I guess that's not true. So, Phil is the something something. What's your title? >> Uh, head of portfolio solutions. >> All right. So, Phil is head of portfolio solutions at Cliffwater. And Cliffwwater is the um OG of private credit, the first index creator. Correct. Correct. >> Biggest allocator, biggest I mean 30 something billion dollar portfolio. Bigger. >> Yeah. About uh uh almost 40 billion across uh two two credit funds and um yeah, we've been allocating in the space for almost 20 years now. >> All right. So if advisors are allocating to private credit, there's a very good chance that they're using cliff water. Not to brag, right? Okay. So there's been a lot of smoke and um for a lot of different reasons. What do you think is what is the thing that you see repeated over and over by the media who was just dying for a meltdown like that? Dying for a meltdown. What is the one thing that you see you're LIKE THAT IS [ __ ] LIKE THAT PART IS NOT TRUE. >> What did you do to the financial times? >> There's no one thing. There's many things and we'll talk about all them. the the summation of what they're all trying yeah the summation they're all trying to arrive at is private credit is in a bubble and much in the same way Michael Kitis just hopefully alleviated any concerns people have of AI uh uh you know uh making advisors obsolete uh I'm here to say that private credit is not in a bubble a lot of what you've been reading over the past six months or so um is conflating a variety of different issues that have nothing to do with the actual health of the private credit ecosystem and we can touch on a number of those what I'll say is that this didn't start 6 months ago. There has been a steady negative drum beat in the financial press around private credit for at least the last 6 years and I think in the last 6 months it's been turned up to 11. Why is that? Because while you have a asset class that while we know it's been around for over two decades, it's relatively new to a lot of uh investors, advisers that uh given the growth that it's had over the past five plus years. And so naturally it attracts a lot of attention. And I think the FT and Bloomberg and the financial press broadly and increasingly a lot of uh substackers have come to the correct conclusion is if you write a negative headline or a negative story about private credit you'll get likes and clicks etc. >> People see the yield and they go it can't be real. There's no way that it's got to be fake. That can't there's no way the math works out. So I think I think people have been skeptical from the start as they learned about this class. Part of the position we sit in and having the benefit of this index that we have that has history dating back to 2004 is that we can measure how the asset class has performed over two decades over many different market and economic cycles and have an understanding of okay what have total returns been what has income been what have uh realized credit losses been historical default levels etc. So, we have a good base rate to go off of. And I think what you're seeing now is anytime there's a right down or a default. The article wants to attach that to, oh gez, this thing is blowing up. There's a canary in the coal mine. There's cockroaches. To level set with everybody, you have an asset class, the middle market that has over 10,000 unique borrowers in it today. If you add to that another call it maybe 1,400 or so uh borrowers in the broadly syndicated loan market you and you use a historical default rate which has been the average over 20 years of about 2%. Guess what? You should probably expect over 200 defaults in a given year. Obviously there's going to be years where there's more years where there's less. Right now defaults are below average still which you wouldn't know by reading the headlines. And so if you try to treat every default as if it's a something that's a harbinger of the next financial crisis I think you're going to be disappointed. It is weird like the the negative momentum is feeding on itself and you're seeing massive redemptions. You saw it at uh at BlackRock this week. You saw it at Blackstone and uh it's it's just very bizarre because the equity of these companies are getting demolished. All of the publicly traded BDCs are trading at a severe negative discount to their NAV. So there is I think the primary concern is a lot of these portfolios are heavily based in software. B credit was 26%. And the nature of the borrower yeah the defaults look fine today. The fundamentals of the portfolio look fine today but clients are worried about what is it going to look like over the next 5 years. So I think that's 100% valid. I think they should be worried. I also think though that a lot of the let's use the publicly traded marks as a as a um benchmark, they're pricing it in. So it's weird like they're pricing in some of the worst potential scenarios that we've ever seen and we haven't seen it yet and it's just like a bizarre sort of environment. >> Is is there anything is is any of the stuff that people reporting val like the one people keep saying is oh my gosh 25% of the loans are software related and that's a big thing I think really like is any of it valid the criticism is any of it valid? One more thing, Phil. No, because those negative headlines about the software defaults, like it's not going to stop today. >> Phil's having to defend himself more than Daryl Hannah for Love Story. Any JFK Jr. people out there? Anyway, >> but it's >> but it's going to these negative headlines about the AI stuff like that's going to continue and it's just going to continue to scare people. >> Yeah. So, I'll I'll try to tackle it a few ways. So, we'll start with software. It's the largest or technology broadly the largest sector of the index. Like we have the index, we see it's the biggest. Why is it the biggest? Well, historically, it's it's been the sector with the lowest default rates. There's a reason why lenders have liked it. Obviously, the software as a category is going through a period of transition. I'm not of the mind that um software is not a going concern. >> You know, the Winnie the Poo meme >> uh getting wrecked period of transition. >> AI AI will absolutely disrupt certain software legacy software companies and many companies will thrive and util utilize it to their advantage. What obviously that rerating has already taken place in the public stocks that have been wrecked. Uh senior lenders to companies are in a very different position than the equity in front of them. Often what gets left out of a lot of these private credit related headlines is any mention of private equity, which is where most of this financing is going to private equity back companies who are in a first loss position. And so if you are a a private credit bearer and you're not a equal if not more bear of private equity, you're not being entirely forthcoming or >> that is that is an interesting point because KKR all of these names that are getting destroyed, it's always like the private credit headline. It's like wait a minute, KKR is like the private equity shop and the equity of KKR is getting smothered, >> right? And and so I think what's h software rerating like as a lender to these businesses, you don't benefit from the growth. You you're you're you're lending for yield. You're not necessarily in in need of the upside long term. And while the terminal values of a lot of these businesses are challenged, hence why they're now being valued lower and they're not being treated like these low-risisk annuities. Um you're not you're not you're not lending to them on a perpetual basis and near-term cash flows are not necessarily at risk. And so to be paid back at par as a lender requires a pretty um uh aggressive set of assumptions. >> Let me ask you this. So that's a this is a very important part of the story. So the the rates are floating, right? So when rates went up in 2022 and these companies were able to withstand it, everybody loved it. No defaults, my bindings got killed, the loans pay me high yields and everything was copacetic. All great. Um, but the duration of some of these loans, so let's say that like it's it's five years, whatever, right? You owe us money, you pay us back, and then good. But where does the where does the demand I guess who knows where does the demand for loans come after that? And if these companies are healthy today, I mean, that's what people are worried about. It's like, yeah, the loans look fine, the fundamentals look fine today, but I'm worried about what is this middle mark, if Salesforce is down 60%. What is this middle market software company going to be like in three years? How are they going to pay us back? Again, it's going to vary by company and they'll have to, you know, again, they're going to see what happens when they need to go refinance, the loans themselves, historically in this asset class, while they might be 5 to seven years in in term, typically they have an effective maturity of three or four years. So part of what also gets left out of a lot of these conversations is relative to say private equity or real estate or venture capital there's a lot more organic liquidity in this asset class typically most you know if if you have an average effective maturity of 3 four years but you know about a 30-year portfolio is repaying on an annual basis so you have like a natural source of liquidity just from maturing loans so this asset class relative to I would say any private market asset class is the best suited for semi-liquid evergreen structures