John J. De Goey, CFP, CIM, FELLOW OF FP Canada is a portfolio manager with Wellington-Altus Private Wealth. He has established a reputation as a national authority on professional, transparent and evidence-based financial advice. He lives in Toronto and works to help investors from all walks of life achieve their biggest financial goals. A frequent commentator on financial matters, he has written for a number of media sources including the Globe and Mail and the National Post. John is a contributing editor for Canadian MoneySaver and a regular columnist for www.MoneySense.ca. He has also made numerous appearances on a variety of television programs, including CBC’s Marketplace and The National, BNN Bloomberg’s Market Call and CTV’s Canada AM. After exchanging a couple of emails, we met at the Toronto Reference Library on October 28, 2019 (Monday @ 1630) for this interview. The duration of the interview was 30 minutes and 11 seconds.
Urgen Kuyee: Hi John, why don’t you let my readers know a little bit about yourself? Which school did you go to? How did you get into the personal finance industry?
John De Goey: That’s going to be a longer answer than you think. I did my undergraduate degree at Guelph in political studies and I did a masters in public administration in Carleton. My intention had been to work in the public service. And when I was doing a co-op term because the Masters in public administration Carlton is Co-op, I was working at consumer incorporated affairs. My work term involved checking out credit card rates for Canadians and reporting back and so forth. I also did some work on the insurance tax and reported back to the minister and the assistant minister with regard to what the GST was going to do. So I developed a public policy background in capacity with regard to tax planning, interest rates and financial services.
So, I realized that I was good at finance in general and had an interest and an aptitude to like working with people. When I graduated from Carlton, I moved back to Toronto and at the time, there were no jobs. There was a hiring freeze at City Hall. There are no federal jobs in Toronto. Bob Rae was the premier of Ontario and where this thing called “Rae Days” and there were no jobs were coming on in Queen’s Park either. Here I am newly minted with a degree and there are no jobs in my field. So, what I ended up doing was sort of doing a bit of a sidestep realizing that I had a skill set, a capacity to understand financing and so forth. When there’s no job waiting for you, what you do is you create a job by going out on your own and working as a financial advisor. That’s how I started and 1993 is when I started working as a financial advisor.
UK: How long have you been a financial advisor for and how long have you been a portfolio manager for?
JDG: I became an advisor in September of 93 so it’s been a little over 26 years. I became a portfolio manager I believe in February so I think we’re coming up on 9 or 10 years this coming February.
UK: What kind of questions should I ask when I am looking for a good financial advisor?
JDG: Well, so here’s the thing. My book STANDUP To The Financial Services Industry has about 50 questions that you can ask. So, rather than give you one or two or mention a few, I will say get the book and there’s 50 of them. The other thing I would say though is that I have also launched a website and the website is www.standup.today. That site has two or three or four fairly basic questions. I will give you an example. What are you doing as an advisor to seek out low-cost product solutions for me? Or what kind of rate of return should I expect? And, if the person is giving you a double-digit rate of return, they are obviously not keeping up because there is no reason a person would think you would get that kind of return especially with bonds paying next to nothing. And, especially when you take into account the cost of the advice of the product. So, those are the sort of questions you should be looking for.
The problem is that the questions that I encourage people to ask are not the same that most people would encourage their advisor to ask. Most people would say – tell me what you do, what your background is and can I maybe interview a couple of your other clients. All of these are good questions but they are missing what I think is the more important point that almost no one thinks about. That is what if the advisor in spite of his or her good intentions is giving you bad advice. What if the advisor does not even realize if he or she is giving you bad advice. There is a lot of research now that shows that advisors in spite of their best intentions are giving advice that’s not good for the investor. So what you need to do is, you need to ask the sorts of questions that will get to the root of what the adviser believes to be true which may not necessarily be what is true. Full Stop.
UK: I completely agree with you. Like you said, I think a lot of advisors out there in spite of his or her good intentions, they still give bad advice to their clients and they don’t realize it.
