Meet Eric and Ilsa, the Vancouver couple who broke the internet last week when their Financial Facelift feature in the Globe and Mail went off the rails.
It started with sketchy details – Eric, a physician, made $200,000 working one day a week at a clinic, plus another $100,000 teaching one day a week at a medical school. Despite earning $25,000 per month, and living rent-free in a relative’s home, the couple was running a $5,000 per month deficit.
The advice was obvious: work one more day a week in the clinic and bring in an extra $50,000 to $100,000. Problem solved. But then the story took a bizarre twist. New details emerged claiming the good doctor actually worked 80-100 hours some weeks and so working an extra day was not an option. The Globe also revealed that the doctor spent $6,000 per year on professional fees, not $6,000 per month as originally reported.
These revisions were buried in a footnote at the end of the article with no mention of the fact that the entire narrative and advice were now rendered useless.
Twitter blew up. The internet pointed and laughed. Not at the 1%, as some have suggested, but at the absurdity that financial advice can be boiled down to 800 words without any of the nuance that makes all of our circumstances so unique and personal.
Because Money
We recorded episode 26 of the Because Money video podcast this week and, as you can probably guess, we talked about the Eric and Ilsa debacle. We were joined by Certified Financial Planner Alexandra Macqueen, who has participated in two Financial Facelifts as “the planner”. Read the full transcript here, or watch the 30-minute video below:
This week’s recap:
For our Alberta readers, I’ll be participating in a live launch of ATB Financial’s TrackIt money management tool on January 27th. Think Mint, but without the potential for violating your banking agreement. This tool allows you to pull your account information from over 10,000 banks and retailers, track your spending, and create a budget.
On Monday I reviewed Portfolio IQ, the new online wealth management service from Questrade.
On Wednesday Marie asked if you’d benefit from working with a financial advisor.
On Friday Sandi Martin guided us through hunting season – otherwise known as RRSP season.
Over on Rewards Cards Canada I wrote about this $100 gift card promotion.
Weekend Reading:
Of course, the biggest news of the week was the Bank of Canada’s surprise decision to cut interest rates from 1 percent to 0.75 percent. Unfortunately the banks, which traditionally move in lock-step with the BoC, have yet to pass on the rate cut to consumers.
Rob Carrick says the message behind this rate cut is for consumers to resist the urge to borrow more.
Morgan Housel from The Motley Fool uses a relatable story to explain why we overpay for financial advice.
These parents were billed $29 for a no-show fee after their five-year-old son missed a birthday party.
Big Cajun Man takes issue with a new RESP provider – Giraffe and Friends – for dumbing down its financial products to the point of being condescending. I checked out this provider to see if I could find a “gotcha” that I could warn readers about. The company appears legit, however, and certainly a better choice than any of those scholarship trusts that use shady tactics to prey on new parents.
Adam Mayers cautions us about market-linked GICs – when a 9% return isn’t quite what it seems.
Ellen Roseman says a natural gas contract won’t save you money.
An 86-year-old woman has spent the last decade living on a cruise ship at a cost of about $164,000 per year.
Jonathan Chevreau’s weakness for CDs got him into credit card trouble in his early days as a freelancer.
Ben Carlson says that doing nothing is often the hardest move to make in the financial markets.
Michael James has a smart take on the notion that index investing means settling for being an average investor.
Canadian Couch Potato Dan Bortolotti learned a valuable lesson about trading ETFs on days when U.S. markets are closed.
Finally, here is how Netflix in Canada stacks up against the U.S. version when it comes to the total number of available titles.
Folks, it’s time to break out your fluorescent orange safety vests and get ready for hunting season. Across the country, bank employees are flipping through lists of RRSP leads, and – if you any products at all with the bank – your name is on one of those lists.
Normally, of course, an orange vest is supposed to distinguish between the hunter and huntee, and you – dear Mr. or Mrs. Client – are definitely the latter.
Related: 5 common myths about RRSPs
If you don’t receive a “Hi, Mr. Client, it’s Bank Employee McBankerson here at your local branch, and I’m just calling to book some time with you to discuss this year’s RRSP contribution” phone call this year, it’s because the person to whom you were assigned chickened out, was fired, or had one (or more) of their digits severed in a tragic dialing accident. And – whatever the reason – they’ll be answering to their manager (and their manager’s manager) about it later.
Your RRSP dollars are a trophy that every institution you deal with wants to hang on their wall. Your job is to find the wall that’s most appropriate to hang on, and not fall to the first shot fired by the hunter who spots you quickest.
Hyperbolic? Definitely, but I’m not overstating the case by as much as you might think. Contributing to your RRSP isn’t a bad thing, provided you’ve thought it through. An RRSP at a bank is better than nothing at all, even if you end up paying punitively high fees for a portfolio filled with overlapping funds suggested by successive advisors without any thought to how they fit together or contribute to *your* bottom line. A low-fee, well-diversified, regularly-rebalanced portfolio is unequivocally best of all.
Related: Breaking up isn’t hard to do – How to transfer your RRSP
This year, if you’ve thought through the RRSP vs. TFSA decision given your present and anticipated income, I want you to do something for me: If your RRSP is at the bank and you were going to go there by default, plan on going twice.
