August 31, 2009, 5:00 am

A Response To Financial Nuts – Knowing How Your Advisor Is Compensated

by: The Financial Blogger    Category: Financial Planning,Personal Finance

financial-nutsI recently read an article by Financial Nuts where he got pushed by a financial advisor to buy life insurance. During their very first meeting, the advisor kept coming back to his need to buy life insurance while the client clearly stated he was not interested.

Unfortunately, I must admit that we hear this kind of story too often about pushy financial advisors. Times are rough for several of them and they try to make a few extra bucks by any means possible. Many are straying far from their valuable mission: to provide high quality financial advice!

However, I am also aware that we (financial advisors) can be insistent when we really see there is a weakness in our client’s financial situation. This is why we try (sometimes lacking in tact & sensitivity) to convince our client that he is making an important mistake by ignoring our advice. Some people think they know and master their personal finances and this is where they get it wrong and are too embarrassed to admit it; they just know enough about finance to hang themselves 😉

When you meet with a financial advisor, the first question you should ask is how he is compensated. This way, you will be in a better position to know if he is pushy because he wants to make a sale or because it is really important for you to follow his sound financial advice personalized to your current situation.

Fee Based advisors

Technically, if you are looking for non-biased financial advice, these are the go-to-guys. Fee based advisors are usually certified financial planners with great experience. They set a first meeting where they will ask several questions about the 7 fields of financial planning.

Then, they will write a full financial plan with their observations regarding your actual financial situation and their recommendations attached. They won’t sell any products as their recommendations are formulated as solutions to potential financial weaknesses they have observed. You have no obligation to buy anything or to follow their recommendations.

Where is the catch? There is none… but you must be prepared to pay for the service, at the very least $1,000 for a financial plan. Depending on your personal situation (i.e. if you have more needs towards estate planning with the creation of family trusts or if you have a company), the bill can exceed several thousand. I guess this is the price to pay to get non-biased financial advice!

Beware: some of them will provide you with a complete financial plan and will also include products amongst their recommendations. Since most people were not ready to pay more than 1K for a financial plan, fee-based financial planners started to lower their fees and increase the amount of products within the proposed plan. It doesn’t mean you have to purchase from them as you paid for the plan and you can leave the office with it. Just be careful with their recommendations.

Commission Based advisors

You will find most brokers in this category. They are usually pros in one field (insurance, investments, or mortgages) but they offer all products as a global financial service. The life for young commission based advisors is pretty tough as they don’t eat if they don’t sell. This is why the average income of a new advisor is 25K in Canada (before expenses) and the turnover during the first year is 80%. They live according to one rule: the survival of the fittest.

This is why you are hear of so many pushy advisors; they want a pay check at the end of the month! Unfortunately, those are the ones responsible for the bad reputation financial advisors field in general. They think about their own good instead of managing their clients’ assets ethically.

Having said that, I know a lot of commission based advisors who put their clients first and provide high quality financial advice. Since it is the highest paying structure for a financial advisor, you will also find the cream of the crop. Since a top performer in a bank will barely reach 6 figures, a top performer on a commission structure can make more than 500K per year. No wonder young advisors dream ;-). However, top financial advisors have built their business on strong relationships through sound financial advice for their clients!

Somewhere in between based advisors 😉

You will find these advisors working for banks and other financial institutions (investment firms, insurance companies, etc.). This is actually my personal situation: I am an employee with a base salary. The bank gave me a book of their clients (they are not mine as opposed to commission based advisors) and my goal is to grow the business in the book. We get a bonus depending on the net growth of “our” book at the end of the year.

The base salary is big enough so one can live with it without any bonuses. This way, we should be less pushy. On the one hand, we offer our company products exclusively (which is not necessarily a bad thing, since most financial institutions have similar products!). On the other hand, I have seen many other advisors sitting on their base salary and become reactive to their clients instead of being proactive…

As you can see, there is no perfect and transparent compensation system. Each of them has its strengths and weaknesses and may lead to biased financial advice. However, by knowing upfront how your financial advisor is compensated, you will be in a better position to understand why he is insisting on one solution / product or not… we hope.

