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The case for DIY financial planning

5242 Views 3 Replies 2 Participants Last post by  MoneyGal
The reason these simple "4% withdrawal rate" or "salary times age/10" rules of thumb exist is not that advisors are lazy, rather, it is that advisors are generally too preoccupied chasing up new clients, or worrying about that problem client they are about to see in 1/2 an hour. Also, frankly, many are simply not that mathematically inclined.

If you asked a simple question such as .... "I understand the 4% rule is a reasonable number for someone who wants have his savings to just run out on his 95th birthday, but instead of just dying broke, if I want my estate to net $1M when I die, what should the % rule be?" Or... "if I retire at 55, does the withdrawal rate before age 65 differ from the rate after 65 when my CPP/OAS kick in?" Or... "I am expecting a $1/2M windfall in 10 years. How does that effect the 'salary times age' rule now?"

The financial plan has to include estate targets, future windfalls/cash calls, retirement age, bridging, pension expectation, loans/LOCs, And guess what?... the client has much easier access to this personal financial knowledge base than his advisor. If you think that when you go into a meeting with your advisor that he (or his assistant) has all these things at his fingertips (the details of your outstanding loans, when you plan to retire, the parameters of your defined benefit plan, current gross salary, current household spending, holdings at other institutions....) you are dreaming. Some advisors do, but most don't.

Ideally, you should meet with your advisor with a firm understanding of your financial plan, so that when he asks the inevitable "how much can you afford to plunk in your RRSP/TFSA this year?", you will have determined/analyzed that number inclusively. (i.e inclusive of the non-investment elements of your plan) Once that's established, then his specific expertise in investments, risk/reward, asset allocation, etc. come into play.

Do it yourself (DIY) cash flow financial planning combined with knowledgeable professional investment planning is the way to go IMHO.
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I agree with you.

The only point I want to add is that I think you are using the term "financial advisor" to mean product salesperson.

There are other models. For example, Dan Hallet is a licensed Investment Counsel in Ontario, but manages no money for clients. Instead, he will do retirement or other financial planning, including retirement income stream planning, as well as IPS and investment benchmarking and oversight with no hands-on money management - instead, clients implement his advice (to whatever degree they choose) on their own.

Warren MacKenzie and his team at Second Opinion Investor Services are another, similar model.

What I would say is you should never depend on a product salesperson, compensated by way of product sales, to do comprehensive financial planning. However, you *can* outsource comprehensive financial planning - not relying on an advisor doesn't necessarily mean you need to do it on your own.
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Yes you're right. I am using the generic term 'advisor' only because joe public isn't able to differentiate between 'fee only' or 'fee for service' planner/advisors and the normal institutional sales persons who hang out the 'planner/advisor' shingle. (of which the latter are in the decided majority)
hee! Great points.

Here's an interesting article from Moshe Milevsky on some DIY financial planning (granted, you will need to know some math functions in Excel).
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