Podcast - April 16, 2024
Latest Episode: The Worst Advice Ever
Discover the dark side of financial advice with our latest Barenaked Money episode. Join Josh, Colin, and members of the team as they share personal anecdotes and expert insights on bad financial advice. These stories of financial bunk are not just educational, they’re essential listening for anyone looking to navigate the complexities of personal finance. Click play and learn how to tell the bad advice from the good!
The transcript is automatically generated
In this podcast episode, various speakers share their experiences with receiving or witnessing bad financial advice. One speaker recounts a story of a portfolio manager advising clients to invest in a company with no revenue, resulting in significant losses for some clients. Another speaker shares the story of a senior partner advising young accountants to spend as if they were already earning partner-level salaries, leading to financial difficulties for those who did not make partner. Other stories include advice to purchase real estate as the best investment, purchasing life insurance as an investment product, and taking on excessive debt for education. The speakers emphasize the importance of understanding one’s priorities and seeking advice from professionals who align with those priorities. They also caution against putting too much faith in real estate as an investment and highlight the need for proper due diligence and understanding of financial decisions.
Announcer (00:00):
Welcome to Barenaked Money, the podcast where we strip down the complex world of finance to its bare essentials with your hosts Josh Sheluk and Colin White Portfolio managers with Verecan Capital Management Inc.
Josh Sheluk (00:12):
Inc. Catherine said there’s a couple of the intermediary segments that she thinks might be interesting, so I don’t know. She’ll maybe capture some of the chit chat in between.
Colin White (00:24):
I told you that our best stuff is completely unscripted,
Josh Sheluk (00:28):
That’s for sure. That’s for sure. Hi,
Colin White (00:32):
The man myths the legend, Mr. Collin Smith.
Colin Smith (00:36):
Good A there.
Josh Sheluk (00:38):
Once again, I’m surrounded by Collins. There’s too many Colins on this team. We got to come up with better nicknames for everybody.
Colin Smith (00:44):
I think we should hire more that way we make all the other names.
Colin White (00:49):
That’s right. Only Collins get to vote. We’ll have a new system.
Josh Sheluk (00:53):
It would certainly make our job search a little bit easier. We’re only searching for callings.
Colin White (00:58):
You want to do the intro, Mr. Sheluk?
Josh Sheluk (01:02):
Yeah, sure. So we have Colin Smith today checking in from New Brunswick. So after these segments we’ll have just about all the provinces I think covered in Canada, which is pretty awesome. So unique perspectives in Colin. You always come with some great stories. Why don’t you give our audience the 32nd overview of your background and your history.
Colin Smith (01:23):
So I come from Manulife Bank is where I started in the financial industry about 20 years ago, and so I have a very strong lending background. Then I switched over and we opened up our own mortgage company and I moved on to become a financial advisor after that. So that’s where I come from for my background.
Josh Sheluk (01:46):
Amazing. And with all of that varied experience in the finance industry, I’m sure you’ll have some pretty awesome stories because you always do. And so why didn’t you kick us off? Or Colin, go ahead. Do you have something to share?
Colin White (01:58):
Well, I was going to say before you get started, how hard was this for you to come up with the one absolute worst? Was there a top five that you really struggled with or is there one that really completely stood out for you?
Colin Smith (02:09):
No, actually I think it’s my actual comments or not a scenario, but it’s many, many in general. So I see this all the time, and at the end of the day, it’s probably the worst advice that you can get financially, in my opinion. And that’s purchasing a vehicle on an eight year, on an eight year term.
Colin White (02:30):
Well, I can chime in personally before you flesh this out a little bit more. That was advice that my mother gave me as a teenager when I was looking at cars. She looked at me and said, you’re always going to have a car payment, and when your mother tells you that it must be true, but please do go on with the eight year. That is a really good piece of the equation.
Colin Smith (02:53):
Absolutely, and I think the worst one that I saw was a gentleman who did an eight year lease on a truck. It was an $85,000 truck and he put a 20 year lease on his trailer so that he bought the truck so he could pull the 20 year lease on the trailer. In both cases, neither one of those are going to make it to their amortization period. And my opinion is if you can’t afford to buy it in a five and a half year period, then you probably can’t afford to buy it.
Josh Sheluk (03:20):
So what makes the eight years so bad? Like, okay, you’re at the end of your amortization period, eight years in, you have this truck that or you no longer have the truck. Why is that such a problem?
Colin Smith (03:32):
It’s basically because of compounding interest. I mean, at the end of the day, you’re paying interest in advance and most lenders will, when they do lend the amortization, is the interest is charged in advance. So the first three and a half years of your payments are generally interest only payments, and that’s why people get to the end of their end of four years when you really should be looking for a new vehicle or purchasing a new one and they still have full amounts owing on their loans and can’t understand why.
Josh Sheluk (04:00):
Yeah, okay. So early on in the borrowing, whatever it is, whether it’s a mortgage, a vehicle payment or something like that, a lot of your payment or more of your payment goes towards interest then paying down the principal. So I see what you’re saying there and that you’re right, a lot of people are looking to turn over cars in a fairly short timeframe, three years, four years, five years. So you’re saying that in your experience you’ve seen these people show up with a surprise look on their face maybe when they realize that a good chunk of their loan is still outstanding and the vehicle at that point with the vehicle especially, is probably worth less than the loan payment. Is that right?
