Advice and The New Model

February 25th, 2017 by Potato

There are many elements to a successful financial life. You’ve got to live within (below) your means, which means developing an ability to budget and deal with cash flow. Create some savings and disaster-proof your life. Then come up with a long-term plan, and get some investments going to make it happen. So a successful financial life looks something like this:

Elements of a successful financial life: saving/budgeting, planning, long-term savings. Picture of text in boxes spread across a life trajectory.

These are all important. How they get done though is different for everyone. Some people find that things comes more-or-less automatically. Other people need help to sort out some or all of this. For example, budgeting and matching up cashflows is really intuitive for me, I barely needed to read anything before I was off handling it on my own, whereas some people need help from a money coach to sort out their budgeting, cash flow, and basic relationship with money.

And at various points, you may need help with something. There’s no shame in that, we’re not all personal finance bloggers obsessing over this stuff, or people with the time to read books and take courses to try to build up the skills to DIY.

But when you go to look for help, a successful financial life may look more like this:

Elements of a successful financial life: saving/budgeting, planning, long-term savings. Picture of text in boxes spread across a life trajectory, with investment products and insurance over-sized.

Traditionally, many advisors only made money if they sold you a product of some sort, especially investments (mutual funds, etc.). So their view of your situation was focused in on that part of the problem they could solve. Planning became less about clarity, goals, and trade-offs than about coming up with a bare framework to support investment purchases.

And that’s not to mention the conflicts-of-interest, such as that some advisors might not even ask you about your debt or budget, and look to invest any cash you have, even if paying off your debt may be a better use for the money. Or that so much of the focus is on investment selection (i.e., active management), which is where you will get little to no value for your money.

Advice — good advice — can be extremely valuable. Lousy advice — distressingly common — can be extremely expensive. If you’re paying your advisor through commissions on mutual funds that you buy, and you’re getting good service and value for those fees, then that’s totally fine. But I don’t see that being the case all that often, and those high fees really eat away at your long-term worth.

Instead, a new model is emerging that I like a lot better: paying for advice in a transparent way, for any part of your life that needs it, then figuring out the products to fit that advice separately, whether through DIY investing in low-cost index funds or using a robo-advisor to handle the investment management part.

In addition to getting value for your money and having transparency, this model lets you put the focus where you need it. If you need a money coach to help you sort out your cashflow and budgeting, you can now find one fairly easily — it’s not a side discussion you cram in while shopping for insurance or mutual funds. If you need to talk more about planning and clarity to figure out what direction your life is going in and how you meet your goals, you can do that.

Do you have confidence in your plan? Wait, that’s backwards: does your plan help inspire confidence in you and where you’re going? It doesn’t have to be a 30-page printed report: a good sketch on a napkin can be really illuminating. But if your plan is really just a few “know your client” bullet points to support some sales goals, you may want to work to figure it out yourself, or find a planner to help get that clarity.

So roughly speaking, here’s how I see the industry in the near future:

Elements of a successful financial life: saving/budgeting, planning, long-term savings. Picture of text in boxes spread across a life trajectory, with money coaches, planners, and robo-advisors to help at each stage.

Each part that makes your financial life tick, you can find some support to help. From a full-service coach/planner/advisor, to semi-automated solutions and support for DIY methods. And for each of those, you’ll pay a transparent fee so you’ll know if you’re getting value for your money.

And this is already happening. Nest Wealth, Wealthsimple, and ModernAdvisor each offer planner dashboards, to allow collaboration with unlicensed (which here means not-salespeople) planners. The planner does the planning and coaching, the robo-advisor does the investment planning, and each can charge for their component of it independently.

For people with larger portfolios, this new model is likely going to lead to better advice at a lower cost. For people with smaller portfolios who are just starting out, paying an hourly rate may cost more than they’d pay even with super-high 3% MERs… however, many people aren’t getting the planning support they want or need anyway, and this way they can get help with the elements that may be more important to them at that life stage, like figuring out their budgeting, or coming to an understanding of what their money is for.

