My talk to clients of a fee-based financial planner

Credit: David Toyne

The following is an edited transcript of a talk I gave Tuesday night to clients of Toronto-based fee-based certified financial planner John De Goey, of Burgeonvest Securities Ltd. I was one third of the proceedings, along with Steadyhand Funds’ Tom Bradley and a contortionist. As part of this advisor’s client-appreciation evening, all his clients received a copy of Findependence Day and Tom’s book, It’s Not Rocket Science.

Here’s most of what I said:

Seeing as this month is being designated Financial Literacy Month, it seems relevant to tell you a little about the book you’ll be receiving tonight: Findependence Day. The book is similar to The Weatlhy Barber in that it’s a mix of fact and fiction although I’d like to think I devoted as much time to the story as to the financial literacy aspect.

Money often the cause of marital discord

Think of it as a financial love story. As Patricia Lovett-Reid writes in the foreword, these days couples can hardly avoid the topic of finances.  Financial disagreements are probably the biggest cause of marital breakups.

The basic model of investing described in the book is three-fold. Costs matter and one way to keep costs down is to use indexing or ETFs instead of actively managed mutual funds.

Very few investors are equipped to go it alone without a financial advisor.  Even for those who want to cut commission costs to the bone through a discount broker, the book still advocates using a financial planner: either fee-only or fee-based.

What with 24/7 cable TV, the web and now social media, all this glut of information is another reason why I think 99% of investors need an advisor. Even though I can pick up the phone and talk to any number of experts and advisors, I still use a financial planner myself, despite the fact I implement my own trades at a discount broker.

Advisors distinguish between information and knowledge

That’s because I think a good advisor provides knowledge and perspective to help you filter all the noise coming from the mass media and the Internet. There’s a lot more to financial independence than the investing piece of it, even though that’s the part most of us probably fret over most or enjoy. You know the rest of the list: tax planning, estate planning, insurance and perhaps most important what I’d term life counseling or life coaching.

Now I realize there are dedicated life coaches that take more of a holistic perspective and less of a financial one, but for most of us, finances are so central that you may as well view your advisor as a life coach.

I’m seeing a lot more coverage these days of what I call a life cycle approach to investing. Last week, ABC Financial Literacy held a 1.5 hour web session that took exactly this approach with half a dozen experts. They laid out their fin lit tips starting with the childhood stage, moved to post-secondary students, young adults, mid-life and parenting and finally the senior stage.

One blogger is taking this approach at the Masters of Money blogs at Investored.ca , also known as GetSmarterAboutMoney.ca. You may have seen a color ad in the papers featuring five of us, including myself, Rob Carrick, Alison Griffiths, Caroline Cakebread and Preet Banerjee.

I’d urge you all to check it out, as well as turn your kids on to it if they’re old enough. Investored is an educational spinoff of the Ontario Securities Commission and is funded by fines levied against the financial industry. Their motto is “Financial literacy is our number 1 priority.”

I might add that Findependence Day also takes a life cycle approach to investing. York finance professor Moshe Milevsky calls it “a financial voyage through the human lifecycle” while Bob Veres – the American equivalent of Dan Richards, an advisor’s advisor — calls it “A financial Pilgrim’s Progress.”

In a nutshell, the book starts when a young couple – Jamie and Sheena – are 28, and follows them for 22 years because Jamie has decided his Financial Independence Day will be the relatively young 50.

Some would take the view that 22 years is probably optimistic: with our growing longevity, 30 years of saving and investing is probably more reasonable. And if you really like your work, 35, 40 or more years wouldn’t be out of the question.

It takes a quarter century of saving and investing to establish financial independence

Still, the figures I’ve seen is that those who really want to “retire” in the classic sense usually have to do save and invest consistently – year in and year out — for roughly a quarter of a century. That’s why I say Findependence Day is a “get rich slowly” book, NOT a get-rich quick book.

Whether it’s advisable to “retire” so young is another question. In this weekend’s Post, there were a couple of stories that suggested we should be prepared to live to 90 or 100, in which case we may wish to rethink early retirement.

But the point is that our fictional couple undergo a life journey together and that the stages they pass through financially are usually predictable, which is why the ABC web forum focused on the life cycle. So Jamie and Sheena go through the birth of children, the need to save for them in RESPs, buying a home, paying it off and paying off credit card debt. They also have to deal with joining the company pension plan, and RRSPs and TFSAs and all that good stuff that financial planners tell you about.

One reason I took this “life cycle novel” approach is that I realized that this is a good way to talk about financial planning. After all, financial planning is all about creating a route and mapping out possibilities and contingency plans, then building in allowances when things don’t quite work out as planned.

As we all know and John Lennon reminds us, Life is what happens to you while you’re busy making other plans. Jamie and Sheena disagree about a number of things and are on the verge of divorce. You’ll have to read it to find out the outcome but you can imagine that this would put a crimp in his plans to make 50 his Findependence Day.

Notice I didn’t say “retire” there. I don’t think most financial planners would counsel retiring at 50.  As Toronto computer consultant Art Benjamin once said – this is in the book – most jobs are marginally better than daytime television.