Colin Smith (04:38):
That’s absolutely correct. That’s absolutely
Colin White (04:40):
Correct. But you guys don’t understand how it works. You just don’t get it because it’s dead easy just to go lease another vehicle because you just roll that shortfall into the next vehicle. In fact, I was at a conference where a institution that rhymes was tank announced that they were willing to go up to 225% of the purchase price of a new vehicle on a vehicle lease. So you could go so far completely underwater that you owed over two times the actual value of your vehicle and they would do an auto lease for you.
Colin Smith (05:14):
So is that where you just go for death and your insurance covers it?
Colin White (05:18):
Well, it’s tomorrow. We’ll deal with that tomorrow. Right? So not only is it that one lease is a bad idea, like an eight year ization, it’s the fact that they give you the opportunity to do that multiple times to get yourself so completely underwater that you actually owe twice the value of the actual asset. And yes, that’s probably going to be only gotten out of at the time of your death. So
Colin Smith (05:41):
Well, not only the value of the interest rate side of things, it’s also the value of the vehicle. I mean, at the end of the day, the average person puts on anywhere between 30 to 40,000 kilometers, and that’s average. I put on a lot more than that. So if you average that over an eight year period, your vehicle has 320,000 kilometers on it by the time you’re done paying for it, how many repair jobs do you have to put in during that period of time? And that’s the other reason why the five and a half year period makes more sense because you’re done paying if you’re going to keep it. And I get that argument quite a bit. Well, I drive my car into the ground anyway. Well, if you’re driving it into the ground, there’s definitely going to be some fixing that needs to happen around 200,000 kilometers. I can almost guarantee at two 50 there’s going to be some pretty large ones, and at 300,000 kilometers I can guarantee you’re going to have some problems. So at the end of the day, making your usual car payment that has been eight years long plus paying for repairs, it’s just not feasible. It’s not a good financial decision.
Colin White (06:41):
Yeah, no, absolutely. It digs a hole that you really can’t get yourself out of. And the problem is, is that people who do that tend to be paycheck to paycheck. They don’t have a lot of extra in their day to day. So when those really big repairs show up and you still have a car payment, you’re trying to find the thousand or 2000 or $3,000 to repair the clutch, the transmission or the major component that needs fixing, and you’ve strapped yourself so close, you’ve got a much nicer car because over eight years you could afford that payment. It’s just a compounding problem that’s just going to cause never ending stress for you.
Josh Sheluk (07:18):
So call and call-ins. Can we chop this up as borrowing long-term for a depreciating asset? Generally a bad idea.
Colin Smith (07:27):
Absolutely.
Colin White (07:29):
Be aware. Aware of the hole you’re digging yourself. Just because you can afford the payment doesn’t make it a good financial decision. There’s other ways to look at it or
Colin Smith (07:37):
Make sure you have a backhoe to fill it back in.
Josh Sheluk (07:40):
There you go. Best advice ever. Thanks, Colin.
Colin White (07:43):
We’re going to end this with you and I getting our best pieces right? That’s how the big culmination, the big,
Josh Sheluk (07:49):
I don’t know, I’ve been debating. You know what? I’ve really struggled to come up with one of my own that’s totally unique. So I don’t know.
Colin White (08:00):
Well, maybe Steve will inspire you. Maybe Steve’s story will draw out of you the brilliance that is there, Josh.
Josh Sheluk (08:05):
Yeah, I’m sure it will. How you doing?
Steve Sparrow (08:09):
Great.
Josh Sheluk (08:10):
Colin said that you’re going to have a full podcast’s worth of stories for us.
Steve Sparrow (08:16):
No.
Colin White (08:17):
Oh, come on. With the life that you’ve lived and the things that you’ve seen.
Steve Sparrow (08:22):
No, I’ve got just one scenario to kind of share. It’s multifaceted, but yeah,
Josh Sheluk (08:29):
You want to do the intro, Colin?
Colin White (08:31):
I don’t think I’m qualified to do an intro for Steve. Steve is one of the most experienced people on our team. He’s one of our portfolio managers. He is our chief operating officer and he is a wealth of knowledge that he shares with all the team on a regular basis. So here’s the Steve.
Steve Sparrow (08:55):
Thanks Colin. It’s a privilege to be included in bare naked money, so thanks for the opportunity. I thought long and hard about that one piece of investment advice. That’s the worst that I’ve ever had. But as you’ve alluded to, I’ve been around for a long time. I’ve been involved in investing for over 40 years now and finding that one piece of advice really a bad advice really doesn’t work out very well. So I thought I would take a little bit of a different approach and look more at the sources of investment advice that are more likely to bomb than to add value to your portfolio. Nice. And Josh can relate to this, he might be a little bit young. I don’t know if his dressing room is the same, but for me for the last 25 years or so, the place that offers the absolute worst investment advice is a senior men’s hockey dressing room.
