Friday, 24 October 2014

Boomer and Echo | Budgets, Cash Flow Plans, and Spending. Yawn.

I know, I know. Budgets just sound like Remedial Personal Finance, don’t they? Everyone knows you’re supposed to budget, so what’s the point of another 800 words or so on the topic, right?

There’s even a vague feeling that once you reach a certain point - either of knowledge, or income, or net worth - budgeting is kind of beneath you. It’s so remedial that the cool kids don’t do it, and I’m here to look over my librarian glasses and tell you that the cool kids are wrong.

But first, in true librarian fashion, let’s define the terms. When I talk about budgeting, or planned spending, or cash flow, I’m really talking about three separate but related things: tracking your transactions, clarifying your limits, and projecting your trends. Not to get too timey-wimey on you, but that’s the past, the present, and the future, all rolled up in one neat little concept. Nice.

Read the rest at Boomer and Echo

Thursday, 25 September 2014

Because Money Episode 22 | Ellen Roseman

We had the privilege of hosting Ellen Roseman on Because Money this month, and spent a great half-hour talking about how how consumers can protect themselves and fight back when they've been wronged, as well as her involvement with FAIR Canada as an advocate for better investor protection.

The full transcript can be found here.

Thursday, 11 September 2014

Fill in the Blank (Part One): I Don't Want to Spend Money On...

At first glance, it sounds like an incredibly stupid exercise, I grant you.

Um, I don't want to spend money on insurance, on my mortgage payment, on those never-ending, teeny-tiny little school activity requests that dribble home every other day, on fixing my car (again), on buying new shoes for kids whose feet won't.stop.growing, or on the property tax shortfall notice I got last week. And that's just for starters.

Realistically, at least for most of us - a lot of the things we don't want to spend money on won't go away just because we decide we don't want to pay for them anymore. Ten months out of the year, my kids need shoes, and - last time I checked, anyway - two-, four-, and six-year olds aren't allowed to get jobs.

The point of digging down into the things you want to say "no" (or even "hell, no") to - like loan payments or groceries that you waste or tv you don't watch - isn't so you can dwell on how much you hate paying for those things. That's just the beginning.

Getting really, really clear about the things you actively dislike or don't care enough to bother spending money on is only the first step. The next step is heady, fulfilling stuff: getting really, really clear on those things you truly DO want to spend money on.

Start working on that list of things you don't want to spend money on. Next post will be all about the YES.

I've had a chance to do some work with Heather Thorkelson lately. She's a small business strategist (among so many other things) working with entrepreneurs to align their work with their dream of work, whatever (or wherever) that might be. I admire her an awful lot, and she wrote something a few weeks ago about this very topic of saying no so we can say yes that she said I could share with you:


Beyond the “find my passion” stage: how to find direction in an unconventional market

I’m going to be straight up with you – I think everyone’s gotten a little carried away with this whole “find my passion” business. First off, it’s a bloody tall order that leaves most chasing their tails, reading every self-help “find yourself” book out there for years and still not coming to a conclusion.

I’ve got a better idea. Ideas to be exact. It’s an approach that worked for me, and many of my clients. Heck I even heard Oprah talking about Step One the other day so I must be on to something!

Step One: Get really clear on what you DON’T want to do.

You’d be surprised at how powerful of an exercise this is. My answers when I asked myself this back in 2010 included things like;

1) I don’t want to fill out useless spreadsheets for other people to prove that I was ‘working’ but that no one would ever actually read. (Hi, can I please have those three hours of my life back?)

2) I don’t ever want to work with people I don’t like.

3) I don’t want to ever have to ask for permission for my measly three weeks off a year where I can go and really LIVE.

4) I don’t want to do work that has no meaning for me personally. And if it does lose it’s meaning, I want the built-in flexibility to shift gears and move toward greater service and fulfillment.

Savvy? Pause here and go answer that question yourself.

Step Two: Figure out what makes you happy.

For real. Not the fleeting stuff like shoe shopping.

What gives you a profound sense of happiness and brings you right into the NOW every time you experience it? Helping people? Being in your ‘zone of genius’? Public speaking?

Also ask yourself what kind of humans light you up? (HINT: You should be working with them!)

I know this is a lot harder than it sounds. My clients often struggle with this, but it’s some of the most important self-awareness work you’ll ever do. So sit down with a pen and paper, activate the brain cells, and get scribbling, love. If you’re really having trouble, think about what you’d want people to say about you at a speech in your honour ten years from now.

Step Three: Time is your most valuable asset. How do you want to spend it?

This may seem too pie-in-the-sky for many of you, but honestly, when I started building my workday around how I truly wanted to spend my time, my happiness increased ten-fold.

