From DIY to Advised with Robb Engen | E079
When to make the leap.
On today’s episode, Jason is going to talk to Robb Engen, the Fee-only Financial Planner and Blogger at Boomer and Echo. Robb is a well-known voice in the Canadian financial blogosphere, and he has run a blog for 11 years and is one of the recognized voices in Canadian online finance.
Episode Highlights:
01.00: Robb is going to talk about DIY investors and when they should seek help. He will specifically try to identify the points and issues that would make you go from a do-it-yourself to someone who needs someone else’s guidance.
01.35: Robb has run the Boomer and Eco personal finance blog since 2010. About six years ago, he started a fee-only financial planning service to help regular people approach big-burning financial stages of their lives.
02.48: Jason asks Robb, as per experience as a DIY advocate, what are the common person triggers for someone with a simple situation for the need to seek out advice in the first place?
05.00: According to Robb, there is a bit of inherent bias in the type of people seeking him out because not many people know about fee-only or later fee-for-service financial planning.
07.03: Robb talks about passive investing. He set up his couch potato portfolio seven years ago before these new kinds of solutions came on board, and being aware of the other products on the DIY spectrum is important.
09.07: As per Jason, there is a marketing lesson for any advisor out there, and there is also a marketing lesson for any clients seeking advice and finding someone who speaks an advisor’s language in marketing.
13.20: Robb says that if you go back to the philosophy, investing has been solved with low-cost, broadly diversified, risk-appropriate passive portfolios. There are a couple of ways to get there, whether through an asset allocation ETF, individual ETFs, E-series funds, or Robo advisor.
15.27: Jason says that this industry has no magic bullet or golden ticket. Everything is dependent on you as a unique snowflake, and there is a lot of value to be added.
18.57: According to Jason there should be a two-way interview every time you sit down with a new prospect.
19.43: Putting your message out transparently is important, says Robb.
23.00: People lose clients because you didn’t engage the spouse, the spouse that was engaged died, or the other person felt they are not heard, and it is a challenge, says Jason.
25.50: Advisors should be transparent about what they are going to be doing with your money so that you can now move on to the other important factors, says Robb.
27.33: Fee-only planning is not something you can scale because every situation is different, says Robb.
29.40: Jason says that someone who is appropriately contemplating a client’s risk tolerance, goals, and everything and putting in place financial plans they are not going to be in deals with calls.
35.35” Robb suggests that at some point in your life, a little voice in your head will go, “Am I doing the right thing?” If that little voice is telling you that maybe it is time to reach out and get the conversation started with an advisor and see where that can add some value for you.
3 Key Points:
The larger sums of money could come in a couple of different scenarios. One is someone taking the commuted value of their pension when they leave their work workplace, and another one, like an inheritance or maybe you sold the rental property or your primary residence.
Robb answers, what happens if old males don’t have the mental capacity or expire before their partner does? They don’t want their spouse to go and walk into the big bank and hand over investments or portfolios of stocks to the mutual fund portfolio.
In the validator model, people do the right things. They want a second set of eyes just to walk them through and make sure there are no holes to poke through the plan.
Tweetable Quotes
“Many advisors struggle in explaining their value to clients, and it may be because those aren’t the clients you should be having, and maybe that service doesn’t match up with them.” – Jason
“Refining who my client is is really important as well.” – Robb
“The client wants advice on a typical bank mutual fund because there is so much information, so many paths they can take, and they don’t want to make any mistakes, so they would come to seek advice for that.” – Robb
“Advisors haven’t mastered optimizing yet with all the computer technology they have. It is because there is a lot of other things beyond the simple concept of you pay less tax in this one and then that one.” – Robb
“Based on US research, 60 to 100 is the range for a number of engagements on a planning level that you can maintain in the course of a year.” – Jason
Resources Mentioned
Transcript:
Producer: Welcome to the Financial Planning for Canadian Business Owners Podcast. You will hear about industry insights with award-winning financial planner and entrepreneur, Jason Pereira. Through the interviews with different experts with their stories and advice, you will learn how you can navigate the challenges of being an entrepreneur, plan for success, and make the most of your business and life. And now, your host, Jason Pereira.
Jason Pereira: Hello and welcome. And thank you for joining me. One quick explanation, in case you have not noticed, this podcast has not aired in several weeks. That's simply because I have been super busy, and I have not been able to figure out my production schedule for the next couple weeks and I still have not, but I did managed to book today's guest well in advance. And this is just a promise to you that I will be coming back on a weekly basis in early 2022.
Jason Pereira: In the meantime, I hope you enjoy today's interview. I have Robb Engen, the only financial planner and blogger at Boomer & Echo. Robb is a well-known voice in the Canadian financial blogosphere, in that he's run a blog for 11 years as one of well-recognized voices in Canadian online finance. I brought him on the show specifically today to talk about DIY investors and when they should seek out help, specifically trying to identify the points and issues that would make you go from a do-it-yourselfer to someone who needs the guidance of someone else. And with that, he's my rude Robb. Robb, thank you for taking the time.