(09:56):
The amount of incorrect general information about wealth management that I’ve heard in that dressing room over the years is mind boggling. And over the last few years, there’s more and more guys that are hitting 60 and 65 that I play hockey with. And one of the things that comes up all the time is somebody makes the comment that everybody should take their CPP at 60 and others chime in and they say things like, yeah, CPP is going to run out of money, or you’ll never live long enough to get the value out of waiting to 65 or 70. And I try and chime in once in a while and straighten them out and explain it as a very personalized decision. But the power of the groupthink takes over. And I’ve seen a couple of guys made some really bad decisions, but it goes way beyond that.
(10:47):
And where it really gets crazy is when people start recommending stocks, and it’s usually something that’s in the news, and I haven’t come across one that’s worked out yet in all the years, and Josh might not remember Nortel, he is read about it in the history books, but Colin was around then. I know at least 10 guys in the past back when Nortel went bust that when it went below $20, they were buying it up like crazy, thinking that it was such an incredible bargain because it had been trading at six or seven times that price A few months earlier. Nortel went to nothing. Another one that was even more mind boggling was Brix. Again, that one dates way back, but Brix was a high flyer. Many of you probably remember the story. The news came out about the fraud that had taken place. The stock dropped off, but it was still trading for a period of time in penny stock range. And there was all sorts of people singing its praises how it was going to come back and jumping in on it.
(12:01):
But I think the absolute worst scenario that I’ve ever experienced in all those years isn’t that far back. And that was the pot stock sector and the buzz on pot stocks in the hockey dressing room was like nothing I had ever heard before, and we all knew where that one ended up. And this extends beyond the hockey dressing room. My cautionary note to anybody that’s listening is cocktail parties, dinner parties, anywhere where you have a group scenario and the excitement is building and there’s not a lot of rational investment thesis behind that excitement. That’s probably one to sit back and listen and not pay too much attention to and certainly not take any action on it.
(12:48):
There has been one positive suggestion that came out of a hockey dressing room, but I have to admit, I was the perpetrator of turning the mind shift of the dressing room on that one. And this goes back to when covid hit and it was just before the lockdown, so we still had a couple of hockey games. The markets had dropped off by 30%, but everything hadn’t been locked down yet, and the dressing room was all a buzz and a few guys started saying, you should sell out your portfolio. Things are going to get so much worse. We were already down 30%. I couldn’t let that one go by. I chimed in. I started citing some historical information, and then a couple of other guys that were on the team kind of jumped on the bandwagon with me. And thankfully, I do not believe that anybody on our team that year bailed out of the markets. And I did have a couple of guys actually thank me nine months later when they were up in their portfolios versus sitting there wondering when they’re going to get back into the market
Colin White (13:47):
For the forces of good. We used to refer to it as the taxi driver test. If the conversation you had could be plausibly had with your taxi driver, it’s probably not good financial advice. And because back in the day, any cab driver or Uber driver you got into a vehicle with would pitch you how they were going to get rich off of pot stocks or Nortel or Brix. That’s where those conversations were happening.
Steve Sparrow (14:13):
Well, that’s hilarious that you mentioned that because I happened to take a shuttle from the car dealership when I was getting my back to the office when I was getting some repairs done on my car, and the shuttle driver asked me what I did. I told him and he said, oh, I want to tell you about what I’ve done. He liquidated his RSP rolled it all into A-T-F-S-A and has invested 100% in Tesla. It gets worse. And when was this Steve? How many months ago? I’m not sure. I didn’t ask him what his timing was on it, but it didn’t sound like it was a recent decision. But what gets worse is he had locked in a mortgage and he was expecting the Tesla to go through the roof so that when his mortgage came due, he was going to be able to pay it off. This gentleman is 80 years old and for the life of me in that 20 minute ride, I could not talk him out of that position. But yep, the cab driver story is a good one. It ties in.
Colin White (15:19):
It’s something that can stick in your head. If this is a conversation I could plausibly be having with my Uber driver or my cab driver or my shuttle driver, probably just probably it’s not a sound financial decision.
Steve Sparrow (15:32):
That’s a good rule, Colin. We’ll mark that down as one of the other number one rules of investing.
Josh Sheluk (15:38):
And I think I know the answer to this one, Steve, but has the chatter around the dressing room got better or worse over the years? And what I mean by that is have people made incrementally better or worse decisions or has it stayed exactly the same?
Steve Sparrow (15:56):
Worse because I think one of the things that happened is this guys start to retire, they start dabbling in other things that they may not have had time to while they were working. So more crazy ideas have a tendency to come out. They don’t get more intelligent about investing. They spend more time reading chat boards and stuff like that to come up with ideas that they think are the next big thing.
Colin White (16:21):
And the tragedy in this is as you go into retirement, you should and you will find things to fill your time. Now, if you can find nice non-dangerous things to play with other than your financial future, that’s better. Yes, spend time reading stuff, but don’t put your financial future at risk based on you’re just nattering around with something.
Steve Sparrow (16:44):
Good point.
Josh Sheluk (16:46):
Well, that’s awesome, Steve. I think you have a lot of examples over the years and to come up with that one I think is a good one. So we appreciate the time.
Steve Sparrow (16:54):
My pleasure. Thanks for the opportunity, guys.
Josh Sheluk (16:57):
All right.
Colin White (16:59):
Steve’s good at that. We should have one more podcast.
Josh Sheluk (17:01):
We should. Yeah. He seemed to be actually thankful that we would have him on, but it’s a privilege to have him.
