Fearless Finance – Vol.2 Truth Bomb
Are all financial advisors created equal? Well, I can’t proclaim to know any secrets of humanity here, but I can confidently say that not all advisory practises are equal. Here’s the truth about what choices you have, what questions you might want to dig into, and what you need to know before working with a wealth advisor.
What is your training and background? This is such a crucial starting ground. Beyond designations and letters, you need to understand the experience and the field of expertise this advisor has. Does this align with your needs? Do they have the level of knowledge you need to reach your goals? As the industry isn’t regulated, you really need to look for designations. Not just letters but what those letters mean matters.
How do you get paid? This one is CRUCIAL. It’s important to know how your advisor gets paid and the options for paying them, so you can can ensure you are entering into a partnership that serves you and your needs. If the advisor can’t answer this clearly and transparently, turn and walk away. Any advisor worth their salt should be happy to articulate how and why they get paid.
Industry insider.
There are three common ways in which advisors are paid in the Canadian industry. Understanding these can give you insight into what influences how that person interacts with you as a client and an investor. It also helps you to ensure you are working transparently and in line with your values.
Fee for service. If they are paid this way, it’s usually tied to your wealth assets and they will look to consolidate large assets for a commission fee. This can be a transparent and fair way to be compensated in the industry, usually for high net worth individuals ($250k and above). If an advisor states they use a Fee for Service model, ask them to explain their fee structure so that you can understand if you have enough assets to receive value for the fee. Also ensure you understand what you can expect for service. There’s a big difference between someone who charges a 1% fee and you hear from them once every few years, versus someone who charges the same fee but is reviewing your funds consistently, meeting with you regularly and offering additional planning recommendations or advice.
Embedded commissions. This is a traditional way of advisor compensation in Canada. It is “hidden pay” because it often goes unnoticed as it is built into monthly premiums or other fees for products. No, this isn’t evil or skulduggery, it’s just important to know so you can choose how you want to work based on the needs you have. Now, if someone does not disclose this – that’s a pretty big red flag.
Salary. This is most common in banks and large firms. Again, it’s not evil, but who are they working for – you or the firm? Who’s interests are in the driving seat of decisions? Is the organization not for profit or very much FOR profit? What is the impact if markets tumble and your assets are impacted? Depending on the role of the advisor, salary could mean time to care and service or it could mean complacency.
The newest method of advisory practise is advice only planning. This is a great entry point for many Canadians. It means that you can pay for the services you want, and not be tied to purchasing products or investing a certain way. It’s crucial here that you know their hourly rate and services they offer so you can choose how you will be best served. For folks with lower assets or building assets (under $250,000) this can sometimes be a money saver depending on the level of service you want to participate in.
This is not to say who you should work with. Nor, is it to make a case for DIY and fear of professionals. The exact opposite. This is a disclaimer to say that the more you know the better position you’ll be in. An advisor can be a trusted partner and confidant. Someone who has your back during the worst times in the journey and is your biggest cheerleader during the good times. There are different needs for different milestones. And things you didn’t value once, like paying for planning and tax advice, might be crucially important to you down the road.
Make sure there is trust. Make sure there is knowledge. Make sure there is transparency in conversation. Trust your gut before you trust anyone with your hard earned money!
I hope you enjoyed V2 of Fearless Finance! This fall I’ll release Volume 3: A conversation about defining your relationship with money and re-writing your money story with Constanza Safatle Ferrari of Newbornlander!
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Fearless Finance – Vol.1 Colleen Denty
Krista
To start, why don’t you share when and how you decided to switch to a value led life?
Colleen
So I’ve always found change very exciting. I loved a new semester in university so I could choose new courses, loved doing semesters In St. Pierre etc. While I loved many aspects of teaching, I didn’t see it as something I would do forever. I had a great relationship with the kids, but school is so structured in the schedule etc. and I don’t love that. When I met my husband, I quickly realized that he would retire a long time before me, which I clearly couldn’t have, so I started thinking of things I could do to speed up my retirement.
I first got obsessed with investing. I would spend all weekend at the table reading books, articles, listening to podcasts, blogs, YouTube etc. Then when I felt comfortable in my knowledge I started.
Krista
I love that you started with education. That’s a step most people forget oddly enough!
