61. Benefits of working with a financial planner feat. Steven Guenther, CFP®
6 Benefits of professional financial advice with Steven Guenther, CFP®
Working with a financial planner can add significant value to your financial life. However, it might not always be as cut and dry as certain commercials or media members will have you believe!
Steven Guenther joins me today for an open conversation of some of the benefits of professional financial advice.
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Transcript:
Evan Neufeld: Hello, and welcome back to the Canadian Money Roadmap Podcast. I'm your host, Evan Neufeld. Today, one of my partners here at the office, Steven Guenther, is joining me today. You might remember him from some of our previous episodes. Steven and I are going to be talking about the benefits of working with a professional financial planner. We thought that there's more to the conversation that you might have seen, maybe on commercials or online about working with professional advice. And so we have a pretty open conversation about some of the benefits that we've seen in that regard. So I hope you enjoy this conversation with myself and Steven Guenther. Steven it’s been a long time. Thanks so much for joining me today.
Steven Guenther: Thanks so much for having me back.
Evan Neufeld: You've been replaced for a while anyways. Jordan was my long-time co-host here. Anyways, I went down the hall and I said, Steven, what do you want to talk about? And he said, I want to talk about the value of working with a financial planner and the benefits of professional advice.
Steven Guenther: It's certainly not foreign to us, but I think there can be some nuances to that kind of conversation that's hard to really bring out in a form of a statement or within mathematics.
Evan Neufeld: Or a commercial for a financial product.
Steven Guenther: Yeah, there's lots of narratives out there and doing it every day and hearing from clients gives us a unique opportunity to share some of that here with your listeners.
Evan Neufeld: So we're going to be talking about a few of the things that we see as benefits for working with a financial planner or just the general concept of professional financial advice. And the difference there is that we're not talking about getting advice from Uncle Bill or from YouTube or heaven forbid podcasts. There, there are some that I think are better than others, a little bit, but getting professional advice that is unique to you and your situation. I hummed and hawed about whether to talk about this, and we decided not to, but I'm just going to address the fact that there have been a number of studies that have been done about quantifying financial advice. You might have seen some on commercials for Fidelity Investments recently. They reference some.
There's a number of academic studies that have been done in conjunction with Canadian universities here in Canada, big investment firms as well. So there is significant evidence that points to this, but we wanted to talk maybe more so about anecdotal evidence or tell some stories about things that we've seen and ways that our clients have been able to benefit from financial advice. So let's get right into it here. Steven, what are some of the top things that you would point to when it comes to the value of professional advice?
Steven Guenther: Well, before, may I note to your earlier point, professional advice comes from a professional source. So there's a lot of noise out there about what to do financially, what products to use within your financial plan, strategies to implement and it can be hard to decide on what's relevant in your personal circumstances and also which sources are right? Which sources do you listen to? Which sources do you trust? And so I think it's important that before you go down that journey, you understand where your advice is coming from. Professional advice comes, I guess, in a couple of forms. But the two kind of main things are both experiential and technical expertise and neither is replaceable in today's current environment. You can find an answer to any financial planning based question in an objective sense, online. So that's not an issue anymore. So what is the gap? Well, it's deciding on what is relevant, what is actionable and what will push the needle for you. And so it can be difficult sometimes to be able to figure that out on your own. So when you do bring in a professional advisor, like a Certified Financial Planner, or I mean, see this in on the tax side too with accounting or legal. You're getting some direction on how to put that objective information into action in your own life. So yeah, I think one of the biggest benefits of working with a professional financial advisor or financial planner is they're going to help cut out a lot of the noise that's irrelevant to your situation and help you focus on the parts that are relevant so that you can dedicate your energy and your resources to those things.
Evan Neufeld: The tricky thing there is that in some cases, noise for one client could be actionable to someone else. So I have a number of clients that are really hands off and they don't necessarily want to know what's going on with the markets. They just want to know, what do I need to do today? They want their to-do list and they trust me and our team to put that together for them. However, understanding the market could be critical for somebody else. And so talking about what's going on in the market over the last six months is actually really helpful for someone to put in context how their portfolio is doing and things like that, that it might actually bring that person comfort. So that's maybe not actionable, but it's valuable to that person. And so personal professional advice is a personal relationship where the professional understands what is important to the client and delivers it for them and or helps them achieve that. And it's, it's not necessarily cookie cutter for each and every person.