JDG: Yes and it’s funny because they are not even aware of what they believe because the industry doesn’t really educate advisors. It more or less indoctrinates them. The advisors are taught as a matter of faith that active management is sensible management. In fact, the evidence is overwhelmingly not the case. They are led to believe that past performance is useful and therefore, they make recommendations based on past performance. Meanwhile, we have studies going back over 50 years and there are like eight or nine of them now that have shown repeatedly that past performance is not reliable and should not be relied upon. There is a disclaimer on every prospectus in the fund facts saying that past performance shouldn’t be relied upon and it may not be repeated. And yet that’s what advisors do.They rely on it on the presumption that it’s going to repeat and it’s just simply not true.
UK: Correct. I am curious what’s your take on Robo advisors like WealthSimple and Nest Wealth?
JDG: I think they perform a really useful role. I think the future is going to decide where in the end, the line will be blurred between robos and humans because humans will be using technology more and more in the future. But in the meantime, while the two of them are silos, I think it is a good option for many people.
The point that I would make is that for most people, they can make a pretty good sense whether or not, they need to look at a human being in the eye and ask questions. Other people are saying, especially young people because they are vey web-enabled and into tech, they are actually more comfortable not interacting with humans. They want to plug in the parameters and push go and letting it spit out recommendations and portfolios. So, it’s a good option for people who fit the psychographic but not everyone has a psychographic profile that would lend itself to that. And then of course, the other question is what sort of services are you wanting? And, if you just JUST want a simple portfolio management, then a robo option is probably pretty good. As soon as you add on almost anything else from a behaviour modification perspective, from a financial planning perspective or from a sort of kick around some ideas and let’s brainstorm about priorities and how to proceed, you likely but not necessarily but I would say highly likely you need to be speaking to a human at that point to give it some colour in context.
UK: I attended your presentation at the The Money Show Conference last month and during the presentation, you showed the audience a picture of you with John Bogle or Jack Bogle who is the founder of index funds. We all know he founded Vanguard. Tell us about your experience meeting with Mr. Bogle. Did he give you any advice? I mean he is an idol for most of us.
JDG: He is a legend. He sadly passed away this past January. My attitude was sort of like the lion in the bible where I don’t feel that I am fit to undo the straps of the sandals. This guy is a real legend. I had been bugging the management team at Vanguard Canada to give me a chance to meet him and they said yeah yeah yeah and they said yeah yeah yeah every time I asked. And, I would ask every 6 or 12 months. Finally, after 3 or 4 years and 5 or 6 requests, I sat down with the then managing director of Vanguard Canada, Atul Tiwari and I said look, Mr. Bogle is not getting any younger. He was in his late eighties. We really need to set something up so he made the call. It’s nice to have friends in high places so the head of Vanguard Canada put a call into Mr.Bogle’s office and had Mr.Bogle set aside an hour. A whole lunch hour in his office and I got a chance to meet him. It was me and one of the Vanguard Canada representatives and Mr.Bogle so just three people in the office and full hour hour with him. It was a bit intimidating and very exciting as well.
The question that I remember him asking me the most about which is really funny because everything is relative. I frequently berate my fellow advisors for using high cost products but also for high turnover. And, so you know when I find a product that I think is better which usually means cheaper but not necessarily. But when I find a product that’s better, I will get rid of product A and bring in product B in order to pass the savings onto the client.
That’s a good thing but the problem is in Canada, for the past especially since Vanguard came in the past six or seven years, the price of ETFs has been dropping fairly quickly and so frequently, it’s not uncommon to have a new low-cost provider. Oftentimes Vanguard themselves come in and provide a similar offering only at 20 or 30 basis points less. Well, as soon as that happens, what you are doing is selling A to buy B and your turnover goes up. So ironically as I was happy (laughs) about my turn over being mostly low and I said well my turnover in a typical year maybe 25% or whatever and he was shocked. Because to his mind the turnover should be 5% or less. So, compared to almost anyone else where the turnover is 50 or 100 or 150%, my turnover is really low. But compared to what he would have wanted it to be, 25% was outrageously high so everything is relative. That was my main takeaway from meeting with him.
UK: Let’s talk about your new book, STANDUP To The Financial Services Industry. What led you to write this book?
