Episode 09 - Outside Perspectives of Financial PlanningDec 15, 2022
Dr. Dimitre Ranev welcomes Galen Nuttall, Certified Financial Planner (CFP), to the podcast to discuss some of the ins and outs of financial planning. Galen answers questions about what financial planners do and explains the differences between a financial planner and a certified financial planner.
Galen Nuttall has a background in teaching and a Masters in Education, but his father was a physician (a nephrologist) and he estimates half of his current clients are also physicians. The combination of his ability to teach financial concepts with ease to any audience and his familiarity with physician financial needs gives him great insight to share with listeners.
In this episode, Dr. Dimitre Ranev and guest Galen Nuttall break down some misconceptions surrounding CFPs and the value of financial planners. Galen discusses the value of incorporation for physicians, retirement planning, riding out economic slowdowns, and some advice about taxes. His knowledge is vast and makes for valuable listening.
About Galen Nuttall:
Galen Nuttall grew up watching his dad (a now-retired nephrologist) struggle to make good decisions around his money. It felt like everyone wanted time with him to pitch the latest and greatest financial product. Now that he’s a planner, he sees why so many Canadians are unsure how to invest their money. There are so many options and even the experts seem to disagree. No wonder most Canadians are confused and don't know where to start.
As a planner, Galen is changing this. With a background and a Masters in Education, Galen is able to explain financial concepts with ease and enjoys imparting financial literacy to people. He says a fee-based financial plan answers the biggest questions around investing with cold, hard facts. Plans should be evidence-based, not based on opinions or preferences.
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Galen Nuttall, M.Ed, CFP: podcast
Dr. Kevin Mailo: [00:00:00] Hi, I'm Dr. Kevin Mailo and you're listening to the Physician Empowerment Podcast. At Physician Empowerment, we're focused on transforming the lives of Canadian physicians through education in finance, practice transformation, wellness, and leadership. After you've listened to today's episode, I encourage you to visit us at PhysEmpowerment.ca - that's P H Y S Empowerment dot ca - to learn more about the many resources we have to help you make that change in your own life, practice and personal finances. Now on to today's episode.
Dimitre Ranev: [00:00:34] Welcome back, everyone, to the Physician Empowerment podcast. I'm very honored to have Galen Nuttall as a guest today. I actually met Galen at the Physician Department Conference in June. Galen is a financial planner, he's an investment advisor, and he's a certified, he has a CFP Certified Financial Planning certificate, as well as a Masters in Education, which I find really interesting and actually really important because financial products can be extremely hard to understand, especially when we talk about insurance. I mean, any product and it's so important to be able to explain things, simplify things. And just reading some of the comments on Galen's website, it seems like it's something you do very well and having spoken to you, it's something you do very well. I can say that again. You also have your own podcast, I think it's called a Clean Bill of Wealth. Is that correct? I think you post twice, twice a month?
Galen Nuttall: [00:01:27] About two, yeah, I do about two episodes a month.
Dimitre Ranev: [00:01:29] And you have guests and then you have sort of solo things and you're really good at explaining concepts. Today I just, one of the reasons I have you on is I think people need to realize that investing is a journey and it's a very personal one. There is no one size fits all, even though a lot of people will tell you this is the best thing to do. For example, now the current rage - and I'm not saying it's bad - but the current rage is to do your own investing, low fees, put all your money in an ETF and forget about it. But just like I'm giving an example of medical conditions, so for example, if somebody wants to lose weight, your job as a doctor is to show them all the tools available to them so they can find what's best for them, whether it's exercise or diet or even an emotional thing. Just like that's investing as well. There's different tools and you need to be aware of them because if you're not aware, then you won't find what's best for you. Today I want to talk about the tool of having a financial planner on your side. So I always like to start off with definitions because there's so many definitions in the financial world and it's so confusing. So, Galen, do you mind if we start by I want to ask you, because you do two things. You're a financial planner and an investment advisor. Can you tell me what is, when you put your financial planning hat on, what is it that you do? What is your role?