Colleen
I did this for a few years and the more I read, the more I realized that real estate is a great investment and way to grow wealth. We started by buying a long-term rental in Clarenville, then a small cottage in Port Rexton and then the snowball started and now we have 14 units! This allowed me to take a year from teaching to figure out what ‘I wanted to do.’ I found the company I work for now. I was 2 weeks in, and I emailed the school board and resigned!
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This is something that I really want to highlight.
We often make the mistake of thinking about an end goal only. Colleen wanted to find a way to retire early. She could have just stayed later focused on that. Instead, she kept herself open and had a milestone goal of replacing enough of her income so that she could take a year off. This year gave her clarity and allowed her the space to be able to explore different lifestyles and options with her husband. So, if you want a career change or lifestyle change- focus on replacing 1 or 2 years of income first. Then spend that time without financial stress, to see what doors open for you. Now, instead of having to save to retire early, Colleen has a career that supports her goals and lifestyle values. If her end goal had just been to save and invest aggressively to retire early, she may have missed out on the opportunity that led her to her dream job and lifestyle goals.
Krista
Where did this focus come from?
Colleen
I’m a person who hyper focuses when I’m interested in something. I knew I wanted to do something to give me more flexibility and freedom, but I didn’t know what. Once, on YouTube, I came across a video about a family who retired at 39 and I was like, “what is this magic?!” I started learning about the FIRE movement. I started listening to podcasts and watching videos nonstop. We would drive two hours a day to work, and we would consume podcasts. My goal was to be like them and semi retire before 40, which I did.
A note about the FIRE movement.
FIRE, or Financial Independence Retire Early, is a movement that is adopted with focus of early retirement at any cost. It is the only financial focus for this style of planner and often involves large sacrifices of time, money and relationships as a trade off to being financially free at a very young age. The theory is; by increasing your ‘golden years’ you will ultimately have more time to nurture relationships, have experiences and enjoy life. Many FIRE followers are now reporting that they regret their extreme ways as it ruined friendships, separated them from family and kept them from reaching meaningful life and career goals. Like anything in life, when done to the extreme, saving, cutting expenses and eliminating debt can cause additional stressors and take away from, rather than adding to joy. Not that there is anything wrong with the concept that FIRE followers prioritize saving, but please keep your values in mind. If Colleen had blindly just followed SAVE and RETIRE, then she may have missed out on the opportunity which led to her now living her dream life, with her dream job! When Colleen and I spoke about this she emphasized that she leans heavily into the F-I pieces versus the R-E. Which makes total since. Her focus was and is on financial independence and the ability to build passive income, cash flow security and fund a travel lifestyle. Understanding these types of concepts in context are so important.
Krista
What’s your first memory of money?
Colleen
I remember being a kid and I had this little pink and blue piggy bank. I remember saving money and being really excited about it.
Krista
What was your relationship with money before you started this?
Colleen
My money journey has been all over the place really. As a kid I loved saving. When I started teaching, I started racking up credit card debt. So, it’s been the whole spectrum. My dad always talked to me about saving and investing but not as in depth as I am now, so it’s been in the back of my mind but of course as a teenager you rebel and think you know everything. So, I didn’t really do it back then.
Krista
How did you save for the down payment for the first rental?
Colleen
We just aggressively saved. No real magic pill. We decided to rent out our house one summer while we were in Portugal for a month. We put all of our personal effects in the attic. When we got back, I said “Wow! That was easy!” Then we decided to put it on Airbnb for the rest of the summer. We didn’t have anywhere else to live so we would camp, sleep on our boat (much less glamorous than it sounds), go to my parents for the weekend etc., whenever the house was rented. We were essentially nomadic, but…this was our way to grow financially.
I think we made 6k. So, we saved that and saved aggressively the rest of that fall and then a house came up that we were interested in around December. We took some money from our TFSA (Tax Free Savings Account) and the savings we had and used it for a down payment. It was a tiny house, but it was on a big piece of land in the woods and close to everything…. We (did some renovations) …and made it a two-story house. This one is now our most popular rental.
Krista
Did you then use equity from one to finance another?
