Episode 309 - Are Robo-Advisors Passive Investors?

24:55As research suggests, it is no longer as effective as it once was. I can't help but laugh there. Now, I don't know if there's ever consent. They're talking about price to book specifically. I don't know if there was ever consensus that value stopped being effective. I think there are obviously people who did think that for a period of time and maybe still do. But since January 2022, value has been pretty great. So I don't know. What's another case of a good decision with a bad outcome? I'm not sure. But if I look at the value premium measured in USD, because that's where Wealthfront is, from January 2022 to April 2024, value premium, so value minus growth.

25:36In the US, 1 % premium, EFI 6.7 % premium, emerging markets 9.55 % premium since January 2022 through April 2024. Sorry, does international include, I don't know, that's EFI, I guess you have Canada as well? I didn't include Canada in there just because I don't think Wealthfront cares about Canada, but I do know that the value premium over that period has been very positive for Canada too. it might actually be the highest premium of all those markets over that period. Yeah. I may have that somewhere. No, I don't have it open. Now, I do also want to say that PWL is not purely passive either, in the sense that we're not just holding market capitalization weighted index funds and doing nothing.

26:25We tilt towards small cap and value and profitability, and we're using dimensional funds, not index funds. So we're doing different stuff too. And in a lot of cases, it has underperformed just buying index funds because value is not done super well. Although it has done very well recently, just over the last 10 or so years, it has not done very well. But I think a big difference is that we're not making changes to portfolios much over time. I've been here for more than 10 years now, and we've been doing the exact same thing the whole time, other than maybe adding profitability, dimensional adding profitability and more recently adding short-term reversals to the strategy but it's like big changes like we're going to overweight emerging markets or we're going to materially change how we do fixed income although dimensional has added some more credit to their fixed income portfolio since i've been here so they're having little changes but nothing big and nothing tactical like nothing in response to what we think is going to happen or what dimensional thinks it's going to happen.

27:26It's like small updates incrementally based on pretty serious research as we heard about from Wei Dai in a recent episode. Even look as COVID rolled through in the markets roiled in March of 2020. If you're in a 60-40 or 70-30, that was consistent even on those days where the market moved 10 % and your 60-40 became 55-45, they're automatically rebalanced. You stuck to the rules and that's where to me these kinds of asset allocation tools really show their value because it's automatic. It just takes the subjectivity out of the advisor's hands because it would have been very easy during that period.

28:06And we all remember it. It would have been super easy just to go, let's just wait and see. We'll keep a lower equity position. We'll see how it looks. And you could have missed easily that charging snapback that happened late spring, early summer of 2020. money it's so hard to do like as a human like it's so easy to pick that out in hindsight right and say well i would have bought here i would have sold here like it looks obvious if you just look at the chart but when you're at the hard right edge of that graph and things are down like you're i was opening the markets and every day it was like 10 down and everybody has a trigger point right where it's like okay enough's enough we're gonna rip off the band-aid and being able to kind of systematically take that decision out of your own hands even as an advisor as an investor I think is, to your point, it can save you.

28:49It's like insurance against massive potential mistakes. Yeah. I did want to throw that out there that I'm not trying to say that we're better than robo-advisors because we are perfect market cap weighted index investors. That's not the point at all. But I think it really just highlights that investors have to understand what it is that they're investing in. We could have had the same conversation just now about asset allocation ETFs or about index funds more generally speaking. You can't just take index funds and assume that you've got a good portfolio because you could have really bad index funds.

29:22I'm not saying that robo-advisors are bad. I'm just saying that robo-advisors are going to have different portfolios and they're not passive and they're not objectively good investments. You got to know exactly what you're doing. That whole idea that a truly passive portfolio exists, I think it's just a flawed premise from the beginning. Every portfolio, including index fund portfolios, as we just saw contain a whole bunch of active decisions. That was lesson number 18, I think, in our most important lessons in investing episode that we did. There's no such thing as a passive investment. There's the spectrum of passive and active, but nothing is truly passive.

29:57Because everything is active on some level, you've got to understand which active decisions you're making and why. It's the same thing when you're delegating those decisions to, in this case, a robo-advisor. You've got to understand how they're managing the portfolio, how they're approaching asset allocation, how they're making decisions about changing asset allocation over time. Those are all really important. Yeah. I think the answer to the question are robo-advisors passive investors? I would say, well, nobody is. No, they're not, but that's not necessarily a knock against them. It highlights that even with robo-advisors and with index funds and with human financial advisors and all that stuff, but I think robo-advisors have image of being passive.