Is is there any credence to the fact that listen there's so much more money that's in this asset class now and they're just because of it there had to be poor poor lending standards for some of these funds maybe not you but other funds like have have and those are the ones that are going to blow up and people are going to go see look that's not new there has always been a dispersion of of really good lenders and not so great lenders that's not new there's over 300 direct lenders in the marketplace we've been again we we've known all of them for years now we have a ABC rating system for lenders and we think about 50 of that 300 plus kind of meet our A-rated standards. So there's always going to be a bifurcation of uh you know the better the better performers and the better lenders and the ones that run into issues. And so um I think again a a credit cycle will expose some of those weaker lenders that >> we don't have those anymore. credit cycles. We've literally had >> the other thing again again like there's a difference between a bubble and a credit cycle. And I think this term bubble gets thrown around so much these days. And to me, a bubble implies, you know, valuations or prices that make no sense for any future, you know, return expectation. When you actually look at where spreads are today, both on an absolute basis and in relation to broadly syndicated loans, they're tighter than they were a couple years ago, but they're not at levels that would indicate, okay, you're not being compensated for the risk that you're taking. Here's the problem with this asset class, and it's it's not the loans per se. It's the people that are buying them and the people that are selling them because the advisors might understand exactly what's going on, but the client is going to see the headlines and they're just going to say, "I don't care." Like, and the advis the the adviser is not the adviser is not going to like stand up for private credit. It's like, "Fine, let's let's get our money back before everybody else wants it." And that's one of the fears that I have um is that it's just going to be this thing that is a slow uh death by a thousand cuts for lack of a better word. >> The the the constraints on liquidity in these vehicles and again it varies. It's a little bit different for BDCs than it is for interval funds versus others etc. Those are there for the benefit of remaining shareholders. And as much as elev as redemptions are a bit elevated today versus history, the vast majority of investors still have conviction in the asset class and like having these guardrails in place so that a fund is not necessarily forced in a position where they need to sell illquid assets to meet redemptions. A big part of managing these vehicles effectively is having a thoughtful liquidity and liability management program implemented. Some do it much better than others. you do. I think there's a perception out there that to meet redemptions, these managers have to sell uh private loans to meet invest redemptions. So, how does it work? >> The ones that do their best job have the last thing you want to do is ask for money when you need it. >> The best uh run evergreen structures have built out liquidity management programs that are not predicated on holding a bunch of public credit securities that they can sell at a moment's notice. It's and and through building out uh significant revolver uh capacity working with a variety of different lenders like each of these structures has different amounts of leverage they can incorporate at the fund level. Some of that is to maybe offset uh fees a little bit so investors can you know capture more of the uh expected return. Another is it's a s it's a flexible source that you can utilize uh in order to meet investor redemptions by tapping into to those credit facilities that most funds have. >> Right? So you're not just doing a fire sale because these things are liquid so it's harder to sell them, >> right? You should you should know you should build the liability management program around understanding that there are going to be periods of stress. There are going to be periods of uh uh inflows slowing outflows going up. You want to be able to withstand what are likely going to be, you know, in hindsight cyclical periods. And if you can weather those without being a force seller, you should come out the other side stronger. And I think if we're sitting here in a year, hopefully we're looking back at that this was a great uh uh proof point for the asset class and for these structures that they can and do work. It doesn't mean everyone's going to work. Again, there's going to be dispersion in terms of fund performance. But again, these mechanisms are in place for a reason. It's to protect remaining shareholders. And I think the other thing that gets tossed out in some of these articles is that if a fund has to prorrate investor redemptions, uh the authors love to throw out, oh, the fund is gated. They're not letting no most people are getting most of their money out even when funds are prrated. It's not like 100% of their their capital is trapped. That's just not not the case. >> I have a question. So let So here's here's I think where I'm at with this with this asset class. >> If software is a third of the index, I think that a lot of these companies will have stress. >> Not a third, but go ahead. >> What is it? >> About like a little over 20%. >> Okay, so I'm making this up. Let's say that default distress hits 10%. Which is high, right? like what what was the GSA 12? >> Yeah. So, here this is actually a great exercise to go through. So, we had our index goes back to 2004. So, if I'm going to ask a question, what would you think is the calendar year with the worst index returns? And it's not a trick question, I promise. >> Okay. 2009. >> 2008. >> Okay. >> Like, as as everybody would expect, the GFC, the epicenter of the biggest recession and crisis we've seen in years. The index was down about six and a half% in 2008. Do you know what credit losses were in 2008? About 60 bips. Wow. >> So why why is that the case? Well, because as as much as uh the naysayers will try to say that all these lenders are holding every loan at par until it becomes a zero, that's not true. We see in practice that uh unrealized losses in loans. In other words, values being marked down are done so in anticipation of expected realized credit losses in the future. Often the market actually is overaggressive in marking down low. So what happens typically is that um some some uh loans priced for default end up defaulting and there are credit losses. A lot that were priced if they don't turn into a realized loss it becomes a gain. And so the real credit losses in the crisis that three-year period were in 2009 2010. I think there was about 7% roughly credit losses in 2009 about 3% in 2010. Do you know what the index did in those years? >> It was up meaningful double digits in both those years. So in other words, you're the the income is the consistent piece of returns and then you have the dynamic of unrealized and realized losses. The realized losses should follow unrealized losses. In other words, like a much in the same way that a a bank has loan loss reserves. Again, lenders are, I think, thoughtful about marking positions that are at risk accordingly, and some of them turn out to be to be realized losses, but that happens after the fact. And >> Michael's buying Blackstone right after >> everything that guy just said is [ __ ] So I I think when you have to have a long-term perspective in the asset class, I think what happened when when rates went up in 2022, a lot of new money flooded in, yields were at 12 plus% and everyone expected that to be like the baseline of what they expect in returns. The reality is this is more of an 8 to 10% return asset class. And when when yields when spreads came in, when base rates went lower and returns weren't the same that they got, yeah, you have some capital exiting that was maybe temporary in nature and a bit more touristy. those that really understand the long-term nature of it is that yes, you're going not it's not always going to be sunshine and rainbows, it's still credit. There's a reason you're paid significantly higher yields than the risk-free rate, than public credit, etc. over time for we think it's a risk that you can thoughtfully mitigate by working with uh great lenders and by building a maximally diversified >> we get it. We get it. >> Yeah. >> All right. So, I I I don't think that in three years we're going to look back and be like, could you guys believe what we did with private credit? That was a crazy bubble. I also think that there's there's obviously smoke. Like, duh. Um I don't know that turns into a fire. I think I'm a little bit uh I think I'm I'm I'm team Phil on this one. Um All right, Phil. Thank you. >> Thanks, Phil. >> I don't get to stand up for the roast. >> You want You can stay. >> Yeah, >> maybe I can separate you two. No, I'll get off. >> Um All right. Okay. So, here's Thanks, Phil. So, in thinking about what we were going to do to to have a few chuckles, we got an email um last week and I was like, you know what? Let's do this. So, what was the email? >> Okay, in case no one in Michael's life is calling him out on this, I figured I would haven't counted the transcript, but feels like Michael has used any as a transition at least 15 times over the past three episodes. I didn't even notice. >> I didn't realize I was an anyh who guy. >> You're an anyh who guy. So, Michael said, "Yeah, let's let's roast