Colleen
In some cases we did this. In some cases, we took the income from the short-term rentals. Now we are at the point where we are buying them in cash. We sometimes use the BRRRR (Buy, Renovate, Rent, Refinance, Repeat) method. We would by houses that needed a lot of work, move in, renovate them, rent them and do it again. I think I lived a good part of 5 years without a kitchen. We would wash dishes in the bathroom and cook on the camp stove in the yard. It was hard but so worth it.
A word about BRRRR
The BRRRR method is a real estate investment strategy that involves buying a property, renovating it, renting it out, refinancing it based on its increased value, and then repeating the process using the equity from the first house to buy another property. This can be fun, stressful, lucrative and certainly story worthy. But it’s not for everyone.
Krista
Have you ever had fears or worries about investing?
Colleen
I was scared at first. Every time we put an offer on a house I couldn’t sleep. Now it’s second nature. We walk into a house and decide if we want it in 5 minutes. I always run the numbers to make sure its viable and I usually try to get a ROI (Return on investment) of minimum 12% on a property. Dan is handy, so he checks the houses for any issues, and I come up with the Reno plan.
As for investing in the market, I was nervous at first, but I did so much research I felt reasonably confident. We got to the point where we were investing 60% of our income. I didn’t look at the market, I was in it for the long game so I would put it mostly in ETFs. If the market went down, I looked at it like it’s on sale.
Yes, Queen – PREACH!!!
When you invest, it’s best to do your research BEFORE you put the money in, then you sit back and trust the process! We cannot panic if the market has a dip! Do you need the money tomorrow? No! It’s minimum 15 years from the goal post – right?! So, hang out and chill. It’ll be ok!!
Krista
Did you and Dan agree about this process?
Colleen
Dan is amazing. He is naturally a much more frugal person than me, so this was an easy transition for him. I’m the one who hyper focuses on things so we would listen to podcasts together and then I would read or watch videos and tell him what I learned. He has been on board since day 1 and supported all my crazy ideas. In the beginning I was much more nervous than him. He was the one who said “let’s try it. What’s the worst that could happen? “That has sort of become our motto now.
Krista
So, now what is your retirement plan?
Colleen
I took what I got from my teaching pension when I left and invested it within a LIRA (Locked in Retirement Account). I also regularly invest besides that every month, so I have a large chunk now. I plan to let that grow and continue to invest while I work. I also plan to pay down all the houses and then the rental income that comes in (once the mortgages are gone) will be my retirement. We have 14 apartments right now so it should be more than enough.
Krista
So, to wrap up. Congratulations. This is amazing. I’m curious, what’s your relationship with money now?
Colleen
Aww thanks. I’m proud of how it all turned out. It was a lot of work and some sacrifice but very worth it in the end I have a healthy relationship with money now. I get a high from saving and investing. I make it a little game to see how much I can save. I even have a compound interest calculator on my phone! I don’t save as much as I did in the early days of this because I’m in a good place. I’m very comfortable financially and I know that my investments will continue to grow when I’m ready to not work. I also really like my job, and we have created a great life where we travel lots. We only spend money on things that matter to us. For example, our car is a 2014 Subaru because that’s not something that is important to me. The house I live in is fine but nothing special. It is just the one that makes the most financial sense for us to live in.
I read a quote once that “you can have anything but not everything, so you need to choose what’s important to you.” I buy most of my clothes second hand because, while I like fashion, I don’t feel a strong need to impress with my clothes. Travel and experiences are important to us so that’s where we spend our money.
“You can have anything, but not everything, so you need to choose what’s important to you.”
I LOVE this quote. It’s attributed to a man named David Allen who is a productivity coach from the United States. Well productivity or value-based living – it rings true. Choice is a paradox. When can have and do lots of things, that’s the beauty of the world we live in. But unless we have direction, unless our actions and our spending has direct meaning for us, then it will be meaningless and that relentless pursuit of happiness will be futile. On the flip side of that comment, the simplest things, the smallest decisions can bring the biggest joy – when they come from a place of value and empowerment.
So, make Fearless, bold and Value based choices with your finances. Don’t let fear, indecision, or lack of direction hold you back from the wealth that is rightfully yours. It might come from balance, sacrifice, simplicity or some mix of them all. Whatever the case, it must start with understanding your goals, your values and your priorities.
I hope you enjoyed V1 of Fearless Finance!