Wednesday, 26 March 2014

On Hiring a Financial Planner

The folks at interviewed me a few weeks ago about working with a financial planner, getting started on a financial makeover, and advice for beginners on investing. 

When enlisting help to manage your money, what should you look for in a planner?

You should look for someone who will emphasize your goals as the starting point, and who acknowledges that life is messy, planning is imprecise and no one can see into the future. Your work with a planner should equip you to make ongoing decisions for yourself down the road by coming to a very clear understanding of your own financial situation, the direction you plan on heading, and the values that are important to you.

For someone who wants to start managing their money responsibly - whether they're just starting a career in their 20s or getting ready to retire in their 60s - where's the best place to start?

The best place to start is the place you want to end. There's no sense in starting with a budget or a financial plan without being absolutely clear about what's really important to you, what you'd like to accomplish and the values you want to build your life around.

What do you think are the biggest mistakes people make when creating a budget? How do you coach them to make a budget they'll stick to?

People starting out so often make the mistake of believing that creating a budget will effect a change right away, and get discouraged the first time they get off track. Sticking to a budget is a matter of training and discipline, and it's a rare person that gets it right the first time. My coaching is always to evaluate where they go wrong and be prepared to adjust course along the way, instead of throwing up their hands in frustration and giving up on purposeful spending...Read more at

Friday, 21 March 2014

Because Money Episode 14

Despite +Robb Engen's absence from this week's podcast+Jackson Middleton and I had a great time talking with our guests about why regular Canadians should care about the regulation of financial advice. I've written about the incentives that are holding even the most decent and ethical commission-based financial advisors from giving the best advice to clients many (many, many) times, most recently here, here, here, here, and - my personal favourite - here, so I'll spare you today.

 +John Potato has an excellent follow-up post Regulation of Financial Advisors up on his blog Blessed by the Potato, in which he nails the issue:

"The system needs to be reformed so that someone with no knowledge and no way to evaluate quality in advance can go to get advice from someone and trust in that advice (and get reasonable value for the fees that they pay while they’re at it). And really the best way to build trust for the lay public is to have a trustworthy expert give the thumbs-up — that is, regulation."

Our other esteemed guest +Noel D'Souza has also written about the issue on his shiny new blog Do These Look Even? (and I'd bet all of my money that he'll write about it again, so stay tuned):

"For far too long, Canadians have had trouble accessing the financial advice they need,  as opposed to the product sales focused “advice” the industry usually sells. This is one of the unfortunate side-effects of a commission-based advisory model that ties advice to product sales."

As for the rest of our opinions, well, you'll have to watch the episode. (That is, until we pony up for transcripts. Again - and I'm sensing a theme here - stay tuned.)

Thursday, 6 March 2014

Your Financial Advisor Might Be A Nice Person, But... (Because Money, Ep 13)

Last week's CBC Marketplace episode Show Me The Money took an average investor (with a hidden camera and glowing lights in her pants) into BMO, CIBC, RBC, Scotiabank, TD, Dundee Securities, Edward Jones, Investor's Group, Money Concepts, and Primerica shopping for advice on what to do with a $50,000 inheritance she'd just received. 

Of course we had to talk about it on Because Money, and - graciously - +Preet Banerjee agreed to reprise his expert role from the Marketplace episode to talk a little more about the complicated world of financial advice, his surprise over the high rate of non-compliant and pretty horrible advice given, and to expand on his view that there are really good people out there working as financial advisors who oughtn't be lumped in with the bad ones, and that what the industry really needs is a good trimming of the "dead wood" in the industry.

I - unsurprisingly, I suppose - disagree. The investment advice industry, conflated as it is with the broader world of financial planning, looks from the outside as though it's an advice industry that happens to offer products that help you implement your financial planning goals. Those products pay for the planning you receive, which is why Preet made the case that those with smaller amounts to invest are better off paying a commission on their investments instead of paying directly for their advice.

But those small investors need more than just investment advice. In my experience (and in friend of the show +Noel D'Souza's) the new/small investor's needs are more heavily weighted to the goal setting, prioritizing competing goals, and cash flow planning than on the investing advice. They're looking for more than cursory advice there, which is why reliance on advisors paid with trailing fees doesn't fit.

Remuneration for that kind of advisor is tied to the amount of the investment, and results in outsized emphasis on investing alone for clients who need more than that, while at the same time not creating much of an incentive for the advisor to spend more time on such a small account when there are more lucrative clients waiting.

Smart organizations don't spend any more time on loss-leader activities like cash flow planning, debt paydown, or behavioural coaching than they have to. The nice person across the desk from you has a nice manager who has a nice district vice president who has a nice regional manager, and every one of those people has one job: make the most amount of money for the company in the least amount of time without making any egregious errors, running afoul of securities regulators, and generally being as feel-good, PR-friendly as possible.