Galen Nuttall: [00:02:53] Yeah, Yeah, very good question. Yeah. And first off, thank you so much for having me. I definitely enjoyed attending the conference and meeting and we probably could have talked a really long time about financial stuff when we were hanging out after the conference. So I really appreciate being here. Completely. Yeah. And, I mean, and I love what you said about I do have a Masters in Education, I bring that to the table. If anyone checks out any of my videos, I'm usually using a whiteboard. I'm a very big believer in visual learning. Most people resonate with that. So yeah, when it comes to definitions and certified financial planners, so I mean, I guess the easiest way to look at it is certified financial planner is the international designation for financial planners. So the way that you get this designation is you have to have a certain number of years working as a financial advisor and then you take exams. I had to read about 1200 pages worth of textbooks, take multiple module quizzes, and then one three hour exam, then one six hour exam, and then a three month long case study. And then you're part of the certified financial planning body. And every year you vow to uphold the code of ethics of the certified financial planners. And as all good things, you pay an annual fee to stay on their list. And at the end of the day, really, I mean, I'll say why I got my financial my certified financial planner, I was already an advisor for many years and I felt like I was doing a really good job, but I was not able to offer fee based planning, which is that someone... I was coming up against giving people advice and the only way I could get paid before I got my certified financial planner was if they bought something from me. So like, I would, sometimes I'd give people, I would take people through a very lengthy process of discovery, of recommendations, of portfolio construction, of insurance recommendations. And they would say, Galen, I actually am not ready to do any of these things, but I would love to pay you for your time because I realize you've spent a lot of time on this. And I kept having to say no because I was not allowed to take money like the way that a lawyer may bill you by the hour or the way that an accountant may bill you by the hour, I couldn't do those things. So I got my certified financial planner so I could start doing that, which is hourly fee based and planning based, which is someone can pay me for a plan that they can implement wherever they want for themselves or with me. So that was the main reason I got it. So I think that's probably one of the best ways to quote/unquote define it, is that some people say, Oh, you should only work with someone who's a certified financial planner. I'm like, Well, I was in this business for like seven or eight years before I became a certified financial planner and I stand by all the recommendations I gave before I got it. But like, if you meet someone who has their CFP, they're taking it pretty seriously. Like someone doesn't go to all these lengths to to get this designation without being pretty serious about the career. So I would say it's a sign of that. So yeah, that's, that's kind of my journey with the CFP.
Dimitre Ranev: [00:05:40] And when did you get your Masters in Education? When did that happen in sort of your journey as an advisor?
Galen Nuttall: [00:05:48] For sure, yes. I mean, so I started, I taught overseas, actually, I moved to Venezuela when I was 22 and worked for a grassroots development organization. And I was only going to stay there for a year and I loved it so much, I decided to stay longer. And then I got married and I ended up staying ten years and I started working for an international school. And while I was working for that school, they said, Galen, you know, there's like a rule where I could work for a year or so, but then I had to start working towards my teaching degree. So I said - and I never wanted to be a teacher, it was never my thing - but I am, I would say that my superpower is making complex concepts simple, usually through whiteboards. Like that's, I love making financial concepts simple. Almost every meeting I have with people is a shared screen whiteboard meeting, because that's what most people enjoy. So I started teaching, I had to get my teaching degree, and then I went ahead and got my Masters. So I finished my Masters back in like 2010 and I had every intention of continuing to teach. But my wife and I left Venezuela because it was getting too dangerous. We were worried about either me or my son getting kidnapped, so we said, We better leave. We looked all over for other international jobs, but it was around 2008, 2009, economic downturn. So a lot of international schools weren't hiring as much. So we ended up in Canada and there were no teaching jobs to be found. So I made a transition to financial advice. My advisor said, Galen, I think you'd make a good advisor. And initially I said, I am not interested at all. I was like, I don't want to be, I don't want people calling me when the markets are crashing. I don't want to be the guy at the party that's trying to sell you life insurance. And they said, Well, you don't have to work that way. Like you can find your own way of working that works for you. Because I was like, I can't do anything sleazy or salesy or knocking on doors, I don't want to do any of that stuff. So they said, No, you can figure out how to do it without doing those things. So when I started, it took me a little while to embrace it, but I realized that one of my differentiators - because there's like, I don't know, like 20,000 CFP in Canada or something like that - I was like, What's going to make me different? And it's like, I have a Masters in Education. Like I know how to explain things and I know how to tell if someone's understanding something or not. So I went guns blazing into like drawing and educating and like really heavy on that side of things. And so yeah, so I got the CFP in 2010, sorry, my Masters in 2010, I became an advisor in 2013, and then I got my CFP I think in like 2018 or 19, something like that.
Dimitre Ranev: [00:08:08] What kind of education were you doing in Venezuela? What were you, what subjects were you teaching? I'm just curious.
Galen Nuttall: [00:08:13] I was teaching, I was the core teacher for grade five at the International School in Caracas, Colegio International de Caracas. I was the grade five teacher, so I taught basically the core subjects, everything but P.E., everything but Phys Ed and Art, basically. And music, I didn't do music.
Dimitre Ranev: [00:08:28] I'm certainly curious. Did they have any like sort of financial teaching as part of the curriculum? No, because if you didn't have it in Ontario, like when I was growing up, there was no such thing. Right.
Galen Nuttall: [00:08:40] Not really. They've got, I think they've got some pretty good now because I know my son has come home and talked to me about interest rates and borrowing and all these things, and I'm like, All right, all right. Like, I like this. Like if they're at least teaching kids not to take on lots of credit, like bad credit, then I'm pretty happy. So I think they're doing a pretty good, my son was getting pretty into it. But no, we didn't, I didn't teach any financial literacy. I taught grade five. And really, like, one of the things I say is one of the hardest things I've ever had to do was teach fractions to grade five. So I know how to teach anything to anyone. And I really do take it, like I typically start with people and I say, Look, I'm going to take it to a grade five level. If you need me to go more complex, I can, but that's where I'm going to start. And then I let people decide whether they want to go more complex or not.