Colin White (17:07):
He felt he should say that, I think.
Josh Sheluk (17:11):
All right.
Amanda McKenna (17:12):
Hello
Josh Sheluk (17:14):
Amanda, welcome. Hi,
Amanda McKenna (17:16):
How are you guys doing?
Josh Sheluk (17:18):
Excellent, how are you?
Amanda McKenna (17:19):
Pretty good.
Josh Sheluk (17:21):
So we went from one of the oldest members of our team to one of the newer members of our team, more of a younger and fresher perspective, but Amanda, portfolio manager working out of our Nova Scotia offices. We’re super excited to have you and share all of your insights for the worst financial advice that you’ve ever heard.
Amanda McKenna (17:41):
I was just going to say that Steve must’ve had a really good story. He took my time slot and his time slot to tell it
Josh Sheluk (17:49):
Well, it tends to be that Colin and I usually chit chat back and forth a little bit with debrief, Steve or whoever else as well. So these things have consistently gone a little bit over the five minute time slot allotted to each individual. So we have all the time in the world, Amanda.
Amanda McKenna (18:06):
Okay. Okay. No pressure. So I was thinking about my story, and so before I got into the wealth industry, I worked in the car industry for about seven years as a financial services manager there. So I have my fair share of interesting stories from that world, but one of them that really stuck out for me was one time I had a young man in my office applying for a car loan and we’re going through the application process and he lets me know that he has just filed for bankruptcy at the age, I believe he was maybe 20 years old.
(18:54):
He explained that it was from just credit card debt, so it made me think how much credit card debt could you accumulate at that point that you feel, or you were advised that you needed to file bankruptcy at that point. And then it was a conversation of saying, you are not approved for this car loan because of your, you just filed bankruptcy. And the shock on his face when you realize that when you file for bankruptcy, it’s not, oh, you have a clean slate now and you can just forget that that ever happened and carry on with your life. So that was mind blowing to me. I was quite shocked that that happened and that somebody advised him to do that when there probably was other options that he could have taken at that time.
Colin White (19:52):
Yeah, that is one of the uglier sides because you take a look at the amount of advertising you see from insolvency trustees and the number of accounting firms that have purchased insolvency practices. It’s actually high margin work, but if you go to see somebody for credit counseling, well they’re going to get paid if they put together a proposal. So it’s one of those conflicts that’s inherent in the system that’s not as well understood. So yes, I’ve run across quite a few people in their early twenties that have been advised accordingly when they really didn’t need to. You actually took a look at their finances and it wasn’t necessary. But at that age, they just don’t have the perspective and for someone to come in and say, Hey, you can go bankrupt and we’ll get rid of all this debt,
Amanda McKenna (20:36):
All your problems will go away if you just do this
Colin White (20:39):
To a 20 year old’s, like, well, I’d like if my problems went away. This sounds like fun, but not understanding consequences. Yeah, that’s also part of being a 20-year-old.
Josh Sheluk (20:50):
In a previous job, I would regularly get bankruptcy filings coming in. I worked for an insurance company, so when the individual was unable to pay their premiums for their insurance policy or whatever it was, we’d get the bankruptcy filing coming in and the claims were almost always for people between I would say 20 and 35. And it was always unsecured consumer debt. Almost always that was the cause of the issue. You never see people that are bankrupt because of a mortgage or any business loan or anything like that, at least the ones that I was seeing. It was more so you had $20,000 of credit card debt, $15,000 of student loans, an unsecured line of credit for 10,000 bucks, and here you are with $45,000 of debt and no way to get above it. So really interesting that this experience is kind of similar on your side, Amanda, and do you think, did you ask the guy if he had got any advice who had recommended this or did he just decide, Ooh, bankruptcy sounds cool?
Amanda McKenna (21:52):
I’m not sure where he got the advice from or how he came across that this is Susan that he had to take in order to solve his problem. I don’t remember, but I think it was from, I remember speaking to him, and I think this happens with a lot of young people. It’s just not being educated and understanding the consequences of this and that for bankruptcy, it’s going to carry with you for the next seven years or even longer. So I think it was just him looking for an out and just being uneducated about how to do it
Colin White (22:28):
Well. We have to understand how important that is to the system. If we didn’t have people overspending their means, then the economy wouldn’t grow. So we need a certain number of people to behave like this for the overall society to work as we currently have it set up. So there’s a vested interest in keeping the status quo moving, and also having a dreaming teenager who really wants to be something or make something of themselves. Yeah, that’s going to lead them down this path for sure.
Josh Sheluk (22:54):
Well, that’s great. It’s a second. It’s a sad yes, but second car related one that we’ve had. Interesting. Maybe a trend. Careful of everybody out there.
Amanda McKenna (23:05):
Yeah, I’m interested to hear the other stories.
Josh Sheluk (23:08):
Yeah, thanks for your dev. Awesome.
Amanda McKenna (23:10):
See you guys.
Josh Sheluk (23:12):
Thanks. All right. Devin’s up next. Dev.
Colin White (23:17):
How’s it going?
Josh Sheluk (23:18):
Great, how are you? Am I being recorded?