Robb Engen: My pleasure. Thanks for having me on.
Jason Pereira: Absolutely. So, Robb, besides my introduction, tell us a little bit about who you are and what it is you do.
Robb Engen: Sure. I live in Lethbridge, Alberta, and I run the Boomer & Echo personal finance blog and have since 2010. And about six years ago, I started a fee-only financial planning service. And so I just help out, I would say, kind of the regular people who are approaching those big burning financial stages of their lives, whether they're at that early stage of joining their finances and getting married and having children, or getting ready to retire and just wondering those big questions about whether I have enough, how much can I spend, how long will it last, and that sort of thing.
Jason Pereira: I brought you on the show specifically to talk about moving from DIY to advise or vice versa. And I think we make for an interesting contrast in that you are dealing with a lot of what we'll call main street problems. This podcast in itself is targeted specifically at business owners with high complexity problems. And I think there's a spectrum of what happens in-between. I often say even with my fees, it's just like, "Look, if you're a T4 employee with a union pension and and you're paying down your mortgage at a regular reasonable rate, probably not a ton I can do for you, but there's stuff I can do, but I'm not sure if the value for money, a transaction is going to be fair. I'm not built for that, other options like yourself are. So let's talk about you for years, we're a big DIY advocate that yourself. Tell me about to your experience, what are the more common person triggers for someone even with a simple situation for the need to seek out advice in the first place?
Robb Engen: Well, a big one lately has been either my portfolio has gotten off kilter with whether the stock component has really increased in value and they're just feeling really some trepidation about the high valuations of stocks and the uncertainty of bonds. And so they're just maybe wanting a reset or a check in on that asset mix and whether to make any changes there. Another big trigger is either an inheritance, so a larger lump sum of money than they've typically known what to do with. And these larger lump sums could actually come in a couple different scenarios that I see.
Robb Engen: Anyways, one is someone taking the commuted value of their pension when they leave their workplace. They're not used to handling that much money and, of course, don't want to make any mistakes, so they're reaching out for advice. Another one, as I said, is an inheritance, or maybe you sold a rental property or your primary residents and are dealing with a lump sum of money now and just wanting to know the best way to allocate it. But also, as we know, it's not just about investing, there's a bigger picture at play there, and so just how that fits into the whole puzzle piece of their financial picture.
Jason Pereira: Yeah, it's interesting because let's tackle the investment portion of that first is that Michael Kitces, financial planning guru in the US, likes to identify the market as being composed as delegators, validators, and DIYers. DIYer is self-explanatory, delegators are those who seek out full delegative services like what I offer, and then you have the validators in the middle, which is, "Hey, I'm doing this myself, but I do want someone to make sure like... just make sure I'm doing this right. So I don't want to give it to someone else, but I do want validation." So what we're describing there is basically a lot of validators. Is that the more common reason for approach is typically investment-driven?
Robb Engen: Really starts from that investment point of view, obviously. And so when I work with them, we obviously go through the whole financial planning spectrum, but typically, it does come from an investment burning question. And you're right, it's the validators. And I would also say there's a bit of inherent bias in the type of people who are seeking me out because not a lot of people know about fee-only or fee-for-service financial planning. And so they typically have heard about me through reading my blog and taught me talking about what I do and my own money philosophies and things like that.
Robb Engen: So they're already coming at it with some knowledge that here's a problem that I can help them solve and then just reading through some of my work they... something clicks with them that, "Oh, this could be a good fit for me," so they reach out. They're not just blind to that this type of service even exists out there. So, definitely, in that validating, like I've been doing things this way, whether through a bank mutual fund portfolio, or on my own, but I really need a sober second thought here, second set of eyes to make sure I'm on the right track.
Jason Pereira: Yeah, that makes sense. First off, not knowing about family planners, there aren't a lot of family planning firms with their names on the side of arenas, right? So it's not surprising just the awareness isn't there. It's interesting you mentioned that specifically that they're specifically self-selecting in because they're aware of your blog and they're aware of this kind of service through services like your blog. And I got into a debate, which I'm sure you saw on Twitter with another advice-only advocate, or sorry, or DIY advocate who basically I at one point in an article said, "Look, I know it's selection bias, but the DIYers who've ever come to me, it was always a mess."
Jason Pereira: And I think, if anything, it's interesting because I can see our experiences being completely different in that people are jumping from a place of just really experimental gambling without education to, "Oh, boy, I really screwed this up. Let me go to a professional who can handle this for me versus what you have, which is, hey, I am doing it myself. I've researched it. I'm relatively comfortable, but now I have this event I'm not comfortable with." So I can totally see how our personal experiences with DIYers coming to us would be very, very different. I'm sure you probably see a lot more vanguard [inaudible 00:06:52] portfolios than I do from DIYers.
