Why Financial Advice Gets Better at Scale ft. Cameron Passmore (EP.261)

24:11The Long Term Investor Host:I'm kind of curious to hear your thinking on that. So I'll set this up by saying my longstanding bugaboo with this industry is the advisor is the star and pretty much everything's in service to the advisor. And the problem I have with that, and yes, that's how I came into the business 35 years ago or whatever, was about my own practice and my own outcome. But I like to think that I've learned and changed. But the power of having one team where the team is the star, the system is the star. The advisors, of course, are super important. They're delivering the product. The advisory team delivers a product to the clients.

24:55But they know when clients come in, they know they've heard the podcast. They may have seen the YouTube. They may have seen our articles that are put out by our marketing team. So you can tell we're all working together, right? You need a finance team. You need a compliance team. You need all these things in harmony to pull off what we all do. And I'd like to think that clients can see, right? But in terms of meeting potential new advisors, and again, I've talked to so many people and so many people just, it's so obvious they won't fit, right? You got to be a real team player. If you believe the advisor is the star, you're not going to fit here.

25:28Like it's just not, if you're not passionate about the craft of financial planning and bring in a level of professionalism that clients deserve. And I believe clients are become more and more aware of as time goes on, you're not going to be a fit. But if you think you're the star, you deserve to make the lion's share of the compensation, it's just not going to work. Of course, you have to believe in the investment philosophy. That is the quickest filter, especially in this country. Most people think we're wackadoodle. Seriously. They look at you like, well, you just do index funds. You just do ETFs, right?

26:03Well, there's so much more to that. bends up to episode 420 or something on looking into the science of investing, the academic field of decision-making and portfolio structure and implementation. It's incredibly complicated, even though, yes, it's a commodity, but to understand it has been an enormous amount of work. To understand that, well, that is worth something, but you have to believe in that. If you believe your value prop is in picking the next manager or rotation or market timing, it's just not going to fit. So people that join, it's pretty obvious they're going to be a good fit. You just know when you meet them from a character standpoint, from a care standpoint.

26:47We think we have a certain level of, just to believe markets work takes a certain level of humility to not think you're the smartest person in the room. There's a certain level of humility about that. But a good fit is just such an incredible thing. the teams that have joined are truly unbelievable and fit in here like they've been here forever. So it's, it's, but if you have to, if you have to wonder if the answer is yes, then you know, it's a no, right? It's not something you can force and you guys are no different. Like I know, I know you and your colleagues pretty well, like you're very much like us, right?

27:23The Long Term Investor Host:You know what I find interesting? Uh, yes, you mentioned in Canada, you look like wackadoodles. Sometimes when I go to due diligence events, particularly events that are focused more on private investments, I realize that a evidence based approach, a rules based approach to investing is still not widely adopted. And if it is, it can be tactically so. It's sort of like, hey, I can use an index fund, but you can be quite active with it. But speaking of private markets, that's a place in the US where access to the narrative, at least, is exploding. I'm kind of curious if you feel like this is an opportunity for clients or is this an opportunity more for investment management firms to distribute?

28:15You know my answer. Let me take the positive spin on this. A positive spin is markets work. right? And for the vast majority of Canadians that need to work with firms like ours, pick the number portfolio size, somewhere, you know, 500 ,000 to several million. That's kind of the right down the fairway of who we are trying to help, right? We're striving to get technology that we can help people with more modest means to start, but there's so many people in that lane that need good help. And I would argue if you're in that lane, you do not need access to private markets. You may want it. Yeah, I guess there's a certain kind of flash appeal to it.

28:56A lot of evidence suggests that you're not going to outperform in Canada, and this might be the same in the US. So many advisors I talked to have some version of private asset or alternatives on their books that is now gated, which is the polite way of saying it's locked up. From who I'd speak to, it kind of sounds like a bit of an epidemic in Canada where so many assets are locked up. I've talked to clients, institutional clients that have had an unbelievable proportion of their portfolios locked up because they were just loaded on this stuff because everyone's got to follow the Yale model. I think there's evidence that suggests that a lot of those endowments are not outperforming.

29:38I know some of the largest pension funds in Canada aren't even keeping up with a simple Vanguard balanced portfolio. They're sophisticated. I get they're sophisticated and I get we're, you know, no nothing ETF investors, but markets kind of work. They're kind of smart. Maybe look at the Bessem Bender evidence trying to pick to beat the market. You know, I'll take the case and give me the whole market. I'm not sure which of the pieces of hay in the haystack is going to outperform. Just give me the whole haystack. That's done pretty well over time, right? And I would argue you don't need private markets.