Steven Guenther: Just to further that point, the current day and age we live in, You know the most salient, the most recent events are what's showing up most in our newsfeed, on the tv, and those often will attract the most attention from us as consumers or investors or just people. So having some help and disseminating that into what is important and then acting on that can be bring a lot of peace of mind too, to know that you're not missing out in the sense of an opportunity missed or a risk that's not been mitigated. So what's important there though is it's hard to know what those things even are without some experience and some technical expertise. And so enlisting the help of a professional can bring a lot of peace in the sense that you're not missing something.
Evan Neufeld: For sure because a lot of news media will make it seem like every bit of news is actionable and every piece of advice from Michael Burry, from The Big Short, it blows my mind how often that guy makes it onto the front page of CNBC because he was in a movie and he made a good decision 12 years ago. Drives me nuts. Anyways, so that's the first one that we'll point to here is that professional advice helps you determine noise versus actionable info or relevant context for you. Now, this is an interesting one here. So helping people prevent bad decision making. So we talk about compounding a lot in investing. And so that is generally the compounding of good things. So building up assets, maybe paying dividends, all that kind of stuff. There's also negative compounding when as it relates to say, credit card interest, things like that, it can just build up and build up. Now, compounding of bad decision making can be critical as well. Steven, have you seen this before?
Steven Guenther: Absolutely. We talk about compounding in the form of things that we can track and measure, and it's much harder to do that with things that are more abstract, like what course to take. Because once you take a course of action, it's very hard to track the alternative actions you could have possibly taken.
And if you take and you open the wrong door, Or if you make a decision with your money, that is not ideal. That will cost you forever in a compound. There's an exponential kind of a law at play there that can't be ignored. Yet, there's no way of measuring it, and so we often hear, compounding refers to in the form of interest or in debt on the negative side. If you can try to limit bad decision making, especially early on in your life, that has a massive exponential impact over the course of your financial future. And so, I mean, you can see this in all kinds of ways. Poor debt management often plagues younger generation.
Evan Neufeld: Let's give a specific example. I had heard of someone who had two lines of credit, both with very, very different interest rates, and there would've been an opportunity to consolidate on the one with a lower interest, but for whatever reason it was not done. And so the decision to keep them separate, costs them hundreds, if not thousands of dollars of interest by keeping them separate. Small thing, but poor decision making on debt management.
Steven Guenther: Another one would be enrollment in your group retirement program at work. We manage a few of these here at our office. There's always a small group of employees within these programs that are failed to enroll and then leave their employer contributions on the table. And especially at the beginning, it seems like very little, but if you, again, compound that over a 30 year career, it's massive money. It might be able to allow you to retire three or five years earlier.
Evan Neufeld: Or at all.
Steven Guenther: It's hard to even quantify. So professional financial advice can help, especially early on, make some good decisions and prevent some bad ones that set you on a trajectory that miles ahead of the person who, for example, in these examples, makes the wrong decision. And it doesn't really matter after that, even if they have the perfect asset allocation and their tax situation is perfect, and you know, they've aligned everything for optimization past that, they're starting from behind. It's very hard to catch the person who has started ahead because of that compound nature of those decisions, and so, enrolling the help of a professional advisor can hopefully help you optimize from an opportunities standpoint, but also from a mitigating the risks and the bad decisions that may plague you in your younger years.
Evan Neufeld: An analogy that I kind of put together for this concept is the idea of not wanting to pay a mechanic. I am not handy, so this is not a problem for me. I will pay them a mechanic, okay. But you know, there's so many things that can happen when you try to fix a car. It's a complicated thing. Think of your financial life. It's a complicated thing. And so once you start tinkering with one thing, you don't know what else you're going to break, and then what else you'll end up living with, you know? Limping along with your vehicle that might break down at any given point. Not to drag the analogy out too far here, but you know, working with a professional sometimes gets the job done right, and then you can go on and have a reliable vehicle, right. With financial advice, you hope it's the same that largely you can. When these problems arrive, you have somebody that can help you fix them too. So even if it's not poor decision making, when problems happen, generally a decision has to be made. Working with someone, bouncing an idea off, somebody else that understands your context, understands big picture impact can be quite meaningful.