Robb Engen: Exactly. Either robo-advisor, very comfortable in that environment, or an asset allocation ETF. Because I talk so much about passive investing, I get less dart-throwing stock pickers. So they tend to come to...maybe I set up this couch potato portfolio seven years ago before these new solutions have come on board. I don't really know if I'm doing it right now. So being aware of the other products that are on the DIY spectrum is important as well.
Jason Pereira: Well, it's funny too because you've solved the problem that exists for almost every other advisor, in that... And I'm attending a seminar on this today on value of advice and pricing and basically explaining value. And where a lot of advisors struggle is in explaining their value to clients. And my typical response is, "Well, then maybe those aren't the clients you should be having, and maybe that service doesn't match up with them. Like you're drawing them in in a way that they know you're the person they want to deal with." I think my marketing does that with a certain segment of the market too, in that, "Oh, this guy's specifically dealing with these issues. This is the person I want to speak to," and they see the value in advance. Whereas the average advisor just says, "Hey, I'm an advisor. I can help you." Well, that's a very abstract concept. And you can't really help everybody to the same degree. So fascinating that your experience is so focused in that way.
Robb Engen: Well, and I was going to say, Jason, one thing that I've really learned over as I started out, it was like all, "Oh, I got a new inquiry. That's fantastic." And, of course, I'm going to strive to help them to the best of my ability, but sometimes it's just jamming a square peg and round hole. And so what I've refined over the last couple years is really that this is the type of client that I work with, this is the sweet spot, that retirement ready scenario. And you're not a Zero Hedge reading gold buried in the backyard, inflation truth, or where you're just not even going to take my advice. I mean, I manage your money, so really, that's what I'm selling. And so that's refining who my client is is really important as well.
Jason Pereira: That's funny, you figured out your niche, but so many traditional advisors can't seem to do. I guess when you don't put up pictures of lighthouse and random, generic terms to try to capture everybody on your website, you take a position. People who believe in that position are going to find you. So there's a marketing lesson for any advisor out there. And that's also a marketing lesson for any client seeking advice, in that find someone who speaks your language, both in their marketing, but specifically when they sit down with you.
Jason Pereira: If they're just talking general terms and can't tell you that they've dealt with cases exactly like yours, because, hey, the big joke, and I'm sure you've heard this before, and I say this all the time is advisors will say...and I'm a little bit guilty of this on my website, but we go to more detail is, "I deal with business owners, executives, and I high-net-worth families." And my response is, "Oh, you deal with people with money. What services have you developed around each one of those three niches to basically differentiate yourself?" And most advisors just look at me at the blank stare.
Jason Pereira: So, yeah, so make sure you're dealing with someone who's basically focused in understanding the true problems that that kind of person does. Famously, there's a guy in the states whose niche is bash fishing champions, which sounds hilarious, but if you win one of those contests, here's a half million dollar check and a bunch of endorsement deals start rolling in, and maybe you never made real money in your life before. That's the kind of person that needs advice at the right time in the right place.
Robb Engen: Right, perfect example of that niche.
Jason Pereira: Exactly. So, we've gotten a little bit off track here, but let's talk about the investment-driven piece, like that's your experience there. I find that's also a bit of a failing in that too much of this industry is always just about the investment stuff and we don't really explain the value of proper planning to people, which I'm sure once they get involved in a process like yours or mine, they come to see that, but they have to experience it first and the industry just does a terrible job explaining itself on that front.
Jason Pereira: Besides the investment piece, for the average main street person, talk to me about what are the triggering points where let's say that they are following a blog like yours or vendors or whoever else is and basically doing their couch potato portfolio thing and they're socking away a good amount of money and they're doing all right, at what points or life events do you think trigger the need for them to get the second opinion from a fee-only planner?
Robb Engen: Well, usually, I come back to either there's that lump sum amount, so, again, there's something changed in there where it's different than I'm socking away my 500 bucks a month or whatever it is, something has changed where they now have to deal with the stakes are a lot higher. And so you want to deal with that event and want to get that outside voice. The other one comes from they're not a DIYer, but they know enough about it that they're ready to take that plunge, and usually for reasons to save on fees. I'm talking about a typical bank mutual fund advised client, one is save on fees. And so they just don't know because there's so much information, so many paths they can take and they don't want to make any mistakes. And so they would come to seek advice for that.
Robb Engen: And so those would be the two big triggers. One is kind of, "I want to save on fees, but I don't really know where to go." The other one is dealing with that lump sum. And then I want to say the third one, which I touched on earlier is the, "I've been doing this and I don't really know what I'm doing. I try picking stocks and that went okay for a while, but then this particular one blew up. Hey, I used to be a dividend stock picker and experienced that with 2015 oil stocks. There's a couple of duds in my portfolio down 50%." I get it.
Jason Pereira: And you read actual proof to prove that's not a thing, but continue.
