Recently I posted on the wonderful option of obtaining your financial advice a la carte. Yup. Just pay for what you need. You do not have to fork over a percentage of your total portfolio value every year. And in fact, you might not even need to fork over a single nickel for planning advice, yet. Do you need a financial planner?
Have a read of what is advice-only financial planning and you’ll see a snapshot of the services and costs. A personal financial plan can range from $1500 to $6000. That advice can be worth more than every penny. There is great value in great advice. At the same time we do not want to pay up for services that we might not need. The value of the advice has to surpass the costs.
What’s the expense ratio?
Consider that if you have $100,000 of investment assets and you obtain a $3500 financial plan, that’s an expense ratio of 3.5%. That’s expensive in wealth management terms. You will still have your investment fees as well. If you then invest with a Canadian Robo Advisor, you might then add another .60% or so. Now we’re above 4%.
Keep in mind that for an investor or family with a $100,000 portfolio and considerable income, it’s possible that the plan will pay off in spades. It’s not about the current expense ratio. The measure will be how much wealth and peace of mind will that financial plan bring over the coming years and decades.
A simple financial situation. A simple plan.
The majority of Canadians have a very ‘simple’ financial situation. And yes simple needs to be in quotes. They are struggling to pay down debts. Canadians have massive amounts of unused RRSP and TFSA space. Many are paying the mortgage or rent and then scraping together what they can to fill those RRSP and TFSA buckets.
The most pressing financial conundrum after getting debt under control might be RRSP or TFSA? That does not require a financial plan with pages and pages of evaluation. In fact you might simply hit up the Tangerine TFSA calculator link in this post that suggests that investors should Just Do It. Even if you get it ‘wrong’ for a few years, it won’t be a big deal. You can course correct in the future. And that future might include a financial plan when it makes perfect sense.
Investing is dead simple.
The good news is when it comes to wealth building by of way of investing, it’s dead simple. It ain’t rocket surgery. After decades and decades we’ve finally figured it out. But ironically there was not much to figure out. As I like to write …
After more than 30 years of reading and research I came to the realization that nobody knows nothing.
Dale
Yes that quote contains a double negative, but you know what I mean. All we have to do is buy the markets, invest within our risk tolerance level and keep our fees low. As Larry Bates of Beat The Bank reminds us, fees are wealth destroyers.
You can ignore all of the financial experts (salespersons) who will throw all kinds of fancy terms at you. They’ll tell you where the markets and interest rates are going. You don’t have to know that $&)! That’s not worth paying for. They don’t know.
What to do when you don’t care about investing.
You might not have any interest in the mechanics of investing. But I hope you are interested in helping your money make money.
Open an account with a Canadian Robo Advisor. You will receive human and digital advice with fees that can be as low as 1/4 of what you pay through a bank or mutual funds salesperson. Some of the Robo’s also offer financial planning.
You might get in touch with my friends at Tangerine Investments, maybe a Robo? You might contact a firm such as Steadyhand that can offer investment advice. Their clients on average pay under 1% in total fees.
DIY – Do it yourself investing.
The way to keep your fees as low as possible is to manage your own investments. Of course you have to ensure you know what you’re doing. You don’t want to turn DIY into Destroy It Yourself investing. With some of the advancements in financial products you can become a self-directed investor with a modest amount of knowledge.
The starting point for a self-directed investor would be an all-in-one asset allocation portfolio. You can own very ‘complete’ and well diversified portfolios that are managed for you. The fees are in the range of .20%.
Please have a read of Which Vanguard All-in-one , one ticket portfolio should you invest in? That post will help you learn how to match your time horizon and risk tolerance level to the appropriate portfolio. Again, make sure you get on the right side of the DIY acronym.
Create your own ETF or stock portfolio.
You can check out my ETF Model Portfolio page for ideas. And of course you should hit up CanadianPortfolioManager. Thanks to Justin Bender.
You might even follow the index skimming strategies of Mark Seed. He invests in individual stocks for Canada and ETFs for US equities. Fittingly for this post, Mark’s site is My Own Advisor.
Money stuff is a big dose of common sense.
