Financial planning is an important element for people of all ages.
Chris Nicola of WealthBar explains in this interview how beneficial it is for individuals to effectively manage their money, invest wisely and plan for the future.
How does an online financial advising site like WealthBar help the average person looking for some more financial stability?
We help in two ways. First, we provide a complimentary financial planning session right at the beginning. This can mean different things depending on the individual.
For someone younger, we would help them determine what is the appropriate amount of savings for them at this point in their life to create a solid retirement savings in the future and show them how to minimize the taxes on their savings.
For someone closer to retirement, this usually involves a retirement income projection. We take into account their savings, pensions, government benefits and any other income sources they may have in retirement. We show them how to optimally "RRIF" their "RRSP," which are Canadian tax-advantaged retirement savings accounts, again with a focus on minimizing taxes.
The second thing we do is manage their money using low-cost balanced ETF portfolios. This gives people a convenient and simple alternative to the high fees they would pay with a typical Canadian balanced mutual fund. Canada currently has the highest average mutual fund fees in the world.
In what ways does financial advising help individuals create a healthy financial status?
Financial advising is a bit like having a coach or getting personal training. You have someone watching over your financial fitness on a regular basis and encouraging you to stay the course and make positive changes to achieve your goals.
A good advisor will also help you to save more efficiently. There are a lot of little things most Canadians don't do. Even something as simple as setting up monthly pre-tax payroll deductions with their employers instead of contributing yearly will add up to a lot of extra retirement dollars.
Who should work with an online financial advising site? Why?
We'd like to think everyone should; it is more convenient, lower cost and more effective. We have better technology to track and manage our clients' finances than traditional advisors.
However, obviously some people may have a personal financial advisor who is doing good work for them and who knows them well. I'd say if what you're doing right now is really working well, and your finances are on track, then don't fix it. However, it's often very hard to find a financial advisor who will spend much time advising you unless you have over $500k to invest, so we help to fill that gap.
What trends do you see happening with investing?
Passive investing with ETFs is a big one, though it seems to be slow to catch on here in Canada, where 19 out of 20 of the top funds are still mutual funds and only one is an ETF. We think this will start to change very soon. Media has focused the attention around "robo-advisors" and "online advisors" using ETFs like ourselves, as well as a growing awareness of the high fees people are paying. New regulatory rules coming in soon, requiring more fee disclosure, will also help change this.
Another trend is ETF portfolios and better asset allocation. ETFs are coming in more styles and flavors each year, and this allows investors to get broader diversification at lower and lower costs. This is a very good thing, as the market volatility of investing purely in one or two equity indices is usually too much for most investors. We also expect to see more traditional portfolio managers using ETFs for at least a portion of their clients' portfolios.
What would you say to someone nervous about investing?
Well, first I'd suggest that if they plan to retire without investing (e.g., through guaranteed savings), they really need to look at the numbers. We have online planning tools that can help make this problem clear. There is really no way to make the numbers work when you're not even keeping up with inflation.
I would then show them the historical numbers for a diversified ETF portfolio. These days, we are able to reduce the volatility relative to the market down to 1/3 while retaining mostly market performance, and do so a very low cost.
Lastly, I would recommend that they start slow, perhaps with a third or a half of their portfolio. This will help them get used to risk without feeling like they are jumping off a cliff with a blindfold. Once they see that their investments in the market are growing faster than the guaranteed investments, they will feel more confident to make a complete switch. Conversely, if the markets turn for the worse, they are not all in and will not panic and exit at an incorrect time.
I would also caution anyone nervous about investing about doing it alone. It can be difficult to understand what's happening when short-term volatility strikes without someone to hold your hand. Many inexperienced investors lost a lot in 2008, not because of the fall, but because by the time the recovery came around they had exited the markets.
What benefits come from investing at an early age?
The most obvious is simply the effect of compounding. Any decent retirement calculator will show you just how much of an impact starting even a couple of years early will have. The second would be that achieving financial independence earlier will give greater flexibility in your life and even your career.
What makes WealthBar different from similar entities?
The so-called "robo-advisor" space has been very disruptive for the traditional financial advisor, but surprisingly it offers very little real financial planning and advice and is more of an automated fund-of-funds online investing service. This is still great because it's finally broken through two of the biggest problems people faced when investing: fees and convenience.
We differ in that we've modeled ourselves on a more traditional wealth management firm, but by being online and leveraging technology, we are able to provide clients with real financial planning and a real financial advisor for a lot less, and we can work with much smaller clients.
Please share anything additional that you would like individuals to know about WealthBar.
WealthBar is currently available in all provinces in Canada, and for a limited time new signups can get a free financial "checkup" session with one of our financial advisors even if they haven't opened an investment account with us yet.