Robb Engen: Yeah, exactly. So it's really like a check-in on like, "I don't really know what I'm doing. I need to reset my portfolio, but I also have to deal with this legacy of maybe that's easy to do in my RSP and my TFSA, that registered account where I can easily flip the switch to a passive portfolio, but I've got this legacy non-registered account that is filled with capital gains and losses. So I need a plan to deal with this."
Jason Pereira: Yep, excellent. Okay. So they come to you predominantly for the investment piece. You spend a bunch of time on the planning specifically, in general, not just on the investment side. I'm sure you uncover countless other things. I always tell people, they're like, "Well, what exactly you can do for me?" Until you give me all the material, I don't know. That's the reality of it. I'm sure you must uncover all kinds of stuff that even with simple cases that people haven't even contemplated. Care to share some of those examples of things that go wrong that they're not even aware of, like the unknown unknowns to people who are just focusing on investments?
Robb Engen: Well, yeah, I think just because there's so much information out there about the right way to do things. And so I really like to bring things back to simplification, and it may not be the most optimal way to design a portfolio. But if you go back to the philosophy of, "Look, investing's been solved with low cost, broadly diversified risk appropriate passive portfolios, and there's a couple of ways to get there, whether it's through an asset allocation ETF, or individual ETFs, or e-Series funds, or a robo-advisor," just figure out what kind of investor you are. But there's other things even deeper, which are the portfolio allocation. I think I read once, "I should have all my bonds in my RSP."
Jason Pereira: Maybe not.
Robb Engen: But then things get... you have contribution limits and you have, "Only my Canadian stuff should be in my TFSA and whatever," but things that look really nice on a spreadsheet suddenly go live and into the wild and there's contribution limits and there's gains and losses and rebalancing that you need to deal with. And suddenly, that is starting to get really unwieldy. And so, again, it's that reset of like, "Okay, I thought I was doing the right thing by doing this, but now I've created this monster."
Jason Pereira: Well, let's just queue up in the problem in financial writing is that there's a like, "What's the one answer?" People want one answer. And unfortunately, as you know, the answer is, "It depends." And your example there was a perfect example. Well, almost a perfect example, but a perfect example of people go and say, "Okay, this is how you optimize around taxes and your investments." But that's still predicated on knowing rates of return and dividend distribution rates and all this other stuff where, okay, if that works according to your spreadsheet, great, but even a 1% deviation expected return or volatility in some of those things and suddenly you get a completely different answer.
Jason Pereira: There's a reason why that robo-advisors haven't mastered this yet with all the computer technology they have. It's because there's a lot of other things beyond the simple concept of just you pay less tax than this one than you do in that one. So the answer in most cases, it, well, that actually doesn't work very well without predictive knowledge. I get the same frustration around things like advice on CPP, where everyone's saying, "Oh, no, absolutely, you should absolutely take it 70 because the highest payout it's like, well..." But there's cases where that wouldn't be the case. Whether it be and everybody goes to longevity first, but there's also income gaps prior to that, there's any number of situations that until you actually model it out, you're like, "Okay, this is actually suboptimal."
Jason Pereira: So there is no magic bullet or golden ticket in this industry, like everything is dependent on you as the unique snowflake and that's it. So those are interesting ones. Let's talk about the opposite of the spectrum. As I said before, there's obvious levels of complexity where people have complex businesses or basically American citizens, and they have tax fund requirements made they didn't even know about. Those ones, there's a lot of value to be added. So I think to my general philosophy on this has been, "Look, the problem with this industry is it should be about informed consent and it's not." What you just described as methods for investing your money on your own basis and doing so at a low cost, great. Those are there. If you're going to pay a delta for that, you should be getting some sort of service.
Jason Pereira: Now, maybe you're the kind of person who would rather just have someone invest your money for it, you're pay a delta for that, that's fine as long as it's informed. But when people don't know those options exist, that's a problem. And also when people don't get a lot of value for the extra 50 to 75 basis points to pay to an advisor, maybe even 1%, then the question becomes, "What's the point? Are you getting full comprehensive service?" So that's a challenge. So I think in terms of your situation, have you had a lot of people come to you or many people come to you where you're like, "Okay, your situation is beyond my level of comfort. Your complexity is beyond that of a normal DIYer"? And how do those conversations go?
Robb Engen: Well, absolutely I do. When I talk about finding the right client fit for me, I'm very upfront about the type of situations I deal with. And so if you're US citizen, or you've got a medical corporation, or you're dealing with family trusts and just more complicated situations, frankly, you'll be better served in either a model like you offer, or there's even bigger fee-only financial planning firms out there that have... I'm one person that works out of my home, and there's bigger firms out there that have expertise on dual citizens and trusts and things like that or divorce. And so just for me, it's just being aware of those and passing them along.