30:36So you've really got to evaluate how they're approaching both asset allocation and changes to asset allocation over time. I don't know that the average investor is going to understand that either, right? To your point earlier, as this kind of starting as an index fund portfolio or a cap-weighted index fund portfolio, I don't think it's obvious to a lot of people who are signing up with a robo-advisor service necessarily what they're getting. And the questions that you mentioned they should ask are all obviously very important, but I feel like the amount of financial literacy it takes to understand that would be such that you wouldn't really want to potentially a robo-advisor in the first place outside of some of those other benefits that you talked about earlier, Ben.

31:13If you're at the point where you're able to analyze their portfolio decisions as an investor, you're probably better off just either putting the portfolio together yourself or buying one of those one fund solutions. I think a lot of the average investors who bought the robo-experience thought they were getting that sort of broad-based market exposure and they didn't. Had you picked, say, Wealthsimple versus somebody else, your outcome was totally different as a result of it, right? It's really interesting. You'd love to know the psychographics of the typical new client going into Wealthsimple because I'm hearing that they're having tremendous success getting new clients of late, like in the billions, which is great for them.

31:47But what is that profile? What is that key value prop that they're coming to them for? Is it the user experience? Is it indexing, generic quotes? Is it passive? Which as you guys know, I find such a loaded term and everybody has a very different definition of what passive really means. While we were chatting, I did look up the pricing and features for Wealthsimple. And from what I can gather just on the pricing page, you get the same benefits regardless of whether you're with the robo side or the self-directed side. I don't see a delineation between the two in terms of the services that you can avail yourself of.

32:19It looks like it's just based on assets. So we were talking about financial planning earlier. And so if you have$100 ,000 in assets, you get check-ins with advisor, which is kind of like the lighter planning that I was talking about. But interestingly, at the generation level, Ben, which you said is at 500 ,000, you do get what they're calling financial planning. And that could be saving strategies, investment education, tax planning, retirement planning, estate planning, and insurance analysis. So I'd be really curious, actually, if any of our listeners have gone through that financial planning experience at the generation level or not, I'd be very curious to see what they thought of it.

32:51But I think also, Cameron, to your point, like, well, simple does a ton of cool stuff. Like if you just look at all the features and benefits like and some things that are maybe just more marketing than other things but things like stock lending like people are going to want that people are going to want to see if they can quote-unquote juice their returns by participating in like stock lending programs and they have five percent returns on their cash accounts which act like a checking account like these are really cool things so it doesn't surprise me that they're seeing a ton of success in that did they bring back the vip lounge the airport lounge passes yeah that's so at the generation level it says you get 10 passes per year we've partnered with dragon pass to offer you and your guests, 10 airport lounge visits per year available at over 1300 locations worldwide.

33:29So you need to have a half million with them, but these are really cool little perks, right? Very cool. Before we started talking about the service stuff, we were talking about what a low knowledge investor would expect to get and whether picking a robo-advisor would have been a good thing or not, which ties into our would you rather question. So I think we can go there now. Before we go to the would you rather question, I do want to highlight that over that 2016 to 2023 period that we talked about for the Wealthsimple versus iShares returns, the RBC select portfolios, which are traditional actively managed bank, RBC, in this case, mutual funds, their conservative and balanced portfolios outperformed the corresponding Wealthsimple portfolio.

34:14Wealthsimple has the edge in the growth portfolio, but the bank mutual funds, even net of their relatively high fees, actually did better. So with that context, would you rather put all of your money with a robo-advisor? And I know robo-advisor is broad because you could just pick like, hey, the one that actually does the index fund portfolio. So maybe it's too easy of a question. I don't know. Would you rather put your money with a robo-advisor? Maybe one of the robo-advisors that has a history of making these sort of tactical moves. We'll do that. Would you rather put all your money with a robo-advisor or in a big bank, actively managed mutual fund?

34:52Robo-advisor, hands down for me. I like the progressive nature of this. I like the value prop they're bringing. They're shaking up technology. I think I'd behave well in that environment. So maybe I'm a bit biased, but I think it's cool. It's cool technology, progressive, and the banks. And as I said last episode, I love the bankers I work with, but they make enough off me. Now, having said that to your point, Ben, about the RBC Select portfolios, I think there's some great behavior biases that can be built in if you're kind of a, because I'm sure there's a lot of people who just put all the money into one of those funds and just never look at it, right?

35:26And I've had a terrific long-term experience. So, if you can set it and forget it, behaviors we've talked about many times will trump your returns or what the ultimate. So, if someone can behave better with the RBC Select portfolio, beautiful. What caused the outperformance recently? We can speculate, but it doesn't really matter. So that's what I would do. Mark, what do you think? Interesting. That was a good answer. And I'm glad you brought up those portfolios specifically, Ben, because my answer is going to comment on the fact that a lot of these massive bank funds are basically closet index funds at this point.