Colin White (23:21):
No, this is
Josh Sheluk (23:24):
A few nice talking. This is one of those calls you’ll be recorded for quality control purposes, but yes, you’re being recorded. Okay, sounds good. For the record, try
Colin White (23:33):
Not to say anything stupid then.
Josh Sheluk (23:35):
No worries about that. I’m sure, I’m sure. But by way of introduction, we have Devin Catlan here. He’s a portfolio manager and partner with the firm and been the wealth advisory business basically since you graduated. Isn’t that right, Jeff?
Devin Cattelan (23:49):
Yep, that’s right. Yeah, just around 10 years now.
Josh Sheluk (23:53):
Awesome. You’ve seen a lot of bad financial advice, I’m sure. In your 10 years, what do you have to share is the worst piece of advice you’ve heard about?
Devin Cattelan (24:01):
So probably the piece that’s most relevant at the moment, we just purchased the property, so we’re moving from a house, from a condo into a home. And so the piece that’s most relevant to me is when people say real estate’s the best investment. And so real estate is a good investment. It can be a good investment, but it’s not the best investment out there. We went back and I looked at some numbers in terms of how it’s actually performed over the six years that I owned it, and a lot of people forget about some of the major costs that you incur when purchasing a real estate property or when making a move. So some quick ones that came up that are significant expenses are real estate brokerage commissions. I mean those are anywhere from four to 6% depending on what you negotiate with the broker. So that’s a significant chunk of your profits from a property being sold that aren’t accounted for. There’s land transfer tax, which in Toronto is between one and 2%, which is pretty significant. So that adds up as well.
Josh Sheluk (25:12):
Do they have a double land transfer tax in Toronto as well? Dev?
Devin Cattelan (25:15):
Yeah. Yeah. So we get the pleasure of paying higher prices for real estate, but then also getting slapped of higher taxes as well. So just to make sure you have no money left over and all your money’s in the home. Well,
Colin White (25:29):
It’s all for the proper urban planning that keeps traffic flowing so well around Toronto. I mean, it costs a lot of money to get things to that level.
Devin Cattelan (25:36):
It does. And all the repairing we do on our expressways that never actually get done, but that’s a separate discussion.
Josh Sheluk (25:45):
Sorry, we distracted from your point, carry on all the expenses you’re going through,
Devin Cattelan (25:50):
Even things like moving costs and legal costs for closing. So the list goes on as you actually go through it and you break it down. And then that’s not to take into account all the ongoing costs too, like maintenance and interest payments on your mortgage. And to be fair, some of those expenses you would be covering, they offset the cost of rent, for instance, that you would be having be having to pay for some kind of living expenses. But yeah, so just going through the numbers, it was a little disappointing to see what the return was over the past six years. It worked out to less than a 2% return, closer to the 1% mark.
Colin White (26:35):
I did way better than you did over 17 years. I was just under the Canadian bond index for the period of time when I held my home.
Josh Sheluk (26:43):
Yeah, actually we did do a forensic accounting of Colin’s property purchase and sale as well. That was last year, I think it was, right, Colin? Yeah,
Colin White (26:53):
Two years ago now. Yeah,
Josh Sheluk (26:54):
Two years ago. Yeah. So what’s funny, dev, it doesn’t surprise me at all that you did this exercise
Colin White (27:02):
Just to save everybody from looking it up. Devin is one of them, their CFAs and spreadsheets, everything and is the most amazing math guy. He’s got a degree in math. So this is what we expect from Devin when he goes through any experience and it’s fabulous because somebody needs to be doing the math and we appreciate him for having done the math on this and sharing because it’s very, very valuable perspective. There’s this whole trying to debunk the idea that all you need to do is be real estate and your world is fine. We’re not calling it necessarily a bad asset class, but it’s not the answer to everybody’s problems.
Devin Cattelan (27:36):
Absolutely. Yeah. I had some fun at the exercise. Recommend people going through it when they buy and sell.
Colin White (27:42):
We’re going to do a whole separate podcast where you actually walk everybody through the spreadsheet that you developed. Nice. How to use it. Yes.
Devin Cattelan (27:48):
Excellent. That’s my dream.
Josh Sheluk (27:50):
Stay tuned for that. Dave, we’ll call you back shortly.
Devin Cattelan (27:52):
Sounds good. Sounds good.
Colin White (27:54):
Thanks buddy.
Devin Cattelan (27:55):
Yeah, thanks. Take care guys. Bye-Bye,
Josh Sheluk (27:57):
Maria. Up next. She could go a lot of different directions.
Colin White (28:02):
She could. She could. And it’s going to be from a very different perspective.
Maria Wagner (28:07):
Hello?
Josh Sheluk (28:08):
Hi Maria, how are you?
Maria Wagner (28:10):
Well, how are you guys?
Josh Sheluk (28:11):
Very good. We’re just saying that we’re excited for yours because we don’t really know which direction you’re going to go. I think you come from a bit of a different background than a lot of the other members of our team. We haven’t really had a true, somebody that comes from an analyst background that’s talked yet. So that is your background. You’ve been both a credit analyst and an equity analyst in the past and you’re now a research analyst on our team. So I’m really curious to see what the worst financial advice that you have ever heard is.