Robb Engen: And usually, it's a talk about what the reaction is, it's appreciation because I'm recognizing that, "Look, I'm not the best fit for you." And I'm pointing them in a direction where they can go and reach out and get the help that they actually need. One of the challenges I want to mention, though, and especially early on when it comes to fees and pricing yourself, is that initially I was maybe on the lower end of the fee spectrum. And if someone is strictly fee shopping, they could have the most complicated situation in the world. Here's a doctor with an $8 million net worth, and they're seeking out the lowest cost fee-only financial planner to help them. And it's just such a mismatch that I could not give the type of service they need, but they're seeking it out because it's the lowest cost situation. So there's just a total dislocation of our expectations.
Jason Pereira: Yeah, I have a pending article about the industry's poor job at marketing services beyond just investment implementation and how that's actually hindered the entire industry for a long time because you get those situations right there. Let's just imagine that case had like $4 or $5 million involved in it. The delta on a mistake is just so bloody huge. And if you're haggling because you think you shouldn't be paying more than $1,500 for something, I don't know what to tell you. I really don't know what to tell you because that's a big one. And I think you hit upon another key point and it's almost like this is almost becoming a practice management conversation for advisors.
Jason Pereira: And again, a word of caution for people who are shopping for advisors, and this was largely covered also in my interview with John DeGoey, it should be a two-way interview every time you sit down with a new prospect. What is it that that person needs? Can I provide value? And I always talk my conversations with like, "Listen, the goal today is to point you in the right direction. That might be my firm, it might be someone I know. But at the end of the day, I want to point you in a direction of whomever is going to service you best." And sometimes that is a, "Hey, I want to manage my money. I don't want anyone touching it, or I only want a fee-only engagement, or thresholds, or investments are too low, or levels of complexity are actually outside my comfort zone," which, yes, that does exist. The reality is I do a lot. I think I refer probably about 66% to 75% of all prospects that come in the door because it's not a fit.
Robb Engen: And that's why I want to highlight is that it is exactly that two-way street. But I think what's really important is putting your message out there in such a transparent way so everyone who comes to my website knows the fees, they know the type of clients that I deal with, they know the level of service they're going to get. And so just by reaching out there, hopefully, that their level of understanding is that, "I think this is going to be a good fit." Now, we do the interview. Can I actually help you? Does this click?
Jason Pereira: I will say, unfortunately, some dealerships will not permit fees to be published. I had this sergeant previously and I'm going to win that fight, next website update. But the point in is that... so that's an issue. But the ability to at least when you meet with them transparently explain down to the whatever number of digits exactly what you'd be paying and what you'd getting in return, that is vitally important. So, yeah, that level of transparency, whether it be on the website or after is hugely valuable.
Jason Pereira: But I'll tell you, whenever I get an email that says, "How much do you charge... No, sorry, how much you a charge for plan?" It's like, "This is the wrong way to start a conversation." Like, "Here's the range, but if you want to know why I charge that, that is a separate, more important conversation." So this is... as I like to say, we're not buying a toaster here. This is not some sort of blind commodity. And I think I have a real issue with the concept of a plan as a product. There are some people where just buying a one-off plan and going to their own devices and basically following that plan because maybe they have the ability to follow that plan, but work perfectly fine. But the majority of them, to my experience, they need someone to coach them through that process and get things done.
Robb Engen: I thought of one more example if we swing back to DIY investing...
Jason Pereira: By all means.
Robb Engen: ... and a typical one that I've been dealing with now is oftentimes, I'm sure you know this, that there's been one, let's say, chief financial officer over the household and his spouse has or wants nothing to do with the whole process. And if that person is the investor, then, okay, well, let's call it out and it's usually the male of the relationship...
Jason Pereira: Gender dynamics being what they are, unfortunately. Yes.
Robb Engen: Yep. And in a lot of cases, an older male. So now, we've got the older male dealing with all the investing and building this crazy portfolio of stocks and ETFs and whatever they're doing. What happens if they predeceased their spouse? And so this case of like they're so fixated on saving the fees, on paying an advisor to manage this for them, that they've DIYed this whole portfolio, but what happens if they don't have the mental capacity or expire before their partner does, what do they do? The worst thing they want or the thing that they don't want, what I've understood, is that they don't want their spouse to go and walk into the big bank and hand it over to the mutual fund portfolio. So I said, "Well, you need this plan." You need a plan to say, "What am I going to do?"
Jason Pereira: And if your spouse is not a DIYer and is a delegator, this is... I've have clients where that's been the case, where it's basically like, "Look, I think I was doing fine before, maybe they were okay. But the reality is that I'm 70 something years old. My spouse has never wanted to touch this. I need to know she's going to be okay." And waiting until simply saying, "Go there when I die," frankly is not good enough because that's the worst possible time to try to transition something.
Robb Engen: Exactly. Yeah. So I wanted to mention that one because that's becoming more and more... It's something I need to pass on onto those types of clients, where I see that situation and it's one of those things where you don't know unless someone just pointed it out to you, like, "Yeah, what will I do in that case?"