Dimitre Ranev: [00:09:21] And I'm so, you know, I teach from, I teach myself from McGill. And I think it's so important to have that visual element because to me, I'm a visual person. Not everybody is, right? Not everybody is. But I love the whiteboard. I love drawing things and talking things through. It just, I remember somebody was trying to explain me something about pensions two days ago, and I didn't get it until they drew it and like, Oh, that clicks. So yeah. So I'm glad that you do that because I think it's quite important. My question is, because you told me when I talked to you at the conference that you have a pretty sizable medical clientele. Is that correct?
Galen Nuttall: [00:09:58] Yeah, I'd say like of the last ten clients I brought on, I pretty much, half. Half the clients I bring on are incorporated business owners and the other half are incorporated medical professionals like physicians.
Dimitre Ranev: [00:10:09] How did that happen? Is it just sort of randomly or what?
Galen Nuttall: [00:10:13] Yeah, it's a good question. So when I started as an advisor, again, I was looking at ways of differentiating myself because I thought, What can I bring to the table that will be a value add for my clients? And so I started as an advisor and everyone was talking about, I started hearing about the corporate structure, right? And I was like, How does this thing work? And so I just started studying. Actually, I'll back up one more minute. So my dad's a doctor. So my dad's a physician, he's retired, he's a retired nephrologist, and I grew up watching my dad struggle to make good decisions with his money. Like I grew up in the heyday of cold calling. So he'd get cold calls from, like, stockbrokers and they knew he was a doctor, they'd find his phone number and they'd say, You've got to get in on this penny stock. You know, all this stuff. I remember as a kid going to meet with his stock broker, playing with like, toy trains while he was meeting with his stockbroker, and his stockbroker is telling him how much money he lost in gold that month or whatever. And I remember thinking, like, and I was confused about what my dad did when I was little. Someone asked me, What does your dad do? And I said, My dad's in construction. And my dad's like, What are you talking about? I'm a doctor. And I was like, Well, Dad, every day after school you take us to this old smelly building, we have to put on hard hats, you're telling people what to do. Like, I thought you were in construction. And he's like, No. He's like, my friends and I bought a building and we're renovating it, and we're renting it. And like, so basically what I didn't know as a six year old was that my dad was trying to create a retirement plan through real estate investing. Right? And so when I became an advisor, I started to think, Man, if I could really help people like my dad, like physicians who - I'll generalize a bit - but most physicians I meet, they do enjoy what they do. Obviously, there's high levels of burnout and there's a system that is not functioning very well. But most physicians are very, they really want to serve their patients. They really want to make a difference. They usually enjoy what they do, even though there's good days and bad. And a lot of them don't necessarily want to take on another thing in their life that's going to distract them from their family or their health or their sleep. So a lot of them want to say, Hey, Galen, you know, I trust you. Tell me what you're doing and why, and I'm going to let you manage my stuff and I'm not going to worry about it anymore. So I started studying the corporate structure very heavily. I started meeting with corporate accountants, corporate lawyers. I started meeting with different investment companies that worked with corporate preferred investments. So I just worked really hard to get really good at saying, okay, you're a doctor, you have no pension, What's the best, like, what's the best route that we can figure out for you such that one day you get to flip a switch and you don't have to work anymore if you don't want to. Because you've done all the right things to now be able to retire.
Dimitre Ranev: [00:12:49] Yeah, exactly. And just before we started the podcast, we talked a bit about investing in index funds and just putting money in there. But you were saying a lot of people don't know, Okay, so I'm doing this, but what happens when I retire? Do I have enough to retire if I do this? And how long after that is to be able to do it? So that's that's where you can come in and help figure things out. I was talking to one of my friends who was like, trying to figure out how much he needs to retire to keep his current income. And what he didn't take into account is inflation, right? Like your current income, you have to inflate every year. So it's those little things where somebody who knows what they're doing is really helpful. And I guess my question to you is, so you're saying that about 50% of clientele are incorporated professionals, right? About half?
Galen Nuttall: [00:13:37] Well, almost all my clients are incorporated. Half of them are medical professionals.
Dimitre Ranev: [00:13:43] And, you know, I'm not saying doctors are special, but have you found any differences between sort of your medical incorporated clients and your other professionals? Like do they have anything, any specific interesting quirks or needs that are a bit different, maybe, from accountants or lawyers or dentists?