I define Findependence as the day you realize you don’t HAVE to work for a living, even though you may decide you WISH to continue to do so. It’s subtle difference but one that can seriously affect how you perceive your work. And no, for those who follow my blogs, I don’t QUITE consider myself as having arrived there. I’m 58 and currently end my blogs with the number 61 as my best guess: when our daughter is graduated from university ..  and of course CPP eligibility starts at 60, and the company pension plan gets better the longer you hang on and …well, you know the drill.

Other authors have come to a similar conclusion, such as Julia Moulden in her new book, RIPE. She sees the boomers becoming entrepreneurs and “ripening” into their true vocations in their 50s and 60s.

There are many examples of people, especially creative artists, working well into old age, often till their dying day. I joked about this in a House Ad the FP has been running in recent weeks. If you’ve seen the “Right to the Point” ads featuring various National Post columnists, you might have seen one from me:

Certainly, working well into one’s 60s and even 70s is not going to be unusual: Last week, Reuters ran a story that was one of the most popular on the FP web site:  31.4% of Americans 65 to 69 were still working in 2010, versus just 21% in 1990. Many are still in harness in their 70s: 18% of those aged 70 to 74 were still working in 2010, up from 11% in 1990.

Andy Rooney only retired a month before his death at 92

And while it did quote one woman who sadly fretted about working until her dying day, I might point out this isn’t necessarily all that tragic. Last Friday, former CBS News commentator Andy Rooney died  at 92, and he’d “retired” only a month earlier. Rooney spent 33 years on 60 Minutes.

The question arises whether working that long kept Rooney living to such a robust old age, and whether if he had stopped at say 65 or 70 if he would ever have lived that long. I somehow doubt he would have.

I do think it’s unusual to keep working that long in a corporate environment. My notion of Findependence is that you create enough wealth that you don’t have to rely on a corporate or government salary – so that you can pursue your bliss, whatever it might be.

I can understand that by their mid 60s, most people may want to rid themselves of corporate politics and commuting, even if they plan to do something else, such as consulting, building a business or perhaps finding a way to spin money from the creative arts.

Once a year, we often take a short holiday in Buckhorn, near Peterborough, and there’s an arts and crafts show that’s just filled with retired baby boomers, most of them with good pensions, who are now trying their hand at the creative arts.

In my Saturday column, I mentioned a book by branding expert Lisa Orrell called Boomers into business. She advises boomers to “turn what you know into dough.” Or as a friend of mine put it – Norman Evans — we should start getting paid for what we know, not what we do.

Another example of passion for work: Steve Jobs

A few weeks ago there was another example of someone much richer and more famous than Rooney who worked very near to the end of his life. For many of you, I’m sure the death last month of Steve Jobs was a real wake-up call. Talk about wealthy boomers: he was worth $8 billion when he died at 56.

I just read his biography – by Walter Isaaccson – and it was a fascinating read. Clearly, Jobs had reached his Findependence Day: arguably he reached that around age 30 when he first left Apple with $100 million. But I remember at the time his saying he was still a young man and still had much to achieve. So he created NeXT and Pixar and then magically returned to Apple after a dozen years when they acquired NeXT.

We all know what happened next: he created the iMac, the iPod, the iPhone and then the iPad, transforming about six industries: film, music, newspapers, magazines and books. And, oh yes, did I forget computers?

My point though is that Jobs loved to work and create. Money was really just a byproduct of his passion. He really only stopped working in August, two months before he died, and even then I’m sure he was chomping at the bit to create yet another great new product – reportedly he had his sights on transforming the television industry next and no doubt that’s already in Apple’s pipeline.

His case was of course unique. He was passionate about products and design, experienced an unprecedented early success and experienced a level of power, fame and fortune that most of us could only dream of.

Personally, I think I’d knock off with $800 million, let alone $8 billion.  I mentioned Jobs in that Saturday article too, which was in response to the Reuters story I mentioned that recounted how American boomers are facing a retirement crisis.

Boomergeddon or Boomers into Business?

This is nothing new, though. A year ago, I reviewed a book called Boomergeddon, which said boomers would be hard pressed in retirement – what with the decline of employer DB pensions and even Social Security itself seeming pretty tenuous. Most experts I talk to think Canada’s CPP and OAS are in relatively better shape but few would counsel relying exclusively on government for our income in old age.

The fact you’re all here tonight suggests you believe private savings and investments is perhaps the most important piece, except perhaps for business ownership. That’s another theme of Findependence Day.

Most of us should be prepared to work well into our 60s but being prepared to keep working is not in itself a substitute for establishing financial independence. You still need to save and invest and plan your financial future for the inevitable point when you’re no longer physically or mentally able to work – or even if you are, when you can’t find employment.

Increasingly, it will be necessary to create your own employment, start a business or be a freelance consultant.

Fortunately, as Lisa Orrell says in her book, it’s a good time to leave the corporate womb and find your own way in the world. With the Internet and modern social networking tools like Facebook and Linked in, you can leverage your network and community very easily. New publishing tools like ebooks and print on demand, webcasting and web radio, email marketing etc. gives us an infrastructure.

There will be a question-and-answer session after Tom’s talk and a chance to sign books. Thank you for your attention.

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