Jason Pereira: Yeah. And even in the adviser world, still one of the number one reasons that people lose clients is that you didn't engage the spouse, the spouse that was engaged died, the other person felt they weren't heard. But I will say it is a challenge because... And I've seen this on both genders, one person have very responsibly involved, the other person just wants to leave it to the other person. But you can still have a very... You don't have to leave the relationship at the same level.
Jason Pereira: There's plenty of spouses, and again, I will say I've had them in both genders, where even if one spouse is handling all the numbers in math and holding me accountable to all that, that's fine. But the other one, I still have a dialogue with, and I still just find a way to talk on their level because at least when something goes wrong with the person who's the person running it, and then they become a delegator suddenly, so is the household. You have an existing relationship where, "Okay, I built up trust with this person and they know that I have the ability to then take the delegated authority." So life happens, right? That's what it comes down to.
Robb Engen: Absolutely.
Jason Pereira: So, overall, and I'm going to... guy dedicated a full episode of this previously. We also covered a little bit what to look for when selecting someone. Before we close up, any kind of final word on exactly if someone decides to... go back to the final words part, any final words on essentially when you have the life event that makes you decide that you want to get advice, whether... And sometimes it's not a life event, sometimes it's just like, "Oh, my portfolio's got into this." Now, the stakes are higher, whatever it is. When you decide to go from DIY to an advised model, what do you look for? What should you be looking for besides the examples we just gave on two-way communication of value and transparency?
Robb Engen: Well, I like how you put it when you're looking for someone who speaks your language, like someone you can really connect with when there's just so... like there's so many advisors out there that have planted their flag. And so who connects with you? So you're looking for referrals, you're looking for just someone that at least can understand where you're coming from. And typically, you're going to have at least the background to say like, "This is getting too big for me to manage, that's why I'm coming to you." But you still have those ingrained beliefs on how it should be done. And I think for the DIYer, that's the big struggle is letting go.
Robb Engen: And so as long as the portfolio itself, again, if we go back to the investing is one component of that financial plan, and so at least if we're speaking the same philosophy on this is the type of advisory you are, whether you're like a dimensional factor funds, or you are investing in low cost ETFs, as long as we are on the same page there, I know where you can add value in other ways that I am just not privy to on the whole financial planning tax awareness and estate planning and all that. As long as maybe those investing philosophies align, it's not someone trying to sell you their secret sauce or something in a black box that is transparent. I think that's a key is like it's open, it's transparent about what they're going to be doing with your money so that you can now move on to the other important factors.
Jason Pereira: Yeah, the first thing they're promising you is return or try to sell you a whole life policy, but you should...
Robb Engen: Run away.
Jason Pereira: ... run away as fast as evenly possible, especially if they can't clearly... I mean, some of the stories I have of prospects who've won in the past were like, "Oh, well, the other guys just sat there listening to me talk for five minutes and then pulled the sheet out of the briefcase and said, 'This is what I will put you in. Don't worry, I can change it if you don't like it.'" It's like, "Oh, so the solution was just magically in your briefcase the entire time and five minutes is all it took for discovery? That is remarkable. That's a magic briefcase." Those types of behaviors for people who don't listen and people can't show their work, absolutely, you have to watch out for that.
Jason Pereira: I will also caution listeners that everyone in this industry seems to claim that they do comprehensive financial planning now. I think the number one question to ask is how many clients do you have? Because for those of us who do it, Robb, I mean, you're doing fee-only planning, how many engagements would you say you do in the average year at this point?
Robb Engen: Say maybe 80 would be the top end of that.
Jason Pereira: And you know what's interesting is that that's based on US research, 60 to 100 is the range for number of engagements on a planning level that you can actually maintain in the course of a year. So if you're a fee-only planner, getting through 80 engagements a year is roughly around the number of fee-based households that someone can deal with. So if the number is closer to the Canadian average of 300, you know with basic math, they're not telling the truth. There's just no way. If they don't have three to four client-facing advisors on their team who handle the implementation, they're not telling the truth.
Robb Engen: And that's on the client end for interviewing the advisor that's incredibly key. But going back to kind of the more practice management side of things fee-only planning is not really something you can scale. Every situation is different. You're digging into all that. So I don't want to spend 100 hours a week doing this either. So I've planned my life in a way that I only take on a couple of new clients as I can spread them out throughout the year so that I can dedicate my time to the clients that I'm already serving.
Jason Pereira: Well, you nailed it right there in the head. It's interesting combination of factors. One, when I hear people in technology talk about, "And this will allow advisors of service more clients," I'm like, "What do you think advisors do?" If I'm selling investment scale to infinity because... I mean, robo-advisors have thousands of clients per rep because it's only putting out fires when they come up, or when people inbound calling. But to be proactively involved in someone's life, that does not scale. So, absolutely not. So I always laugh. I'm like, "You guys have no idea what you're talking about, if anything is going to free up my time to do more for those same group of people."