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August 29, 2009, 2:55 pm

Financial Ramblings

by: The Financial Blogger    Category: Financial Rambling

fatmanWhile my vacation was quite amazing, it had a terrible impact on my weight. I left work at 178lbs and came back at 185! 7 pounds in 2 weeks! (all right… the picture may be a big exaggerated….) I started back at the gym 5 times this week, played beach volleyball and golf and I am now back to 180-182lbs. My ultimate target is 170lbs by the end of 2009. I will actually try to achieve it by the end of September but this is because I am crazy 😉

We are in the final run at work as our financial year ends on October 31st. This is the crazy sprint to sell as much as possible before they close the books for the year. As I am at 135% of my objectives already, the bonus is looking quite interesting and I am reassured that my wife won’t have to go back to work… for at least another year!

I am quite excited as I just finished my last week of 5 full days of work! Next week, we start an all new schedule where I will have much more time for blogging and hopefully making even more money 😀

Here’s what I found interesting this week in the blogosphere:

Intelligent Speculator is asking if Small Caps offer diversification? They sure offered good yield in this first half of the year!

Since the US Gov already closed their famous program “cash for clunkers”, Gather Little By Little is giving them a new idea: “Cash for Applicance”.

Four Pillars says that you CAN argue with results… I always argue anyway!

ABC’s of investing brings us down to earth with investment real returns.

Million Dollar Journey is looking into flipping houses for profit… is it too late?

The Simple Dollar is reviewing his financial goals and setting new ones… the first step to achieve a goal is to have one!

The Digerati Life is writing about California Unemployment History… a sad one…

Moolanomy won his fight against his credit card company… we, as customers, sometimes win 😀

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August 28, 2009, 5:55 am

Many Investor Types: Momentum Trader, Day Trader, Short Seller, Stock Picker, Buy and Hold, Contrarian and my favourite… the lazy investor

by: The Financial Blogger    Category: Investment, Market and Risk

If you read my blog, chances are that you like talking about investments. Most of us have an investment portfolio but we rarely manage them the same way. Active investors have different perceptions of the very same news and will trade accordingly. So before you share investment picks with someone else, you should ask him which kind of investor he is:

joker-the-dark-knightMomentum Trader aka The Gambler

I am sure you have heard of people swinging out of money market funds into equities and then back to money market funds. The momentum trader manages his investments like I help my daughter in her swing: they push when they think it’s good timing and pull back before the market crashes (or in the case of my daughter, before she gets sick 😉 ). They think they have that special 6th sense to know when the market is “high” and when the market is “down”. The problem is that the market is a psychopath… so tell me how you can predict a psychopath? As you already know, I don’t really believe in market timing. The main reason is because you have to be right 100% of the time… can you really predict every peak and drop? If you can, send me an email!

The Day Trader aka The Technicianoffice-setup

Day traders are stock market cracks sticking to their 5 trading screens like flies on sh…… They really don’t want to miss anything as any tidbit of information is crucial. Volume, trend, moving average, big news… they look at everything and use their system to draw patterns. If their analysis is right, they may make a killing out of their technique. However, this requires passion and a lot of time in order to become successful. I don’t have the patience (and talent!) to track 5 screens of minutia 8 hours in a row!

timothy-sykesThe Short Seller aka The Pessimist Gambler

Those traders expect stocks to crash and short sell them. This is how Timothy Sykes made most of his money. Many short sellers have been accused by Wall Street of pushing the stock markets down the stairs back in September 2008. As the world was about to collapse, short sellers were looking to buy their new Bmer with the profit earned from their short sell of Citibank, AIG and others. As in the case of the momentum trader, the short seller is a gambler and bets on bad news to make money on market swings.

The Stock Picker aka The Professionalbusinessman

While he thinks and acts like a Pro, it doesn’t mean that the stock picker is one. He usually has reasons why he buys stocks based on fundamental analysis. He might have spent 20 minutes or 5 hours analysing reports…. In the end he is convinced of his choice. He follows each of his stocks closely and will trade them upon certain homemade rules such as gain/loss target, sector swings, fundamental changes, etc. While he can make a lot of money, he will only perform well if his analysis method is great!