Galen Nuttall: [00:14:01] Yeah. Yeah. It's a good, it's a good question. So of the last ten clients I've brought on, half of them were incorporated business owners. So, you know, someone who owns a factory or someone who owns some sort of saleable business and then the other half are physicians or osteopath. Brought an osteopath as a client recently, I'd say the biggest, there's not, I mean, the biggest difference from a mechanic's situation is that a business owner can sell their business, and not very many physicians can sell their business, right? Their corporation is basically them, right? Like your corporation is, you know, Dimitre Ranev medicine professional corporation, right? That's, it is you, you are the corporation. So every once in awhile you'll have someone with maybe a clinic or something that they can actually sell, but almost all of my clients are not going to, at the end of the day, sell their business for all this money and then suddenly be able to live off of that. The business owner clients, some of them will sell their business for a lot of money and that's their retirement plan is I'm going to sell my business. The physician, on the other hand, is almost exclusively, you know, what are they going to be able to create an income on their own, whether it be through investing, whether it be through real estate, whether it be through whatever they end up coming up with. So I'd say that's the biggest mechanical difference between the physician and the business owner. Like the straight, like, true blue business owner. From the other side of things, I mean, the biggest thing that physicians have in common is that they typically get a very late start in life due to going from residency where you're not really making a ton of money. You finally start your practice, but you've got $200,000 plus of debt you have to figure out how to pay off. You know, so a lot of physicians I meet aren't really starting to save money until about ten years after a lot of other people might be able to start saving money. So that's the other thing, is there's a very short runway for physicians in general. And a lot of, depending on the specialties, some physicians really don't plan on working long. I have friends who are ER docs who are like Galen, I really don't think my body is going to be able to take work past 55/56. I have clients who are maybe cardiologists or radiologists who say I could probably work to 68, you know, and I mean I'm not picking on them, but it's just the reality, the nature of their specialty. So all that being said, I think that it's so important for physicians to maximize the corporate structure, for physicians to make smart decisions around what they can make, how they can make the most of the corporate structure. Because as we were saying, a lot of people think financial planning, or they think success is paying as little as possible for their investments and they don't know a whole lot else. Like this happens. I meet people and they say, again, I'm really happy with what I'm doing because I know that I'm getting low cost investments, I'm doing index funds, I'm not paying a lot of money, it's really great. And then I'm like, Cool. Do you have, do you know when you'll be able to retire? Do you know if you're doing, are you owning the right kinds of ETFs in your corporation? Because there are some that you should not own inside your corporation, like even at the conference you were showing, Well, don't pick the one that's not a Canadian one because that's going to cause tax problems. And then the whole other conversation is, you know, I'm a big believer, so I think that financial planning for me takes the shape of a tree. So when I talk to people about where they want to be in the future, it's kind of like the leaves at the tips of the branches of the tree and all the work we do for saving money, investing money, saving taxes is growing towards that goal. And, much like a tree needs strong roots, I think a financial plan needs strong roots. And those roots are the protection side of things, like what will happen if you get sick, what will happen if you get injured, what will happen if you pass away prematurely? Like will your tree still stand if that were to happen? Or would your tree fall over? And so, even above and beyond the investment conversation, which is far more complex than just getting the lowest cost investment, there's the whole other side of the coin, which is protecting against what can go wrong.
Dimitre Ranev: [00:17:43] Yeah, exactly. And so my question to you then is with your clients, like, we'll talk about fee structure maybe at the end, but is it sort of like, do you keep them on for long? Like do you see them yearly? What's the usual way you follow up with them?
Galen Nuttall: [00:18:00] Yeah, absolutely. So with my clients, obviously there's a lot of meetings in the beginning, because in the beginning it's very much discovering if like, the first, my first meeting with people is a half hour phone call, and the whole purpose of that phone call is to find out if we're a good fit. Because people have to, I have to be a good fit for them and they have to be a good fit for me. Like I say, I'd say of all the people who call, most people I end up in conversations with, they call me, because they book a time. Like if you go to my website, you can book a time. They hear my podcast, they hear me on someone else's podcast, they book a time and we have a conversation as to whether we're a good fit or not. And I'd say about half of the people I talked to aren't a good fit either. I'm not a good fit for them or they're not a good fit for me. And I'm very picky about, I'm not picky, but like there's a very specific person I want to work with, and other advisors say things like, Well, just bring them on as a client and then if you have to get rid of them later, it's okay. And I don't like that at all. I'm like, I want clients for life. I don't want people that I'm just going to bring on and see if it works. I don't like that at all. So, that's the first step is to make sure that we're philosophically aligned. Like if someone thinks that my job is to beat the market and I can't get them to see what my real job is, then we're probably not going to be a good fit. If someone is, like, a very heavy DIYer who's trying to like get me to join in on their philosophy of market timing, that's not going to work either. There's just certain things that aren't going to work. So, I mean, just since I'm talking about it, like the person that's the best fit for me is the person who is looking for someone to trust. They don't want to do it themselves. They want to understand what they're doing and why. And they want an advisor that's going to patiently explain everything, and an advisor who intimately understands all their options when it comes to corporate investing and understands all their options when it comes to insurance. And someone who's going to be okay with like, yeah, like, I'm not going to try to time to market. I'm not with, with a few exceptions, which I can talk about in a minute. So yeah, so that's the first meeting is to figure out if we're a good fit. Then if we decide we are a good fit, we decide whether we're going to go the fee based planning route or the portfolio management insurance review route, and just depends on the complexity of questions that someone has. So, if someone sends me just a ton of questions like should I be using my spousal RSP, should I be using TSFSAs, how much should I have on side of my corporation? What's an estate freeze? You know, like if someone's got all that going on and they've got quite a bit of assets already accumulated, they're probably going to go for the planning route because if I, if I don't feel confident that I'm going to be able to give them some good solutions without first doing a deep dive into all their structures and everything, then I'm going to say we need to go the fee based route. If someone is maybe less complex and it's a simple retirement plan or they're just starting out, like I have a lot of clients who are just coming out of residency and they're in that year of, Oh, I'm going to incorporate, I'm going to start practice. Like for those people, it's probably, they're not yet a good fit for a plan. So I will take them on and help them in that phase of incorporating, what do I need to do? Like what are some smart things to do with my money? So that's kind of... and then after they become a client, we meet every year at a minimum. We meet any time there's a major life change, like if they buy a house, if they sell a house, have kids. And then I reach out to everyone whenever there's a market downturn--.