Jason Pereira: And the second piece of that is the simple fact that based on... again, I'll go to US research because this is where they're more ahead of us on this. The average financial planning engagement in the US takes over 10 hours, just for the financial planning portion. So you can't...
Robb Engen: Simple math, it's simple math.
Jason Pereira: It's simple math.
Robb Engen: Hours on the day.
Jason Pereira: Exactly. And I've seen technology that will shorten that, but how much is it going to shorten it to? And that's the reality. So the reality is the number of hours in the day, number hours in the year. Just do the math, someone's got 300 households. Subtract... How many working days are there in the year? It's under 300, or whatever it is. No, it's like... I can't remember what it is. But it's probably under 300. But the point is that just do the math on how much time you spend on your digital case, and you'll find you're dealing with someone who's selling a commodity priced as a premium experience, and that's just not a winning recipe.
Robb Engen: And what are you going to do when March 2020 happens and the phones are ringing off the hook, like you're just digging yourself a huge hole?
Jason Pereira: Well, the thing is that, characteristically, the most common thing that's said is I had to hide under my table because of the phone calls. I hear that and think to myself, "Oh, so getting paid for basically stewarding people through the downside, which you said you would do is not a thing you do. Interesting." But I say two things, A, someone who's properly contemplating clients' risk tolerance and goals and everything and putting in place financial plans, they're not going to be inundated with calls. I was not in date inundated with calls too much.
Robb Engen: Right, they're not panicking.
Jason Pereira: I had two panic calls. I think at the firm, 235 households had 5 panic phone calls. These are just people where that's their level, that's their personality. But as for the rest of it, the other flip it around, we were proactive into phone calls specifically going to every client over the course of the next month and covering everyone and just having a conversation about how this was impacting them. And you can't do that with 300 households per advisory.
Robb Engen: Just not a chance, not a chance.
Jason Pereira: Not a chance. So I think the message I'll give on DIY versus advise is someone wrote this previously like, "The cost of investment implementation is 25 to 50 basis points." That's a robo-advisor. Cost for an advisor is probably, on average, at least 1% on the first million or whatever it works out to be. What are you getting for that 50 to 75 basis points in delta? And I think there's lots that can be done to earn that, but not for everybody. And where that's not the case, then fee-only planners and that kind of engagement that doesn't have to be ongoing or doesn't necessitate ongoing is a great option.
Robb Engen: Yeah, I totally agree. The 1%, you can earn yourself quite easily in the whole spectrum of financial planning. And I think we talked about this before we went live, but there's that type of ongoing implementation where not only is someone dealing with a significant sum of money, but they just don't have the time or desire to. And so, yes, I want a professional who agrees with my philosophies and I trust what they're doing, but I don't want to do the day-to-day implementation. And so that's an absolute case to hire that out to a full-service advisor.
Jason Pereira: Excellent. So, yeah. So I think at the end of this conversation, there's a gray area where you're okay if certain check boxes are hit on one side, and there's another area on the other end of the spectrum you have the absolute need for full on continuous advice. And then there's this big, like I said, gray area in the middle, where, depending on the person's situation, it goes from one the other. I'm sure you've come across cases where you said, "Nope, you're doing everything right and you're good to go." Again, self-selection bias. I don't get a lot of those. I get a lot of complexity where there's something somewhere that basically I wasn't there, but I do believe that there are people out there doing the right job on their own.
Robb Engen: And in that validator model, as you said, maybe they are doing the right things, but they want that sober second thought, that second set of eyes to just walk them through and make sure that there's no holes to poke through the plan.
Jason Pereira: Yeah. And question for you too before we wrap up on that one, do you get much resistance when you poke something out? I'll give you some examples of the DIYers who rarely come across my table. Like in this case, it's like they'll be 100% Canadian stock because it's 100% Canadian dividends, it's all they really want. No consideration for risk tolerance, but they'll talk about how they almost wanted to jump off a building, but a market correction. And it's like, "If that's your line of thinking, something's wrong." Anyway, I've had the hardest time with those people for them to ever believe anything they're doing is wrong. In your case, how receptive are people to this form of constructive criticism?
Robb Engen: Again, because of self-selection, they're pretty receptive because we already have that kind of rapport going into it. But there are some certainly some preconceived or hardwired notions that, "I'm doing things this way because," and just pointing out the evidence around whether it's investing a lump sum immediately, or the research around CPP and deferral, or, "I'm convinced that I'm going to take the commuted value of this pension and invest the money." Well, have you done the math and the checklist on why you might want to take the monthly pension? Let's do that. Because unless we do it, you're convincing yourself that this is the solution one might not [crosstalk 00:33:20].
Jason Pereira: Yeah. And how much of what you read online was by people who basically only profit if you take their commuter value and then invest it for them? I mean, talk about massive conflicts of interest in that space, man. It's nuts. So, yeah, it's interesting. I think, again, it goes back to... And again, clients don't agree with everything I tell them to do, and I don't fire them for it. It comes down to informed consent.