The Buy and Hold aka The Warren Buffett42-15907293

The famous buy and hold strategy is not too popular these days. Several articles have been written on the fact that buy and hold investors had left a lot of profit on the table when it was time to cash in their profit. I personally think it is still a good strategy but one must consider selling his holdings and not fall in love with them 😉

The Contrarian Investor aka The Rebel

The contrarian investor bases his trading strategy on the opposite of the market. While everyone is looking to buy, he looks the other way. It is actually one of the most logical things to do when you are close to stock market peaks and at the bottom of a drop. Someone who was buying stocks during fall 08 is probably laughing right now… oh wait, this is what I told most of my clients… they are showing double digit returns since then 😉

The Lazy Investor aka The Financial Blogger (LOL!)

After a few years of being a stock picker, I have turned myself into a lazy investor. While I am not the perfect lazy investor, I found that stock picking required too much of my time compared to my chances of beating the markets. Actually 7 professional portfolio managers out of 10 don’t beat their reference index. How can I continuously do it with my laptop and a few friends from the trading floor?

This is why I have decided to go with stock market index funds. As I invest on a monthly basis, I prefer index funds to ETFs. However, ETFs are much cheaper when you don’t buy them regularly. I base my trading strategy on tracking the market and reducing MERs.

How about you, what kind of investor are you?

image source: steve cherrier, adam foster,

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August 27, 2009, 5:00 am

Taking Care of Yourself; A Healthy Choice – A Costly Choice

by: The Financial Blogger    Category: Frugal,Personal Finance

healthy-stuffAfter 2 weeks of vacation, doing nothing but enjoying ourselves, we were having a glass of wine in a hot tub, 50 feet from a natural spring-fed lake (we have some pretty amazing spots in Quebec!) and I was thinking how great is this. On that last day of vacation, we dropped off our kids at my parents’ house, borrowed my father’s roaster and went to a spa for the day. This was one of the most relaxing experiences I have had in months! The people at the spa took care of us like we were the king and queen. It was simply delightful… except when it came the time to pay the bill. It is amazing how you can add to the tally just by saying “put this on 206”… 😉

I started thinking how expensive it is to stay healthy:

Eating healthy food

When we had William, we changed our eating habits in order to provide him with healthier food. No more chicken nuggets and french fries with ketchup for supper! Since then, we have improved our menu and now eat fish once a week, get lots of vegetables and fruit and try to buy bio or non-sugar added products.

We realized that most of what we buy costs a lot more than the “regular” products with all the “bad stuff” added. We were able to find a great place to buy our meat and we buy in bulk so it doesn’t cost a lot more than at the grocery store, and it is better quality and less fatty.

We are looking towards bio vegetables but they are still too expensive for our budget. Do you have any idea of how we can get good food cheaper than getting them at the grocery store?

Working out / Doing sport

Once on the way to eating less junk food, the next step to losing weight and getting in better shape is to work out on a regular basis. My wife and I tried 2 different avenues:

– I registered at a gym right beside my workplace. It is convenient as I don’t waste time going out of the way. On top of that, I can adapt my workout program every 2 months in order to get better and faster results. The fact that I am being coached by a trainer regularly, adds to my motivation. I want to make sure I improve from one meeting to the next! Unfortunately, a commercial gym and a personal trainer are far from being free. While I think it’s worth it, it does hurt my monthly budget!

– Since my wife has more willpower and is more disciplined than I, she decided to start her own gym at home. She read a few books, watched a few dvds and build her own workout program. We bought an elliptical machine (they are half price during boxing day!) and a few free weights so she can do everything at home. This solution is way more expensive initially and it requires the guts to get off the sofa at 8pm and starting sweating after a rough day. Another disadvantage of this option is that she now has the perception that she hasn’t improved her strength nor endurance much, considering the past 8 months on the program. It seems that your muscles learn the routine and don’t work too hard after all.

Spa, lotions, creams and other beauty products

Once you have a good looking body and enjoy a nice salad without dressing, you are ready to show off in a bathing suit ;-D What is the best way to do so? On the beach or at the spa! Seriously, getting a massage or going to a spa hydrates your skin and makes it look better. Creams and other beauty products will also help make your skin look “more healthy” and will give you a better appearance. While I really enjoy going to a spa once in a while (there is nothing better than relaxing all day with a good glass of wine!), I am not really into beauty products, yet. I’ll let you guess who is buying those at home 😉 Seriously, my wife is not a big spender on them either. However, there is still a “minimum” to be considered and it does make a difference to her skin.