Do you need to pay someone to tell you that you need an emergency fund? That you should save and invest on a regular schedule. Do you need to pay someone to show you how to write down all of your monthly spending so that you can see where you’re monies are going? Maybe you’re already covering the bases.
Here’s a more than handy checklist from advice-only planner Rona Birenbaum of Caring for Clients.
- Are they paying as little tax as possible?
- How about a budget?
- Do they have a properly drafted Will and Power of Attorney?
- Adequate disability and life insurance?
- Is their debt structured well and at the lowest possible cost?
- Do they have an emergency fund or unused LOC to deal with unexpected job loss or expenses?
- Are they taking advantage of company matching of group retirement programs?
- Do they have a savings plan for future large expenses like vehicle replacement, condo/house down payment, home repairs and the like?
- Are they positioning themselves for career advancement and income growth?
I’ve never had a financial planner.
My wife and I simply did enough of the big things right. We quickly paid off my wife’s student loan. We saved for a home, bought a home and paid it off. We paid off our vehicles and at one point, both had traveled over 250,000 kilometers. At times our employers offered matched RRSP plans – we took full advantage. I invested when possible, outside of those work group plans. The investments mostly went into RRSP and TFSA accounts. We have proper insurances.
I pay an accountant to do our family taxes and any tax planning.
I’ve never done an official family budget.
While I’ve tracked our spending to see where the monies are going, we’ve never had an official budget. Fortunately my wife and I are not spenders. Though we invested heavily in our kids’ sports and music and other life-learning ventures. The bank accounts and back of the napkin calculations showed that we were living beneath our means. We had monies to invest.
While I was wiped out in a business venture at age 30, I started over. I was in a position to work part-time freelance in my late 40’s. We did enough big things right.
Advice at the right time.
Once again, there is great value in advice. It might be the best money you ever spend. But it has to be at the right time. And most everyone will benefit from financial planning, eventually. If you are unsure you might contact an advice-only planner and get a quick ‘check up’.
I may have been able to do a few things ‘better’ along the way – I don’t know. But I will get advice when it comes time for my wife and I to ‘really’ retire. There will be many moving parts and more complicated tax considerations.
Thanks for reading. Please share your thoughts or experiences in the comment section. Do you need a financial planner?
Dale
Hey Dale
Beauty of an article. I like how you cover options for all the different groups and ages of people.
My wife and I have always gone it alone and never had any financial planning at all. I’ve always thought that no one is going to care about your money more than you do.
We didn’t pay much attention to our investments in the early years. Had mostly GICs through the 1980s and 1990s. Got into some good mutual funds in early 2000s and then started getting more serious around 2005 and really serious when I went to part time work in 2011 at age 58 before fully retiring in 2013. At that point, I had more time to do more reading and developed what became our dividend income/growth strategy.
We also have always done our own taxes (using TurboxTax) and have found that the tax planning is by far the most time consuming part. Luckily, I’m a math guy and love all the calculations and scenario evaluation.
Anyway. another great article.
Take her easy
Don
Thanks Don, thanks for stopping by the site and glad that everything has worked out. You missed out on growth for ‘a while’ but you demonstrate how we don’t have to get everything right of perfect. We just have to do enough things right for long enough. That said, we should always work to improve the situation (and our knowledge) as you have over the decades.
All the best, and happy retirement.
Dale
I love reading your articles, Dale. I am a do-it-yourselfer and have not felt the need to engage the services of a professional financial planner. My wife once had a planner and it was just a bank employee that sold mutual funds sporting MERs north of 2%. We severed the relationship and bought ETFs. I have a question you might be able to answer. Some of your readers might have the same question. I keep hearing that the 60/40 portfolio is dead and that we have to own liquid alts. I remain somewhat skeptical. I’d love to hear your opinion.
Thanks David, great question. I don’t think the traditional 60/40 portfolio is dead at all. A Canadian investor might also look to US Treasuries as a great risk manager addition. Many suggest some developing market bonds as well. There’s always that suggestion of commodities in a minor but supporting role. And yes we can add those private equity investments if possible. I am working on a post on that. There are options available for the Canadian retail investor. I linked to a post on that on Twitter. From my bud Arthur at NorthLand Wealth Management …
https://business.financialpost.com/investing/funds/how-average-investors-can-play-in-the-private-equity-big-leagues
One simple way is through WealthBar of course. They offer the Nicola private pool funds. I am also working on a post with the CIO of WealthBar to detail that investment option.