35:59And I think RBC specifically, it might be wrong. I think there was a lawsuit at some point. It might've been TD, I'm not sure, but I think there's a lawsuit at some point against one of the big banks for closet indexing. And I don't know that they won or lost the lawsuit, but I think it's relatively well known that when you get to a certain size, like the RBC Select Balance portfolio, I think is north of like$50 billion. And it's hard to do much but become an index fund at that point. so from that perspective those big bank funds yes they have higher fees but if they are more traditionally really an index fund versus lower fees for active management i think that makes the decision really really difficult and cameron you made a good point which is these new technologies like well simple the user experience is really really slick but from a behavioral perspective it makes it super easy to just like go online to make a decision and i think that's less true if you don't have that technology at your fingertips?

36:49So my answer is actually probably a big bank fund, but it wouldn't be like one of the sector funds or something. I would pick probably one of these big bank closet index funds. Yep. I think that lawsuit, it was a class action. It was against TD and it has been dismissed in a bunch of different courts, I think. I don't know, BC. It was dismissed in BC. Oh, it's BC again. Yeah. So it looks like it's gone to BC court a few times and it has not gone through as a class action, which means nothing's actually happened. So Ben, you get to be the tiebreaker. Okay. So the closet indexing thing, I a hundred percent agree with.

37:32That was actually what I was thinking as well, that like, Hey, if you can get a consistent equity exposed portfolio with like an RBC aggressive fund or whatever, that might be better than a robo-advisor that's going to do a bunch of weird stuff like add gold to your portfolio. In terms of consistent asset class exposure, I might actually prefer the bank fund. Now, maybe not for me specifically, but more generally speaking, there's a paper from a professor at a Canadian university. I don't remember which university he's at. See, Mark, he's got a paper to back up his answer. We have to up our game by the next time you do this.

38:11Sorry, guys. I know. We need better game, Mark. We had to gang up on him one week. Yeah. We're going to have to collaborate. It's probably going to take both our heads to compete here. Was I not supposed to bring papers to this conversation? No, no. I'm just saying we always expect. We're learning. We're learning. We always expect you to bring papers to your conversations, Ben. Okay. So there's this paper. Some week we'll catch you. There's a paper called, Are Banks Better Money Doctors? And it speaks to Cameron, I think what you were saying. So they look at an analysis of mutual fund flows of bank and non-bank mutual funds using Canadian data.

38:42Super relevant, obviously, to this conversation. High-level findings relative to non-bank funds. Bank funds have lower flows on a monthly basis. They also have lower flow sensitivity to performance than non-bank funds. Investors and bank funds are reacting less to performance. Usually, what you would see is after good performance, investors pile into a fund. After bad performance, they pile out. or not necessarily pile, but they're sensitive to the performance. The flows are sensitive to the performance. What this paper is showing is that bank flows are less sensitive to performance. They find that that effect is largely driven by lower outflows after poor performance.

39:22The bank fund does poorly. People don't bail as much. That's the beautiful part about the bank's business. People are there because of the bank's brand. The Canadian banks have been around for over 100 years. You've got that built-in loyalty, which just makes such a beautiful, consistent, like I'm TD green, right? Like you're green. You just are. Yeah. Amazing. Amazing businesses. Yeah. And this effect mostly exists in equity funds, less so in balance funds and not at all in bond funds. But anyway, if I had to pick one, I'm probably going with a bank fund too, Mark, same as you. Nice. I can see the disappointment on your face, Cameron.

39:59Jason Jason's going to be furious with us for saying this Jason Pereira yeah yeah he will he's not going to be impressed he absolutely will we should bring on our friends to answer these questions the would you rather game it'd be cool to have a guess that would actually be pretty funny yeah yeah yeah see if we can get Jason to come out of his shell yeah yeah I don't think that'll be too hard hard to get an opinion out of him oh yeah totally okay you want to go to the after show and we'll keep talking robos yep let's go sure So do you guys remember when the Robos came out, there was this wave of fear that came across the industry?

40:34And this is something that Michael Kitsis, who's a commentator for those who aren't in the business, he's a very high profile commentator on our space. And he was in the camp that they're not going to have a huge impact, but there's a lot of fear that's going to put massive pressure on fees, especially if you're in the AUM fees based on assets, business model. The reality is that the fees have not come down hardly at all over the past decade, but the amount of services and value being delivered has gone up. So, people have to do more to justify the fees, the punchline. However, there is a lot of money going into this space at the robo space and circumventing the independent advisory model, which I think is super interesting.