Dimitre Ranev: [00:21:13] --I was going to ask.
Galen Nuttall: [00:21:14] So in 2020, I sent, I think in 2020 I called every single one of my investment clients and I said, Hey, you're probably watching the news, you know, or if you are watching the news, we're going to stay the course. And I didn't call everyone this year because when I called everyone in 2020, most of my clients were like, Why are you calling me? Are you going to tell me to, like, sell or buy or anything? And I was like, No, no, no, we're going to stay the course. And they're like, Oh, well, you didn't need to call me. You could just send me an email. I was like, Okay. So then this year I sent an email to all of my investment clients and basically said, We're going to stay the course and why. Or, the one quote/unquote market timing thing is if someone has some tax loss harvesting we can do, which that's another value add a good advisor brings to the table. If you have corporate investments that are in a taxable account and you've actually lost value, let's harvest those losses to offset future gains. Or I said to my clients, if you've got a pile of cash sitting somewhere, I don't know if we're at the bottom yet, but let's start putting some of that money into the market while it's on sale because we're in this, the beginning of this year was one of the five worst beginnings of the year we've ever had. So it's like one of the best five sales we've ever had. Like if you went to buy a car and they said, Oh, in the last hundred years, this is the fifth cheapest this car has been, you'd probably buy the car. So I say to people, like, just put money in and I have a few clients who did have some money kicking around, and they're really happy that they have been putting money in regularly over the last couple of months because they've gotten pretty good returns. And my clients who did it in 2020 got really great returns. I mean, I don't know, as I said, I never know when where the bottom is going to be, and I don't even try to pretend. But when things are on sale, I encourage my clients to buy more. And it's, they've always thanked me for that. So that's things look like when someone becomes my client. And the other thing I'll say is if there is something out there that I think they should know about, like if I've had a client that I think, you know, some private equity stuff makes sense or some market exempt stuff makes sense, we'll look at it. I think there's a product out there that we haven't talked about yet, and I'll kind of, I'll go for a run or a bike or a swim and I'll think about this client and say, Huh, they might be a really good fit for this. Then I'll call them up and say, I was kind of thinking about this, but I'm not moving stuff around a lot. Like that's not not really my style. It's more of a Let's figure out where you need to be, how much you need to put away, and mostly stick to that.
Dimitre Ranev: [00:23:26] So, like, the family doctor of your financial health, you get the annual checkups and and when there is the flu, so the market crashes, you're there to calm things down. So I wonder if it's the process you go through to select your clients that do you have a lot of people sort of calling and freaking out when the market collapses?
Galen Nuttall: [00:23:47] Zero.
Dimitre Ranev: [00:23:48] Interesting. Interesting.