Steven Guenther: It's a good segue actually, we see this often. We deal with a lot of couples. And couples come either into the office or we meet them over a video and it's amazing how we are kind of the third person in the room. We're the third trusted opinion in the room. And often when there's just two people, you get a bit of that, you know, versus mentality. It can be confrontational and sure, kind of spin your tires, but we find that if both parties trust us as the third opinion, we can often help kind of move things ahead and be the voice of reason where, you know, in a marriage or in a any relationship, there's often other things that are impacting financial decision making when you name it, relational conflict based on money is prevalent. Don't have to look far for that. it's
Evan Neufeld: Well, it's the number one cause of divorce, right? The third benefit here is just being a sober second thought for your financial discussions with your spouse.
Steven Guenther: It reminds me of ancient Greek history. Here we go. Sparta, if you remember Sparta, the movie, anyway the idea there was, it was a city state culture, and their city state of Sparta always had a three-pronged rulership. There was never one king, it was three. And what that did, that odd number created was no ties. You always had a two to one vote, and in some ways we're the third person to create the two to one vote often with folks, and that can help, you know, in making decisions and also providing perspective that is unbiased hopefully to some of the other things going on in life.
Evan Neufeld: Maybe we'll clarify here that our job is not to force an unwilling spouse to do something they don't want to do, but I had a situation recently where one spouse was concerned about what was going on in the market, the other was not at all. And so instead of them fighting about it at home, they decided, well, let's call Evan and let's have a conversation with him. I was able to bring in a few charts and things like that to add some relevance to their situation, and that helped. And so instead of creating a fight with them, we were able to decide together what was appropriate moving forward with them. But yeah, that's a great one that we don't really think about specifically when it comes to the value of advice. But it's in conjunction to the specific people that we work with. Not just on an individual basis, but as a couple.
Steven Guenther: It makes me think too, I mean that if you push that forward, often we work with people as they age, and often one spouse passes before the other, and we were that third person in that financial kind of decision making room. And now there's just two of us, whether it's a widow or a widower. And I've found in my practice how valuable our opinion becomes and our perspective becomes at that time, you're already going through a grief, losing a spouse, but to provide insight and direction that is less emotionally tied to the circumstances of losing a spouse. Is invaluable at that time. And we've heard that from people time and time again, that how much they appreciate the fact that we were there before when it was three and now we're here when it's two. And to help provide that peace of mind at a time when life feels out of control.
Evan Neufeld: Let's get specific here. So those types of things at that period of time are less about which mutual fund or ETF to be investing in. It's more so, We had some debt, now how do I pay this off? I've got some life insurance money. Should I go and pay that off? Now what about things like, I don't really want to work now that it's just me and the kids. Should I go back to work or, you know, things like that. I've seen all sorts of things. What do I do with this pension? Am I going to make it work now? Do I need as big of a house? I can't take care of this acreage by myself. What do I do here? You know, these are big conversations that that we end up walking people through. Good rule of thumb with those ones, don't make them too quickly . We usually like to take our time with those kind of things.
Steven Guenther: It's not to say that we have all the answers, right? It's just to be someone that has the whole financial picture in mind, because I think in our culture still, money is fairly taboo. You know, we talk about it. Maybe young guys let's say are talking about the meme stock they're in or the, the bet they placed or whatever. But for sure, you know, from a holistic financial planning standpoint, usually you don't really know. You have an idea maybe from some of your closest circle, but it's a pretty isolated decision room, and so we are kind of have a unique position there where we would know probably more about that person's financial situation than anyone else. Whether it's a sister, a family member, a child, and so we have to take that responsibility and be careful with it, but it's not that we have all the answers. It's just the fact that we're in the room before and now we can be in the room after to be a sounding board to help direct what should we do next. Not just what should we do, but what should we do next because, Often the order of operations is part of the battle. You know, people often have a pretty good idea of what to do, but they don't know what order to do it in or what, how should they prioritize? And I mean, a death is a great example. You know you have to get your financial ducks in order and deal with an estate process, deal with the final tax return, life insurance, you name it, pension stuff. But what do you do first? Is there repercussions for not doing it in the right order and all that. I mean, that's again, where someone that who has a professional background that already knows your situation, who's been along for the ride, can speak a lot of value and wisdom into that situation.