An episode like this one - while illuminating for investors  - is another chance for the investment advice industry to blame a few bad apples or poorly-trained but well-meaning individuals and go merrily on their way without making it any easier for consumers to find a source of advice with a price tag they can evaluate fairly.

Thursday, 20 February 2014

The Because Money Podcast | Episode 11: Home Buyer's Plan

In this week's episode of The Because Money Podcast, we finally got to fight a little. Agreeing all the time is so boring, isn't it?

What did we cover that was so controversial? Only the Home Buyer's Plan, that allows you to withdraw up to $25,000 tax-free from your RRSP and use it as the downpayment on your first home (or the first home you've owned in four years, or a home you're buying with or for someone with a disability...the complete list of conditions is in this list of resources we put together.)

Jackson's seven years of mortgage lending as a broker has convinced him that hardly anyone uses the program. Robb's extensive research has convinced him that relatively few people use the program, and that the number is dropping every year. My seven years of mortgage lending at the bank has convinced me that people do use the program, even if not to it's full extent, and that there's no good reason not to - if owning a home is a good idea for you (which is a whole other kettle of fish).

Detractors of the HBP decry it as either stealing from your retirement to buy a home, or else such a miniscule amount in the face of higher house prices than when the program was implemented in 1992. They - essentially - boil down to this argument "Canadians are too dumb to save for their retirement and a home, and they're too focused on buying a home anyway, and even if they did buy a home it would be too expensive, so let's end the program."

That's nonsense. I recognize that there are a lot of Canadians whose financial lives could be described charitably as a hot mess. But I'd like the financial media to recognize that A) they probably know it, and B) preaching from your mountaintop isn't going to change anything.

The ability to save your pre-tax income for a downpayment on a home is a good thing. Buying a home can be a good thing. Saving "only" $25,000 alone or $50,000 as a couple might be a smaller than ideal amount to put down on a house purchase, but it's still tax-deferred savings* AND tax-free growth until the right house comes along, so still a good thing.

The issue isn't that Canadians aren't saving enough (although many aren't), and it's not that the Home Buyer's Plan incentivizes them to withdraw from their retirement savings to purchase a home (although it does). The real issue is this: if you can't afford to save at least $1,666 a year (each) after you've purchased a home, then you can't afford your house.

The solution to the Home Buyer's (Are Stealing From Their Retirement) Program isn't to end the program; it's this: when you're sitting in front of your banker or broker, listening to them tell you how much mortgage you can afford, listen politely and then go home and do your own calculations.

*As an aside, just because many Canadians saving for a first time home purchase are young, and - theoretically, at least - earning less money than they will in their peak earning years, it doesn't necessarily follow that they shouldn't be contributing to an RRSP. They don't have to claim contributions as deductions in the year they make them, you know.

As always (except sometimes), join me, +Jackson Middleton, and +Robb Engen on Wednesdays at 9:30PM EST for The Because Money Podcast. You can watch live and tweet at us using the hashtag #becausemoney, or take a half an hour to watch it later. Most days you can find one (or all) of us on Google+ or Twitter to suggest new topics or rake us over the coals for our egregious errors. Thanks for watching.

Monday, 17 February 2014

A Little Discouragement To Start You On Your Way. You're Welcome.

The point: Learning to live on a budget is hard. Pretending it's not is stupid, and counter-productive, and will eventually end up being the reason you quit.

Let’s talk about the most important part of personal finance: debt repayment investing budgeting.


I’ll wait until you finish yawning.


Listen, I know. We can call it the much more awkward “how you spend your money”, if it makes you any happier about this. And - even better - I’m going to save you the impassioned speech on how spending more than you earn is a sure road to ruin; you know that already. In fact, there are a whole lot of people who spend more than they earn quite happily, running into emergencies here, long periods of financial stress there, and yet somehow managing to get through their entire lives without even a faint whiff of ruinLuck happens.

But if accidentally getting through life okay isn’t really your thing, and if purposefully matching your spending to the things that are really important to you sounds like the kind of life you want to live, I have some words of discouragement for you. 

Yes. Discouragement.

It’s going to be hard. Unless you have pretty big margins, or pretty small (or negotiable) existing commitments, it’s going to be a tough slog, at least for a while. This is the stabilization period that no one really mentions in the classic personal finance sequence of success that usually goes “make a budget, pay off debt, build an emergency fund*, save a couple of bucketloads of money, buy a unicorn, live happily ever after.”

There’s something really important missing right between “make a budget” and “pay off debt” right there at the beginning of the deceptively simple fixed-your-life-you’re-welcome formula, something so important that it’s omission is the reason so many people revert back to the Hoping Things Work Out method of financial planning.