Galen Nuttall: [00:23:50] Zero. Yeah. Nope. Well, part of it is I'm proactive, right? I mean, this year I'm actually mad at myself because I did wait a little bit. I don't really watch the news so I don't always know, I mean, I know enough to know that people are freaking out, right. And like, the news is talking, I call it the apocalypse du jour. And I don't mean to minimize. Like I sent out a newsletter and I posted I think, I don't know I couldn't post on LinkedIn because it was a little too long, but I posted it pretty much anywhere I could post. I sent it to my clients and I personalized it, like each client, you know, the first paragraph was very specific to their situation and the rest of it was the market. People are reacting to world events like the invasion of Ukraine, economic slowdown in China, inflation, all these things. And I don't mean to minimize the impact that those real world events are having on people, and I said the exact same thing in 2020 when I said COVID is having a real life impact on people. Like my dad was one of the first people to get COVID. So, and it was in the early days and we didn't really know what this thing was so it was very scary. So I don't mean to minimize the real world things that are happening, but the people who are reacting to the markets are the ones who are most likely to lose money and the people who are staying the course, as long as the caveat to all that is as long as they started in a good portfolio, they're going to be okay. But if they've got all their eggs in one basket, who knows, right? Or if they've got all their eggs in crypto or one private equity firm, which I saw recently, which kind of blew my mind. I had, I met someone who we did a plan for them and they have every last penny of their investments in one private equity holding. And I was like, This is so insanely risky. Like, and they claim that they're conservative investors. And I'm like, that's another thing I help people do, is they say they're one thing, but they're doing this instead. And so I help them match like what they think they are and what they're actually doing. So, yeah, accurately speaking, I did lose one investment client in 2020. First investment client I ever lost. I wrote everyone and I said, Stay the course. And this person couldn't stay the course. And I said, Fine. So they didn't stay the course. And then in this year, one more client left during the market downturn. But it's a pretty small percentage of my clients. So I shouldn't say no one or zero. There was one each time. So I don't know if that's going to be my average from now on, every time there's a market crash, I lose one client. But I'm pretty proud. I've only lost two in the last three years to that panic because I, you're right. Like it's partially selection and I just help people understand a little bit better. Like one of my first physician clients, I sat down with him and he said, Galen, I am terrified of losing everything in the market, I only want to keep pace with inflation. And this was back in 2013 and he wanted to do like all GICs and stuff. And GICs were like less than a percent or something. And I was like, Why do you feel this way? And he's like, Well, my dad lost all his money with Nortel.
Dimitre Ranev: [00:26:25] Right. Right.
Galen Nuttall: [00:26:25] And I was like, okay. I was like, That is not the only way to invest in the market. And so I showed him a 20 year time lapse of the kinds of portfolios that we're using. And in 08/09, one of the biggest downturns in recent history, I mean, you can find portfolios that only dropped 8% and still did pretty good annual average rates of return since then. So people think, a lot of people think, like I have to be exposed to extreme amounts of risk to be in the markets. And historically, that's just not the truth. Obviously, you typically, like generically, get rewarded for more risk, but that's another big part of what I do with people is I help frame that because sometimes I'll meet people who have sort of a mis, they don't completely understand the markets because they have these horror stories of like an uncle or a dad or whoever. And I'm picking on guys, because guys typically make very brash decisions in investments. They've lost everything in one thing that they did. And they think, yeah, there's research that women make better investors than men.
Dimitre Ranev: [00:27:24] I read that.
Galen Nuttall: [00:27:26] Yeah, it's totally true. Which kind of blows my mind because when you look at all the major investment firms, like the major fund companies and all that, there's not a ton of women on them. And so I'm like, how come if statistically speaking, women make better investors, why aren't there more of them in these boards of like investment fund managers and things like that? So anyways, yeah.
Dimitre Ranev: [00:27:46] Yeah, you're so right because I started my investment journey right after 2008, right? So I was very lucky. Really lucky.
Galen Nuttall: [00:27:53] Yeah. You thought you were a genius.
Dimitre Ranev: [00:27:55] I thought I was a genius. Everything was going up. But I remember talking to people who were, a good 10, 5 to 10 years after they had lost a lot of money, did not go back into the stock market because they're just so afraid. And sure, there is a possibility you lose everything, but that means Armageddon, like apocalypse, like you're not going to be worrying about your retirement plan if the stock market goes to zero. There will be other things happening in the world. So that's great. It's really... Because I think people you know, when I looked at the research for financial planning, the value of financial planning - I talked about this in my presentation - so surprisingly, it was done by Vanguard and Morningstar, which their deal was they sell index funds or mutual funds. So they didn't really necessarily like having financial planners involved, but they found that you guys, if I can say you guys, add some value. And part of it is the psychological thing. So you're there to make sure people realize this is the plan. You're going to retire in ten years. So a drop of 20% right now isn't affecting you. So don't sell everything. That's very valuable. That's probably worth the fee that people are paying if you prevent them from selling all their stocks and never going to stock market for the next ten years. And that's why I want to talk to you today, because I wanted people to know that this existed. Studies in finance are not like medical studies, not rigorous, but there is value to having somebody like you on the team especially, forget about the investments, but the incorporation part, which is complicated. Like I've been incorporated for ten years and I'm still like surprised by some things I learn, right? And having somebody navigate that is really important. So I do have a follow up question because you're very knowledgeable in corporation, but... Is there some?, I've heard about the clichés about why you shouldn't incorporate, but do you practically have clients where you should tell them not to incorporate? Do you have that or do you have clients who have incorporated and you think it was a bad decision for them? And what would make that a bad decision? I'm really curious if you have that experience.