Maria Wagner (28:47):
I have ever heard. So I think actually, well, it hasn’t happened to me directly, but what I’ve heard from a friend of mine who works in the industry, a portfolio manager that he or she used to work for back in I think 2017 when blockchain was the buzz and all of these companies were doing IPOs off of and having no revenue was in a part of that CRA and got brought into that he was a discretionary portfolio manager. So took on one of these companies, did a few private placements for it and essentially, so this company again, had no revenue, no fundamentals, put it in a few clients accounts, it was fine for a bit. It kind of hung in there. And then after people didn’t care about blockchain anymore, it went to zero and is now delisted. So a lot of the clients fared fine. They were pretty mad about it, but it was one or 2% of their portfolio. But apparently one of the clients who was I think 80 or 83 had a hundred percent of his RSP in this stock and he lost everything.
Colin White (30:00):
Yeah, let’s tragic a whole bunch of little and more disappointing because it comes with professional advice, got them there
Maria Wagner (30:06):
And whatever the PM did or didn’t say was wrong. If he didn’t say anything, he should have and explained to the guy that this is a terrible idea, or if he was talking to the client and egging him on saying that he’s going to 10 x his money, then that’s a massive red flag. So I hope that he had another account somewhere. That’s all I’m saying.
Colin White (30:33):
Well, yeah, there’s a couple of things to take from your story and an IPO that referencing is an initial public offering. So it’s a company going to market for the first time for the benefit of our listeners. And a couple of things you said with no revenue for company investing is something that has no revenue, that’s not a sentence. You can speculate on something that has no revenue, but you can invest in something that has no revenue and to watch that go into somebody’s portfolio. And it also brings to light the different types of advice because some advisors have a suitability standard where is this a suitable investment? And it could be that 80-year-old had like $5 million and 5% of his portfolio could be high risk, but to have a fiduciary standard, which is the portfolio management standard, that standard would preclude making an investment such as that. In fact, we would not allow something like that to happen. But yeah, and for the record, because there’s a video component to this, as the person who’s in charge of paying for heat in the office, Maria has the ability to turn the heat as high as she wants, and she chooses to wear her coat in the office. I just want to make sure that that
Maria Wagner (31:38):
Goes on the record. She
Colin White (31:38):
Good. I appreciate that about you. But people could look in from the other side and think we’re being abusive. I’m
Maria Wagner (31:43):
Not being abusive. No.
Colin White (31:44):
Okay.
Maria Wagner (31:45):
Yet I’m kidding.
Josh Sheluk (31:46):
Well, one of the sad parts of this as well is you mentioned the fiduciary standard column, but as Maria said, this was somebody that was a discretionary portfolio manager. So they have a higher standard of care for their clients. They have a higher level of responsibility. They in theory have a higher degree of education and experience and should know best to avoid some of these things. But even the most experienced and professional and let’s call it educated or credentialed, individuals in our industry sometimes aren’t still providing suitable advice for people.
Maria Wagner (32:30):
Yeah, absolutely. And when I heard this, I was just so puzzled. I was like there had to be so many systems that failed and overlooked this because there’s systems in place that if anything’s a hundred percent of your portfolio, that should be a flag to your compliance officer. And if you see that that person is 80 years old, that should be that ips.
Colin White (32:51):
I love your face in the system, Maria, I really do.
Maria Wagner (32:54):
Well, that made me think otherwise, but hopefully the guy’s doing good and the PM paid for it.
Colin White (33:02):
Well, but I think it’s important because again, whenever people are listening to stories like this, how do I protect myself? If anybody brings you an investment and they say there’s zero revenue, just say no. No matter what comes after that, just say no and your world will be a better place.
Maria Wagner (33:17):
And I also think that some advisors know that these deals, maybe there was some sort of commission structure for this that he benefited from. And then Advantage was going to ask,
Josh Sheluk (33:26):
I’d say more than maybe I’d say almost a hundred percent for sure.
Maria Wagner (33:30):
And then they kind of look for the people or their clients who maybe aren’t as knowledge in investments and they don’t really have to pitch investment ideas because they don’t know the questions to ask, which is fair, but that’s why I’m paying you as a portfolio manager. So self-fulfilling prophecy are definitely still out there and screw the client over, which sucks.
Colin White (33:52):
So yeah, I love that you still have expectations of the world, but this is more common than you want to believe. But thank you for bringing it forward and shining a light on it because you don’t want to get blase about these things. You don’t want to say, well, that happens all the time, because that’s wrong too. And to highlight it now, thank you very much for bringing it forward.
Maria Wagner (34:12):
Thank you.
Josh Sheluk (34:14):
Thanks Maria.
Maria Wagner (34:15):
All right, see you guys.
Josh Sheluk (34:16):
All right, last one.
Matthew Kempton (34:18):
Oh,
Colin White (34:19):
The great Matt is here. He is a portfolio manager with us here in the heart of downtown Halifax head office as it were, been with us for quite a few months now and brings with him quite a background in the industry on a few different sides of the industry. So I can’t wait to hear how he’s going to come about with the worst piece of financial advice he’s experienced or seen in his life. Matt, we saved the best for last buddy, so don’t let us down. You’re the big finish.