41:16But in terms of is it having a big impact? I watched a presentation by Chip Rome of Tiburon Advisors, which is advisory firm to advisory firms. And the scale of our industry worldwide is absolutely massive. It's over$150 trillion in size as a wealth management, liquid wealth management space globally. So one of his points that he was making is that even Fidelity, which is like the largest at what, 10, 11, 12 trillion dollars, in$150 trillion marketplace is still relatively small. You're not talking about massive amount of market shares. So his point was everybody is relatively small, but certainly one of the big trends is this shift from active to passive.

42:00And if you're an active manager now, you certainly got the headwinds against you from this massive shift towards call it passive or index type investing. I thought that was pretty interesting when you think about the scale, like even Vanguard at what, six, seven, eight trillion? Yeah. I think BlackRock's around 10, I think, maybe just north of 10. So even between the three of them, they have, call it, less than what? A quarter of the global market share? Yeah, far less. Based on those numbers? Based on those numbers. And he said those along with Morgan Stanley, those are the giants. But the other comment that he made is that there's very little new money coming into the system.

42:38The whole system that we're in, there's roughly 2 % growth, organic growth coming into the system. So most people are kind of trying to chip away at each other's clients, right? And that's really what's going on at scale right now. Wow, that's interesting. It's funny you mentioned just the size of the market and the size of the active versus passive marketplace. And I actually took this information from the, what's it called? The PWL active passive fund monitor, Ben. Is that what you guys call it? Thanks. Because I was writing this for the book as well. So then the US is way ahead on this, but in the US, passive index assets have now actually surpassed the value of actively managed assets.

43:13in canada though 83 percent of the marketplace is still actively managed products so the canadian marketplace at the time that i read the active passive monitor was just over two trillion i think it was so somewhere around two trillion and passive index type products were about 310 billion versus 1.575 trillion in active funds so we've got a long way to go before there's like even a a seismic shift or a tipping point. These are fund assets. There are other non-fund assets that might change these numbers, but this is like mutual fund and ETF assets. Yeah. Well, you'd think non-fund assets would skew towards active anyway, right?

43:51I don't know if that's true because a lot of, like if you go to the institutional world, you can very easily have an institution who is managing their portfolio very similar to an index fund, but they're not an index fund because they're holding the securities directly. interesting yeah i think there's probably more indexing than you might expect in the non-fund portion of the market very interesting yeah cameron to your point i remember in 2015 when robo advisors were the big boogie man and there were a lot of advisors that were really scared this is going to be so disheartened like and you'd hear it from people too who just don't like advisors like your days are numbered and like the robots are coming for your job kind of thing and obviously in hindsight that was kind of laughable but we're experiencing it again now with AI and chat GPT, right?

44:33Like people on Twitter just chirp me all the time. Like you're a robot taking your job. You better go apply at Starbucks kind of thing. And I don't know, and this doesn't even just apply to financial advice. I don't think the market for human advice ever disappears completely. Like whether it's tax or financial advice or legal advice or fitness advice or whatever it is. Like I think there's always a market for humans wanting to interact with humans. And sure, maybe the technology gets so good that at some point you can't tell. And I think if nothing else, that will focus the business into those who offer higher quality services.

45:03So it might kind of trim from the bottom. But even with AI, you say, I'm not yet worried for our industry or my own job. That's for sure. Humans are so messy and AI is going to help us better help humans, but humans by nature are messy, right? And financial planning is booming. That's the big shift, right? I think we said this a couple of weeks ago, back in the day, threw in financial planning for free to manage the assets. Now effectively, Ben, as you say, investments are largely figured out and the value prop is more shifted towards the financial blinding side. And that's exactly what Kitsis has been saying.

45:35Super interesting. Yeah. I think there've been a bunch of cases where everybody thought advisors were going to be done. I think even with discount brokerages, everyone's like, well, advisors are done, but the business just evolves. What an advisor does changes. He used to play stock trades and then discount brokers show up, so that's no longer valuable. So the business model shifts. I don't know what the next shift will be. I don't know if RoboAdvisor has changed much other than maybe, like you said, Cameron, didn't compress fees at all and maybe pushed people to improve their services, maybe to improve their online offerings.

46:10I don't know how much changed the actual services though, maybe a little bit more planning, but with AI. What about the general awareness of just a non-bank or non-large firm option for your investments in financial planning? I think there's a lot of people don't even know that firms like us even exist, that this is possibly an option. How can you go outside of the bank in Canada or the big brokerages if you're in the US? Your experience on Twitter, Mark, even people that know us don't necessarily know what we do. And that's large. Questrade's whole marketing program is a Questrade who's basically like, oh, you're still using dad's guy.

46:46You didn't know that there was another option. So I think to your point that even just letting people know that that's not the only way to have your money managed, whether it is through discount brokerages or robos or independent firms, A lot of people have been with the banks, as you pointed out, Cameron, for decades. Their family's been with them for decades. The loyalty is there. A lot of bank advisors do great work, but maybe just educating Canadians that there are other options, I think that the robo has probably helped accelerate that. Speaking of value prop, what's up with the new calculator?