So when you look at someone, looking super nice on the street. Someone who looks healthy, well built, tanned and you feel that person is almost shining; you can tell that they invest a lot on themself! Is it worth it? That is a very personal question, as it depends on how you feel about yourself and how you are affected by perceptions from others people. However, getting in shape and eating healthy food is far from perception and more about staying healthy. I think this part should be considered by everyone.

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August 26, 2009, 5:00 am

5 Tricks to Get The Power of an Effective Schedule

by: The Financial Blogger    Category: Personal Finance

office-spaceThere are two ways of completing 10 hours of work in one day:

#1 Start working like an animal right away and stop only once it’s all done.

#2 Take 30 minutes to plan and prioritze your actions in order to finish everything in 7 hours, with breaks included.

In order words; if you plan your activities effectively and prioritze the more productive aspects of your task, you can accomplish it faster and with better results. I call this method: working on the 20%. This is based on the Pareto Principle:

Wikipedia Pareto Principle Definition:

The Pareto principle (also known as the 80-20 rule,[1] the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

In order to achieve your goals and avoid a burn out (as your final bonus), you need an effective schedule. Over the years, I have worked really hard to improve my schedule, to make sure it is effective and productive. Here are my 5 tricks to create an effective schedule:

#1 An effective schedule is realistic: Test out changes

Before getting to the perfect schedule, you will surely use trial and error. Common mistakes are:

– Drastically changing your lifestyle (e.g. wake up at 5am daily when you used to start your day at 7am)

– Trying to do too many things at the same time

– Imposing your schedule on your relatives, etc.

So to be realistic, try incorporating a few elements each week and see how you and your entourage react.

#2 An effective schedule is designed according to your needs: Create a list of priorities

Your schedule will improve time management if it does only one thing: Get the 20% done! Make a list of what is really important for you to complete in a week. Be careful, I am not talking about what you need to do but what you want to. We will find space for the not-so-useful-and-time-consuming stuff later on 😉

#3 An effective schedule is a steady one: Make it fit your lifestyle, don’t fit your lifestyle into your new schedule

Too many people try to adjust to a new schedule that drastically changes their lives. The problem is that changing lifestyles is like not eating chocolate anymore when you love to have a little everyday: you will find any good excuse to get back to your old habits!

Make a schedule that will suit your lifestyle and habits. Don’t try to work late if you can’t concentrate after 7pm… it just won’t work and you will become less productive… and risk having a burn out ;-D

#4 An effective schedule is one with a core solid as a rock wrapped with great flexibility: Allowing wiggle room without cancelling anything

Your schedule will include all your priorities. They should be the tasks that improve your overall situation (personal, financial, social, etc.) and as a result your happiness as well. Those priorities can be moved about in your schedule. Remember, the schedule should adapt to your life, not the opposite. So soccer Monday can become soccer Wednesday… as long as you play in your week!

#5 An effective schedule rewards hard work: Don’t forget to indulge yourself

My wife sometimes laughs at me when I start working on something by taking a 15 minute break to grab a fruit (it used to be chocolate bars L ) or to watch the latest news on my favourite hockey team. I start with a pause because I believe it is important to reward yourself when you do (or are about to do 😉 ) some hard work.

If you want to perform at a high level in any sphere of your life, you will need to work hard and be meticulous. I told you before; there are no free lunches in finance… well there are no free lunches in life; period! However, it doesn’t mean you can’t enjoy life or deserve to be rewarded for your efforts!

So these are my personal tricks to creating an effective schedule. This is how I was able to achieve 4 promotions, an MBA, a CFP title, a successful marriage, 2 beautiful children, while moving 3 times, starting a company all in the past 5 years and recently adding a fitness routine 5 times a week. The great news is that I feel perfectly fine and I am far from a burn out… I did everything because I keep working on the 20% 😀

Do you have any other tricks to become more productive?

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