But again, stay tuned for a post or two on ‘other’ risk management options. I have Arthur and a few others who run shops for higher net worth clients who will help on that front. But all said, again, I would think and hope that simple will also work. We’re just talking about shading here.
Thanks again,
Dale
My wife also got a bank plan about 7-8 years ago that was stuffed full of mediocre, higher fee funds. Anyone who is reading blogs like this and who doesn’t need to be told that they should be making TFSA/RRSP contributions every year probably doesn’t need an official plan. I’ve done without for 25 years and am doing just fine with a CCP portfolio.
Where planning might be helpful is with major life upheavals (death, divorce, inheritances) and prior to retirement to work out your personal drawdown strategies (pensions, RRSP, delay CPP, OAs, taxable, TFSA, etc.).
Thanks Bart, if we’re ever in doubt we can simply go in for that very cost effective check up. Or perhaps pay for a few hours here and there. I agree that the retirement planning is key. There are simply too many unknowns for most of us. That said, I’ll continue to go at those digital planning tools, and I’ll post on those planning tools as well.
Dale
Dale, your last two posts hit at the core of wealth health.
Canada’s having over 130,000 salespeople called financial advisors is bad. They are not advisors; they are salespeople. That they tend to be overpaid makes it worse. That so much of this over-payment can be hidden makes it even worse.
What really matters is value to the customer, not just price. People don’t always take the cheapest vacation or buy the cheapest car. They try to meet their needs and wants. As you say, “There is great value in great advice.” Fees are only wealth destroyers if their benefits are less than their cost.
We need to help customers understand enough about benefits, that they can judge value if they see it.
Dale, you never had a financial plan or a budget, but you cared enough to get the big things approximately right. We need to help customers see your kind of wisdom.
Any financial plan will need to be implemented and managed over time. Who can do that better than the person who did the plan, if costs are reasonable? Trust and comfort have been established and what the customer needs is sales-free service.
An advice-only planner will refer you to others. Does the customer want to interview, consider proposals, and choose? Can the plan be implemented without being tied to specific products? How frequently, and at what cost, will the plan need to be “serviced”?
Also, conflict-free is not bias-free. Compare an advice-only planner with an advisor who can implement your appropriate plan to your satisfaction.
Thanks Gordon, I truly appreciate that thoughtful comment. Yes investors need to know who is an advisor and who is a salesperson. I hope this site will continue to make that an easier call in the future.
And while I’m a self directed investor, I am happy to continue to communicate that value of great advice at the right time at the right price. I think it’s a common mistake that the self directed investor will not often embrace any advice. We can be self directed investors even after receiving financial planning advice. They are two different camps.
Dale
I did a lot of reading and bought Mawer 104 Balanced fund and have never looked back. Mer is under 1%
Ha, oh ya. That’s an incredible fund, and company. Those guys know how to be boring and beat the market with regularity. A great option. They have a permanent spot on Cut The Crap Investing, of course. Congrats on the Mawer hold.
Dale
Dale,
Re: “Some of the Robo’s also offer financial planning”
I’m a bit confused with this. I was under the impression that Robo Advisor Services included human financial planning along with the Robo computer service. Is this not all included in the 0.60% fee they tack on to the ETF fees? Please clarify.
Hi Bernie, we need to separate investment advice vs financial planning. Investment advice will include matching the portfolio to the time horizon and risk tolerance level. If you call in you’ll get some more ‘advice light’. But a few firms will offer some financial planning. ModernAdvisor, WealthBar, Justwealth and Wealthsimple for their premium service. ModernAdvisor has the advice-only planner available but for additional (but reasonable) costs. Hope that helps. Fire away again if need be.
Dale
And the fees for Robo will range from .20% up to that .60% area. Clients have the ETF fees as well of course. Nest Wealth can be an even lower expense ratio as it’s subscription model. It depends on ‘how much you got’ of course.
Dale