each other." And I said, "Okay, this is like when the Eagles broke up. Um, this might be the last animal spirits we do. Uh, but we're gonna I guess before we start, my I have eight-year-old twins, uh, George and Kate, and they are big into roast battles. That's what they do at school now. They roast people, and they're really not good at it, but they found out we were going to do this, and they got really excited, and they wrote out roast for us. So, we're going to warm up with the crowd a little bit by reading some of their roast. Okay. And they roasted both of us. >> Okay. >> This is from my son, George. Michael, you're so lazy. Your favorite sport is sitting on the couch. >> That's not bad. Okay. Uh, Michael, I'll do one. Dad, you're so short you can high-five an aunt. That's not bad. Um, Michael, you're so broke when burglars broke into your house, you had to help them look for your money. Okay. Um, Dad, this is my daughter. Did you get dressed in the dark or did you do that on purpose? That could have been both of us last night, maybe. Um, Michael, the Kate went really hard into the bald stuff. Your bald head is so shiny. It looks kind of like the sun. Michael, your head hit the sun hit your head today and suddenly we got a lighthouse. And finally, both of you, your stories are so bad, not even chat GPT can understand it. >> All right. >> All right. >> All right, George and >> All right. Um All right, you go first. >> We'll do like a back and forth. >> Let me have it. >> Okay. All right. I'll go first. Um Okay. Sorry. Sorry. Sorry. >> By the way, comedians are safe because AI stinks at comedy. >> So bad. Yeah, I tried it, too. Okay. Last night at dinner, when oil spiked 27%. Ben said, "Zoom out." And then asked the waiter for another diet of Pepsi. >> All right. Um, I mean, the easy one, I got feedback from our team. I said, "What do I roast Michael on?" And the easy one was, "Every time we do the podcast, you are on social media watching one of your 36 tabs that open. You're on Slack. Uh, and you're just constantly ignoring me. It's kind of hurtful. Okay. >> Was there is there a joke? >> That's it. >> Okay. Um Oh, man. My my next one's not great. All right. The first uh the first thing that Ben bought when he opened up a brokerage account in 1994 was a target date fund. And that's not a joke. That's just literally the truth. No, >> it actually is. Sidebar, I didn't know you were actually writing jokes like your comedian. I'm giving real things that you do. >> Oh, okay. All right. Go. Okay. Apparently, we didn't disc. All right. Um, you use the word ostensibly more than any human being I know. And maybe it's jealous because I've never been able to use that word, but you really use that word a lot. Ostensibly. Oh, yeah. >> Really? >> Yeah. 5% of people use >> Chris. Do I? >> Ostensibly. >> I Okay. All right. Um, all right. Ben has a new book coming out called Risk and Reward: How to Handle Market Volatility and Build Long-Term Wealth. This is his fifth book about doing nothing. I just saved you $30 and 200 pages. Beta has published more words about index funds than Vanguard's entire legal department. >> It's 20 bucks. Um uh all right. Um Duncan can attest to this. We when we recorded the show, um I think Michael was potty trained at gunpoint because he gets up so fast to go to the bathroom in the middle. Anyway, every once a run's a show. >> All right. >> All right. Um, most of you know this. Ben is a big fashion guy. He actually he looks like he was dressed. He's like a male Jesse Spano today. That's not funny for the listeners, but that's how you look. Um, Ben has been dollar cost averaging into JC uh into J Crew Pastel since 1997. The closest Ben gets to active management is a Stitch Fix account that delivers him a package of new clothes every month. Ben calls it buy and fold. >> That sounded like an AI joke. Come on. >> Nope. Nope. >> That's not bad. >> Um I I'll just give a couple here. You've literally never once got a saying right. Grain of sand. Um or you called it a grain of >> is it salt or sand? >> It's grain of salt. It's not a grain of sand. Um, you have absolutely psychotic taste in movies. Just the people who like the same movies as you are psychos. Uh, >> Sam Row likes my movies. >> Hey. Hey, Sam. Uh, all right. Go. >> All right. Um, speaking of movies, Ben loves coming of age movies. He shares his love for the genre with Stephen Hawking. >> Got it. Okay. >> All right. >> All right. By the way, Michael had to remove a Jeffrey Epstein joke from his list. Um, Just gonna move on from that one. Um, whenever my favorite thing Michael does is when we have a Talk Your Book interview and someone comes on the screen and Michael notices that the guy on the other end is bald, his face lights up and he uses the same icebreaker every time. Nice haircut, eh? Nice haircut. And uh, credit to you though. It works. It gets the person >> every time. Nobody's ever said, "All right. All right. Yeah, everyone everyone smiles." >> Uh, all right. We'll end with this. A good way uh good way to book end the show. >> I got one more. >> Okay. Well, it's my end. >> Okay. >> Ben wants to ban AI, right? >> Is it going to make us more depressed? Probably. >> I'm not quite sure what you're so afraid of. Jack Bo Bogle discovered buy and old 50 years ago and you still have a high paying job. >> Fair. Okay. All right. Um, last one. >> Thank you. Thank you. Thank you, Hamilton. >> Yeah. Um, you a lot of times you call Chris and Josh and Barry your partner. Um, and it's but you say it in a way that makes it sound like you're in a long-term committed monogous relationship, but you're not going to actually do the vows until like all the polar bears are saved or something. >> You're a partner, my partner, Chris. It sounds like you're in a relationship. >> All right, that's all I got. >> All right. All right. We'll do better next time. Thanks, guys. >> Thank you. But then you have an announcement to make. >> Oh, yeah. Yeah. Whoa, whoa, whoa, whoa. Okay. Thank you, Ben. All right. So, that was just good-hearted fun, right? We're still friends. >> Yeah. I didn't storm off the stage. We're good. >> Okay. So, Ben is obviously one of the best financial writers of this generation. And we are the greatest generation of financial writers. So, ostensibly one of the greatest writers of all time. >> You're going to notice it now that I told you. >> Yeah. I'm never That was my last time. Um, all right. So we we started a software company called Exhibit A where we build the charts. Chart Kid and team build the charts and the advisers just upload their logo. You know the spiel. You get the the charts in your own color. We do a chart of the week. There's 150 charts in the library. It's great stuff. One of the things that we just announced today actually is that this guy um is going to be writing a monthly report for the platform that you all can white label with the platform uh to share with your clients. So, still going to be using charts, still your your labels and all the disclosures and all that good stuff. But we've had a million people over the years ask about how do you find the time, how do you do this? And now you can have them. Ben AI. >> Yeah. People said, "I love the charts. I just want you guys to provide some commentary, too." >> So, that's what we're going to do. >> All right. Thank you, everybody. Enjoy the rest of the conference.
Will AI Displace Financial Advisors? | Animal Spirits 455
Summary
Transcript
Today's animal spirits is brought to you by Tukrium. Looking to diversify your portfolio beyond stocks and bonds. Commodities are getting more and more attention as we enter 2026. Tukrium's agricultural ETFs offer way to access the futures prices of essential crops. These funds may help manage inflation risk and add diversification to your portfolio. Ask your financial adviser or explore Tukrim ETFs on your own. Visit tukrim.com. Click the link in the show notes for more. Welcome to Animal Spirits with Michael and Ben. We're live from Miami. >> That's right, Ben. >> It is I don't know what time it is. It's the afternoon. We recorded a live Animal Spirits at 11:45 a.m. And we tried to do something different this time. >> We did some AI stuff. Listener email sparked that conversation. Listener email sparked a roast. Ben and I roasted each other. This guy told me that I say, what do I say a lot? >> Anyh who. >> Anyh who. And I said, you know what? Let's roast each other. I don't know that I say any who, but I take his word for it. I believe it. Um, and I thought I thought the jokes were okay. I mean, listen, we're not professional comedians. Obviously, Ben's certainly not. Um, and I'm told so we couldn't hear it and we couldn't hear it on stage, so it was like pretty awkward that it's it felt like they landed like with a thud, but apparently there were some laughs. We just couldn't hear it. >> Yeah. The wind just carried them away. >> Yeah, it was the wind. It was it wasn't our jokes. >> I blame the wind. So anyway, we're doing an intro because um it's Monday and last night at dinner, >> the futures market opened and the only thing that people cared about was um crude oil futures. We're up 27%. And the S&P was down 2.2%. And I'm sitting with uh friend of the show, Dan Aves, and I said to Dan, and this is true, you weren't there, but trust me, people could verify it. I said to Dan, "Bitcoin's flat." Like, not to and obviously I'm just talking about for the market. If if Bitcoin's down 8% and the SP was down two, I'd be like, "Oh." >> So, you weren't worried? >> Not that I wasn't