JDG: The answer to that question is also not obvious. I have written another book called The Professional Financial Advisor and I updated it three times but I put up four editions. I started writing in 2001 and the first edition came out in 03. Every time there was a regulatory change, I updated the book so I did a 2nd edition for The Fair Dealing Model, 3rd edition for CRM1 and 4th edition for CRM2. And, it was targeted as a bridge between advisers and consumers to help him sort of understand each other. But truth be told, I was trying to get advisors to be more professional and more transparent and evidence-based. And my fellow advisors were ignoring me and I couldn’t figure out why they wouldn’t pay attention.
Right when the 4th edition of The Professional Financial Advisor came out in late 2016, a paper was released called A Misguided Beliefs of Financial Advisors. That paper showed very clearly that advisors in spite of having good intentions do a lot of things that are just plain wrong. They chase past performance, they don’t pay attention to cost, they run concentrated positions and the paper had a massive sample size. They had like a three and a half thousand Canadian advisors and almost half a million client families. Again, the sample size is massive and so when you have that much evidence that advisers are doing this and the important part of the evidence is that advisers were not doing this because they were trying to be sneaky or to trick their clients to find a way to sort of recommend the price of their buying commercial in order to justify to get their clients to buy it.
These were people who were doing the same thing even in their own account even after they retire. So, it’s obvious that they honestly believe that what they were doing was right even though there is just mountains of evidence in literature over the past quarter-century in particular showing that actually cost is extremely reliable as a determinant of performance and correlates negatively meaning low cost product perform the best but these advisors were not paying attention to cost. They were showing as I said, 8 or 9 studies showing past performance should not be relied upon and advisors were doing it, they were concentrating on it and the whole idea of getting advice is you are supposed to run diversified portfolios.
So, I wrote the new book because the previous books failed. Basically I tried to get advisors to do the right thing and they didn’t listen to me. So, now the new book is actually written for investors to say you need to understand that your advisor is doing it wrong and your advisors are not aware of it. But they’re doing it wrong, they don’t know they’re doing it wrong. They think they’re doing it right but they’re doing it wrong and it’s costing you money. You need to find a way to determine if your advisor is one of the many and I am going to say, in my experience, there are very large majority of advisers are doing it wrong. Most of them are unaware of the evidence that what they’re doing is in fact incorrect and they just go about business the way they always have. They are none the wiser and they’re fat and happy. And they care for their clients and they have good intentions but they don’t know how…. they don’t know what they don’t know.
UK: Let’s say a 27-year-old nurse, she makes about $60,000/year and wants to save about 10 percent yearly for her retirement. Would you tell her to go with a TFSA or an RRSP? Also, she has a great defined benefit pension plan, HOOPP to which she contributes every paycheck.
JDG: I would say six of one, half a dozen of the other. If you or your co-workers were making over $85,000 a year, the tax brackets change and I would say it makes more sense to put money into the RRSP. If you are making less than say $45,000 a year, you will be in the lowest bracket and I’d say it probably makes more sense to be putting that money into a TFSA. To my mind if you’re in the middle bracket which is where the $60,000 sort of falls, you are going to be in the middle bracket throughout the foreseeable future in your working career and it’s entirely possible that you might even be in the middle bracket in your retirement career especially when you take into account your HOOPP pension, your CPP and your OAS.
As a result of that, you get a little more money in your jeans if you put the money into an RRSP. But you are going to pay more tax when you retire when you’re in your mid 60’s when you start taking that money out. I think it might be a matter of cash flow to have like you do have young children? Do you have a mortgage? If you do have other obligations and maybe an RRSP will help you to free up the money to fund those other obligations but if you don’t, I would be equally happy and maybe even a little bit, I might even have a slight preference for TFSA just because it’s more flexible. You can always take money out of a TFSA and put it into an RRSP later but whereas the inverse, you lose the tax benefit.
UK: You are a portfolio manager at Wellington Private Wealth. How much do you charge your clients? Like what %?