47:17Can you give us an update? I wanted to actually talk about that in the context of AI as well, just to your comments, Mark, about whether AI is going to take our jobs. I think it can maybe change what we do, like some of the other stuff that we've been talking about has. But this new calculator that I'll talk about in a second, Cameron, I tried to use AI to help me code it. And it was absolutely horrific, like completely useless, in fact. Would you use ChatGPT to help you write the math and the code and stuff? Yeah. Yeah. Okay. because Jason Pereira told me to. So yeah, I'm coding this thing in BBAs.

47:54I would just use ChatGPT to do it. I said, okay, I'll try that. I tried a bunch of different prompts and the code it gave me was like a joke. And maybe I was doing it wrong. I don't know. Maybe someone who does software for a living is going to tell me that it's my fault, not ChatGPT's. But anyway, it didn't impress me. So for that type of stuff, for modeling complex financial decisions, I'm optimistic. maybe it will get there. I think technology is great, but at least for now, I know it's moving fast, but for now it's not there. I think it can help with a lot of basic questions that don't involve the modeling, the math, that type of thing.

48:28Again, in Dan's book, at the end of the book or at the end of one of the chapters, he basically said, I asked ChatGPT this question and here's its response. It was a very, very simple five questions. Should I pay off debt or should I invest? What debt should I pay off first? These types of things. It answered those questions really well. So general logical reason, I think, is pretty good. But yeah, from what I've heard, just from watching programmers and stuff on Twitter, it's got a long way to come before it can do that kind of stuff that you're talking about. Yeah. So yeah, the new calculator, we had that breakeven calculator for personal investments.

48:59So if you own a taxable asset with capital gain, we built a calculator that people can see online that helps you understand how long you would have to hold that asset to make deferring your capital gain more advantageous than realizing it before the capital gains inclusion rate increases. That's a no for a while. We did that one pretty quickly after the federal budget proposals were released. More recently, we added to that calculator a little toggle button where you can switch between personal and corporate investments. Now you can look at a corporation and you can see again, what is your breakeven horizon with the corporation.

49:36What we've left out of that model is the ability to include how you're paying yourself from your corporation. We talked about this in a recent episode where I talked about some of the modeling that I've been doing on this. We may include that later, and it does matter to the decision. You would make a different decision if you're taking a certain amount of money out of your corporation with respect to realizing a capital gain than if you're not taking any money out of your corporation, but it's also a lot more complicated both to model and to show what's happening in the outputs. So we've done that modeling.

50:10We may release it in our public tool, but for now, we're just going to keep that portion of it as an internal tool. It's pretty cool though. I've gone through the internal kind of training on it, but yesterday Ben helped me use that calculator in conjunction with the financial planning software that I use for a particular client who needs to make this decision. And Cameron, as you mentioned, we're all going away, but I leave tomorrow, I come back June 24th. And so I booked this trip, of course, and then they proposed the changes. I'm like, great. I literally come back like the evening before the changes are going to go into effect.

50:39So for my clients who may be affected, I've had to kind of figure this out before tomorrow. So Ben helped me with the calculator and it's quite impressive, like the amount of thought that's gone into it and just the way it presents sort of where the break even is and how sensitive it is to some of these inputs and expectations, right? So it's just such a complex decision, I think, for a lot of people that without this type of modeling, like there's going to be mistakes made around this for sure. I think it's unfortunate how this whole thing is coming down. I'm not even talking about the policy, but it's more of the rush and the timing and the complexity around it.

51:10This is very complicated stuff. Also for the tax department too, very complicated. It's complicated when we have no legislation, no draft legislation to go on. It's like capital gains rates increase, but we have zero details on how it's going to work or whatever, and I can change what people might want to do. To me, it feels, I don't want to get political at all, but it feels irresponsible. Well, we're living it, right? Client situations, other professional situations. There's this massive rush to come up with an answer. You're basically flying blind. So yeah. Good to move on, Ben. You want to talk about private credit and some of the feedback you got in the community?

51:51Yeah. I will mention that. I do also want to say that we did do a MoneyScope episode, Mark Soth and I, on some of the stuff we just talked about. We talked about the modeling that both Mark Soth and I have done on capital gains and corporations. We talked about individuals too. That episode came out last Friday, I think, when this episode comes out. Nice, basic, easy listening stuff. Yeah. That was a pretty intense episode. Just good background chatter. Mark Soth was very excited to have his first 3D chart that he's ever made because that decision requires 3D graphs to understand what is happening.