worried. I was worried. Like, I you know, I'm worried. >> Everyone around the table was kind of quietly freaking out like, "Oh my gosh, this this could be bad." >> Not me. Dan was there. Alex was there. I I have I have witnesses. Um anyway, the market crude is now flat on the day. Um the S&P has Where's the S&P? Uh futures are flatish down 30 basis points. I uh listen I I feel like the market can only take so much. Like at some point one of these punches will land. Like it just feels like that there's just we're very vulnerable. There's giving every excuse the market to sell. It's like why not already? Why does market keep rebounding? >> It's like the economy. People just won't >> It's very bizarre. It's very bizarre that the buyers just keep on stepping in again. I think that the more this goes on, like we had a chart last week on the show on TCAF that showed 1% intraday bullish reversals, 1% in reversals are bullish obviously, right? >> Okay. >> But not if they keep happening in succession. So if you get a down 1% day that closes green and it happens for the first time in a three-month period, historically that's very bullish, right? It's a sign that buyers are stepping in. and the fear is overblown. But the more of those you start to stack up like eventually the market breaks and you saw that in the previous breaks. I'm not going to name which names because it which breaks is the pre the particular breaks don't matter but the market can only take so much. So we need to find stable footing. I'm happy that the markets are flat. I'm happy that the VIX came in that crude oil is flat but my god like it's so give the bulls credit but how much can they withstand? >> It's like Rocky four. He's >> when all the mov What did I say? He's made of iron. Yeah, >> this market is made of iron. >> It seems like it because all the movement is happening after hours when there's no liquidity and then the market opens and things are fine. It's bizarre. >> Anyway, we didn't do any market stuff on the show this week. Um, so we couldn't like not talk about it because there was a >> Yeah, but we had two interviews. We had Michael Kitsus come on who talked about AI at our dinner last night. We had to bring him on the show because it was so compelling I thought about is is AI going to be an extinction level event for advisers? And then we talked about to Phil Huber about private credit. So, we're covering everything here. And then the roast. >> And then we roast each other. Duncan's gonna have to do a scoreboard to see who won. I don't know who won the ro. It was pretty even. I think it was a tie. >> Dun says it was a tie. >> All right. Um, split the baby. >> As always, thank you guys for listening. Personal emails, personal responses. We'll see you in the inbox. >> How's everybody feeling? >> Good. All right. So, the past couple of live animal spirits that we've done at Future Proof, whether it be here or California, I would say like B minus, like hit or miss, touch and go, so to speak. >> In our defense, last year we did Animal Spirits Live at 8:45 a.m. after your 40th birthday party. >> Yeah, not not great planning. Although, we did get a gem out of that. That was the This guy. There he is. I'm sure you guys remember that was that landed. I see a nod. There we go. Okay. All right. So, here's what we're going to do this time. We're gonna change it up a little bit, make our lives easier, hopefully get a few chuckles, make this smoother for everybody. We're gonna do some AI stuff. We're gonna bring Michael Kitsus out to uh engage the audience and us and give us his his take on where we're going. We're going to bring out a surprise guest and then Ben and I are going to roast each other. Okay. All right. Cool. All right. Cool. All right. Okay. Here we go. So, I got an email. We got an email. uh a couple weeks back. Hey guys, regarding the effect of AI on jobs, one area I think you discussed briefly is how AI will affect financial adviserss. I've been doing some experimenting by taking questions that you and other online financial personalities answer and asking various AIs. Its answers are very good, more thorough, and often better than the human quote experts quote. Okay. Um provided for the exact same questions. Not only that, but I can import every financial document, my personal information, my feelings about risk or market downturns, and any other thoughts I have for the AI to tailor an investment exactly for me instantly. I can then ask questions um about anything and everything further I can have adjusted and recalibrate it whenever I want in an instant. It shows expertise in seemingly every area. Uh retirement withdrawals, tax implications, inheritance, etc. >> AI didn't help this guy summarize his email better. I Yeah, seriously, I'm almost done. Um, I know you'll say people want face-toface human interaction, and I'm not trying to be a dick, but financial advice seems like the perfect prey for AI to take over almost immediately. >> Listen, you had this freak out five or six months ago, and you called me in the morning and you were like had a hot sweats and you're like, what if what if AI really does disrupt financial advisors? And I think there's a lot of people who are having that existential worry right now. >> Yeah. So here's I think where I am today and I'll probably change my mind 10 times between now and next week. But the there have this person is not your client. I mean obviously right and we are getting these questions from prospective clients. I'm sure everybody in this room is too. Um whether they're curious or pointed like why would I use you or how do you where do you think this industry is going? And here's where I am today. There have always been do-it-yourselfers, right? We've all spoken to them. Most of the time they don't become a client and if they do, it's like a it's it's difficult for them to take their hand off the wheel. There are always those sort of people and the tools that are available to them, it's true, are incredible and doing a lot of the work that traditionally financial adviserss would have done or do do. I said do do. Um, and uh, so it is, I think, going to get incrementally harder because there will now be more potential do-it-yourselfers. Okay, you could say that about anything. So, for example, I can go on YouTube and I can figure out step by step how to do anything, how to fix my sink. I will never fix my sink. Ever. Ever. Ever. ever because people who value their time and are not that sort of like brain to import their documents, whatever, they're going to pay somebody for it. And that's never ever ever going to change. >> Wealthy people aren't going to trust robots. That's kind of where I've fallen on this. >> Not yet. I mean, we've got a couple of years. >> So, any So, we had dinner last night and we we had a big discussion at the table about it and Michael Kitsus gave a resounding no, everyone needs to settle down a little bit. So I said, "All right, you're coming on the stage to talk about us and make the advisers of the world feel better." So when we bring him out, let's hear his take. >> Let's go, Michael. >> Michael, we were talking last night and you kind of said you guys are a growing firm. What's your biggest issue? Like what's your bottleneck? What's your roadblock? And I said, well, we're since I've joined the firm, we've gone from seven people to almost 90. And you said, so what's what are you doing now? and you said managing people and you said is AI gonna help you manage people better and I don't think that job is going away for AI. So maybe you could just give your take that you gave me last night about like why people need to settle down about this. >> Oh I mean there like there's so many parts I have a challenge to sort of this like a AI is a threat narrative. Um I mean I start by like very much where Michael where you did and just there's always been do-it-yourselfers. They don't hire us. They never hire us. I mean, I'm just I was listening as you were as you were reading the email like I trusted all the different AI platforms. I ran all the stuff against all of them. I have all my financial information sorted out and documents and file folders which I uploaded to each of them and I read through each of the all the different analysis. Like my goodness, that sounds like that took a lot of time. I guess you must like really like doing that. That's awesome. You probably don't want to delegate that to an adviser >> because you know what people who don't like handling all that stuff do? They're like that sounds like an awful lot of [ __ ] I'm just gonna hire an adviser and have them do that for me because I don't want to I don't want to do that or I don't want to deal with that or I could do that at one point, but now my life is more complex and I don't know if I really want to keep doing that. >> So, what about the idea that okay, fine, the people who had wealth management advisors are probably going to still go to them. The people who had DIY, there's maybe just more of them. But what about the idea that okay, we won't need to hire as many adviserss though. The young people are never going to have a job and maybe you could go down that route. I >> I am in that camp for the record. I think the power planner role is basically done. So, so I like I like to look at these things through the like the lens of history, right? History never repeats, but it often rhymes and gives us a lot of of guidance. So, I look at this in the context of of my own career. So, the second firm I was at 25 years ago, um, was an independent broker