What I call the “Findependence Day Model” dervived from the book is simply the combination of three things.
All three deal with cutting investment costs or brokerage costs. The first is using a discount brokerage to make your own trades, typically at $10 per transaction. The second is to take advantage of broadly diversified, tax-efficient and low-cost exchange-traded funds (ETFs), which can also be purchased at a discount brokerage.
And the third is to use a fee-for-service financial planner, that is, a planner whose services are billed either by time (usually by the hour) or by the project (as in a one-time financial plan) but NOT via annual fees levied as a percentage of client assets under management. The problem with the latter is it gets prohibitively expensive as wealth grows, unless the fees are tapered down accordingly. I recently heard from a reader complaining that a 1% fee on a $4 million portfolio cost $40,000 a year — an amount many people could live on. Clearly in such case, you should negotiate a lower fee: say 0.5% for starters, or look for another firm that will negotiate, or go the DIY route described in this blog and find a true fee-for-service planner.
What the heck does “fee-only” really mean?
Note there is much confusion over the term “fee-only.” As Preet Banerjee writes in the current issue of MoneySense — here — the term fee-only does not necessarily mean fee-for-service. All that fee-only means is that it is NOT old-time commission-based, levying commissions per transaction. In fact, commission-based is not that bad a deal, particularly if you’re a buy-and-hold investor.
Sadly, many journalists and even advisers themselves have used the term “fee-only” when they really were referring to fee-for-service. As a result of the definition used in the US NAPFA, an asset-based financial planner (like the one charging our reader 1% of a $4 million portfolio) is well within their rights to refer to themselves as “fee-only.” Fee-only can mean EITHER fee-for-service OR asset-based financial planning, rendering it almost meaningless. And mea culpa, even in the two editions of Findependence Day, I use the term fee-only when I should have used “fee-for-service.” Future editions will fix that and editions of MoneySense magazine will going forward make this distinction clear.
MoneySense’s new Fee-for-Service online directory
Because of this, we at MoneySense have revamped the previous online directory of “fee-only” planners. Click here for the new directory, or rather TWO directories: one for true fee-for-service (i.e. by hourly or project billing) and one for financial planners who are primarily asset-based (at least 60% of revenues) but who do offer clients the option of time-based or fee-for-service billing.
I might add that other aspects of the Findependence Day model have also been rolled out in MoneySense throughout the year 2013. Our Feb/March issue on RRSPs introduced the ETF All-.Stars, which will be revisited in the Feb/March 2014 issue. And our June 2013 issue introduced MoneySense’s first survey of Canada’s best discount brokerages, a second version of which will run next summer. Both features were written by MoneySense editor at large Dan Bortolotti, more about which can be found below.
For those who missed those two issues of the magazine, here’s a tip. It costs only $20 a year to subscribe to MoneySense magazine (7 issues), which also gets you free access to the web site at MoneySense.ca PLUS the iPad edition. We recently went behind a paywall (or technically a pay fence) but the iPad edition also gives you the back issues, including the ones mentioned above and in fact all the issues since I became editor starting with the June 2012 issue.
Upcoming iShares educational event in partnership with MoneySense
Finally, those in the greater Toronto area may find an event coming Saturday, November 16th of interest. Dan, mentioned above and pictured on the left, will be talking about ETFs and portfolio construction along with “Ask MoneySense” columnist and broadcaster Bruce Sellery, and various iShares ETF experts from BlackRock Canada . Dan will be taking readers through some of the concepts I’ve described above, as outlined in the book he authored for the magazine: the MoneySense Guide to the Perfect Portfolio, copies of which will be given away at the event, along with the current issue of the magazine, parking and breakfast. (more than recouping the $25 charge).
I might add that Dan is in the process of becoming a financial planner himself. He is already working with PWL Capital, whose firm is listed in the new directory as primarily asset-based. Dan himself is in the fee-for-service camp.
Details for the iShares/MoneySense event can be found here.
My latest Financial Independence blog at moneysense.ca looks at BMO Retirement Institute’s study showing there is a big discrepancy between the retirement aspirations of young Canadians and their savings habits to date. Click here for my take on it.
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This week I had the pleasure of doing a 15-minute podcast with Preet Banerjee, who recently launched his Mostly Money, Mostly Canadian podcast as an adjunct to his popular Where Does All My Money Go blog and numerous other media-commentary activities. You can find the podcast here: it’s billed as describing the concept of “Findependence” and also touches on my recent job change.
Preet is a fast-rising star in personal finance in Canada. Currently he has a regular column in the Globe & Mail and he’s a frequent guest on CBC’s nightly news. For a time, we were both bloggers for the Investor Education Fund’s “Masters of Money” blog series. He first came to my attention when he self-published a book on RRSPs. At the time he was a little-known financial advisor. I reviewed the book in the Post, interviewed him on what was then the Wealthy Boomer web video interviews and the rest is history. Preet wrote the feature on calculating your returns in the current issue of MoneySense and will be making the odd contribution in future issues.
We “splurge” on lunch
Those who follow either of us on Twitter may be amused to hear of a sidebar to this podcast, which touches on the topic of “guerrilla frugality.” Preet came up to the MoneySense offices on One Mount Pleasant on Thursday, equipped with his MacBook Air and a new portable mic he had just acquired. We conducted the interview in my office, then adjourned for lunch. I mentioned a nearby mid-scale eatery popular around here but Preet indicated he preferred to eat something light and healthy. “Like a salad?” I asked. When he affirmed this was his preference I suggested a nearby Swiss Chalet. I’ve been on a diet and exercise kick myself for the past six months and find that the “West Coast Salad” at Swiss Chalet is a very tasty filling meal, with the bonus that it’s eminently affordable.
So Swiss Chalet it was but Preet wasn’t done. We’d also ordered a couple of waters with lemon then decided to “splurge” after on coffee. When the bill was presented, Preet used his smartphone to snap a photo of the rather modest bill, then proceeded to post it on Twitter, remarking on our collective “splurge.”
When I retweeted it to my followers I commented that our luncheon choice wasn’t so much predicated by “guerrilla frugality” but by health and dietary considerations.
All in all a fun and productive few hours. As they say too often at Cineplex previews, “enjoy the movie.”
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On Friday, I announced I am leaving the Financial Post after 19 years to become the editor of MoneySense magazine, effective April 9. I’ll remain at the Post until March 23. You can read the announcement at the MoneySense web site here.
At this stage, it’s not clear how or whether the Wealthy Boomer blog will continue. If it does, it probably won’t be in the current form but in the meantime I may blog a little more on my own site here, which of course exists chiefly to market the book, Findependence Day, and to discuss the philosophy surrounding it.
It’s my belief the financial sections of most newspapers, financial blogs, financial TV shows and personal finance magazines are all talking about basically the same thing: some may term it retirement but I prefer to view it as financial independence. Those who have read the book know the distinction that is made between the two terms throughout the book.
In short, as discussed on the Youngandthrifty review flagged here in the previous blog, it’s all about building wealth to the point you are working because you WANT to, not because you perceive you HAVE to.
Such a late-career change happening while I’m on the cusp of reaching my own personal Findependence Day [I'll be 59 by the time I start the new job] raises some interesting nuances on the whole philosophy, which I’m exploring in an essay I’m composing and which ultimately will be the basis for another book. If it’s ready later this weekend, I may post it here.
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