52:30So yes. That sounds like something you'd get excited about. Oh, it's, he was excited. I was too though. We were both super excited. Yeah. Yeah. Private credit. So I mentioned in a previous episode that someone had reached out who had worked in private credit for an insurance company, and they'd kind of shared some of their experiences and given some feedback in the episode. Somebody else in the rational minded community, they identified themselves as a private credit fund manager. Obviously, they're anonymous, so I can't verify that. But based on their comments, I believe it. And at the very least, their comments are pretty interesting.

53:03So I'm going to share those. So they said that the payoff in private credit is like selling a deep in the money covered call. And so he said, you can refer to the prior Roush reminder episode on that topic. All the points raised there when we talked about covered calls apply the same to private credit. That's pretty interesting. Another parallel that they thought about was it's like private credit can be a lot like dividend investing where the appeal is high distributions and the twisted benefits, less focused on capital gain. They said that you should definitely disregard the sharp ratio for private credit because returns are highly negatively skewed.

53:42You've also got limited upside, which reduces standard deviation, which is a double benefit for the sharp ratio. So I had talked about the smoothing being a reason to disregard Sharpe ratio, had not thought about the skewness. That's another good reason. So that makes talking about Sharpe ratios of private credit even more ridiculous than I thought. And then their last comment was that smoothing as a service is a real thing. Some investors ask for it. Others are mark to market only. I thought that was pretty interesting that some people actually ask for, they want the smoothing. So the concept of smoothing as a service is a real thing.

54:19for sure it is i talked to somebody on twitter yesterday i was talking about volatility or something and somebody came in and commented and i'll put you the quote exactly but it was something like oh i hate my manager he never has those like plus 30 years he just gets me seven to eight percent every single year and i was like oh it's probably a bunch of private credit and private equity and real estate and that kind of stuff and so i didn't dig into it further but to your point that individual is obviously being sarcastic they loved this steady seven to eight percent every single year. So for them, it really was a feature, not a bug.

54:48And actually at the FPAC meetup, the Financial Planning Association of Canada meetup in Vancouver a couple of weeks ago, I talked to another advisor that I know, and he works for a firm that does a lot of these private assets. And so we had a brilliant guy, his background, he's a mathematician by background turned advisor. And he fully recognizes that clients do want that return smoothing, and it might lead to better decision making. And he felt like he's kind of at a crossroads, like, is my obligation to the best client outcome. And if that return smoothing can provide better outcomes and better decision-making, then I actually do kind of owe him a duty to use these types of products.

55:22So either way, it was a really great conversation and I can see why some investors want that type of smoothing as a service, as you put it. This is something Morgan Housel talked about with Shane Parrish on the Knowledge Project a couple of weeks ago was exactly that. I don't pass judgment he was saying on how other people invest. If it works for you and you can stick with it, so be it. You have to find what works for you. He says, I happen to be a Vanguard guy, ETF guy, 100 % with a lot of cash. That works for my family, but that may not work for you. You may have a need to have an active portfolio or some other type of portfolio.

55:54Well, and that's why when I win my billion dollars, it's all going into whole life for that steady smoothing effect. It's a benefit to me. Someone reached out to me on Twitter today, actually. Garrett reached out to say, it's been a long time but only one episode left to go in his binge of listening to all past episodes and the final one was our conversation with morgan housel but his new book same as ever that was pretty cool to binge them all in relatively short amount of time do you want to read that that's impressive an email we got yeah i will i will just say it is not easy to binge the rational reminder like going back i often tell people who are new to the podcast like go back to episode one but we're recording what 309 today and some of them were and some of them were like very deep.

56:38So kudos to Garrett for binging on them. And episode one was pretty rough. Yeah, things have improved since then for sure. I found a picture, eh, Ben? Did you ever see that picture of you and I in the room? I think we took that picture during episode one. Oh, yeah? I don't know. I haven't seen it. I'm giving a presentation next week, so I'm including that picture and a bunch of other stuff in the presentation. You should share it on the forum. I'm sure people get a kick out of it. Yeah, you should put it in the YouTube video for the episode. I'll get it to the team. The next one is from Shomik in Vancouver via email.

57:10As a fellow Canadian, it's great to have such a nuanced, intelligent, and in-depth financial podcast that has intelligent takes on indexing, CPP, financial planning, interviews with Nobel Prize winners, and the general tenure of the discussion being focused and helpful to the average person looking to do well in work and life. Very nice. So I actually replied to that email from Shumik and he replied back with a whole bunch of commentary. I guess he's been binging episodes too, but he had notes and comments on, I don't know, five or six episodes, but stuff that he found interesting. I replied back to him saying, I find it super interesting to hear people's thoughts when they've recently listened to a whole bunch of the episodes because I can't keep all this stuff in my head personally.

