Like all tech professionals, you are probably scouring the internet and asking friends to get an answer to this question: Can I manage my financial plan myself?  Do I need to hire a professional? The answer is almost certainly yes. 

You will probably need an accountant, and a financial planner at the very least. Tech Workers have a huge aversion to paying investment and financial planning fees. Rightly so, mutual fund MERs can be outrageously expensive, most “advisors” are not CPAs or CFPs, and study after study shows that stock pickers aren’t providing much value after fees. 

The needle has moved too far though, we can’t paint all fees with the same brush. There are great fees, good fees, and bad fees. 

Bad Fees:

Fees that provide no value and are just mark-up. Fees that are higher than the fees on an identical or similar product (over-paying). If you walk into a store and you see the identical barbecue you just bought now on sale for 50% off, that’s an example of over-paying. Similarly, if you are investing in a mutual fund which is essentially an index fund with a 5-10x markup, you are over-paying. This is a bad fee. If the fee is imbedded inside the fund, however, it can be very difficult to realize that you are over-paying.  Since mutual funds dominate the Canadian investment landscape, most people don’t know that there are other ways to pay for financial planning and investment management advice.

Good Fees: 

‍Fees that recoup their cost, and you breakeven, thus saving you time and giving you peace of mind. If you have an accountant that you pay $500 for a tax return, and they save you $500 in taxes, this accountant has saved you time at no cost.  Similarly, if you value time with your children and you paid your accountant $500 so you didn’t have to spend a whole day getting frustrated with your T5 slips or calculating your HBPrepayments, this is a good fee.

 Great Fees: 

Fees that make you money, save you tax, and save time. When you pay great fees, you are making an investment, not paying an expense.  If you invest on your own, and earn 8%, but pay 4% of it in tax because you don’t understand tax law, it would be a great fee if you could earn even 5% tax-free by working with a Portfolio Manager or CFP.  Even better, take this example of someone I know:

Ed lived out in the country where mowing his lawn was about a 4-hour job.  He hated doing it and would complain about having to mow the lawn every weekend. 

The crazy thing, though, was that he made about $200/hr doing dental work and took most Friday’s off. 

Here is a concept that he never really got a good grip on – opportunity cost. Now this man could have been a delegator and worked one extra hour a year to afford a student to come mow his lawn for the whole Summer and got a good portion of his weekend back. However, he never did it.

Unfortunately, this fella is one of the people who can’t see the forest through the trees. He has two things going against him: pride and cheapness. He was too proud to get someone else to do a chore for him, and he didn’t want to pay someone to do a job he could do himself.  People have their own relationships with the idea of responsibility and the concept of money.

Opportunity cost is easy to understand, conceptually, but few people follow it as a rule as religiously as I do. Here is my rule – if I don’t like doing it, and I make more money per hour than what I would pay someone to do it, then I work a little longer and pay someone else to do it. If I make $200/hr and a plumber costs $65/hr, I’m not going to do the plumbing in my house. The added bonus to hiring a plumber that I don’t cause a massive leak in my house. This is the forgotten part of the opportunity cost calculation, when you are doing the math, you have to consider the fact that you will make a mistake, and a professional probably won’t. You have to consider the fact that they will do things efficiently. Will you? Is your work going to be the same quality as a master carpenter? Are you as skilful as a CertifiedFinancial Planner?

The opportunity cost calculation can be less beneficial for teachers and other professionals who are paid a flat salary. If you don’t have the ability to work more hours at will, then often it will make sense to do things yourself, including managing your financial plan (assuming you are as skill as a professional). However, most tech workers get paid a higher bonus and will be in line to get promoted more quickly if they put in more high-quality work. 

So how many hours each week would it take you to run an optimal financial plan? Would it make more sense to work a few more hours at your specialty and hire a CFP who specializes in financial planning?

The Novel Team can help answer any questions you may have. Reach out to us for a chat!

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