Evan Neufeld: So these so far have been a little bit more subjective benefits depending on the person, depending on the relationship. The concept of an ongoing relationship with a person. However, there's a lot of objective benefits that are similar to what we've discussed, so without skirting around them too much. You mentioned order of operations. Well, coming up with a spending plan for people in retirement is pretty critical. So you might have a pension that you transferred years ago, you might have contributed to RRSPs. Now that we've had TFSAs. Whatever it is, 13 years now you have a reasonable TFSA balance, but before that, you're contributing to a non-registered account.
So now have all these different plan types and you say, okay, I've done all the saving, I've done the investing, now I got to spend it. Coming up with a spending plan is critical. How come?
Steven Guenther: Well, one of the major factors is taxation. We're always trying to be as efficient as possible with taxation. Not only on a year-by-year basis, but on a lifetime basis and sometimes we can get caught in that annual trap of how do I pay as little tax today? But often it's not that. It's how do I pay, you know, your fair share, but over your lifetime. How do you be efficient with planning over a lifetime, not just in a given year? So hierarchy withdrawal, extra withdrawal, deferral of government benefits along with withdrawal, maybe taking it early. Like there's a lot of pieces that are interconnected and so building a spending plan will have how many variables, you know, infinite, right? So you put all this time and you've saved all this money over the years and showed some discipline and getting to that point now, rolling it off in an efficient and systematic way is making the most of what you've already created for yourself.
Evan Neufeld: And going into that is another benefit here of integrating many goals and priorities. So I was talking with a client earlier this week and their main goal now in retirement, they have the house they want, they travel as much as they want to. You know, these aren't people that live luxuriously, but they save very well. They would like to help their kids out with a down payment on a house. However, in their part of the country, it's very, very expensive. And so let's just get technical here. In their case, they had to withdraw a couple hundred thousand dollars. However, if they were to do that in one lump sum, they would have to pay tax at pretty close to the highest rate in their province.
So what we decided to do was take smaller amounts over the course of the next couple years, because they wanted to do this in a couple years anyway. And so that way we can take the money out at a much lower tax rate every single year. We don't get into old age security claw back territory and all these other benefits. At the end of the day, they should have enough set aside for that down payment on the house, which they wanted to do, but their original question was, can we afford to do it and say, yeah, but let's save $28,000 of tax along the way. Right. This is the objective side of things where coming up with a spending plan and integrating many goals and priorities, because they need to still withdraw money to live themselves, into their whole plan becomes extremely valuable.
Steven Guenther: There's often unintended consequences for any decisions we make and start helping to quantify what those consequences are. Like in your case, maybe if they withdrew all that money in one year, you would have Old age security claw back would acts as like an additional tax on top of their margin rate, right? So just from a larger perspective, quantifying some of the unintended or the collateral damage for the decisions you make, both on the good side and the bad side. And that's true in a case like this, but it's also true for less sophisticated situations where you're thinking. Should I invest? I have some money, maybe my first job, first career job, and I've got some surplus. Should I put it in RRSP or a TFSA? I believe you have a podcast on this, Evan. So I mean, that's a decision that's, you know, seems pretty pedestrian at the time. But if you again, compound that decision over many years and you continue along that path it might mean you know, very different financial outcome when it comes time to retire. So the unintended, like you would say, well, saving is saving is saving. You know, it's a good thing that you're doing and it is. But optimizing and considering the unintended consequences of any decision helps one, create the outcome and also the peace of mind. Again, knowing that you've put the dots together, you haven't just dealt with things on a silo basis. You're saying, okay, how does this impact retirement? How does this impact my estate? How does this impact my tax picture? How does this impact my cash flow? You're doing the whole review.