57:56And so when someone goes and binges a bunch of stuff and comes up with like, based on these 17 episodes, these are the insights I have. I'm like, wow, that is so cool. There's a bunch of good discussion in the community from our last episode with Just Us, my least prepared episode ever, personally, that turned out to be a great episode that a lot of people seem to really enjoy. Sparked a bunch of good discussion on buying versus leasing a vehicle, also on how much life insurance you need. Lots of good discussion in the community on that. Some of the community asked why I prefer leasing. I thought about that for a bit.

58:30I had some notes that people might find interesting. I like being covered by the manufacturer warranty for the full period that I have the vehicle. Because if you have major repairs, you take it back and they fix it. That's like it's it. I like having a known floor on depreciation of the vehicle. We talked about that, I think, in the last episode on this too. Although I did mess that up by going over a lot of mileage, my last lease, but I'm not going to do that again. I got more mileage this time. Did you have to pay a penalty per kilometer on that? Well, no. They called me because they could tell I was going to go over.

59:03And so they said, listen, if you keep driving at the same pace you're driving it now, you're going to owe about $5 ,000 at the end of your lease term. Sorry. How did they know that? I guess I'd taken it in for a service maybe. I don't know. Oh, okay. Must be that. I don't think they were watching. Yeah. They're just monitoring your driving. Okay. I don't think they were monitoring. So they wanted you to flip it while the value was still higher, even though you had term left on the lease. Interesting. Yeah. It was like a reduced buyout of the negative equity based on I paid less than I would have paid if I kept driving the same vehicle.

59:34They've rolled it into the new lease, which was financed at 3.99%, which that's free money basically today. Was the monthly payment materially higher? Not specific numbers, but the monthly delta? It was a bit higher. The leasing rate was higher. I think it was like 1.59 in my last lease. Yeah. Okay. Intraway was higher. The MSRP on the vehicle has gone up since the last one. So yeah. Payments have the residuals, but you increase the mileage. You may have decreased your residual. Yeah. Increased the mileage and we had that negative equity that we were rolling in. So the payment did go up. I like minimizing the negotiation at the time of purchase.

1:00:10I've done two used vehicles in my life, because that was supposed to be the good financial decision where you buy a used vehicle and there's less depreciation. Did that twice and you've got to negotiate twice. You've got to negotiate when you buy the vehicle and you've got to negotiate again when you later sell the vehicle, whereas lease, you just take it back. Another big one is I'm not a car person. You said the same thing, Mark. The information asymmetry concerns me. I don't know what I'm doing. A new vehicle in warranty with no depreciation, that just mitigates me getting screwed basically.

1:00:45I also like new vehicles. I could just be the argument. The new vehicle that we just got is a lot nicer than the previous one we had. It's got great new features that I like. And then maintenance issues. The two used vehicles I had, each one, they weren't super old or anything like that, but each one had major issues that I had to deal with while I owned it. And I've now done two full three-year leases and not a single issue. I'm sold. Yeah, right? Yeah, sounds great. We bought our last car, as I think I might have mention and i to your point is hate cars we have one car it's five years old like i will drive that thing into the ground i think but when the time comes i'm now sold on leasing so thank you for that so we got notes down here you and i mark both watched separately but we watched the ashley madison story on netflix is that an unbelievable story i didn't realize it was a canadian you know toronto story yeah so my wife watched it i didn't watch it my wife didn't watch it okay my wife has this tendency bless her i don't think she listens to the rational reminder so i can say this safely she'll watch something and then she'll be like hey i watched this thing and it will take her just as long to explain the thing as if i were to just go and watch the whole thing myself right like if i watch a documentary it's two hours long i'll give you like a five minute recap she'll spend like an hour going through like every single detail of it and sometimes i have to cut her off i'm like look at this point we may as well just go back upstairs and watch it together because it's going to take you two hours to explain the entire documentary so she gave me like the whole nine yards, the whole play-by-play on it.

1:02:14So I didn't watch it myself, but I may as well have because of the way she explained it. It's crazy. This is a head of AI too. And you can only imagine Ashley Madison in today's world. I mean, it was manipulated massively to get more largely men on the site. And the information they would capture before the breach is just incredible. Like 37 million people were on that site with this dream, you know, life is short, have an affair. Like, wow. I remember when the breach happened too, because it was big news at the time. And I don't know when it was. It was probably what, like 2015, 2016 or something like that, that the actual data breach happened.

1:02:49And I remember I was at a concert or something and I saw, like I was scrolling through news waiting for the main act to come on. And I was with my wife and I was just like, oh, this is bad news for a lot of people. We had a discussion about it then and there. And it was the first time she'd heard of that particular company. But she remembered that when the documentary came out. She's like, oh yeah, Mark told me about this like a decade ago. Well, I take it you haven't watched it then? No, honestly, it's a good thing I'm going on vacation because my attachment to Excel has become a problem. I think like legitimately, like I need to stop modeling stuff for a bit.