(If you have a high enough income or low enough non-negotiable expenses, or if you’re starting out without debt, then you probably won’t go through a stabilizing period and this post doesn’t apply to you. Go away.)

If you’re like most Canadians, you’re coming to the idea of living within your income at a time when you don’t have piles of money just lying around to make the process easy. You probably have obligations that you can’t negotiate your way out of - kids that make downsizing to a bachelor apartment, storing your clothes in crates, and living off of ramen noodles until you’ve got your money under control a non-option, or big mortgage with small equity that takes moving off of the table, or a car that’s worth less than the loan you’re still paying for but a job that you have to drive to because you don’t live in a city and your transportation options are limited to driving a car or hitchhiking.

I have this sense that most personal finance advice sort of glosses over this awkward fact. There’s never a scale of difficulty in the front of the advice, is there? Never a “Hey, friend, if a $200 surprise will throw off your finances for more than a month, you can do this, but it’s going to take lots of practice”, or a “by the way, if you have kids this entire blog isn’t going to apply to you” disclaimer. There’s a lot of advice about getting your expense column smaller than your income column (less advice about getting your income bigger than your expenses, but that’s a different post for a different day), and even more advice about paying down your debt or investing, but not much acknowledgement that it might take you a while to figure out how to apply the whole thing (waves hands) to your own life, is there?

And do you know what this glaring omission does to most Canadians? It makes them give up. At some point, when you’re trying to reduce your previously $1,200 per month discretionary spending down to $200 because your non-negotiable expenses leave you nothing more, living your life on a budget is going to feel like a much bigger hassle than living your old life and hoping it will all work out. Plugging a few numbers into a spreadsheet or moving the sliders on Mint does not a budget make; getting used to having only so much to spend and either finding ways to earn more or learning to live cheerfully within those limits does, and it takes practice, occasional failure, and lots and lots adjustment. Sometimes years worth.

So here I am, raining on the parade, handing out be-ribboned bags of discouragement in the hopes that a healthy dose of “it will be hard, but it’s worth it” realism will make the job ahead a little easier to stomach. The pay-off is real. The feeling of not worrying about your next credit card statement, or the sense that things really, truly are going to be fine and it’s not just blind hope or dumb luck that will make it so? It’s fantastic, and it’s worth the work. Trust me. But the work itself is tedious - painful, even. Sometimes it’s downright embarrassing. Pretending that’s not just makes it harder.

*Yes, sometimes it goes “little emergency fund, pay off debt, big emergency fund”, or even (gasp!) skips the emergency fund altogether. Let’s just pretend we agree on the order for a minute and deal with the whole emergency fund snarl another day.

Monday, 9 December 2013

Christmas, Stuff, and Money

The point: frugality isn't a virtue, especially when you're hitting your family over the head with it. Repetitious, I know.

Are you upset by the amount of stuff that your family is going to give your kids this Christmas and resent them for their materialistic, showy ways, and their utter disregard for you frugal minimalism?

Have you gently brought up your desire for smaller Christmases or birthdays with less emphasis on stuff and they haven’t listened? Are you already pre-annoyed with them before you even see what too big, too noisy, too plastic, or too flimsy junk they fill your house up with this time?

I have some advice for you (whether you want it or not, because that’s just the way we roll around here):

Stop it. 

Yeah, you. The person with the good intentions and with the correct emphasis on people and experiences instead of things. The one with the knowledge born of scientific observations in the field that the kids are going to get gift fatigue after present five and either have to be prompted (repeatedly) to move on to the next present or start ripping paper indiscriminately and moving on to the next one without even looking at whatever the previous box contained.

I’m talking to the grudging receivers here, not the enthusiastic if misguided givers: stop it. 

What you’re trying to do for your kids, for your house, your planet, your sanity, and even for the wallets of the gift givers is admirable, but if your example and (possibly) polite request aren’t enough to change the behaviour of the people who love you and/or love your kids, and you continue to make it an ongoing issue, you’re the problem.

You’re making stuff (less of) and money (saved) more important than people. Merry Christmas.

Tuesday, 26 November 2013

Violating the Foundational Tenets of Personal Finance for Fun and Profit

The point: There's no universal equation into which you can plug your details and receive a perfectly optimized solution to all your personal finance questions.

I still pay bank fees.

(Hear that? That's the sound of ten thousand personal finance bloggers picking up pitchforks)

Wait! There's more: I don't pay all (or even most) of my expenses on a credit card.

(And that, my friends, is the sound of torches being set alight)

Before the personal finance lynch mob gets here to punish me for violating yet another of the foundational tenets of the creed, let me explain. Quickly.

Until fairly recently, I enjoyed one of the most addicting perks of being a bank employee: free banking. For seven years, I revelled in it. I had accounts for everything; accounts for Christmas, for regular bills, for irregular bills, and for spending, and I never once had to think about the cost.