Resources to do this:

Directory of Fee-Only [Fee-for-Service] Planners

Money Coaches Canada

Our robo-advisor comparison tool to find a robo-advisor that fits your needs and situation

My course on DIY investing to learn how to do the investment management part yourself

A reading list to help you get started

Plus loads of other resources out there for financial literacy. Chris at Rags to Reasonable has a free email course on getting a handle on your money (left side of the figure). Cait Flanders has her budgeting system. Bridget Casey has her build a budget course. And all the blogs.

Value Proposition for Investing Course

January 12th, 2017 by Potato

Since finishing the DIY investing course, I’ve had a few questions about what the value of the course is.

The course focuses on behaviour and processes for success, which is important — it’s not just about introducing the concepts and setting you free, but helping you to understand that investor behaviour is a huge factor, and something a lot of investors get wrong.

Everything is also explained clearly, in plain language — that’s my specialty and what I bring to the table. Some ways of explaining and framing things are unique and are not available outside of the course. There’s also a Q&A section so if anything isn’t clear, you can ask me a question and I’ll answer.

Another point of value that the course delivers is inherent to the format: rather than just text or just a person speaking at the front of a lecture hall, the course uses mixed media: text, video, presentations, spreadsheets, tools, templates, as well as active elements like exercises and quizzes. Not everyone learns the same way, and having variety and different approaches will help keep a student’s focus and improve their ability to learn. The material is also available on your schedule, whenever you need it, so you’ll never miss a line.

Finally, the course represents a huge value in time savings as well as the peace of mind in knowing that I’ve curated the vast amount of material out there for you — so you’ll also know when you’ve learned enough and can reduce the information overload. Some have commented that all the information needed to become an investor is available online or in the library, much of it for free. Yes, many people have figured out how to become successful DIY investors before I created the course, and many will continue to do so without the course. However, at this point there are millions of words written on the subject out there. Canadian Couch Potato alone has roughly 1,000 posts in his archives. And while there’s a ton of great material on that blog, it’s not the only one and it still doesn’t cover everything — you’ll definitely want to peruse the archives of Michael James on Money, Blessed by the Potato, Canadian Capitalist, oh and don’t forget Young & Thrifty, Canadian Portfolio Manager, and many more. Plus there are many magazine articles, newspaper articles, podcasts, whitepapers, and a few books. All told, you’re looking at something like one or two hundred hours of reading and having to determine what to follow because some of that freely available information is now out-of-date or just plain wrong.

For comparison, this course from UofT’s School of Continuing Studies will run you $325 (BTW, I’ll be popping in as a guest speaker for that one), but if you don’t happen to live near Toronto and have Thursday evenings free, you’ll likely appreciate the anytime, anywhere nature of an online course. PWL (Dan Bortolotti and Justin Bender) used to help teach people to be DIYers — a service that also included some personalized planning and the creation of a specific portfolio, so not apples-to-apples — for $2500-5000. Many investment coaches will help teach you from scratch, or answer specific questions to get you over any remaining hurdles after reading about it, but unless you can figure it all out in a single short session, that’s going to cost more than the course, too.

The course is not going to be for everyone, and that’s ok. Some people will figure this stuff out on their own, using free resources or a few books, filtering and addressing the conflicting information on their own. Some people are not interested in DIY investing, and will pay someone to handle it for them. For a fair number of people though, I believe the course will provide them with a lot of value in time saved, ease of understanding, and ongoing success.

Send in Your Investing Questions Now

January 12th, 2017 by Potato

The online Canadian Investor’s Conference is coming up, and I’ll have a presentation there. I’ll be recording early next week, so send in any questions you may have about DIY investing now. The conference is free if you can watch it right away, but to see the material later you’ll have to buy a premium pass — click here to enter a draw for a free premium pass (this draw is exclusive to BbtP/VoS readers so your odds should be pretty good).