Jason Pereira: You want to do something... Here's what this is, this is suboptimal for the following reasons. If you don't want to listen, you're fine to not listen because whatever reason that you feel you want to do, but you've been informed. There doesn't have to be a beat them over the head with it. Tough love is important when they're not going to get to the finish line if they keep doing that. But if it's not going to hurt them and they're going to be suboptimal because they want to be and-
Robb Engen: It's harder where I'm coming from because I'm just advising. And if they just don't believe it, they're not, of course, going to listen to that advice and do it. So they're going to do things a certain way and then they might come back to me and go, "Well, didn't you tell me this? And I've been doing it this way, but why did you tell me that again?" And I'll explain it. And I had a perfect example of someone who Canadian dividend focused DIYer long legacy portfolio, and he emailed me and said, "Robb, something finally clicked. I had a breakthrough."
Robb Engen: I thought I was getting this Canadian dividend income as super tax efficient income, but it was when I was in a period of low income when I had just retired. And now that I'm adding my RIFs and my CPP and my OAS, it suddenly the math doesn't really work out [crosstalk 00:34:46]. Yeah, exactly. So he had a breakthrough, and it took two full years. And so they sometimes get it eventually.
Jason Pereira: I always find dividends an interesting when Canada for the mental accounting bias of, "Yeah, it's cheaper because some taxes were paid by the court." But at the end of the day, when you had the total tax bill, there really wasn't a savings and capital gains are so much more efficient. It's nuts. It's what it is. Yeah, we were talking about that one on Twitter the other day. That was funny. Anyway, so this has been great. I think if anything, we didn't come up with a definitive checklist as to why you do this because I don't think there is one. I think it's case-specific. So I think if anything, if there's a question of whether or not you should be doing it, you should be reaching out to people who can have a sincere conversation and not just try to sell you the second you get into the door. So that could be me, that could be Robb, that could be many of people in our networks, but I think the message is-
Robb Engen: Well, certainly, yeah. Like certainly, at some point in your life, that little voice in your head is going to go, "Am I doing the right thing?" whatever that situation is. If that little voice is telling you that, maybe it's time to reach out and just at least get the conversation started with an advisor and see where that can add some value for you.
Jason Pereira: I would also say the one piece I'll add to that, not just for me, but for the people in my family, because I see this all the time and I'm sure you've seen it too, one spouse is super risk-averse and will basically just has no problem with putting it all on GameStop or whatever it is, and the other spouse is completely the opposite. It's almost a dynamic in my house, but not that quite risk-averse. And it becomes... that's a financial conflict, is a big reason for divorce.
Robb Engen: I didn't picture you as a meme stock investor, Jason.
Jason Pereira: I'm not a meme stock investor, but when my wife filled out a risk-averse questionnaire, my response was, "Are you 90?" So point being that it can be a major... So it's not just yourself that's doing the right thing is are you doing the right thing for your family? Is there a middle ground where you can both be happy and basically make sure that what you're doing is going to take care of not just you, but them?
Robb Engen: Yeah. It's a great point because that you often talk about that chief financial officer and they're DIYing both spouses' accounts, and maybe that spouse is ears perked up or eyebrows raising going, "What are you doing now? Maybe we should seek out a second opinion."
Jason Pereira: That goes well with [crosstalk 00:36:52].
Robb Engen: Yeah, exactly.
Jason Pereira: I'll tell you, the risk-averse spouses tend to anchor very heavily on what the highest portfolio value was. So it's like they don't care from 50 grand to 500,000. They know that the spouse took them from 500,000 down to 300,000 and that's a problem. So here's what it is. Excellent. Robb, thank you so much for your time. Where can people find you?
Robb Engen: You can find me at boomerandecho.com. And that's where my blog is, and you can read about my fee-for-service, fee-only advising.
Jason Pereira: Excellent. So that was this week's episode of Financial Planning for Canadian Business Owners. Again, there's no definitive checklist. As always, it depends. If you are listening to this podcast because you're a successful business owner and you have a lot of different corporations or structures in place, guess what? You're definitely on the advice side. You're not on the DIY side anymore. If you are someone who's a T4 employee listening to this and basically socks away their normal routine money into a robo-advisor, you know what? A pulse check with someone like Robb is definitely a value, but probably doesn't necessitate a full-blown engagement like myself. So figure out where you belong, listen to the people who know what they're doing, make sure you find the right advice. And until next time-
Producer: This podcast was brought to you by Woodgate Financial, an award-winning financial planning firm catering to high-net-worth individuals, business owners, and their families. To learn more, go to woodgate.com. You can subscribe to this podcast on Apple Podcast, Stitcher, Google Play, and Spotify, or find more episodes at jasonpereira.ca. You can even ask Siri, Alexa, or Google Home to subscribe for you.