Galen Nuttall: [00:30:12] Yeah, Yeah, for sure. Yeah. And I do want to just echo one thing that you said about the value add of an advisor. The one, the thing that I think that people, sort of the character, the sort of generalization is, okay, I could get 6% with an advisor, but if I cut that fee out, I'm going to get 7% with an index fund. Like because I think the general, like you see these charts all the time where it's like, oh, over the lifetime of your investments, you could save tens or hundreds of thousands of dollars by saving on fees. But that's not the only variable. Like, if that were the only variable, I would totally hang up my hat and say, forget about it. Like you guys go pick your index funds. I just don't even need to be here. That's not the only variable. And then the study that you sent me showed that advisors on average add 3% net of fees value to their client's portfolio. And you say what? Like they, a good advisor will admit that they can't time the market. So it's like, well then how are you making more money? And that's what I say to people is my job is not to beat the market, it's that you would have significantly more money in the future than if you didn't work with me. And if you're like, okay, how does that work? Well, so, it is partially fee, but it's more like you said, like the behavioral side of things. And that 3%, I would venture that if that, if the study they had done were with people with with corporations that had good corporate planning, I think that would be much higher than 3%, especially in Canada, where taxes is such a consideration, either while you're alive or when you're gone. So that's just one thing I wanted to add with that value add is corporate planning, just as one, when you gave your talk that I was there for in Toronto, you were talking about portfolio construction and someone asked a really great question. They said, Are you talking about non-registered or RRSPs? And then you're kind of like, Well, that's a whole nother ball of wax, you know, like a whole nother, like registered versus non-registered is a whole nother thing to know how to invest properly. Anyways I couldn't help but add that to the to the conversation about value added.
Dimitre Ranev: [00:32:05] That's that's the thing, people talk about management fees but your biggest, taxes are the biggest fee you're going to be paying on investments by a lot, by a lot. So if you can get to be tax efficient and I'm not saying like, taxes are important, we all get why we pay them, but if you can be more efficient with the way you pay your taxes, you compound a lot more than if you save an extra 1% fee by not talking to somebody who knows what they're doing.
Galen Nuttall: [00:32:32] Exactly.
Dimitre Ranev: [00:32:34] So that's very important.
Galen Nuttall: [00:32:35] And another thing is debt reduction. That's another big thing that we help people with. Like we oftentimes meet doctors that are very aggressively paying down their debt. They're incorporated, so every dollar they take out of their corporation, they lose $0.30 to taxes, and then they're going to pay off a debt that currently might be at around 4%, I don't know. But it's like you're going to spend $0.30 off taxes to then pay down something that you're accumulating $0.04 per year. We start looking at those things, and I did a plan for some clients who we looked at, they wanted to accelerate their mortgage, they wanted to pay it off in two years instead of five, I think. And we showed them by leaving that money inside of their corporation to compound tax efficiently pre-personal tax, so slowing down their mortgage just by a few years, they were going to have an extra $2 .illion in retirement. And that $2 million means extra trips, bigger legacy, you know whatever that looks like for them just by that one thing of like being really smart with how they take their money out of their corporation. So I can now, I think, answer the corporation question.
Dimitre Ranev: [00:33:35] Yes. And I'll get back to that issue you're talking about. Go ahead.
Galen Nuttall: [00:33:38] Yeah. So I was on another podcast recently and they said, like, I'm not in the financial planning group for physicians because I'm not a physician. But one of my clients did say, like, there seems to be a hot topic in there. I mean, there's a couple of hot topics in there. One would be should you own occupation disability insurance or not? Like I've heard that that's kind of a big thing. Whole life insurance obviously is a huge, divisive, polarizing topic. And the other one was whether you should incorporate or not. And I was like, this is really like, or even if if you should incorporate or not. And I was like, I mean, all my clients are incorporated. The times when I would say that someone doesn't need to incorporate or doesn't need to rush to incorporate, at least from a financial planning standpoint, like incorporation has a legal and an accounting standpoint, I'm going to talk about the financial planning standpoint. So if there's a legal or an accounting reason, that's not what I'm talking about. But from a financial planning, investing, savings standpoint, typically if someone is spending every last penny they make, it doesn't make sense for them to incorporate because you're not really, like the government a few years back there's a thing called integration where basically what they said was they didn't want people to be able to earn money into a corporation, then bring it out personally and be better off than if they didn't have a corporation. Right? They didn't want to penalize people who couldn't incorporate. So they got really, you know, certain things like you used to be able to pay yourself a dividend that you'd save a little bit or you'd sprinkle money to your kids and split income with your spouse, like there are all these things that are really quite diminished now. So like if I meet a physician and I haven't met, I mean, I don't, I mean if I meet a physician who's very early on and they say to me, Galen, I do want to pay down some debt aggressively, I need to buy a house, I need to buy a car, you know, it's my first year in practice, I might say, You know, don't be in necessarily a rush to incorporate if you think you're going to spend everything you make. Because basically you're paying a fee to incorporate from a legal standpoint, you're paying a fee to file your corporate taxes and your personal taxes. So it's like, do you really need that extra cost, which isn't a ton of money, but it is money and it's like, is it worth it? But the vast majority of physicians, I mean, it makes complete sense for them to be incorporated. Although I will say, like I give a talk about incorporation and I say a corporation can either act as a sale that you add to your financial ship that speeds you forward to your destination or an anchor that slows you down from getting to your destination. And the anchor comes into play when people save money inside of their corporation and they don't do anything with it, or they put it into something like a GIC where they're going to lose half of the growth to taxes or they put their money in something like US dividend bearing stuff where they're going to get, the growth is going to get penalized and all these other things. So like the caveat to the generic rule of thumb that I, the accountants that I know say, if you don't need the money, leave it in your corporation. But far too often I meet people who leave it in the corporation and they don't do anything with it. And it's like, okay, you save taxes, which is nice. But there's also this thing called inflation that is eating away at the power of your money if you're not doing anything with it or if you're just invested in very conservative things, you're losing half the growth of taxes and you're not even keeping up with inflation. So that's the caveat to it all. Like you want that corporation to act as a sail. Tax efficient things that are going to push you towards your goal, not like these inefficient things that are going to be an anchor.