1:03:25You're in love with it instead of just loving it? Like it's becoming personal? I can't stop modeling stuff. But I think we're at a place with our model now where there's only one big piece left. The thing is, it's for the capital gain stuff in a corporation that we've been talking about. But we see so many more use cases for that model to give really, really efficient, high-quality advice to clients. And there's always just one more piece we have to finish to make it that much better. Plus, the three of you are feeding off each other. you dr mark and braden i mean i can only imagine that yeah fuel going around yeah so i think while i'm off i'm not going to bring my computer anything so i'm not going to be doing any modeling but braden's going to try and finish the last big piece and then once that's done it should be at a point where the rest is just like refinements and tweaking and front end as opposed to like actually building the modeling engine but getting to the point we're at now has been i don't know man i get sucked into my work often anyway but it's just been on a different level with this thing.

1:04:26I don't know why. I could see the value that it would ultimately add maybe, or maybe I was just making good progress every day and it was just in a good flow state, but I've not sat down on my couch in my living room for weeks. It's probably just the sense of urgency too, right? Knowing that this deadline's coming up, so you've got this shrinking window of time where this is going to be of value, right? That's for sure. It's crazy the amount of work that you guys have put into it, knowing that if this goes through as planned post-June 25th, the whole reason for this thing was to make a decision around capital gains today.

1:04:58And post-June 25th, again, there's lots of other applications, I think, for the calculator, but this is really centering on one decision for a subset of Canadians and you're just pouring your heart into it. It's wild to watch. Yeah, it's an important decision. I think it's an example of something that we can really add value on in terms of helping people make a good decision and a decision that a bunch of as excited about the other applications for the kind of modeling engine that we've built, it wouldn't be quite as interesting, but because it's like, it's going to help with this one sort of acute problem that a bunch of people have.

1:05:32And it's going to be something that we can build a bunch of really useful derivative tools from. I think that's made it just really hard to stop looking at. Can you say you're addicted yet? Like, is it getting close? I didn't want to use that word because I didn't want to offend anyone, you know, Like that's one of those words that is like kind of sensitive, but I, yes, I think that's how I feel. It's hard to stop. I've been going to the gym because if I don't, I don't sleep well, but it's like, I'll work until eight, go to the gym and then basically go to bed, wake up the next day and open Excel.

1:06:06Sounds like a dream world and nightmare for me, but yeah, it's pretty great. Actually. Yeah. I've been mountain biking too. Actually.

1:06:15I've been mountain How's your outdoor renovations, Mark? They behind you now or still going on? No, they're still going on. They've almost got the deck done. A lot of it's like, I'd say we're like 75 % of the way there. So when I get back from my trip, everything should be done and done and complete. It's looking great. They're doing a great job. Yeah, I'm really excited to see what it looks like when they're all finished. Love it. You can reach us all, of course, Twitter, LinkedIn, all the regular usual spots. Emails are always welcome. Info at pwlcapital.com. I think this is the first episode we've mentioned our good friend Jason's name twice.

1:06:50He'll be very excited about that. He'll be very excited. He didn't have that on his bingo card. The first time you guys mentioned him, I think you said like an advisor we know. And then like eventually it was like our friend. And then eventually you used his first name. And I think we used his last name twice on this episode. So he's going to be very excited with the progress that he's made in getting onto the podcast. He still jokes about that though. Cameron, you said it. It was like an advisor that we both know in Toronto or some like vague description of him, but it was obvious who you were talking about.

1:07:18We'll call him Jason. I'm going to message him as soon as we stop recording this. He's going to be very, very popular. All the other guys are, all the other planners are going to be, have to fold their names in too, I guess. It was such a great community in Canada of our people, we call it affectionately. You know, there's so many great advisors. And they're in all kinds of different firms. They got their heart and brains in the right place. It's so impressive. It's a great time to be seeking out advisors like that. Yeah, agreed. Okay, anything else, guys? No, I got to go right now and finish the questions up for Antoinette Shore and John Griffin, who are both episodes that we're recording when we get back from vacation, but they are going to be incredible episodes.

1:08:01I can already tell you that. Yeah, and Wei Dai was great too. By the time this comes out, our conversation with Dan will have come out. Dan bought a lot of the Canadian couch potatoes last week. Dan was also phenomenal. Very good friend, dear colleague, and great communicator, as everyone now knows. And many people already know because his legacy in the Canadian financial planning space is legendary almost now. Okay, guys. Is that a wrap? It's a wrap. All right. Thanks, everybody, for listening. See you next time.

1:08:40Thank you.