Who's On Your Team?
It’s alarmingly easy to get conflicting advice about your money if you don’t know who to ask, when, and why, and if the people giving you that advice don’t know what they don’t know. (I’m looking at you, social media finfluencers).
Financial planners need to have a thorough knowledge of investments, taxation, and law (want to know how thorough? The FP Canada Body of Knowledge for investments and taxation are each 53 pages long, while law comes in at a “only” 43 pages).
But we’re not portfolio managers. We’re not accountants. We’re definitely not lawyers. Each of these professions (including financial planning) takes years of study and then even more years of practice to develop the expertise necessary to do it well.
While there are some gifted people who’ve put in the work to become an accountant and a financial planner (or a portfolio manager, or a lawyer) most people can’t do an excellent job at more than one of these things, which is why you might need a team.
And by “team”, I don’t mean picking one of each professional and calling it a day. I mean assembling a group of people who each have a specific job to do for you, and:
Have deep expertise in their chosen field (that’s table stakes)
Understand where their expertise ends and someone else’s begins
Understand that there might be more than one “right answer”, and orient their advice around what you value most
Are willing to consult with each other so that you don’t have an expert in each ear expecting you to choose between them
If you’re doing it yourself, you are the team, but the rules still apply.
Indulge me in a simile this morning, would you?
Your financial life is like travelling to a place you really want to go.
The only person who can decide where that place is and what the trip should be like is you. Are you like my parents and want to stop in to every antique shop along the way and eat all the meals in sit-down restaurants?
Or are you like my father in law, who eats while he drives and would pee in a pop bottle if it got him there faster?
To get to your destination, you need to know where it is, how to get there, and what the rules of the road are. Yeah, everyone’s got GPS on their phones these days, but maybe you still worry that the robot is going to make you turn left into a lake.
Maybe you don’t trust robots and you’re not that into orienteering. Maybe you can’t read a map to save your life.
In that case, you need a navigator: someone whose job it is to understand where you want to go and how you want to get there, and has enough knowledge to point you in the right direction and stick to the rules of the road along the way.
Oh, and you need a vehicle, and it would be great if you could get one that’s suited for the distance you’re travelling, the amount of other people and baggage you’re bringing, and the state of the roads. The vehicle that’s right for you might be very different from the one that’s right for me.
Maybe I want the most reliable vehicle, at the lowest price, that will let me putter down the road. Maybe you want to go really fast, and don’t mind the occasional break down on the side of the road while all the people you passed kilometres ago trundle along past you.
If you know how to pick your own vehicle to match the conditions you’re likely to face, and to keep the wheels on and the engine in good shape, that’s excellent! Lots of people need help, because they’re just not that into vehicles, and they’re willing to pay a little more to get the right one for them.
TL;DR: Your journey is your life. Your destination is your goals.
Your navigator is your financial planner and sometimes your accountant or your lawyer.
Your vehicle is your investments. The person you ask about which vehicle to buy and rely on to keep it in good shape is your investment manager.
You might fill all of those roles, or you might delegate some of them to professionals.
It’s critical that you know who does what job, and how to tell if it’s getting done right, whether you’re doing all, some, or only one of them.
You can buy any old vehicle, but will it get you to where you want to go at a reasonable price with a minimum of breakdowns that stress you out? You can buy (or be sold) any old investment, but can it perform how and when it needs to, and at a price that doesn’t eat up a third of your portfolio in fees by the time you retire?
Your navigator (or navigation team) can’t help you get to your destination if you don’t know where you want to go. Your financial planner can’t tell you when to convert your RRSPs into RRIFs, start receiving Canada Pension Plan, or whether to use your TFSA for short term savings or long term growth unless you tell them what’s important to you.
Your accountant can’t tell you to withdraw more from your RRSP this year to avoid an OAS clawback two years from now if they don’t know what your withdrawal plan is. Your lawyer can’t tell you not to name your adult children as beneficiaries of your RRSP if they don’t know how much money the estate is likely to have for paying the final tax bill. Your investment advisor can’t tell you what investments to buy if they don’t know when and how much you’re going to need to withdraw from them.
They need to talk to your financial planner, they all need to communicate with each other, and, more than anything else, they need to defer to you on where you want to go and how you want to get there.