The Second Opinion – Part II

It’s amazing how a vacation and the birth of a baby can completely derail a exercise. Well after several delays on my part Preet and I finally finished up looking at my plan in detail and ironing out some minor issues. I now have a 50 page report on my financial plan with year by year numbers of where I should be at any point over the next 15 years of savings (my net worth will be right around $1 million when I retire) and 50 years in retirement (not that I really expect things to follow the plan that exactly).

In the last edition of our work Preet managed to modify his software to simulate the Tax Free Saving Account and we used it to melt down my RRSP’s a bit earlier which in turn reduced my tax bill over the lifetime of the plan by about $60,000.  The good news is my retirement plans looks reasonable and I have a series of backup plans to cover myself if things don’t turn out the way I want (such as downsizing the house, or working part time in early retirement).

I also got a detailed plan on how to modify some of my investments by using ETF. It’s based on the template of my original investments of around 25% each for Canadian index, S&P 500 index, international index and bond index. Then we added a few minor elementals like a little real estate , agriculture, and infrastructure exposure as well had a nice discussion on what ETF that would work well for my plans.

I’m pleasantly surprised that I’ve enjoyed my first experience working with an adviser given the fact I’m one of die hard DYI investors which distrust most of the industry.  Preet seems to be a bit of an exception, he honestly wants to help people and he loves his job.

Now the big question: what did all this cost?  Well there is some good news.  Preet has just launched a flat free pricing for this kind of work.  So for a financial plan and a investment statement it will cost you $1500.  Which is fairly reasonable given the amount of work that goes into the report and investment plan.  If your interested in having a plan done for yourself check out this page.

15 thoughts on “The Second Opinion – Part II”

  1. Wait, I’m not quite following on how you are melting down an RRSP in to the TFSA . . . are you just simply taking the 5K per year out of the RRSP and taking the tax hit spread out, or has he come up with some genius way of getting the money out of the RRSP and in to a TFSA while limiting the tax implications?

    Since a TFSA is able to be used as collateral on a loan have you thought about taking the 5K out of the RRSP, putting it in the TFSA, using the TFSA as collateral on a 5K loan and investing 5K outside the TFSA in income producing assets? I haven’t really sat down and planned it out, but for an off the top of my head idea it sounds like it would work.

  2. You said you didn’t miss much by doing it on your own so I’d be interested in knowing that in order to save the $1500 how much effort you’ll have to put in as a DIY guy. Or it’s plainly impossible to do this by yourself?

    I understand the peace of mind from that a pro has taken a serious look at your plan.

  3. Traciatim
    “…using the TFSA as collateral on a 5K loan and investing 5K outside the TFSA in income producing assets?”

    I couldn’t agree more. With margin rates sitting at prime +1.5% ish (I think), and preferred shares having experienced a down year, you could likely make all your interest payments and more, only in dividends. Like all fixed-interest investments, you run the risk of rising interest rates. However, if you use the TFSA to invest in high-quality stocks, you offset that risk.

    I wonder if the CRA would have a problem with that?

  4. Hey Tim, I’m curious how individualized is your plan to you and your family? Would someone who has pretty similar goals and income be able to use your plan as a template without going through the whole process?

    I’d like to find out more of what it contains, would it be possible to share more specifics in future posts? It could help others DIY’s reading your blog unless it is just too personal or individualized?

    Cheers, Jordan

  5. Cash Canuck, I can’t think of any reason why the CRA would not approve of borrowing money to invest, in fact it seems to me they would encourage it since more money in your pocket means more money in theirs.

  6. I’m always leery of hearing, it’s a good deal, or good price. I like to look at the deliverables. Certainly, peace of mind is something you can’t really put a price on, but how many man hours went into delivering the analysis and plan? That’s more the bottom line for me, to see how much time, and how much per hour I’m paying, which let’s me decide if the price is right.

  7. Off on a tangent with Traciatim here…

    Wouldn’t holding the income producing investments INSIDE the TFSA be more favourable? Use those interest-paying (ie. fully taxable) funds in the TFSA as collateral to hold dividend-paying (ie. tax favourable) investments outside the account?

    One thing I know for sure, come January 1st, 2009 I will be knocking on the bank’s door to get one of these accounts.

  8. Wow, I ignore my blog for just one day and look at all the comments on this post. Anyways to work.

    @ Traciatim

    I think I’m confusing everyone here a bit. What happens in the plan is I don’t touch my TFSA until I’m 45. I’m just banking contribution room. At that point I start to take out enough from my RRSP/LIRA accounts for living expenses plus a little extra which is transfered to the TFSA. The idea is to spread out the tax bill over a number of years to reduce it to around $1200 a year on average. Under the old plan without the TFSA the money extra money would have ended up in a taxable account and had a bit of tax bill, but now Preet has a working model of the TFSA he could play with the cash flows to work out a minimal tax bill for my plan.