dealer office, uh, three advisers, about $1.3 million of GDC, which back then, like that was a a pretty good like sizable, very successful advisory firm practice. Uh, and and they had eight support staff for the three adviserss. So, we had this wonderful woman named Betty. Betty's primary job was to collect all the mail every day, open every client envelope and pull all the paper statements so that she could file in every single client's file folder so that we would be certain that we had up-to-date information for the next client meeting. She would also check to make sure there were any paper checks in there cuz heaven forbid you hold on to one of those for more than 24 hours for anyone who's in the business. And then uh she would then prepare um Morning Star Principia Pro reports of all of the mutual fund holdings in our clients portfolios so that we could have review meetings with them. So Betty's job doesn't exist anymore, right? Betty's job is Orion or Black Diamond or uh uh one of the other portfolio management software platforms that pulls all the information. Money moves electronically. um statements are continuously updated. Frankly, it gives much better performance reporting than Betty did. I mean, we didn't actually report on a client's portfolio performance. We pulled the report for each fund in their uh portfolio and showed them fund reports because we actually like didn't even have tools to do the calculation and Betty was not doing that kind of math. So, Betty's job is gone, right? We can say like it got technologied away. So, then I reflect on that for a moment. Um, first of all, if I adjust for inflation, Orion for three advisors today costs more than Betty salary used to. So, we didn't save any money on this technology transition. We have I would argue much better end result to the client like the the end experience for the client is much better. The portfolio management process is better. The there's like all sorts of quality improvements here. But we didn't we didn't make any margin. We didn't save any dollars directly. And when I look at that on like a whole long list of changes that have played out, if you then go back and just look at like industry benchmarking studies back then because uh this was when Mark Diver, you know, Moss ABS like just started coming out with with industry benchmarking studies and the median and back then like the median advisory firm had was charging 1% fees and today they charge 1% fees. The media advisory firm had about a 40% overhead expense ratio plus or - 5 points. Today the media advisory firm has a 40% overhead expense ratio plus or - 5 points. The median advisory firm had about 30% margin and the medium advisor firm say it's about 30% margin. So nothing change like I mean we weren't even using the internet. I mean it was technically 2001 we had the internet but like no software ran on it yet in our business. Like we had the internet, the smartphone, robo, AI, like all of this technology, automation, and we charge the same fee for the same overhead expense ratios for the same for the same margin. We did slightly change staffing. A three advisor firm today does not have eight support staff. So, we did shift some of the jobs a little bit, but in general, the jobs rotated up. Like Betty was pure admin. We have fewer admin now because we actually have more pair of planners and associate advisors doing just like higher level more complex work than what Betty was doing. >> So do you think all the note takingaking and the email stuff that's going to do for you is that going to give advisors at least more efficiency to have more clients? >> No. Well, so so if I look back to like the firm of 25 years ago, it's like same same advisory fee, same overhead expense ratio, same average profit margin. Almost every metric of a firm today and a firm 25 to 30 years ago is the same except one major metric is really materially different client load and it's dropped massively. I mean for anybody who remembers back in the business 20 30 years ago I mean like everyone had like 200 to 300 plus clients. The first firm I was at there was like a guy who'd been there for 30 years and he had two offices. His office and his client file office. His client file office was the bigger of the two offices because the dude had like 1,500 clients, which was basically 1,500 people he had ever met and sold a product to over the preceding 30 years. And we called them clients. But the only thing that's actually shifted is client loads went down >> because we do more services. >> Because we do more services, because we go deeper, right? Average average revenue per client went up. we offer a deeper value proposition than what we did because the technology lets us go deeper and do more and be more awesome for clients. But to me, I mean just it's the striking thing when you look at the landscape. The the only material thing that's changed in our industry in 30 years of technology evolution. It's not fees, it's not margins, it's not overhead costs, it's client loads. And they went down very steadily in a straight line for like all the years of the benchmarking data. They didn't they didn't go up because when we get the time I mean for most advisors you early on any any clients to revenue you can get is good because you're like just trying to make it and survive and then eventually you get like you get past survival stage you get past like Maslo's hierarchy of like you know security survival needs and some other priorities start kicking in. You say like I I make pretty good money now. What do I you know okay I got some tech. save me a little bit more time. What do I want to do? Like A, go get another client. B, go to my kids soccer game. >> B, right? It's always B. >> Yeah. >> Yeah. >> So, what happens even as technology starts to lift up? Working hours go down slightly once advisers are at a crucial crucial level of income that they feel comfortable and safe. Or if you're like, no, actually, like I do want to work a certain number of hours. I'm enjoying the work that I'm doing. I don't go get another client. I go deeper with the client I've got. Like there is always some clients like I would love to be more proactive with some of my top clients. I know I should be calling them more and doing more things for them and I'm kind of time constrained because of all the other stuff. So what do I do if I do actually manage to free up a new moment? I don't go get a new client once I'm at a comfortable level. I go deeper with the clients that I've got. >> All right. So uh last question. We've got two minutes for this. McKenzie did a study recently about the future of AI and the advisers and the work etc. And one of the things that they listed, I actually thought it was a decent report was um that advisers are going to become more life coaches, offers all sorts of other adjacent um things. That was the one thing that I said I don't know that I believe that part of it. Um what was your thought on that? And if there's anything else in the report that you wanted to rip apart, feel free. >> I I do think directionally it's probably right. Um, I mean, just life coach is kind of a loaded term. There's a lot there's a lot to that, but the I mean, the general arc is clearly more services. I mean, we're already seeing it, right? The uh by our kids research data, like one in six advisory firms has brought tax prep inhouse for at least some subset of their clients. Like, that was no one 10 years ago, unless you actually like came from a CPA firm and just already did that for your clients. We're going deeper on tax. we're going deeper on estate. Um, you know, CFP marks used to be like a special differentiating factor and now that's basically like a mandatory expectation for young people coming in today. So, that's becoming a new floor and then you're supposed to go and get deeper beyond that. So, the the increasing depth and the increasing service expansion I think is real. If you want to get kind of, you know, a little bit meta to it all, okay, when we leave like wives of one, when we lead lives of wonderful financial abundance because AI is making the world better and more rich and then we're just trying to figure out what the hell do we do with our lives and purpose on earth when I don't necessarily need jobs in the same way and money is abundant. What do I do? I'm like, I guess I have like a lot of life po life coaching questions at this point about what the heck is my purpose on earth more generally. I mean, I think a lot of us have had experiences that there comes a point, at least for a subset of clients, where if they're still in accumulation mode, they're trying to get to a certain accumulation, and if they get to a point where they feel like they're financially safe and sufficient, other other questions start cropping up about what am I doing, where do I want to spend my time? It's why retirees often have crises of purpose and meaning. Uh what do I do if I'm no longer attached to the work that was meaningful for me? So, that that dynamic still exists. and I think continues and if we make the other stuff simpler and easier, I do think directionally we probably spend more more time there, but I don't know if that means like full-on life coach that that's that's that has some other >> All right, this was awesome. Thank you for doing this. Your your uh report that you did on the stage this morning was fantastic. For people that are listening who didn't who weren't able to be here, is that available? >> Yeah. Yeah, it's it's uh it's available online. So, if you text um