JDG: Sure. Every advisor has his or her own fee schedule. The firm is called Wellington Altus and it is across the country. Every advisor charges something different depending on the size typically on the size of the account. So you know what a marginal tax rate is, I am going to build this as a marginal fee rate. The fees are higher as percentage of assets if your portfolio is small and lower as a percentage of assets if your portfolio is large. So, let me give you an example. For me, a typical client might be say three-quarters of a million dollars and for that I charge 1%. If you have got less than a three-quarters of a million dollars, I am charging you more than 1% and if you have got more than three-quarters of a million dollars, I am charging you less than 1%.
UK: John, do you mind sharing how do you invest your money and what’s in your portfolio today?
JDG: Sure. I eat my own cooking. What I have in my portfolio is what my clients have in their portfolio. I actually recommend the products that I buy myself are the products that I recommend for my clients. My products are primarily from a company called Dimensional Fund Advisors and it is the biggest single company’s product that I own. So I was just in Charlotte, North Carolina last week at a conference from across the country from people who have used Dimensional and there are very selective company. There is only maybe 200 advisors in the entire country that Dimensional will allow to recommend their products. So, it is a very academically driven, research based, evidence based firm. Chief Investment Officer, Eugene Fama won the Nobel Prize in 2013.
UK: Wow. Lastly, what are bad recommendations you hear about personal finance and investing in Canada? What advice should Canadians ignore?
JDG: Oh boy, that’s a one I have never heard before and it’s a good question because it sorts of reverses the onus. I am the one who says you should ask good questions so I should. Let me tell you maybe these are not good questions to ask but these are good things to sort of get your antenna up. If the advisor says the cost does not matter, what matters is after the return, the net of cost. Well, that’s fine and well if you can rely on it. It’s like saying you know lottery tickets are good investments but it’s important that you pick winning lottery tickets. Well, yeah thanks Einstein. It’s nice to hear that but the fact of the matter is no one has ever found a way to reliably pick stocks that outperform or to pick lottery tickets that are going to win the lottery. So, when you start hearing someone who says something that seems plausible on the surface but it is probably too good to be true, you should stop and say, wait a minute. What is the premise for this advice? These are some questions you should be asking.
The idea or the notion that you can beat the market by just doing more and better research is highly improbable. The fact of the matter is the current price of any given security or any given point of time represents the consensus opinion of millions of people and most of which are smarter than you and I. And, they are not in the business of doing things for charity, they are trying to make money too. So, they are going to sharpen their pencils and get the price exactly right. If you really think the price of any given security is not what it is currently trading at, I would respectfully submit to you that you might want to disabuse yourself of that because you are probably going to have your head handed to you as a result of your overweening overconfidence and intellectual hubris.
UK: I couldn’t agree with you more. In fact, this past April, I thought I had picked my winning lottery ticket and bought about 150 shares of SNC-Lavalin. The price of each share was trading at 35$ per share, almost a 50% discount due to all the political turmoil and controversy. I thought I was the smartest and most handsome guy in Toronto when I bought those shares but like you said the market showed no mercy and handed me my head. The price dropped down to 15-16$ per share and I lost more than 50% of my money in less than four months. But, I still have not sold a share yet so I am still waiting (Laughs).
JDG: And, that’s an overreaction or perhaps an underreaction. The problem is markets react very quickly to new information and so the SNC-Lavalin scandal is a good example of that. The market reacted very quickly but maybe it under reacted. It sort of gave you that head fake and it dropped by half and you bought it and it dropped another half again. Also, sometimes in the short term there is more or less these emotional swings that are not based on the fundamentals. In fact, they are now companies that are saying that’s actually the better arbitrage opportunity than sharpening your pencil and checking the P/E ratios and determining what the sales are going to be this quarter might not be the best way to do it. It might actually make more sense to just sort of watch if the herd is overreacting and buy based on the herd’s overreaction or sale as the case may be.
UK: Thank you John. Where can people find you?
JDG: There are two websites that you can reach me at. If you want to learn more about the book, that’s at www.standup.today. And, if you want to contact me as my capacity as an advisor, you can go to www.standupadvisors.ca.
This interview has been edited and condensed.