30:15I would argue most people don't get access to the private assets that they might want. And let's face it, if you're a great private investment, are you going to go to CalPERS or Canada Pension Plan or wherever to invest, to get the investment dollars? Or are you going to go down to the retail advisor in Ottawa, Canada? I would suggest you go to the big guys first. Maybe I'm wrong. And I've heard the counter narrative. But also, if you look at public markets, there's so much diversification that you can do to improve your returns over a basic index fund. And you and I are fans of this, the factor tilting and a lot of the characteristics of some of the private investments can be captured by having smaller value type companies, more profitable companies.

31:04So until you've done all of that properly, maybe get all that in place before you start going on about private investments.

31:09The Long Term Investor Host:You know, what's going to be tricky is when trusted brand names make it even easier to access private markets. You know, not to pick on Vanguard, but I will just for a second. Talked about having target date funds include these private investments. They've since walked that back and said, well, there'll be a set of target date funds that will include these. And what I sort of worry about, and actually I've interviewed people from Vanguard on the show and explain this, that people see a trusted name like that and say, well, if they're offering it to us, it must be okay. Yeah. And what I think a lot of people miss the point on with privates in general is that so many of the facts, the facts that people use to sell them, they are true, but they're not all relevant.

31:56The Long Term Investor Host:And so I think what's difficult for people sometimes to unpack is when someone is sound smart and is smart and is using facts, you know, it's difficult to discern what is relevant, what's a relevant fact and what's an irrelevant fact. So like people always point to, hey, there's less public companies than there used to be. You're like, well, that's true. But there was also like a huge boom of public companies, you know, and these private companies, they are super micro caps. Like, you know, people want to be have access to certain things. It's I think what people underestimate is most of what you can get in private markets, you can get in public markets.

32:32The Long Term Investor Host:Those private markets are micro caps and they're all very active management. You know, you have granted you can go in and actually run the business, but it's off of a single thesis or thesis set of theses. And it's a lot of the things that the most disciplined investor, the biggest student of investing, one who's embraced a lot of the science of investing, ultimately would say they're against. Where we ultimately land at PlanCorp, I'll kind of say where we do access them is, look, if you're overweight liquidity and you maybe have$20 million portfolio or more, and we can really align the why to the investment.

33:07The Long Term Investor Host:To me, I start to have the conversation, you know, and it can even be, look, I just want something a little more interesting. At least you're being at least you're being honest about it. You know, and I think if I were to win the lottery, Cameron, if you dropped one hundred million dollars of after tax money into my checking account, chances are I would make investments in non-public securities. Now, would they be these same funds? I don't know, but I would invest in things that interest me and you'd just be a very small part of my portfolio. But generally speaking, when clients approach us about private investments, we do sort of draw the line on what makes sense because as you noted, many of these funds, even though it appears that they're more liquid, they get gated.

33:47The Long Term Investor Host:They still are illiquid. It's used to be what I would call overweight liquidity. And you'd have to have a really firm understanding of the why you're doing it and not just drop you into a model set of private investments, but try to align it with your why. If there's some sort of thing you're trying to get at and you can really afford to do that. Meyer Statman once talked to me on the show about like once in needs. And I was like, well, how do you think about a fiduciary duty with a want? And he's like, well, look, you know, a want is okay. You can let somebody have a want if they can really afford it, that you're still being a fiduciary.

34:19The Long Term Investor Host:Really roundabout. I mean, I'm kind of curious your thoughts on what I'm sharing or if a client approaches you about privates, what are some of the things that you're sharing? Hey, listen, I'm a fan of, I mean, my largest personal holding is private equity in the company that I work for, right? So I'm not opposed to private equity, but there's no fee on that carry and that's part of, I have no issue with that. The issue is the fees and access. Now, if someone comes in and we have some clients that are able to get access to certain private investments, we can help with that for sure. But to go and systematically bring it across the board to all clients as part of our value proposition, that's not something we do.

34:59We're down the fair way with the average Canadian is trying to save the money they need for the kind of economic future they want. And for the vast majority of those people, there's no need. It's hard enough just to behave and stick with the plan as it is, let alone adding in privates and the stories and everything else. And there's so much complexity, like IRR gets thrown around, which is, I mean, that's another topic for another show, but I mean, there's so many facts that people just don't understand.