advisor tech all one word like advisor tech to was it 33777 uh you should get it. If for some reason the text get doesn't work kids.com/wwellbeing. >> Okay. >> Uh has the the print out of the full >> so advisor tech to 3377 3377. >> Okay. Okay. All right. Michael, thank you. >> Awesome. My pleasure. Thank you. >> You feel better? >> Uh Nicole. Um Nicole and Nicole. Do I feel better? Uh I feel great. I mean we're in Miami. Oh, the AI stuff. No. Yeah. How are you doing today? Do you feel better about the advisor space? Because there are a lot of AI pill, I'm not going to mention any names, Chris, who think that no, this really is going to change the world and it's going to make every more efficient and we're not going to need advisors. And >> you know, I think Michael's point this morning about when advisors get to a critical mass and they're serving 80 households and a lot of their um redundancies are stripped away and now now they have all this time. They don't want 50 more clients like that. Nobody wants seven meetings. It's, as Michael said, it is exhausting. It is draining. You have the time back and you're going to do other things with it. So, I I feel great about our space. I think this is a wonderful industry, a wonderful career. The the clients need us. They value us. I don't think that they're looking to replace us. And if they are, then fine. They're not your client anyway or you're not doing what they need. >> It expands for everyone. And I think the people who don't use an adviser, they're going to have a better experience. >> I think so, too. Okay. So, we're going to talk about private credit today. It's been in the news a lot. And I guess let's just start here. Phil, >> wait. We got to start with the fact that we a middle-aged man came out to wrestling music. >> Yeah. >> Phil, what did you do? >> What did I I didn't do anything. >> I mean, what did you do causing all these headlines? >> How busy have you been lately? >> Busier than normal, I would say. >> So, let's start here. >> Yeah. >> What do you think? >> Introduce Phil for the people. >> Oh, I'm sorry. Phil is a good friend of mine. I just feel like everybody is in my inside my brain that I guess that's not true. So, Phil is the something something. What's your title? >> Uh, head of portfolio solutions. >> All right. So, Phil is head of portfolio solutions at Cliffwater. And Cliffwwater is the um OG of private credit, the first index creator. Correct. Correct. >> Biggest allocator, biggest I mean 30 something billion dollar portfolio. Bigger. >> Yeah. About uh uh almost 40 billion across uh two two credit funds and um yeah, we've been allocating in the space for almost 20 years now. >> All right. So if advisors are allocating to private credit, there's a very good chance that they're using cliff water. Not to brag, right? Okay. So there's been a lot of smoke and um for a lot of different reasons. What do you think is what is the thing that you see repeated over and over by the media who was just dying for a meltdown like that? Dying for a meltdown. What is the one thing that you see you're LIKE THAT IS [ __ ] LIKE THAT PART IS NOT TRUE. >> What did you do to the financial times? >> There's no one thing. There's many things and we'll talk about all them. the the summation of what they're all trying yeah the summation they're all trying to arrive at is private credit is in a bubble and much in the same way Michael Kitis just hopefully alleviated any concerns people have of AI uh uh you know uh making advisors obsolete uh I'm here to say that private credit is not in a bubble a lot of what you've been reading over the past six months or so um is conflating a variety of different issues that have nothing to do with the actual health of the private credit ecosystem and we can touch on a number of those what I'll say is that this didn't start 6 months ago. There has been a steady negative drum beat in the financial press around private credit for at least the last 6 years and I think in the last 6 months it's been turned up to 11. Why is that? Because while you have a asset class that while we know it's been around for over two decades, it's relatively new to a lot of uh investors, advisers that uh given the growth that it's had over the past five plus years. And so naturally it attracts a lot of attention. And I think the FT and Bloomberg and the financial press broadly and increasingly a lot of uh substackers have come to the correct conclusion is if you write a negative headline or a negative story about private credit you'll get likes and clicks etc. >> People see the yield and they go it can't be real. There's no way that it's got to be fake. That can't there's no way the math works out. So I think I think people have been skeptical from the start as they learned about this class. Part of the position we sit in and having the benefit of this index that we have that has history dating back to 2004 is that we can measure how the asset class has performed over two decades over many different market and economic cycles and have an understanding of okay what have total returns been what has income been what have uh realized credit losses been historical default levels etc. So, we have a good base rate to go off of. And I think what you're seeing now is anytime there's a right down or a default. The article wants to attach that to, oh gez, this thing is blowing up. There's a canary in the coal mine. There's cockroaches. To level set with everybody, you have an asset class, the middle market that has over 10,000 unique borrowers in it today. If you add to that another call it maybe 1,400 or so uh borrowers in the broadly syndicated loan market you and you use a historical default rate which has been the average over 20 years of about 2%. Guess what? You should probably expect over 200 defaults in a given year. Obviously there's going to be years where there's more years where there's less. Right now defaults are below average still which you wouldn't know by reading the headlines. And so if you try to treat every default as if it's a something that's a harbinger of the next financial crisis I think you're going to be disappointed. It is weird like the the negative momentum is feeding on itself and you're seeing massive redemptions. You saw it at uh at BlackRock this week. You saw it at Blackstone and uh it's it's just very bizarre because the equity of these companies are getting demolished. All of the publicly traded BDCs are trading at a severe negative discount to their NAV. So there is I think the primary concern is a lot of these portfolios are heavily based in software. B credit was 26%. And the nature of the borrower yeah the defaults look fine today. The fundamentals of the portfolio look fine today but clients are worried about what is it going to look like over the next 5 years. So I think that's 100% valid. I think they should be worried. I also think though that a lot of the let's use the publicly traded marks as a as a um benchmark, they're pricing it in. So it's weird like they're pricing in some of the worst potential scenarios that we've ever seen and we haven't seen it yet and it's just like a bizarre sort of environment. >> Is is there anything is is any of the stuff that people reporting val like the one people keep saying is oh my gosh 25% of the loans are software related and that's a big thing I think really like is any of it valid the criticism is any of it valid? One more thing, Phil. No, because those negative headlines about the software defaults, like it's not going to stop today. >> Phil's having to defend himself more than Daryl Hannah for Love Story. Any JFK Jr. people out there? Anyway, >> but it's >> but it's going to these negative headlines about the AI stuff like that's going to continue and it's just going to continue to scare people. >> Yeah. So, I'll I'll try to tackle it a few ways. So, we'll start with software. It's the largest or technology broadly the largest sector of the index. Like we have the index, we see it's the biggest. Why is it the biggest? Well, historically, it's it's been the sector with the lowest default rates. There's a reason why lenders have liked it. Obviously, the software as a category is going through a period of transition. I'm not of the mind that um software is not a going concern. >> You know, the Winnie the Poo meme >> uh getting wrecked period of transition. >> AI AI will absolutely disrupt certain software legacy software companies and many companies will thrive and util utilize it to their advantage. What obviously that rerating has already taken place in the public stocks that have been wrecked. Uh senior lenders to companies are in a very different position than the equity in front of them. Often what gets left out of a lot of these private credit related headlines is any mention of private equity, which is where most of this financing is going to private equity back companies who are in a first loss position. And so if you are a a private credit bearer and you're not a equal if not more bear of private equity, you're not being entirely forthcoming or >> that is that is an interesting point because KKR all of these names that are getting destroyed, it's always like the private credit headline. It's like wait a minute, KKR is like the private equity shop and the equity of KKR is getting smothered, >> right? And and so I think what's h software rerating like as a lender to these businesses, you don't benefit from the growth. You you're you're you're lending for yield. You're not necessarily in in need of the upside long term. And