Evan Neufeld: And that's kind of what we go through in the CFP certification program. They've changed it in recent years to really focus on the holistic picture of decision making. And yes, you used a great term there of silo. You know, you could make a great decision that, you know, lowers your tax bill today. However, what about your tax bill 40 years from now? The ability to plan for many years from now is critical. You know, TFSA is one of those things that we look at for sure that says like, okay, this is going to be so valuable for you, not just from the taxes, but there's things like, you could reduce your OAS claw back, you could qualify for reduced cost on long term care, because here in Saskatchewan and many other provinces, it's actually tied to your taxable income. Like all these different things. Like who's worrying about that as a 30-year-old? Sorry. We'll do it for you. You know, it's kind of cool. Outsource that.
Steven Guenther: I think another thing is the both direct and passive accountability working with a professional advisor creates, part of this is you're going to be more engaged if you're paying someone. You know, that's like we're getting compensated through the relationship and so we have to be providing that value in return. But as someone who's paying, you're going to be paying attention a little more to what's going on. When you know that's happening, when you know that you're paying for this help you, you're probably more likely to even act on the recommendations that person advises. Because if you're not like, what are we doing here? There's some skin in the game, right? So that's more of the direct, but the passive is also true. I mean, just knowing that you have someone else who is watching that, cares about your long, long term wellbeing and your short term wellbeing as well, but someone that is keeping you accountable to a plan at all. And I like the analogy of the personal trainer. Most people who seek to get back into shape or start an exercise program, have a pretty good idea of what kind of exercises they need to do. The formation of the plan is often, especially at the basic level, I'm not talking professional athletes here, but at the basic level, people trying to shed a few Christmas pounds, which will be, you're in a few short weeks. You know what you need to do. You got to hit the treadmill, put down the fork. Okay, but where does that accountability come from? I mean, sometimes it's a spouse, maybe you have enough discipline yourself that you can keep on there. But usually by the spring months, you know, some of that initial drive is waned. And so with a personal trainer, a big benefit is that they're there. You're paying them, they're showing up and keeping you accountable to a plan, to the goal that you set out. Basically, getting your best self out of you. And I'd like to think that we're doing the same thing on the financial side, so that you know you're engaged, you're committed and they're providing accountability that when you do and you say you're going to do something, they're there to help you back it up. Not in a forcing sense.
Evan Neufeld: We're not talking about guilting somebody into saving more than they can afford or anything crazy like that.
Steven Guenther: But when the decision to, you know, do something with your refund comes up and you had decided six months ago when you made your RRSP contribution that you were going to use that money to put it in you know, your child's RESP. Well, you have some accountability to that decision because the other person, your professional advisor is sitting there and you know, you have some accountability. It's not turning into, you name it, right? Vacation shopping spree, or xyz.
Evan Neufeld: Which can all be good things too, but it's things that you can help with accountability to what you originally wanted to do.
Steven Guenther: Right, and that's the point. It's that it's kind of squeezing your best version of yourself out through some accountability to things that you want to have accomplish. Not to something that we're putting on people's backs to carry, but something that the client is bringing to the table and we're helping to see it manifest in their life.
Evan Neufeld: Maybe one way with, we could wrap up here. Steven, we're financial planners. Is there a difference between investment advisors and financial planners? Maybe we should clarify that. In our line of work here, we often operate as both. People that recommend and implement an investment strategy, but also do all these other things that we just spent half an hour talking about. That's what we call financial planning. Not necessarily, I'm not here to poo poo anybody, but the fact of the matter is that not everybody that's licensed to recommend an investment product is also competent, capable, willing to provide advice on the financial planning side. But that is a distinction to keep in mind when seeking out professional advice. Who am I dealing with? What other credentials do I like working with them? Does it appear that they have my best interest in mind? Do they have a variety of options of things to recommend or does it seem like everything's funneling to one thing over and over again without a consideration for your goals and priorities and things like that?