Edgy, that's me

Now I do, and - believe me - it bugs me. But you know what bugs me more? Forcing myself to think about my money in a way that doesn’t naturally fit my personality. I am motivated to stay within my budget for discretionary spending when I see the bank balance go down, not when I see a credit card balance go up. I get all edgy when I can’t look at my phone and know immediately how much I have left to spend on groceries without having to subtract the mortgage payment, carry the twelve, and divide by five.

What’s more, my husband and I have joint everything. (Oh, listen, they’ve let the dogs loose) Neither of us is interested in separating our spending into Yours and Mine.

With free employee banking, I had the luxury of creating a method that suits us perfectly and constructing a world of accounts around us to fit it. Now I’m faced with a choice: stick around at my bank and pay the service fees, or study the free banking rules and reward tiers and adapt our system - the one we’ve used quite happily for almost a decade - to fit within them.

So here’s the crux of the issue: I’m not happy to sit on my hands and moan about how none of the free options work for us, but neither am I going to jump into bed with the first company that offers me free banking or 3% cash back without spending some time planning how it’s all going to work.

And - to be clear -  by "work", I mean "take up no more than a few minutes of my time to check, involve no transaction tracking, and keep me on budget no matter how much I want to cheat in my weaker moments."

Yes, I have weaker moments. Surprise!

As much as I’d love to believe otherwise, I’m not a completely rational spender. Our finances are under control only because I took the time to observe our spending behaviours and adapt existing bank products to fit. I know how we spend, and can identify pretty easily the ways in which we’re jointly or individually tempted to go off-road, which means that the systems I’ve built around our spending through rational observation are there to protect us when rationality takes a flying leap out the window.

This is what I mean when I throw around a kind of meaningless phrase like “optimizing behaviouralist” to describe myself. It means that while I believe that optimal solutions are possible, what’s optimal for my single, naturally frugal and debt-free friend making $92,000 a year isn’t exactly optimal for my married next-door neighbours who bring in $80,000 a year between them and have to cover a mortgage, two kids in daycare, and a car payment, and have a hard time resisting the urge to eat out every single night of the year.

Optimal is relative

You can be forgiven for believing that there’s one (optimal) way to carry on your financial life, because the entire financial media is constructed on that faulty premise. It’s why articles like “Should I Save for Retirement or Pay Down My Mortgage?” spring up like mushrooms every few months (or weeks, depending on the season and whether the author is trying to sell you RRSPs or not) and are so quickly found and read by folks desperate to discover the secret personal finance sauce so they can pour it all over their bank account and then sit back and watch the dollars (and peace of mind) roll in.

Believe me, I’d love for there to be a simple answer for every possible personal finance question that contains no trace of the phrase “it depends”, but the truth is there’s no Grand Unified Theory of Finance. There’s no formula you can plug your paycheque and net worth into that will spit out whether you should increase the deductible on your car insurance, switch banks, or join the (shudder) smallenfreuden revolution.* There’s only you, your behaviour, and the systems you set up to optimize your strengths and bypass your weaknesses. 


*Ask yourself this: why on earth would a credit card company sign off on a marketing campaign that encouraged consumers to use their card for everything in exchange for “free” rewards? If you’re one of the super-disciplined minority who pay off their balances every month and are getting something for nothing, good for you. If you’re part of the majority who actually spend incrementally more on rewards cards, under-estimating your actual spending and getting caught short by faulty mental accounting when the due date comes around...well, there’s your answer.


Some housekeeping:

The best posts, articles, and news items I find every month are housed in the Canadian Personal Finance News list, curated by me and you, because - much as I'd like to - I can't read everything. Get selective, get critical, and get listing.

Comments are turned off on Spring (the blog), so if you have a burning disagreement you'd like to share, and can limit yourself to 140 characters, find me on the Twitter machine (@SandiMartinSPF). If you need more space to brawl in have a gentlemanly discussion, you can find me lurking around the Canadian Personal Finance Community mumbling about CPP reform.

The Because Money podcast with me, +Jackson Middleton and +Robb Engen is live every Wednesday night at 9:30 Eastern, and available for post-show viewing in all its glory immediately thereafter. Questions, comments, or observations on how much I wave my hands around and say "I don't know, what do you think?" are very welcome, and can be posed on Twitter or G+ using the hashtag #becausemoney.

Fees | Privacy | What to Expect
© Spring Personal Finance 410 Bay Street, Gravenhurst, Ontario, P1P 1G9. All Rights Reserved.
Sandi Martin is a fee only financial planner who specializes in business and personal budgeting, investment advice, and debt management strategies.
Telephone, internet, evening, and weekend appointments are available to clients across Canada.