Be honest here. How do you like to spend your time? In nature? On a surfboard? Snuggling with your dog? Making out with your lover? Traveling on trains? You need to build your livelihood in a way that accommodates for that. It may not be entirely possible in the beginning, but when you know how you want to spend your time you have something tangible to work towards.

Forget that new-agey “passion” hoo-ha. The reality is you probably have many. And therefore many viable options. Figure out how you want to live and the options will become clearer.

Yours truly,
The pharmaceutical rep who became a life coach who then became a web designer who then because a business strategist/polar expedition guide in the process of figuring out a formula that would work for me.

(PS: Every step was awesome, every step brought me income, and every step helped me figure out what I truly wanted in this stage of my life. The road may not be straight, but it promises to be interesting.)


You can find Heather at her website Republic of Freedom, on Twitter, or on Google+. She's currently working on The Leap Guide: Everything you need to know about building the livelihood of your dreams through freelancing.

Tuesday, 26 August 2014

Because Money Episode 21 | The Rise Of The (Not) Robo-Advisors

This month, we were delighted to welcome Michael Katchen of WealthSimple to the show to talk about what's wrong with the asset management industry, how he and others like him plan to break it, and why regular Canadians who, for whatever reason, shouldn't or can't DIY their portfolios should be very, very excited.

Full transcript can be found here.

Show references:

Tuesday, 5 August 2014

I For One Welcome Our Robot Overlords: The New World of Investment Advice and Asset Management

 Before I let you read the rest of this post, I want us to agree on a set of facts:

1. It is extremely rare (but not impossible) for any one investor, investment professional, or investment management company to consistently and reliably outperform the market for any appreciable length of time.

2. The only way to profit from this legendary investor’s tactical brilliance is to begin investing with him or her very early on in his or her career, which necessitates identifying him or her before said brilliant career actually takes off in any appreciable way.

3. If 1, then 2 is unlikely at best.

4. If (almost) every investor, investment professional, or investment manager can only - at best - be expected to deliver long-term returns at about the same rate as the market in general, and only by sheerest luck (in most cases) will he or she happen to turn out to be of the rare breed mentioned in 1, then the only meaningful differentiation between everyone else is the amount of money it costs to invest with them.

4.a) The difference in cost to invest between any two investment professionals, since it must not have anything to do with investing acumen, must be explained by the amount of “other stuff” that professional does: (real) tax planning, (real) financial planning, (real) estate get the picture.

If we can’t agree on these basic points, then you should probably just find something better to do, because you’ll likely get outraged and/or defensive about what I’m going to say next:

Why on earth are Canadians still paying 2% for “investment management” when there is no (real) “other stuff” offered?


(But first, a word on the proper place that investments should hold in the grand scheme of things:

Your investment portfolio, however large or small, is a tool that exists to help you accomplish your goals whether you hope to buy a house, save for retirement, pay for some of your kids’ education, or move to a farm and grow your own food.

The investment decisions you make will have less impact on your ability to achieve those goals than the amount you discipline yourself to save, the speed with which you pay off debt, and the conscious, everyday choices you make in your spending. In fact, how you spend your money month-in and month-out is the single most important financial characteristic. By comparison, investing is a small piece of your life, yet it gets a disproportionate amount of attention from financial professionals, more than efficient dept repayment, more than goal planning, and far, far more than cash flow and budgeting.)

So why is “investment advice” the first (and sometimes only) thing most of us think about when we think about financial planning?


The reason that such a little thing gets such big attention is because there’s money in it. Lots of money. “Wealth Management” is what pays the bills for banks, you know. That, and it’s a lot sexier to talk about than cutting back on your grocery bill or starting to save regularly for your next property tax installment.

Not a single word eof what you just read is news to you. If you’ve spent any time online, or read any of the good Canadian personal finance books out there, you know that what you’re supposed to do is open up one of the online brokerage accounts, buy the ETFs in the Global Couch Potato portfolio, set a reminder to rebalance once a year, and get on with your life.

The problem is this: Do-it-yourself asset management sounds intimidating, can be time-consuming, and tempts people who shouldn’t tinker to tinker. It isn’t for everyone, and for those who want to ask a question now and then, who want some hand-holding when it comes time to set up and start trading across TFSA, RRSP, and/or non registered accounts, or who just want someone else to do it, please, and let me get on with the things I do best...well...