35:29The Long Term Investor Host:So. You know, earlier on, you'd mentioned something about AI, you're kind of going back to the advice arena, how do you feel about AI and technology? Is it going to make high quality advice more accessible? Do you think it makes financial product distribution more efficient? Like, how do you feel like it helps or hurts the end investor? Let's just, like, wherever you want to go with that. Yeah. So I think about it in two ways. One is the deterministic side, which is anything that's kind of what Braden was building, where there's certain facts that AI can help you build things better. So we're using, of course, AI and I guess it's vibe coding, but do not take that like I'm an authority on this.

36:08And we've been doing this for years. AI helps us do it faster. We've been roaming around the firm, fixing all kinds of small issues, be it in compliance or whatever. Now we're using AI and tools. And it's deterministic, fact-based, get it done. That's helping on that. So that's just making things happen faster. So of course, we're all embracing it. On the distinctive side, which is how we deliver what we do to people, AI is certainly making advisors better. So we've long had a data lake. So we have a clean source of truth of all of our data. So of course, by having a clean data lake and we have a data team, we're now able to unleash the power of AI in ways that we're just starting to realize what kind of intelligence you can get.

36:51So we're going to be able to soon query the database and say, okay, the last pick a number, the last 100 meetings with incorporated physicians, what were the number one, two, and three topics that came up in those client meetings? Maybe Ben should do a podcast on that. Maybe we should do a white paper on that. Maybe we should do a training on something. If the common question is coming up, we're going to be able to pick up on sentiment from advisor meetings. What's your common themes with clients? What's going on with, you know, perhaps we can link feedback and client meetings to what the market's been doing.

37:21I'm just kind of brainstorming. But once you've got the data and the idea is it's absolutely endless how this can improve what we do it is absolutely going to make better advisors better i would if i was not a good advisor and i'm not sure how people even would realize that like i've got a definition of that but people are coming in more often so well prepared saying like understanding the the markets work diversification costs if you're not in a low cost diversified index based portfolio. I'm not even sure what you answer to people like that. I guess you just go next and hope for another prospect to come through.

37:58But when people come through believing in that, but don't quite have all the pieces, because let's face it, you and I have been studying this for decades. It's not that easy. It's easy to us now. But if you're a consumer with all this noise, right, coming through with some information from a Claude's search to meet an advisor that can help you understand this and make better decisions, my God, the power of that is off the charts. And that's what our experience is now, literally every day with people coming through, we're getting more and more searches because people are searching differently. It used to be financial advisor near me.

38:34Now it's like, I'm an incorporated, you know, oncologist in the province of Manitoba. How should I take my salary or dividends if I have this type of tax bases in my corporation? That's a very different prospect than financial advisor near me. So it helps us build content. They can answer these questions so these people can find us because that's where our headspace is. And I'm not suggesting there's not other great advisors. There are. But as far as we can tell, there's no other in Canada, scaled firm, markets work, planning matters, one team, one philosophy. There isn't another one to our knowledge in Canada.

39:14So we're working real hard to get in front of these kinds of people that are looking for this kind of help. Nerdy? Yes, it matters.

39:22The Long Term Investor Host:One, I feel like having watched PWL for, I don't know if it's been a decade now, I'll say five years conservatively, but maybe longer than that. I'm just thinking back to when Gaia started. I feel like your statement is a valid one. And in the US, the only firms who can make some of those investments in AI, like you speak of, like you're doing at PWL, are those with a scaled team. It kind of goes back to what you were talking about earlier, like when you have the people in place and the data lake itself. You know, I remember when we cleaned up our data and it was in the name of some marketing efforts to customize journeys.

39:57The Long Term Investor Host:We didn't know at the time that AI was coming and it would be such an important thing, but it was a really big lift. And we had been in business at that time for over 30 years. When a new advisor or a firm that we're looking to acquire, like when we start looking at their systems, the data is not clean enough to leverage AI. And so I think there's probably a lot of the investing public who assumes that, oh, all advisors are going to be able to leverage AI and give me a better experience. I don't think that's necessarily true yet. I'm sure it will be at one point in time. You know, the other thing you kind of mentioned, though, is that the client comes in more educated.

40:32The Long Term Investor Host:They have so much information with AI. I, like you, believe it's generally a good thing. But is there any place in all of this where you feel like more information can actually be harmful? Well, more information is more noise. more noise can cause more bad behavior so we've had so we've worked with you know people from shopify for a long time and there's a certain profile of people in that technology realm where people go do a deep dive get it and move on to the next thing and i don't know if it's a tech thing i don't know if it's a shopify thing i just use this as an example the beauty of the philosophy that you and I share is once your US markets work, it kind of gets solved.