while the terminal values of a lot of these businesses are challenged, hence why they're now being valued lower and they're not being treated like these low-risisk annuities. Um you're not you're not you're not lending to them on a perpetual basis and near-term cash flows are not necessarily at risk. And so to be paid back at par as a lender requires a pretty um uh aggressive set of assumptions. >> Let me ask you this. So that's a this is a very important part of the story. So the the rates are floating, right? So when rates went up in 2022 and these companies were able to withstand it, everybody loved it. No defaults, my bindings got killed, the loans pay me high yields and everything was copacetic. All great. Um, but the duration of some of these loans, so let's say that like it's it's five years, whatever, right? You owe us money, you pay us back, and then good. But where does the where does the demand I guess who knows where does the demand for loans come after that? And if these companies are healthy today, I mean, that's what people are worried about. It's like, yeah, the loans look fine, the fundamentals look fine today, but I'm worried about what is this middle mark, if Salesforce is down 60%. What is this middle market software company going to be like in three years? How are they going to pay us back? Again, it's going to vary by company and they'll have to, you know, again, they're going to see what happens when they need to go refinance, the loans themselves, historically in this asset class, while they might be 5 to seven years in in term, typically they have an effective maturity of three or four years. So part of what also gets left out of a lot of these conversations is relative to say private equity or real estate or venture capital there's a lot more organic liquidity in this asset class typically most you know if if you have an average effective maturity of 3 four years but you know about a 30-year portfolio is repaying on an annual basis so you have like a natural source of liquidity just from maturing loans so this asset class relative to I would say any private market asset class is the best suited for semi-liquid evergreen structures Is is there any credence to the fact that listen there's so much more money that's in this asset class now and they're just because of it there had to be poor poor lending standards for some of these funds maybe not you but other funds like have have and those are the ones that are going to blow up and people are going to go see look that's not new there has always been a dispersion of of really good lenders and not so great lenders that's not new there's over 300 direct lenders in the marketplace we've been again we we've known all of them for years now we have a ABC rating system for lenders and we think about 50 of that 300 plus kind of meet our A-rated standards. So there's always going to be a bifurcation of uh you know the better the better performers and the better lenders and the ones that run into issues. And so um I think again a a credit cycle will expose some of those weaker lenders that >> we don't have those anymore. credit cycles. We've literally had >> the other thing again again like there's a difference between a bubble and a credit cycle. And I think this term bubble gets thrown around so much these days. And to me, a bubble implies, you know, valuations or prices that make no sense for any future, you know, return expectation. When you actually look at where spreads are today, both on an absolute basis and in relation to broadly syndicated loans, they're tighter than they were a couple years ago, but they're not at levels that would indicate, okay, you're not being compensated for the risk that you're taking. Here's the problem with this asset class, and it's it's not the loans per se. It's the people that are buying them and the people that are selling them because the advisors might understand exactly what's going on, but the client is going to see the headlines and they're just going to say, "I don't care." Like, and the advis the the adviser is not the adviser is not going to like stand up for private credit. It's like, "Fine, let's let's get our money back before everybody else wants it." And that's one of the fears that I have um is that it's just going to be this thing that is a slow uh death by a thousand cuts for lack of a better word. >> The the the constraints on liquidity in these vehicles and again it varies. It's a little bit different for BDCs than it is for interval funds versus others etc. Those are there for the benefit of remaining shareholders. And as much as elev as redemptions are a bit elevated today versus history, the vast majority of investors still have conviction in the asset class and like having these guardrails in place so that a fund is not necessarily forced in a position where they need to sell illquid assets to meet redemptions. A big part of managing these vehicles effectively is having a thoughtful liquidity and liability management program implemented. Some do it much better than others. you do. I think there's a perception out there that to meet redemptions, these managers have to sell uh private loans to meet invest redemptions. So, how does it work? >> The ones that do their best job have the last thing you want to do is ask for money when you need it. >> The best uh run evergreen structures have built out liquidity management programs that are not predicated on holding a bunch of public credit securities that they can sell at a moment's notice. It's and and through building out uh significant revolver uh capacity working with a variety of different lenders like each of these structures has different amounts of leverage they can incorporate at the fund level. Some of that is to maybe offset uh fees a little bit so investors can you know capture more of the uh expected return. Another is it's a s it's a flexible source that you can utilize uh in order to meet investor redemptions by tapping into to those credit facilities that most funds have. >> Right? So you're not just doing a fire sale because these things are liquid so it's harder to sell them, >> right? You should you should know you should build the liability management program around understanding that there are going to be periods of stress. There are going to be periods of uh uh inflows slowing outflows going up. You want to be able to withstand what are likely going to be, you know, in hindsight cyclical periods. And if you can weather those without being a force seller, you should come out the other side stronger. And I think if we're sitting here in a year, hopefully we're looking back at that this was a great uh uh proof point for the asset class and for these structures that they can and do work. It doesn't mean everyone's going to work. Again, there's going to be dispersion in terms of fund performance. But again, these mechanisms are in place for a reason. It's to protect remaining shareholders. And I think the other thing that gets tossed out in some of these articles is that if a fund has to prorrate investor redemptions, uh the authors love to throw out, oh, the fund is gated. They're not letting no most people are getting most of their money out even when funds are prrated. It's not like 100% of their their capital is trapped. That's just not not the case. >> I have a question. So let So here's here's I think where I'm at with this with this asset class. >> If software is a third of the index, I think that a lot of these companies will have stress. >> Not a third, but go ahead. >> What is it? >> About like a little over 20%. >> Okay, so I'm making this up. Let's say that default distress hits 10%. Which is high, right? like what what was the GSA 12? >> Yeah. So, here this is actually a great exercise to go through. So, we had our index goes back to 2004. So, if I'm going to ask a question, what would you think is the calendar year with the worst index returns? And it's not a trick question, I promise. >> Okay. 2009. >> 2008. >> Okay. >> Like, as as everybody would expect, the GFC, the epicenter of the biggest recession and crisis we've seen in years. The index was down about six and a half% in 2008. Do you know what credit losses were in 2008? About 60 bips. Wow. >> So why why is that the case? Well, because as as much as uh the naysayers will try to say that all these lenders are holding every loan at par until it becomes a zero, that's not true. We see in practice that uh unrealized losses in loans. In other words, values being marked down are done so in anticipation of expected realized credit losses in the future. Often the market actually is overaggressive in marking down low. So what happens typically is that um some some uh loans priced for default end up defaulting and there are credit losses. A lot that were priced if they don't turn into a realized loss it becomes a gain. And so the real credit losses in the crisis that three-year period were in 2009 2010. I think there was about 7% roughly credit losses in 2009 about 3% in 2010. Do you know what the index did in those years? >> It was up meaningful double digits in both those years. So in other words, you're the the income is the consistent piece of returns and then you have the dynamic of unrealized and realized losses. The realized losses should follow unrealized losses. In other words, like a much in the same way that a a bank has loan loss reserves. Again, lenders are, I think, thoughtful about marking positions that are at risk accordingly, and some of them turn out to be to be realized losses, but that happens