Matthew Kempton (34:49):
All right, well, I think this is a very good one. I hope you enjoyed It doesn’t actually come from advice that was given to me or certainly not given by me. It was given to a friend of mine and unfortunately he took it for a period. This is a friend of mine who studied accounting in university and started out at one of the big firms on in sort of the CPA class to hoping to be on the partner track. And as part of that sort of class, I don’t know, Roosh week, Colin, you might know how they do this better than I do. One of the senior partners came in to speak to the group about what it means to be an accountant, what it means to be on this path. And part of his advice to this group was, you’re all going to be partner.
(35:33):
You should begin to spend today for the earnings you’re going to have live the lifestyle today that you’ll eventually grow into. And now keep in mind, this is a group of students who were earning 29,000 a year probably at the time, and I don’t have the exact stats, but I think we all know that not everyone in that class makes partner. It’s not a bad thing, it’s just the nature of how it works. So needless to say, well, he took that advice from the senior partner. Of course I should listen to this person. I want to be a partner. And well, he paid the price for doing so. He had a lot of fun for a period, but 29,000 only goes so far.
Colin White (36:13):
It’s escaping me. Josh, who was the other person that brought forward this?
Josh Sheluk (36:18):
I don’t know. I honestly can’t remember either. I’d have to go through the list. But there is somebody else, Matt, who brought forward a very similar conversation from somebody similar recommendation that the other one was, you should basically always spend above your means. And I don’t know where this idea comes from, but this is very much along the same lines. I guess in this case it’s a little bit better. It’s not always above your means. If you do make partner, maybe you’re back within your means, but yeah, seems insane.
Colin White (36:54):
Well, it’s also self gratifying. If you’re telling somebody, it’s like, listen, don’t worry about it. Just go take that 20,000 line of credit and blow it on your lifestyle. That’s what you should do. Oh, okay, fantastic. I get to spend 20 large on myself. Well, I’m going to take a trip, I’m going to do this, I’m going to do that. The other thing. And you feel that it’s the right thing to do, so you’re being given permission to be selfish almost. So there’s some people sitting in the room just looking for an excuse to overextend themselves and like, well, the senior partner told me I should do this. Well, obviously it’s the right thing to do and you’re stupid if you’re not doing the same thing I’m doing, you’re not doing the math. And less than 1% of that room’s ever going to be partner, and it’s going to happen 20 years from now and you’re going to have to go bankrupt before you get there.
Josh Sheluk (37:37):
It was call and ship that brought the other one forward. Right? Yeah.
Colin White (37:41):
Awesome. Well thanks for that, Matt. We appreciate you reinforcing some bad advice and a different, and actually, honestly, a more harmful environment that was coming from an actual position of power. I mean, that was somebody in a position of power who has say over the future of the people in the room telling them to do that. So that’s actually, I’m going to score that. That is way worse than the Colin just calling ship story happening at a barbecue. You could pretty easily dismiss that one. That’s, it’s harder to dismiss it when it’s the partner or the firm that’s giving the advice.
Josh Sheluk (38:12):
Yeah. So how’s your friend doing now, Matt?
Matthew Kempton (38:15):
He’s figured out his ways and he is gotten more back on track now, this partner, he is only gotten more lavish, so I’m sure he’s still toting this advice, but luckily it didn’t do too much harm, at least in this case.
Josh Sheluk (38:30):
It’s amazing that guy, the partner, based on how you’re describing him, he’s probably one of those people that is living above his means as well still, even though he has made partner.
Colin White (38:42):
Yeah, misery loves company.
Matthew Kempton (38:44):
Yeah, lifestyle creeps a real thing, right? It absolutely is. So I think he’d be a good example of that.
Josh Sheluk (38:52):
All right, wonderful. Well thanks for finishing it off on the right foot, Matt.
Matthew Kempton (38:57):
Thank you both.
Colin White (38:58):
Alright, Josh, as the host of this whole extravaganza, do you have one final thought or piece of advice that you’d want to share to add even another layer of bad financial advice?
Josh Sheluk (39:12):
So I’ve been reflecting on all of the different pieces that people have brought forward and trying to identify what do I think is truly the worst aspect of this. Maybe not one specific piece of advice, but the worst part of the theme, and one thing that I can point to that I think is almost always going to lead to just terrible financial advice is when there’s a mismatch in priorities or a misunderstanding of what the individual’s priorities are. And you can see this very clearly from something like what Dan brought forward where the priority is education, but a life insurance policy is put on the table. There’s a mismatch between the actual priority and the advice. You can see this from what Ainsley brought to the table, somebody who’s terminal and just wants to maintain what they have and next thing they’re in a segregated fund that has a lot of volatility with it, just time and time again when there is a misunderstanding or a neglect, which I think is probably just as common of the individual’s priorities, that’s going to necessarily lead to terrible financial advice.
Colin White (40:31):
Well, and in many decisions or many of the situations you’re describing, there’s a conflict somewhere in the system. The person giving the advice is conflicted because, and it doesn’t have to necessarily be malicious, but their priorities are overriding the priorities of the client or they’re not properly taking that into account. But yeah, no, absolutely, those are themes for sure. The thing that I’ve watched be the most damaging over time to many people’s financial situation is the disproportionate faith they put in real estate. And that affects many different decisions at many different times in life and can cause many different kinds of problems. Whether it’s the overextending to buy a bigger home and making yourself host poor or hanging onto a property long after it’s served its useful life decisions around paying down mortgages, a rush to pay down a mortgage that you’re only paying 1.8% on the number of different ways I have seen home ownership and or real estate ownership be detrimental to somebody’s financial outcome for me is the biggest theme.