41:16You don't have to keep searching and questioning. You just have to make sure you behave well, save the amount you have to, all your stuff's in order, your state plan's done, your taxes are taken care of, and you're on track and keep revisiting it, right? Yes, your life will change. There'll be unintended things that happen in your life that you need advice for, but you don't need to continue to revisit. So I kind of worry that, you know, And you look at what's happening with the prediction markets becoming integrated into the investment platforms and just kind of get this gambling even more so than some of the apps were doing before.

41:49So I kind of worry that people are always on the hunt for like, where's my next quick buck, which is all such bad behavior. So a bit of a fear there. But once you kind of realize it's so liberating, you know this. Once you get it, oh my gosh, markets work. It is so liberating. Any sort of prediction, podcast, article, and it's because all that stuff happens that markets work. All these forecasts, why bother? It's in the prices. If you just believe that, it doesn't mean prices are always right. It doesn't mean the market can't go down, but it's likely to go down for reasons you didn't think of, right?

42:32And stay diversified. gone through the crash of 99, gone through the great, you know, the GFC of 08, you know, the pandemic in 2020, like all these things have happened. And markets, companies are adaptive and they've figured things out. That is such a liberating belief system. It's unbelievable the power of that. Don't you find?

42:57The Long Term Investor Host:Oh, absolutely. I think what sometimes I find, And listeners of this show, for example, the listeners of this show, I'm just going to broadly say like a third of them are do-it-yourself investors. A third of them are clients or potential clients, and maybe a third of them are advisors, kind of roughly. And what I find that some advisors and some do-it-yourself investors hear when they hear that message is that it's easy. And I think one of the challenges and the good part of where a value bring advisor brings value is the answer is easy. The implementation is difficult because to have that belief system.

43:37The Long Term Investor Host:Yes, you have to live through a 2020 or a financial crisis, you know, a defined short period of time. But you also have to live through 10 year periods where markets are going up and every thing seems fine. but there's a part of your portfolio that doesn't necessarily feel like it's right. And so the answer is easy, but we are behaviorally hardwired to make all sorts of terrible choices. I hope that something like AI, if someone's going to chat to AI rather than have an advisor, I hope that AI is trained on getting people to not change their investments. You know, when you adopt a philosophy like you and I have that the future can't be predicted and that the market is very, very good at setting prices, What that does mean sometimes, though, is that some things fall out of favor.

44:23The Long Term Investor Host:Being globally diversified can at times, you know, not just for a year or five years, but 10 years or 15 years can look really, really awful. The worst thing that I've ever seen Warren Buffett do for the investing public in the U.S. was say that he's going to put his entire estate into the S &P 500 because those companies have half of their revenues overseas. All those statements are true. However, there are three extended periods going back to 1950, where anywhere between 12 and 17-year stretches where the S &P 500 lost to cash. And so we have a generation of investors here in the US who just put their money into an SPY or equivalent like an S &P 500 fund and think it's easy.

45:09The Long Term Investor Host:And you're going to get into a period where it's hard. And so like being a student of history, being a student of the market, if you're going to do it yourself, you really have to apply yourself to those things. Plus the SMB 500 was never created to be an investment option. A hundred percent. Yeah. Right. It's built to explain performance, measure results. When you understand where performance comes from, you want to diversify to different sources, unique sources of expected return. And look at the last decade from 2000 to 2010 for the SMB 500. Had you diversified into those other factors, you would have had a very good investment experience.

45:43I agree with you. That's my bugaboo with that message as well. Now, the positive message in that is cost matter. Diverse cases, your friend, don't predict the future. So on balance, it helps, but it's just not quite far enough, in my opinion.

45:59The Long Term Investor Host:Well, why don't we put a bow on the conversation by hitting one more advisory topic? It's been a big focus of today's conversation. Let's fast forward 10 years. Cameron, tell me what you feel like a great advisory firm looks like and what might be different for the average client. Honestly, I don't know what the technology will look like. I think people overswing on wanting to have fancy apps and whatnot. The number one complaint that we get from clients is that our tech is not as great as they would hope it would be because Apple set the standard for great user interface. but I think there's ample evidence to suggest that seeing stuff more often fancier is not very helpful so I don't personally get too fussed about technology to me it's all about the service the quality of service I think we'll still have advisors meeting people do I think there'll be fee pressure I think there's always going to be fee pressure going forward I do think AI does change the equation differently than the robo-advisors did.