after the fact. And >> Michael's buying Blackstone right after >> everything that guy just said is [ __ ] So I I think when you have to have a long-term perspective in the asset class, I think what happened when when rates went up in 2022, a lot of new money flooded in, yields were at 12 plus% and everyone expected that to be like the baseline of what they expect in returns. The reality is this is more of an 8 to 10% return asset class. And when when yields when spreads came in, when base rates went lower and returns weren't the same that they got, yeah, you have some capital exiting that was maybe temporary in nature and a bit more touristy. those that really understand the long-term nature of it is that yes, you're going not it's not always going to be sunshine and rainbows, it's still credit. There's a reason you're paid significantly higher yields than the risk-free rate, than public credit, etc. over time for we think it's a risk that you can thoughtfully mitigate by working with uh great lenders and by building a maximally diversified >> we get it. We get it. >> Yeah. >> All right. So, I I I don't think that in three years we're going to look back and be like, could you guys believe what we did with private credit? That was a crazy bubble. I also think that there's there's obviously smoke. Like, duh. Um I don't know that turns into a fire. I think I'm a little bit uh I think I'm I'm I'm team Phil on this one. Um All right, Phil. Thank you. >> Thanks, Phil. >> I don't get to stand up for the roast. >> You want You can stay. >> Yeah, >> maybe I can separate you two. No, I'll get off. >> Um All right. Okay. So, here's Thanks, Phil. So, in thinking about what we were going to do to to have a few chuckles, we got an email um last week and I was like, you know what? Let's do this. So, what was the email? >> Okay, in case no one in Michael's life is calling him out on this, I figured I would haven't counted the transcript, but feels like Michael has used any as a transition at least 15 times over the past three episodes. I didn't even notice. >> I didn't realize I was an anyh who guy. >> You're an anyh who guy. So, Michael said, "Yeah, let's let's roast each other." And I said, "Okay, this is like when the Eagles broke up. Um, this might be the last animal spirits we do. Uh, but we're gonna I guess before we start, my I have eight-year-old twins, uh, George and Kate, and they are big into roast battles. That's what they do at school now. They roast people, and they're really not good at it, but they found out we were going to do this, and they got really excited, and they wrote out roast for us. So, we're going to warm up with the crowd a little bit by reading some of their roast. Okay. And they roasted both of us. >> Okay. >> This is from my son, George. Michael, you're so lazy. Your favorite sport is sitting on the couch. >> That's not bad. Okay. Uh, Michael, I'll do one. Dad, you're so short you can high-five an aunt. That's not bad. Um, Michael, you're so broke when burglars broke into your house, you had to help them look for your money. Okay. Um, Dad, this is my daughter. Did you get dressed in the dark or did you do that on purpose? That could have been both of us last night, maybe. Um, Michael, the Kate went really hard into the bald stuff. Your bald head is so shiny. It looks kind of like the sun. Michael, your head hit the sun hit your head today and suddenly we got a lighthouse. And finally, both of you, your stories are so bad, not even chat GPT can understand it. >> All right. >> All right. >> All right, George and >> All right. Um All right, you go first. >> We'll do like a back and forth. >> Let me have it. >> Okay. All right. I'll go first. Um Okay. Sorry. Sorry. Sorry. >> By the way, comedians are safe because AI stinks at comedy. >> So bad. Yeah, I tried it, too. Okay. Last night at dinner, when oil spiked 27%. Ben said, "Zoom out." And then asked the waiter for another diet of Pepsi. >> All right. Um, I mean, the easy one, I got feedback from our team. I said, "What do I roast Michael on?" And the easy one was, "Every time we do the podcast, you are on social media watching one of your 36 tabs that open. You're on Slack. Uh, and you're just constantly ignoring me. It's kind of hurtful. Okay. >> Was there is there a joke? >> That's it. >> Okay. Um Oh, man. My my next one's not great. All right. The first uh the first thing that Ben bought when he opened up a brokerage account in 1994 was a target date fund. And that's not a joke. That's just literally the truth. No, >> it actually is. Sidebar, I didn't know you were actually writing jokes like your comedian. I'm giving real things that you do. >> Oh, okay. All right. Go. Okay. Apparently, we didn't disc. All right. Um, you use the word ostensibly more than any human being I know. And maybe it's jealous because I've never been able to use that word, but you really use that word a lot. Ostensibly. Oh, yeah. >> Really? >> Yeah. 5% of people use >> Chris. Do I? >> Ostensibly. >> I Okay. All right. Um, all right. Ben has a new book coming out called Risk and Reward: How to Handle Market Volatility and Build Long-Term Wealth. This is his fifth book about doing nothing. I just saved you $30 and 200 pages. Beta has published more words about index funds than Vanguard's entire legal department. >> It's 20 bucks. Um uh all right. Um Duncan can attest to this. We when we recorded the show, um I think Michael was potty trained at gunpoint because he gets up so fast to go to the bathroom in the middle. Anyway, every once a run's a show. >> All right. >> All right. Um, most of you know this. Ben is a big fashion guy. He actually he looks like he was dressed. He's like a male Jesse Spano today. That's not funny for the listeners, but that's how you look. Um, Ben has been dollar cost averaging into JC uh into J Crew Pastel since 1997. The closest Ben gets to active management is a Stitch Fix account that delivers him a package of new clothes every month. Ben calls it buy and fold. >> That sounded like an AI joke. Come on. >> Nope. Nope. >> That's not bad. >> Um I I'll just give a couple here. You've literally never once got a saying right. Grain of sand. Um or you called it a grain of >> is it salt or sand? >> It's grain of salt. It's not a grain of sand. Um, you have absolutely psychotic taste in movies. Just the people who like the same movies as you are psychos. Uh, >> Sam Row likes my movies. >> Hey. Hey, Sam. Uh, all right. Go. >> All right. Um, speaking of movies, Ben loves coming of age movies. He shares his love for the genre with Stephen Hawking. >> Got it. Okay. >> All right. >> All right. By the way, Michael had to remove a Jeffrey Epstein joke from his list. Um, Just gonna move on from that one. Um, whenever my favorite thing Michael does is when we have a Talk Your Book interview and someone comes on the screen and Michael notices that the guy on the other end is bald, his face lights up and he uses the same icebreaker every time. Nice haircut, eh? Nice haircut. And uh, credit to you though. It works. It gets the person >> every time. Nobody's ever said, "All right. All right. Yeah, everyone everyone smiles." >> Uh, all right. We'll end with this. A good way uh good way to book end the show. >> I got one more. >> Okay. Well, it's my end. >> Okay. >> Ben wants to ban AI, right? >> Is it going to make us more depressed? Probably. >> I'm not quite sure what you're so afraid of. Jack Bo Bogle discovered buy and old 50 years ago and you still have a high paying job. >> Fair. Okay. All right. Um, last one. >> Thank you. Thank you. Thank you, Hamilton. >> Yeah. Um, you a lot of times you call Chris and Josh and Barry your partner. Um, and it's but you say it in a way that makes it sound like you're in a long-term committed monogous relationship, but you're not going to actually do the vows until like all the polar bears are saved or something. >> You're a partner, my partner, Chris. It sounds like you're in a relationship. >> All right, that's all I got. >> All right. All right. We'll do better next time. Thanks, guys. >> Thank you. But then you have an announcement to make. >> Oh, yeah. Yeah. Whoa, whoa, whoa, whoa. Okay. Thank you, Ben. All right. So, that was just good-hearted fun, right? We're still friends. >> Yeah. I didn't storm off the stage. We're good. >> Okay. So, Ben is obviously one of the best financial writers of this generation. And we are the greatest generation of financial writers. So, ostensibly one of the greatest writers of all time. >> You're going to notice it now that I told you. >> Yeah. I'm never That was my last time. Um, all right. So we we started a software company called Exhibit A where we build the charts. Chart Kid and team build the charts and the advisers just upload their logo. You know the spiel. You get the the charts in your own color. We do a chart of the week. There's 150 charts in the library. It's great stuff. One of the things that we just announced today actually is that this guy um is going to be writing a monthly report for the platform that you all can white label with the platform uh to share with your clients. So, still going to be using charts, still your your labels and all the disclosures and all that good stuff. But we've had a million people over the years ask about how do you find the time, how do you do this? And now you can have them. Ben AI. >> Yeah. People said, "I love the charts. I just want you guys to provide some commentary, too." >> So, that's what we're going to do. >> All right. Thank you, everybody. Enjoy the rest of the conference.