You can go to a bank or a mutual fund company:


The first place most of us turn to when we start thinking about investing is the army of bank/insurance/mutual fund company advisors who - in the face of all the evidence - still believe that paying 2.3% in fees for their company’s mutual funds is somehow a more effective long-term investing strategy than 0.30% for index funds or passively managed ETFs. These advisors believe that the extra money tacked on to the investment management fees in the form of up-front and trailing commissions pays them to give you advice, and will fight you tooth and nail if you even mention indexing.

Their advice - however well-meaning - depends on the amount of training they’ve received from the institution that’s paying them to sell you their own line of products, by the amount of time they are required to spend chasing new clients and new money, and by the likelihood that they’ll stay in their job any reasonable length of time. Generally, if you want to rebalance your investments annually, you’ll need to call, set an appointment, dictate exactly what you want, and re-hash all the same arguments over index funds you had the first time.

The upside, of course, is that you don’t have to do it yourself, and every town has at least a few people willing to sit across the desk (or kitchen table) from you and take your money.

Okay, not the bank. How about a real asset manager:


For a real asset manager, one who doesn’t have regional sales targets to meet, who can craft and monitor a portfolio of securities not limited by a single institution, who know the specific goals, constraints, and strategies that you’re facing with said portfolio, and who will talk you down during times of market turmoil and rein you in when everyone else is losing their minds with greed, you generally need to have already saved between $250,000 and $500,000, and be willing to pay around 1% in annual fees, which should go down the more wealth there is to manage.

It’s a real to him who has, much will be given kind of scene.

These folks are harder to find, and not all of them are created equal. Some of them are in the game for the money, and some are in it for reasonable compensation. Believe me, there’s a difference, and there are many more of the former than the latter.

Oh. I don’t have that kind of money yet, and 1% still sounds kind of high.

Right between expensive non-advice and expensive real-but-hard-to-find advice is the implementation gap. Canadians who know something’s not right with the advice they’re getting at the bank, don’t have $500,000 accumulated, and know they’re not interested or disciplined enough to build and rebalance their own investment accounts are out of luck if they want a low-cost, passively managed, common-sense portfolio that they can throw money at and get on with their lives.

Enter the robo-advisor, or - more properly - the “advisor who doesn’t pretend to deliver on most of the 'other stuff' outside of their area of expertise - investments - and has much lower overhead than your traditional advisor and can therefore offer their services at a reasonable cost”. These are companies like WealthSimple, WealthBar, and Nest Wealth, who are (or are in the process of getting) licensed and regulated the same way that the banks and asset managers are, but who have slipped the bonds of brick and mortar and can set up and rebalance your portfolio of index ETFs for under 1% from the comfort of your own laptop. That’s a better deal than the rich folks are getting.

Some financial media types and many protectionist old-school investment managers invoke the spectre of “why would you let a computer program manage your money for you” whenever the topic comes up, which is probably why they’re hit with the robo-advisor label in the first place. None of the companies I mentioned above fit the fear-mongering description given in this article (as an exemplar of many similar articles, albeit American). Rather, these are investment management companies with real-life people ready to talk you through your asset-allocation, risk tolerance, tax-optimizing, and rebalancing decisions.

For most of us regular Canadians, the best thing we can do with our investments is set an asset allocation target that fits with our true ability to handle risk and our tax situation, get the fees as low as possible - which usually means index investing - and then close our eyes and throw money at them. Ideally we shouldn’t even have to rebalance at all, because every time we have the opportunity to benefit from rebalancing (selling a recent winner to buy a recent loser on the cheap) we also have the opportunity to Not Rebalance. Heck, I talk, write, and read about investing every day (see above), and I still had a hard time pushing the button to sell equities and buy fixed income this past spring.

If you let these not-robo-advisors do their job, your job would get very, very simple: make money and save some of it. No more trying to outwit the market because “interest rates are going to go up and I don’t want to be in bonds”...sometime in the past five and next five years. No more looking at how your equity mutual funds grew over 2013 and assuming that it was because of the amazing skill of the mutual fund salesperson you met with in 2012.

Invest like this, and your portfolio goes back to being a tool to help you accomplish the life you want, and shrinks in importance back to its proper place in the grand scheme of life, the universe, and everything.

Friday, 11 July 2014

Because Money Episode 20 | Side Gigs and Extra Income

In this month's episode of Because Money, we get a chance to grill Robb about his side income, and -  as usual - I'm the one advocating caution when it comes to using your spare time to start a side business for extra money.

Unless you're really clear about your capacity and priorities, a side business can become a huge black hole of both time and money, without much to show for it in the end.