Think of your first visit as a job interview. The person across the desk from you might be competent and experienced but under lots of pressure to sell the flavour of the month fund. She might be competent and experienced and immune to sales pressure from above. She might be incompetent, inexperienced, or both. You might not be able to tell the difference. Your job on this visit is to ask a lot of questions and listen to her answers. That’s all.
This visit is also a research trip. You’re collecting facts about the investments recommended to you: what they are, how they fit together, how much they cost, and why these funds in particular are the ones being recommended. This research, in particular, is why I want you to make two trips.
I know the exact feeling you have when – at the end of ten minutes of chat, fifteen minutes of questions about your risk tolerance and net worth, and twelve more minutes of name, address, and date of birth minutiae – you’re presented with disclosure documents and expected to sign the account agreement while they’re still wet from the printer. You don’t want to waste any more time, you don’t want to ask any more questions, and you especially don’t want to sound like you don’t understand what she’s talking about.
Related: What does pasta have to do with RRSPs
I don’t want you to have that feeling. I want you to know from minute one of the meeting that you will pay attention, ask questions, and consider carefully everything presented to you…and then walk away, fund fact sheets and prospectus in hand, to make the decision only after you’ve had some time to think.
This thinking should take place in front of a computer. With the fact sheets for each individual fund you own and any new ones that were recommended to you, head over to GetSmarterAboutMoney.ca.
Start with their fund facts interactive sample, which will help you navigate the ones you have in your hands. Move on to any articles about mutual funds that catch your eye, and don’t forget to stop at the fee calculator.
Remember, you’re not looking for a fund that’s done spectacularly well in the past, you’re looking for a portfolio that is diversified across countries and types of companies, balanced across stocks and bonds in a way that you’re truly comfortable with, and has low enough costs that one-third of your lifetime returns aren’t going to be eaten up in fees.
Related: Robo-advisor battle royale
Has your perception of your advisor’s competence, experience, and sensitivity to sales pressure changed? Is she worth going back to? Or do you need to start thinking about interviewing alternatives, places like Wealthsimple, NestWealth, WealthBar, Steadyhand, Mawer, or Leith-Wheeler? If so, park this year’s RRSP contribution in a cash account until you’ve done some more research, give yourself a deadline to decide, and get researching.
Sandi Martin is an ex-banker and fee-only/advice-only financial planner at Spring Personal Finance who specializes in working with regular folks who suspect their money might be a bit of a mess. She lives in beautiful Muskoka with her husband and three children, and works online and by phone with clients across Canada.
January is typically the time to make resolutions for the coming year. They most often involve some type of self-improvement – lose weight, get more organized, get a handle on your finances. Yet the reality is that by the end of the month almost 90% have already bailed on their resolutions.
Most often it’s because the resolutions are too general and too vague. After a few days or weeks an obstacle crops up, you get bored, or you don’t know what the next step is.
Related: A new fee-only financial planning service
This is why many people need a coach or advisor to help them get to the next level of success.
Let’s make the analogy of wanting to get fit. After getting a gym membership or buying the necessary equipment for a home workout you feel well motivated to start and go all out. Then your muscles start aching, you start pushing the snooze button instead of putting on your workout gear, you eat too much at a family gathering, and before you know it you’re procrastinating and then giving up altogether.
This is where hiring a personal fitness trainer can get you back on track. He or she will:
- Ask what your goal is – lose weight, look good in a bikini, perform better at your sport.
- Identify your unique circumstances – age, level of fitness, previous injuries.
- Recommend a routine to accomplish your goals.
- Help you implement your routine and do the exercises correctly, avoiding questionable fads (Shake Weight, Fat Burning pills).
- Review your progress and help you get back on track if you have a setback.
Sound familiar?
A personal financial advisor can offer you an objective viewpoint on your financial situation. Major life events and changes such as a new baby, divorce, starting a business or choosing your retirement date may leave you second guessing difficult financial decisions.
Related: Where do you get your financial information?
If you are repeatedly having trouble achieving your financial goals, an advisor can provide guidance and encouragement along the way. He or she can show you how to allocate your paycheque to cover debt repayment, taxes, insurance, retirement plans, and living expenses, and help set you on a clear financial path that will give you more peace of mind.
Final thoughts
There is a vast array of resources available if you prefer the do-it-yourself approach for working on your various plans and goals. If you’re already managing well on your own there’s no need for outside input.
But everyone makes mistakes. After eating an entire chocolate truffle cheesecake, or spending your hard earned savings on a weekend in Las Vegas you may be tempted to throw up your hands and quit.
Instead, if at first you don’t succeed, you can try again – but don’t discount seeking advice. Whether it’s a financial advisor, personal trainer, weight loss (Weight Watchers, TOPS) personal organizer, life manager, or business consultant, there’s the right professional for the job.
Related: Steak knives, yes. Financial advice, maybe not
Sometimes, if you think you’re not progressing, paying for an advisor, coach or trainer may be just the thing to guide you back on track.
An advisor’s main role is to set and manage realistic expectations, maintain discipline, motivate you to do better, and hold you accountable for your behaviour.
You can pay for ongoing coaching and service or a one-time only analysis to get you back on track.
If it gets you to your desired goal, then it’s money well spent.