47:02I was never particularly worried about robo-advisors, but this is different. I mean, robo-advisors proved they couldn't, even robots couldn't stay as robots in Canada. They had to come out with all kinds of other things like cash deposits and private equity and crypto under the guise of meet the clients where they are, which is complete nonsense. Number one question I think people should ask when they meet or interview an advisor, Do you have a buffet or a belief system? Because if you've got whatever I think I want, oh, you're a stock picker, I've got that. Or you're a dividend person, I've got that.

47:33Oh, I'm a crypto guy, I've got that. That's a buffet. No, buffet, don't take the buffet, take a belief system that makes sense. So I don't see the market's work philosophy changing. Do I think that advisory teams can scale? I think advisory teams can handle a lot more people, a proper diamond team for the advisors out there. They know what I'm talking about. A proper scaled team using AI to be able to help more people. I think we will be able to help more people. Does that drive the cost per unit of advice down? Probably. Probably. But we'll see. I still think, and people call me old-fashioned.

48:18I don't I see a world where a lot of people will be able to get AI enabled help perhaps from some sort of chat bot I get that because there's always people that don't want to pay for advice I get that but there's so many people my god in Canada 80 % of the assets are in the you know banking system like I told you so many people just need reasonable help from good honest people with a belief system that makes sense it's a desert up here It's unbelievable. So now maybe the banks are okay with us doing this because, yeah, let you guys do all the nerdy hard work, the low margin work. We're going to keep the people that are here because we only have half a dozen banks in Canada, by and large.

49:02So we'll see. People still read books after all these years. We're human. We're talking. I think people want to talk to people to have confidence in their decision. but I think the standards of what they're going to put up with is going to change dramatically. They're not going to put up with nonsensical stock picking from some person in some office. Just think about it. The notion of coming to me while I'm talking to you and I'm supposed to pick stocks to beat the market, it's preposterous. What could some guy in an office in Ottawa know more about the market than the market at large? Have you been to New York City?

49:42Have you been to Tokyo? Have you been to all these cities that have people studying it? That's why it works. And as more and more of the weak ones die off or go out of business, you're left with even harsher, stronger, better finance, better capitalized competitors to squeeze out any arbitrage there is. Yes, there will be Rentech, Renaissance Technologies. I get it. There will be outperformers? Absolutely. Too bad you can't get access. Right? So something Cliff Assis told us when he was on our podcast. Yes, there will be winners. You can't get in. Too bad for you. Right? I don't think that will change in the next decade.

50:23So we'll see. It's a super interesting time. It's not just about information. There's some people who say, well, now with AI, there's no longer any information difference between Peter Lazaroff and Joe Consumer. That may be true, but Peter can help you make better decisions about that information. It's not just about information. Information about index funds have been out there for a long time. This goes back to Markowitz in the 50s and 60s, right? Gene Fama, David Booth. Go down the list of all the luminaries of index. 16 % of Canadian assets, something like that are index funds. You tell me there's not a whole lot of need for help here.

51:05So I think AI will help us make a difference. It'll help people discover the difference and help people discover great firms like ours, like yours. What that service set will look like, it'll be incredible. It will be better. It'll be more customized. We'll know more about our clients, know more about their behavior, know more about their idiosyncrasies. That just makes us better advisors, helps give them a better experience. how that's wrapped up. We'll see.

51:31The Long Term Investor Host:Cameron, I wish I asked you that first. I have so much to add. I'll only say this, that with AI, the answer is only as good as the inputs. So I do feel very strongly that a good advisor or a good team of thinkers know what inputs to put in. And the future is bright for everybody. In my opinion, there'll be pluses, there'll be minuses. We're going to have to have you back on, Cameron, to talk about this more, though. I feel like we only just got started here, but we're up on our time. If you don't listen to Cameron already on the Rational Reminder, you need to go subscribe to that podcast. He and his partner, Ben Felix, do great work.

52:09The Long Term Investor Host:It influences a lot of people in the profession as well as myself. I'll link to that in the show notes at thelongterminvestor.com. But Cameron, thank you again for joining me here today. I appreciate it, Peter. You're a good guy, great firm, big fan of PlanCorp and all that you do and we're great friends in the business. So thank you. Thanks for listening to the Long-Term Investor podcast. To access free financial resources and submit questions to be answered on the show, visit thelongterminvestor.com. Peter Lazaroff is an employee of PlanCorp and Bright Plan. All opinions expressed by Peter and any podcast guests are solely their own opinions and do not reflect the opinions of PlanCorp or Bright Plan.

52:52The Long Term Investor Host:This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of PlanCorp and BrightPlan may maintain positions in the securities discussed in this podcast.