Secrets investors need to know

Josh Brown once had this idea that in order to be a financial advisor, you needed to be buttoned up and fit a particular mold.

Brown, a CNBC contributor who often takes a casual and accessible tack with investors for his commentary, has since learned that there’s more than meets the eye to a lot of things in the world of money.

Throughout his new book, “You Weren’t Supposed To See That: Secrets Every Investor Should Know,” Brown encourages investors to look beyond the surface level of financial advice you see in traditional and social media. Take the American Dream, for example:

“We all grow up being taught about the American Dream and why it can work for everyone,” said Brown, who is the CEO of Ritholtz Wealth Management, a New York City-based investment advisory firm. “I still believe that’s true, but what we learned in the pandemic is it can’t work for everyone all at once. That’s the thing that you weren’t supposed to see.

“The hidden truth about American-style capitalism is that if everybody is good all at once, the whole thing breaks down. We need people to be successful, but we also need people who are still striving to get there, who are willing to take jobs and do things that others won’t do.”

CNBC spoke with Brown in early October about his experience in the field as a financial advisor and some of his top takeaways for investors across generations.

This interview has been edited and condensed for clarity.

Ana Teresa Solá: What led you to write this book? 

Joshua Brown: I had been writing a blog [The Reformed Broker] for about 15 years, and I was writing seven days a week at one point. Then the momentum started to slow down as my career took over. 

At the end of last year, I decided to put an end to it and just say, “This is as far as I could take this.” But I didn’t want to not give it the proper send off, because it was a huge part of my life.

More from Personal Finance:
CNBC’s No. 1 financial advisor’s golden rule: ‘We do not time the market’
The CNBC FA 100 highlights firms that help clients with competing goals
Some investors can ‘capital gain harvest’ to avoid mutual fund payouts

When you put your heart and soul into that much writing over that length of time, you kind of want to say, “All right … these are the most important insights, and these are the things that I think were important at the time. And let me do something that recognizes that.” 

I wanted to collect all those insights in a book, revisit some of the greatest hits, and then bring them up to the present so that there is a value to the reader today. 

ATS: You echo this idea throughout the book, that you can’t reap the rewards of the stock market without some impact.

JB: One of the biggest lies on Wall Street is that investors can avoid risk and still have the upside of whatever asset class, the markets, etc. It will always be the biggest lie because it’s the easiest thing on earth to sell.

Everybody wants it, and even very intellectually secure people who understand logic will still fall for that. 

When you’re a salesperson, one of the things you learn is to figure out who you’re talking to and what their buttons are, and then you push those buttons. 

The thing that we have done very well in our content as a firm, is we have pointed out the ways in which people are convinced to do one thing or the other, and how much human nature plays into that and why it’s really important to fight those instincts, whether it’s fear or greed, as the markets are unfolding.

You really don’t want to veer too far into one of those buckets. You want to be right down the middle. Take enough risk that you can make money, but not take so much risk that you’re about to get the knockout punch. 

ATS: In the book, there’s a story about how you walked into this financial advisor’s office and her technique was not what you expected.

JB: That’s about more than 10 years ago, and it was a really eye-opening moment for me. Prior to that, I was very intimidated to make the transition from being a retail stockbroker to an investment advisor. 

I had this idea in my head that all the people who were serving as investment advisors were like these serious, buttoned up professionals who knew exactly what to do — and it really turned out not to be that. It turned out to be a lot of people pretending.

The industry has come a long way since then. The average advisor is significantly better equipped to deal with clients and more professionalized than what I had seen in that era.

That’s kind of a relic of another time that no longer exists. I don’t think that you can fake it to the degree that you used to be able to. [Many advisors are] operating on a fiduciary standard, I don’t think you could fool people anymore.

ATS: You say young advisors are equipped with the expertise, but they lack something prior generations of advisors have. What is it?

JB: You have this new generation of incredibly qualified financial planning talent. They’re coming out of college knowing more at 23 than many advisors at 43 have ever learned about the planning process. 

This is my opinion — I’m sure people [will] get mad when they hear this — but what they’re missing is the ability to convert an audience of prospective clients into real relationships.

They don’t yet have the life experience. Generationally, they’ve been able to get away with doing a lot less face-to-face. They haven’t dealt with as much rejection as Gen X, certainly the boomers.

Let’s put them in some rooms with important meetings going on. Let’s give them opportunities to have these face-to-face interactions, because they really know what they’re doing. 

Where they’re lacking is what my generation and older has — which is the ability to sell, to persuade, to make people feel comfortable and the ability to deal with awkward social circumstances.

ATS: What are you observing with Gen Z and how they’re seeking financial advice? 

JB:  Gen Z, they don’t need financial planning advice. They need asset allocation advice. They don’t have the assets accumulated. There are no estate issues. There aren’t really tax things worth discussing. 

Whatever they’re encountering on TikTok is whatever the algorithm is serving them, and the algorithm is going to serve them the most outrageous content, it’s going to serve them shortcuts, facts, tricks, stories about people making wild, Bonanza size trades. 

It’s not advice … Most of it is being delivered by completely unqualified people who are not registered, who are not beholden to any sort of standard, and could just say whatever they want.

But I think what ends up happening with that generation, just like every generation prior, is things in their life become more complex. The level of responsibility goes up, the amount of money that they’re dealing with goes up, and they will, in turn, start looking for help. 

And they’ll start their search online.