Practical Index Investing Course is Complete

January 2nd, 2017 by Potato

My online course to guide you through becoming a do-it-yourself investor is now complete. Click here to download the final syllabus.

I want to thank everyone who signed up for the early access period, some of whom signed up over half a year before expected completion on little more than an outline and a promise (and a clever quote from the Hitchhiker’s Guide to the Galaxy). I ended up a month late on delivering the completed course, with some entirely reasonable extenuating circumstances. Having those paying customers patiently waiting was hugely motivating, and kept me going even as the work ballooned.

About the Course

The course is your complete guide to all the practicalties involved in becoming a do-it-yourself investor with index funds or ETFs, including:

  • Coming up with a basic plan to guide your investing.
  • Assessing your risk tolerance, and understanding the risk involved in investing.
  • Creating an account and purchasing an investment.
  • Choosing between your TFSA and RRSP.
  • Tracking your gains and reporting your investment income on your taxes.
  • Managing your behaviour and setting up good processes for long-term success.

What Does Complete Mean?

I say the course is complete, but what exactly does that mean? Well, I’ve delivered on all the essential modules in the syllabus, and what I had originally envisioned1. That doesn’t mean that now I’m going to unplug and ignore it. I’m a strong believer in continuous improvement, and will keep tweaking the course to refine the content that’s there, and add material to address questions as they come up. The course platform has a discussion section, which will help identify areas that people may be having trouble with. I also plan on running a few webinars through the year — a feature other courses charge extra for — in case people want more chances for discussion and Q&A.

1. Note that a few minor changes were made to the structure since the original outline, in particular much more information in the middle sections, and I realized that there was a lot of overlap between sections 5 and 9, so those were streamlined.

CPP Calculator with 2016 Changes

December 16th, 2016 by Potato

“How much CPP will I get?” is a common question, and an important one that will help feed your financial planning. You can get a statement detailing your CPP contributions from Service Canada, but unless you’re close to retirement this isn’t super-helpful for planning purposes because it’s harder to do what-ifs with it. Indeed, it will basically assume that you’ll continue earning at your current rate until a given age, which is not helpful if you’re trying to evaluate early retirement scenarios. Plus, it’s a fair bit of work for precision when you may just want a good enough estimate. There’s also a calculator at Service Canada that includes the CPP, but it’s web-based so not great for playing around with, and it doesn’t do a good job of incorporating changes to future income, nor does it appear to be updated for the coming changes to CPP (announced in 2016).

So I’ve built a spreadsheet to let you do just that. Click here to download it (Excel). Keep reading for details on the calculations and how to use it.

A screenshot of the CPP calculator spreadsheet

Background and Acknowledgements

This came about because Sandi Martin came to me asking how to solve the problem of estimating the future CPP for people that would partially benefit from the changes to CPP announced in 2016 (which will be slowly implemented over the coming years). She had a spreadsheet for the old calculation, but I pretty much started from scratch to build this in. Having her sheet in front of me as I did so was helpful, and she was instrumental in the testing and trouble-shooting.

This post by Doug Runchey was hugely helpful on the algorithm CPP uses, which is not as intuitive as you would think. Doug offers a service to calculate your CPP precisely, so if you need to know down to the last dollar how much you’re going to get, contact Doug and pay him to run that calculation for you.


Simply fill out the boxes shaded blue, then scroll down to see how much your CPP is. The year and age should be self-explanatory.

Dropout: You’re allowed to drop a certain number of years from your CPP calculation. This lets you have a few years of low/no earnings and still collect the maximum CPP. Right now you’re allowed to drop 17% of your working life (over at CPP it’s actually in months but the spreadsheet uses years). So the number of years that works out to depends on when you collect CPP. However, there are cases where you can use the child-rearing provision to drop more years — use this field to add those drop-out years, in percentage form. Note that if you’re adding years as a percentage, now you’re making an assumption on when you’ll take CPP, so the table at the bottom will have further approximations for you.