    I could tell you I could have never done a plan as detailed as what Preet came up with. I simply don’t have software that would allow me to model the tax correctly and to quickly run several what if scenarios. My calculations look like a stick figure drawing compared to Preet’s work.

    You still need to do your own homework prior to meeting with a pro. After all I decided the rate of return for the plan and the inflation number I wanted to use and what I needed for income in retirement. Preet just took all that and refined it for me.


    Much of retirement planning is about self reflection and hence must be DIY to be effective. Only you know what you need to live on in retirement using a rule of thumb will only get you into trouble. You need to think about what you want to do in retirement and what that will cost. Know thy self and find your after tax spending number. That is the keystone to any retirement plan. Then the other two major numbers are inflation and rate of return. Pick something that makes sense to you don’t blindly follow the advice of others. Stand on your own to feet and say “Yes I can live off $X per year!” regardless of what others think. After that it is all about what tools you want to use and how much work you want to do to come up with your own estimate.


    Sorry I can’t give you a man hours on this one because I was a test subject for Preet. He was trying several new report formats (which I was providing feedback on) and Preet had to work out a way to model the TFSA within the existing software because his software don’t have that option yet. So Preet put in huge amounts of time into my plan so that future ones could be easier. Also each plan is going to be different, your issues won’t be like my issues. So I can’t really comment on how long it would take Preet to do a plan for you. Perhaps if Preet is reading this he can provide some guidelines on how long a plan takes to create on average.


  9. @ Jordan

    Sorry I missed your comment on the first round of answers.

    The plan is made just for me. Based on where I’m exactly am and my exact number goals. For example I want each of the kids to have an RESP value of $40,000 when they get to school.

    My thoughts would be it won’t transfer well to others and it is too private and detailed to share completely. It contains far too much sensitive information.

    For example of what it contains I suggest you check out Preet’s site. He has an example plan you can download and look at.


  10. @Canuck,

    Well, I meant Canadian eligible dividends outside. You’d do interest inside the RRSP since it’s taxed at your income rate anyway, you’d do foreign dividends and capital gains in your TFSA, then Canadian eligible dividends and possibly some capital gains in a regular account somewhere.

    This way you avoid any strange tax rules from your foreign income, and you get your tax credit for the Canadian stuff. This leaves your ‘safety net’ in your RRSP so even if everything falls apart you’ll still be OK.

  11. Tim’s plan did take quite a bit longer than normal as Tim agreed to be used as a guinea pig for a revised approach to presenting an analysis.

    The benefit to me was that I received some great feedback on how my reports will look in the future, and am pretty certain that the level of detail and thoroughness in the plans are now better than the vast majority of plans produced by advisors.

    But to actually answer your question – the average amount of time that I would spend on creating and delivering a financial plan would be *around* 10 hours. This would include further information gathering over the phone or in person (apart from what one would provide through the pdf forms I have them fill out ahead of time), presentation of the first draft, working on the revisions (for example we worked on about 5 what-if scenarios for Tim), and then agreement on the final plan to be presented formally. This would also include the IPS, some discussions around the philosophy around the IPS, etc.

    I think the flat-fee option is for those who are just about to switch to DIY, but aren’t quite ready to take the leap from advisor to no-advisor just yet.

    For the average PF blog reader? That’s a tough question. But understand that the average PF blogger and PF blog reader are somewhat of a rare breed compared to everyone else. Most Canadians invest in high-priced mutual funds – and have not much desire to get their hands in their personal finances.

    To be honest, I think the average heavy PF blog reader/writer may not need a financial advisor at all (or any of the fee options) for investments. However, the average heavy PF blog reader/writer is in the minority of Canadians. And when it comes to the other areas of personal finance (i.e. estate planning, tax planning, etc.) it’s a bit of a different ballgame – you don’t see that many estate planning blogs out there. 🙂

    From my own personal perspective, I’m not trying to win the business of those who write/read heavily the personal finance blogs – but rather to earn their respect as one of the few advisors that they would recommend to people who should be getting help with their finances (i.e. the majority who do not have the time or the interest, etc).

  12. Tim,

    I can certainly understand how the report and information is too personal to share the whole thing.

    But do you think it would be possible to share some of the more general information, like the % of income saved for retirement, paid to the mortgage or other financial goals like the RESP you mentioned. How long you project it will take to pay off your mortgage? Is your priority to pay it down or save & invest? What % or $ do you expect your net worth to increase annually? What have you set as important milestones along the way and when will you hit them? Can you describe in a bit more detail the types of “What if” plans you put in?

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