(41:48):
And Devin touched on it quite nicely, and we’ve talked about it in previous and there’s going to be future talk about this. We were talking the other day about pension funds and some of the stuff that’s gone on there, but from a personal financial perspective, the number of bad decisions that are made around the ownership of real estate and the different ways that can come back and haunt you for me is the most ubiquitous thing and has caused, but it’s maybe a little difficult to say that because it’s not often a tragedy, but it really does lead to a much worse outcome than needed be.
Josh Sheluk (42:23):
Yeah, and that’s where you can kind of distinguish between some of these stories. Some of them are downright money losing, you just see money evaporating and others are persistently what I would call suboptimal and maybe not. If you bought a property 10 years ago, you’re probably doing okay. Was it the best, absolute best way for you to grow your wealth? Maybe, maybe not. And I think that’s, so you’re absolutely right. There’s this sort of persistence where a misunderstanding of what real estate can do for you can lead to maybe suboptimal outcomes but are very rarely destructive, I would say.
Colin White (43:10):
Yeah, no, it can be destructive, you’re right, but not on the same magnitude, but I think we’re kind of drawing a line in the sand between either borderline or actual fraudulent activity that is malicious and predatory to somebody making a decision where they’re just misaligning or not understanding necessarily or acting in their own best interest.
Josh Sheluk (43:35):
The one as I going through my own history and trying to think of what came to mind most for me was again, kind of along the same lines as you, but life insurance that is used more as an investment product than for actual life insurance purposes. And I have seen, I think more dollars, it’s not like widely spread this type of approach, but I’ve seen more dollars evaporate because of this type of approach than just about anything else. Because typically when these ideas are put forward, they’re for very large dollar amounts, people that can probably afford it, quite frankly, but have a lot of money to go up in flames. And it’s almost always coming back to a mismatch between what somebody’s are and what the person providing the advice or the sales approach is. And I’ve just seen these time and time again come back to be built on faulty premises and false promises and tens or hundreds of thousands and potentially even millions of dollars just evaporating again for things that were poorly designed and poorly thought out of and maybe not hitting the nail on the head in terms of priorities.
Colin White (45:03):
Well, I think it’s important for us to try to put a bow on this, Josh, and it’s a difficult bow to put because on one hand we’re saying, don’t listen to your friends because they’re idiots. Whatever you do, don’t go to the locker room after your hockey game and expect you’re going to get advice. And then we have all these examples of people who went to professionals and got that advice and still lost money. So if you listened to all this, it’s like, don’t give up hope. Please don’t give up hope. There are good people out there giving good advice. We like to think we’re some of them. In fact, I will tell you we are some of them and there are some, and we’ve shared as we’ve gone along, some basic rules that you can put in place for yourself to protect yourself from some of these things.
(45:43):
Don’t stop trying to find the right advice. There are good mortgage brokers out there, there are good accountants out there, there are good lawyers out there. A lot of them. Just because some of them aren’t great doesn’t mean you should stop looking. YouTube will find love one day and don’t give up the search. It’s worthwhile. And if anything that we’ve talked about here triggers anything for you, if you’ve got questions for us, by all means reach out. We’d love to engage in a conversation to be further educated in things we didn’t think of as being a terrible financial device, or maybe to help steer somebody out of a bad financial decisions. If you’ve got that spidey sensor tingling right now going, maybe this is going to make the next podcast and before you do it, give us a call and maybe we can talk into it.
Josh Sheluk (46:27):
Yeah, that’s a great wrap up. And yeah, just to emphasize, we have a dozen or so conversations here with people that have decades and decades and decades of time in the industry. There’s a lot more really good financial advice that goes on than bad financial advice, but we do want you to be aware of some of the pitfalls that are out there as well.
Colin White (46:48):
If you’re breaking a sweat trying to figure out what your financial advisor is talking about, you’re not getting the service you need. You probably hate trying to get an answer from them, but you also think moving your accounts will be a headache and it might be, but working with don’t rock the boat. Wealth planning.com or AU isn’t exactly stress free, is it? Call us. We will demystify the world for you.
Announcer (47:08):
Please note the information provided in this podcast is for general information purposes only. It is not intended as financial investment, legal, tax, accounting, or other professional advice. Our discussions are not a solicitation to buy or sell any securities or to make any specific investments. Any decisions based on information contained in this podcast are the sole responsibility of the listener. We strongly advise consulting with a professional financial advisor before making any financial decisions. Listeners should be aware that investing involves risks and that past performances not indicative of future results. Bare Naked Money is produced by Raan Capital Management, Inc. A licensed portfolio management company in Canada. We operate under the regulatory framework established by the Provincial Securities Commissions in the provinces within which we operate. The views expressed in the podcast are our own and do not necessarily reflect the official policy or position of any regulatory authority. Remember, at Rakin Capital Management Inc, we focus on aligning our goals with yours, prioritizing integrity and transparency. For more information about us and our services, please visit our website. Thank you for listening and let’s continue to challenge the norms of the financial services industry together.