Income: Enter how much you earned each year towards CPP. For years before 2017 enter the actual amount in that year’s dollars. For years after 2017, use real dollars. That is, if you’re earning $50,000/yr now (just a bit under the YMPE), and next year expect to get a cost-of-living raise only, enter $50,000 for 2018 — you’ll still be at the same fraction of that year’s CPP maximum. If you’re expecting a 4% raise — 2% cost-of-living, and 2% real increase in pay, then enter that increased amount above inflation for the future year ($51,000 in this example). And that continues for future years: if 10 years from now you expect to just pace inflation, keep filling in the same salary figure in 2017 dollars.

Otherwise, have fun exploring your what-if scenarios for when you stop working, etc.


Keep scrolling down past all the years to enter your income history, and you’ll find a little table with the results — how much you can expect to earn from CPP annually. This includes the bonus/penalty for waiting to take it/taking it early, so you can quickly see about how much you’ll get for taking it at different points.


The calculation should give you your CPP benefit to the nearest 5% or so (several people have sent me their statements of CPP and even for those collecting under the old system, there are differences of ~1-3%). I’m happy with that level of good enough — after all, you can get about that much difference just from deciding whether to enter your age as of the beginning of the year or the end of the year. If you need more precision, lookup Doug Runchey’s service.

CPP is actually based on months of contributions (and months of drop-outs, etc.). Here I’ve just rounded off (discretized) to years, which is going to cause a bit of discrepancy. This will also cause a slight issue in the table of results for taking CPP at different ages, as whole years of drop-out pop up at 62 and 67 (vs. the more gradual inclusion of drop-outs when you discretize to months).

You can drop extra years for the child-rearing provision, however there are some extra rules about the dropping out that the spreadsheet doesn’t account for. If you add extra percentage drop-out for child-rearing, that’s not necessarily going to translate into the same years dropped out at each age for taking CPP, so it will be less accurate if you’re including extra drop-out years for disability or child-rearing. On top of that, there has been concern that the drop-out provisions wouldn’t apply to the enhancements, though with several years to the enhancement roll-out this may yet get patched. To assume the CBC article is how it will be (i.e., it won’t get patched), reduce your drop-out by ~33% for years after the full implementation.

The five-year average rule for determining the pension payout is hard to apply in the future where the inflation rate is unknown, so I’ve assumed an inflation rate similar to that of the last 5 years.


I was actually somewhat shocked as I went through this at how mis-leading the initial government release on the CPP enhancement was. I had seen the “upper earnings limit will be targeted at $82,700” in all the news stories — which sounds substantially higher than today’s ~$55k figure. What I didn’t see was that this figure was not in today’s dollars, but in 2025 dollars, and that they assumed a rate of inflation close to 3% (well above the recent experience) — in today’s dollars, the new upper limit is actually just $62,586 (14% higher).

I was also surprised at some of the little things in the calculation, like that the payout is based not on the YMPE level when you start collecting, but a lower number (the average of the previous 5 years). I can’t fathom the point of this step of the calculation.

Otherwise, I haven’t seen explicit information on precisely how the CPP enhancements will be rolled out, but have made reasonable guesses as to how they will be pro-rated. What are the CPP enhancements, you ask? In short, an increase to the maximum amount you can contribute to CPP (so it will cover more of your income if you earn more than the maximum now), and an increase to the amount of income CPP will look to replace (from ~25% now to ~33% for those in the future). These were announced in the summer of 2016, and will start being phased-in in 2019 over the course of 7 years.


Version 2: Adjusted the age 66-70 calculations to keep using 48 years as the number of contributory years as part of the over-65 drop-out provision (see comments). Also rolled forward the calculations for 2017’s YMPE.

Once again, click here to download the CPP calculator (Excel). (click here for version 1).