Dimitre Ranev: [00:36:43] I mean, how much do we lose in inflation, what, eight, 8%, -8%, just keeping it? More than that.
Galen Nuttall: [00:36:49] Yeah. Inflation, like, yeah, depending on how you calculate it, there's a lot of obviously a lot of talk out there as to how we calculate it and whether we should calculate it. But I mean, at the end of the day, there's ways to achieve tax efficient compounded growth inside of your corporation where it's pre-personal tax. And we've already talked about this, but I mean I'm going to hammer it into the ground, is that every dollar you take out of your corporation like you're losing quite a bit to taxes. And I get why we pay taxes, I'm not saying we shouldn't pay taxes, but if you have, the beauty of the corporate structure is the flexibility on how you pay yourself. Because if someone's just an employee, like if I were, if I'm an executive, well, I'll just say this, if I'm an executive at IBM and I'm not incorporated and the government pays me 350,000 a year salary, I'm going to lose so much of that to taxes. If I'm a physician with a corporation that bills 350,000 a year and I only need to live off of 90, I get to keep a whole bunch of money pre-personal tax to compound for me for the future. So it's really a, I mean if you use it effectively, it's it's an incredible bonus.
Dimitre Ranev: [00:37:52] It's a gift. It's a gift. I mean, I keep saying this, it's a gift to physicians. And I would add the GICs are doing slightly better this year because interest rates.
Galen Nuttall: [00:38:01] Yeah, GICs, they're looking great. I mean when GICs go up, mortgages go up. So you'd have to see. Like I have a client that got a mortgage yesterday for 3.6%. And the mortgage that I got five years ago is like 0.95. But that's back when GICs were doing like 0.85 and now GICs are doing 4.5. So, I mean, actually, yeah, I won't go much into the mechanics, but we are going to see a huge shift in how returns are achieved in the markets because for the longest time, none of our, next to none of our return came from fixed income, for like a very long time. Because things like GICs and treasury bills and all these things that used to sort of prop up a portfolio, were doing nothing. So you had to get all your money from, or most of your returns from higher risk stuff. So it is going to shift a lot of how we get our returns, at least for a little while.
Dimitre Ranev: [00:38:49] I think that's what's so, yeah, that's what's so exciting.
Galen Nuttall: [00:38:51] Yeah, it's all a spiderweb. Like one thing moves, another thing moves, like it all, it all kind of moves together.
Dimitre Ranev: [00:38:56] That's what I love about the market. It keeps shifting and going around. I just want to finish off by saying the whole debt thing, because so I come from Eastern Europe, right? And communist country, right? So that was like a sin. Like it's, you don't go in debt, credit cards. I remember when I when I came to Canada, credit cards were like the devil, right?
Galen Nuttall: [00:39:20] No.
Dimitre Ranev: [00:39:21] And the thing about it, and that's why it helps to have somebody talk to you through things about your belief systems, is there's some bad debt, but there's some good debt. And that's where talking to somebody like you, where you can actually show the math of what bad debt is and good debt is, and and change that belief system, which is untrue, is very valuable. So I want to thank you for taking the time to talk today. I hope I can have you again. I think you're very knowledgeable and you explain things very well. And I have so many questions for you. Is there anything you want to add before we end the podcast? I have so many questions, but we we have to keep the time.
Galen Nuttall: [00:39:58] Yeah, yeah.
Dimitre Ranev: [00:39:59] So I know that you might be training to run a triathlon. So if that's still the case, I wish you all the best, I wish you good luck and thank you for your time today.
Galen Nuttall: [00:40:08] No, thank you so much. This was great.
Dr. Kevin Mailo: [00:40:11] Thank you so much for listening to the Physician Empowerment Podcast. If you're ready to take those next steps in transforming your practice, finances, or personal well-being, then come and join us at PhysEmpowerment.ca - P H Y S Empowerment.ca - to learn more about how we can help. If today's episode resonated with you, I'd really appreciate it if you would share our podcast with a colleague or friend and head over to Apple Podcasts to give us a five star rating and review. If you've got feedback, questions, or suggestions for future episode topics, we'd love to hear from you. If you want to join us and be interviewed and share some of your story, we'd absolutely love that as well. Please send me an email at [email protected] Thank you again for listening. Bye.