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