Wednesday, 9 July 2014

Sorry, Who Is It That's Suffering? Advocis Doesn't Want Embedded Commissions Banned, Because Financial Advisors Will Suffer

Sometimes, someone says something that is so egregiously wrong that it can’t be ignored. Take, for example, this piece, published this afternoon on, an online magazine for financial advisors in the investment and insurance industries, which elicited this (totally articulate) reaction:
The piece in question? This:
"Don’t Ban Commissions, Says Advocis”

If Canada completely bans sales commissions like the U.K. and Australia, advisors and their clients will suffer.

This was the general consensus at an Advocis and PwC event held yesterday in Toronto.

In Australia, the Future of Financial Advice (FOFA) reforms banned embedded commissions, established a best interests legal duty and expanded requirements regarding fee disclosure, says Advocis. These changes increased the costs to serve investors by more than 30%, and compliance costs for advisors have amounted to AUD$700 million so far, finds a PwC survey of small- and medium-sized (SMB) advisory firms.

And in the U.K., the number of advisors dropped 25% due to similar regulatory reforms.
The investors that will have the most difficulty affording fee-for-service arrangements are those in the low- to middle-income range, finds the survey. And those clients, who typically have assets under $100,000, make up 80% of the investor market.

Meanwhile, 12% are those with assets between $100,000 and $500,000; 4% have between $500,000 and $1 million; and 4% have $1 million plus, notes the survey.

“We need a system that serves investors at all income levels,” says Greg Pollock, president and CEO of Advocis. “Given Canadians’ concerns around cost of living and retirement readiness, it’s critical that more people are able to seek professional financial advice.”

Also, there could be an economic impact if Canadian advisors follow the footsteps of those in the U.K. The SMB sector employs 182,000 people in Canada, and contributes $19 billion to the GDP (or 1.1%). This is greater than the auto (0.9% of GDP), aerospace (0.6%) or pharmaceuticals (0.3%) industries.

The experts provided an alternative to simply banning commissions.

“If we can get to a disclosure model that’s appropriate, then consumers could make the choice,” says Pollock. “If my embedded commission is $1,000, or whatever that number is, then you have a choice, as long as they disclose that.”

Meanwhile, Byren Innes, senior strategic advisor at PwC, suggests advisors get ahead of regulatory changes by adapting the current frameworks; getting educated and demonstrating their expertise to clients; and responding to the change in client preferences by becoming more accessible online.
Let’s talk about the kind of professional financial advice that 80% of low-to-middle income Canadians with less than $100,000 are getting, and should apparently be overjoyed about, notwithstanding the industry-funded study quoted above:

 1. Canadians pay the highest equity fund fees, highest money-market fund fees, and the third-highest fixed-income fees of the twenty-two countries surveyed in this Morningstar report. On average, Canadians pay in excess of 2% in mutual fund fees, including 1% or so in embedded commissions to the advisors who sell them the investments and the companies who make them.

 2. Despite the availability of passively managed mutual funds and ETFs with annual fees in the 0.30%-0.50% range, the overwhelming majority of those low-to-middle-income Canadians that Mr. Pollock is so very concerned about are paying in excess of 2% (of which 1% or is that embedded commission we’re all going on about) for actively managed mutual funds that are underperforming the market as a whole. That means that instead of paying $500 a year for investments, they’re paying $2,000.

 3. That extra $1,500 is supposed to be buying them financial advice. What kind of financial advice do low-to-middle-income families need? Save regularly, rebalance dispassionately, and keep your head during cycles of fear and greed. Investment advice comes way down the list after cash flow and budgeting, debt repayment and avoidance, setting goals, and what to expect in retirement, and I’ve yet to meet a commissioned advisor with hours to spend on an individualized plan for someone whose sales fees won’t even pay the office lease for the month.

 4. The overwhelming majority of that 80% of Canadians are NOT receiving the kind of financial advice that will help them. In most cases, they’re getting told what mutual funds to buy and nothing else. Is that really worth $1,500 each and every year, when a fee-for-service planner can charge less than that for one engagement and set them on the path of healthy finances for life, without that icky feeling that the advice they’re giving is handcuffed to the products they’re selling (and receiving commissions for)?

Yes, there’s an implementation gap. Not everyone can transfer their savings to a self-directed brokerage and go on their merry way without any bumps in the road, and banning commissions to advisors isn’t going to change that or help them get the affordable investment advice they need (although the rapidly approaching shake up in asset management business models hopefully will - more on that later).

You know what banning embedded commissions will do? It’ll end the illusion that advisors on the commission system are anything more than salespeople, no matter how well-intentioned they are, and it will force them to charge fees more in keeping with the actual quality of advice they're giving, rather than the product they're selling.
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Sandi Martin is a fee only financial planner who specializes in business and personal budgeting, investment advice, and debt management strategies.
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