Steven Guenther: Maybe I'll touch on another point that you're bringing up there is, you know, there's can be a lot of confusion about the different players out there. As far as players, meaning financial professionals and how they serve. So it's good to talk, first of all with people, not only professionals, but other people that you know that have had an experience, whether it's with an investment manager, a portfolio manager, a financial planner, you know, they all are going to have a different kind of take. It's important to kind of do some interviewing before you leap into any business relationship. But I guess the idea that I wanted to bring up, is there are these competing narratives that we see kind of in today's financial landscape. They have to do with investing specifically, but there's been a lot of talk about the impact of paying fees on your long-term results. And because your fees are coming out of your investment return, the story goes. You know, if you can avoid that fee, if you can, you can basically do it yourself and avoid paying a financial professional, you're going to end up with better results in the long run. And mathematically, that's true. If you can cut out a cost, you're going to do better. All else equal. The all else equals the problem.
Evan Neufeld: That's the sticker. Because all of the research that's been done in a formal way, at the very least, realizes that there are things that are not equal in that relationship between the DIY investor. Don't get me wrong, there are DIY investors that do fantastic. Many of you listening are DIY investors, but we're firm believers that, you know, there is value in what we provide
Steven Guenther: And then I think there's a next layer to that conversation, which we've seen in recent past. I'll call it the traditional actively managed investment that has a person and an analyst team who run an ETF or a fund and charge a fee to do so. And they are, we call it traditional stock picker, where they're picking the good ones and leaving the bad ones. To a more, it's not a new idea, but an indexed passive type of option. Many DIYs are in that boat buying index ETFs, like the s&p 500 index, or here in Canada, the TSX index funds. And what we've seen is there's kind of a narrative that suggests that working with an advisor also means using traditional, actively managed investments within your portfolio, that those two go hand in hand. And 20 years ago, that was exactly true, but not so much now. The other flip side is that on doing it on your own, means that you can't have any help. There is no professionals that would work with you if you're DIYing and neither are really true. I mean, you have to, I think, divide what's in your portfolio from an investment standpoint, from the advice that you need. Because if you're someone who's very confident and very capable of managing your own portfolio, maybe you need some of the more subjective financial advice from someone like Evan in like a fee only financial planning process, and that's great. You can still leverage professional financial advice without committing to a long-term ongoing relationship. But the same is also true on the other side. Maybe you do want an ongoing relationship with somebody, but you don't also want the traditional actively managed investments. Well, today's day and age, you know, we can access low-cost index based options within a portfolio. And so I think it's important for listeners to know that, it's more flexible than maybe you've heard from what can be in your portfolio or how you access financial advice. You know, it's more flexible than maybe it's appearing to be. So, do your research, talk to someone who's a financial planner, talk to a portfolio manager, talk to people that have used their services and see where you fit.
But the old model of you have to access the stockbroker to get an investment at all is gone, of course. But the need and the value of working with a professional advisor in our opinion still holds for a lot of people. Maybe that's not you, but often it has more to do with what's not showing up on the statement. It's what's showing up in the other parts of your decision making process and your financial results that have nothing to do with implementation, but more have to do with decision making.
Evan Neufeld: I really appreciate that context that you provided there because I spend a decent amount of time on Reddit and the personal finance forums there, and anytime someone mentions working with an advisor, the top comments are always fire your advisor, they're selling you high mutual funds. It's like, what if there was a little bit more nuance to the conversation and what if that advisor wasn't even recommending high mutual funds? Just the idea that mutual funds don't have to be high fee. There's a lot of misinformation or incomplete information out there. So anyways, I appreciate you providing that context here, Steven. This was a cool conversation. So I hope it was beneficial for you as the listener. To see where the value of professional advice can be, if that is something that you're interested in, my contact info is always in the show notes. If you want to reach out, Stevens is available through there as well. If you wanted to reach out to either one of us for a conversation and we can see where it goes from there. But Steven, thank you so much for taking the time to chat with us today and providing your experience as a financial planner.
Steven Guenther: Thanks, Evan.
Thanks for listening to this episode of the Canadian Money Roadmap Podcast. Any rates of return or investments discussed are historical or hypothetical and are intended to be used for educational purposes only. You should always consult with your financial, legal, and tax advisors before making changes to your financial plan. Evan Neufeld is a Certified Financial Planner and registered investment fund advisor. Mutual funds and ETFs are provided by Sterling Mutuals Inc.