Episode 331 - Cameron in Norway: The Indexing Revolution, and Key Lessons from Past Guests

November 14, 2024 Kelsey Robichaud

In today's episode, Cameron sits down with Mark McGrath to talk about his trip to Trondheim, Norway, the event he attended there, and his presentation in which he shared top lessons from prestigious Rational Reminder Podcast guests. Tuning in, you'll hear Cameron's top takeaways from conversations with Nobel laureate Eugene Fama and his collaborator Kenneth French, as well as Robert Merton, Antti Ilmanen, Professor Ludovic Phalippou, and more. We also delve into the changing industry trends regarding index investing and the many benefits that come with embracing it, including how it helps financial advisors better serve their clients. Stay tuned for our after-show section, where we discuss advice for new advisors, from developing a robust investment philosophy to building a network, along with insights to help consumers navigate the industry and much more. To learn all about Cameron’s trip to Norway, top guest takeaways, and industry trends around index investing, be sure to tune in!

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Key Points From This Episode:

(0:01:13) An overview of today’s episode and a discussion on industry trends.

(0:03:56) Our conversation with Håkon Kavli on managing Reitan Kapital.

(0:04:38) What it was like for Cameron to meet Håkon Kavli and Magnus Reitan in Norway.

(0:05:42) The excellent event in Trondheim, Norway, and their impressive lineup of speakers.

(0:08:56) Unpacking industry trends in index investing and why more people are embracing it.

(0:09:42) The light bulb moment for Mark and Cameron regarding index investing.

(0:19:07) Highlights from our interviews with Eugene Fama, Ken French, and Robert Merton.

(0:25:28) Dr. Annamaria Lusardi's insights and takeaways from our John Cochrane interview.

(0:29:05) Top lessons from our conversation with Antti Ilmanen on low-expected returns.

(0:30:58) Insights from talking with Professor Ludovic Phalippou about private equity.

(0:32:22) Closing thoughts on Cameron’s presentation in Norway and index investing trends.

(0:39:44) Our aftershow segment: advice for new advisors, ways the industry has changed, tips for consumers, technology insights, personal updates, and more.

Read the Transcript

Cameron Passmore: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. This week, we're hosted by me, Cameron Passmore, portfolio managers and Mark McGrath, associate portfolio manager at PWL Capital.

Mark McGrath: Welcome to Episode 331. We're back to two Canadians, Cameron>

Cameron Passmore: Back to two Canadians, and that is the first time the intro has not been from Ben.

Mark McGrath: Has it really?

Cameron Passmore: Yeah.

Mark McGrath: The very first time, wow.

Cameron Passmore: There's one other episode where I did it alone, this interview, I interviewed Dave Butler from Dimensional in Australia, but he did the intro. That's the first intro that he has not done, so might be a little bit of trauma for him when he gets back.

Mark McGrath: I was going to say, yes, I wonder how he feels about that. Where is he?

Cameron Passmore: I think he's off to Boston.

Mark McGrath: Nice.

Cameron Passmore: His alma mater, which is kind of cool, the basketball event he's off to, which is really nice.

Mark McGrath: Oh, that's right. I think he said a friend of his is being inducted into the Hall of Fame there.

Cameron Passmore: Yes. He's taking the kids and his wife to the game this weekend. Super fun, great town.

Mark McGrath: Never been.

Cameron Passmore: Never been to Boston? Boston is wonderful.

Mark McGrath: I've heard. Yes, one day.

Cameron Passmore: Closer for us than it is for you, but one day. Anyways, on today's episode, we thought we'd talk about my presentation I delivered to an event in Norway last week, which was an incredible trip, incredible country. I don't know if you've been in Norway, but maybe we can talk about that in the after show. But I thought I'd go through the presentation that I delivered there, and then, it's kind of a bit of a my-story kind of thing, and you've got an incredible story as well. So, we're going to interject some questions back and forth during that portion. So, that should be interesting, I hope. We shall see. That'll be it for today. We'll do the after show and talk about a bunch of different things. How does that sound?

Mark McGrath: Sounds good. Yes, I'm excited about this. I'm excited to hear your story and I'm excited to have the opportunity to ask you some questions about it. I think it'll be very interesting for our listeners.

Cameron Passmore: Well, likewise. I think your story is equally, if not more interesting. Yes, it's been an incredible year this year. We've been reached out to by so many Canadians looking for financial advice. It's pretty gratifying to be able to help more and more people. So, thank you to those that reached out. Many listeners have reached out looking for some help. I was telling someone this morning, I did a presentation to a group in the U.S. this morning, talking about the number of advisors and individuals that reach out to me on LinkedIn, just to get some sort of feedback on career decisions, where they're working, what's it like to be in the financial planning industry, and how best to do that. So, that's super fun. As always, if you want to reach out anytime, I'm easy to find.

As are you, Mark, I know you talked to a lot of people as well in the industry. So, we would love giving back. We're very grateful for the chance to help people. So, reach out.

Mark McGrath: Yes. I actually had a meeting with an advisory team this morning that reached out on LinkedIn. I think we've talked a couple of times on the podcast how PWL is looking to meet more like-minded advisors that are aligned with the PWL philosophy and values. So, I've been getting a lot of traction from people just reaching out to have conversations and kind of learn more about us.

I think what you and Ben have done here with the podcast is connected a lot of advisors that were maybe operating kind of in their own silos, but really were thinking and doing similar things to what PWL is doing. So, you've brought that community together really nicely and it's just, it's great to connect. So, anybody out there that's listening, I'm very easy to get hold of on LinkedIn, just reach out.

Cameron Passmore: This revolution is in full swing. The awareness around this message, this philosophy, fiduciary, fee-based, market's work, do the right thing kind of philosophy is really taking off, I think in Canada. I think Canada is one of the laggers globally in this space. So, it's nice to see that the respect for the quality of this kind of framework is really taking hold. So, love talking to people about that. We're super passionate about it and we do want to have a great impact in the Canadian marketplace. Cool. You good to go to the episode?

Mark McGrath: Let's go.

***

Cameron Passmore: Okay, episode 321. A few weeks ago, we welcomed Håkon Kavli to the pod. I thought that was a great conversation and super thoughtful person about allocating assets inside a family office environment. So, he's the CIO of the Reitan Kapital Group in Oslo, Norway, which is a family office. In that episode, he talked about how they think about managing money for the Reitan family in Norway. He was discovered for this role by Magnus Reitan, who was a third-generation family member of the Reitan family, obviously.

I had a chance to go to Norway last week, met Håkon in person and met Magnus at this event, which was a truly amazing trip. Norway's gorgeous. Obviously, it's a phenomenal country, very, very interesting. But earlier this year, Håkon had reached out to actually both me and Ben to see if we could go. It's easier for me to travel to Norway than it is for Ben, obviously. So, I took the opportunity to go. So, Lisa and I went.

Their objective in the family, as Håkon described on the podcast, and Magnus is coming up on the pod in a few weeks, which will be so interesting. He's such a great guy, very, very kind, thoughtful person. But they want to start creating this center of excellence around portfolio management, construction, implementation, asset allocation, expect to returns. But they wanted to create this center of excellence in Norway in a supplier unencumbered environment, so no-pay-to-play environment, which you got to hand it to them to basically share what they're thinking and get people together that have different points of view. Hats off to them for doing it, because it was a phenomenal event. They had 100 people there that flew up to Trondheim, mainly from Oslo, but Trondheim's a short flight, but it is a bit out of the way. Beautiful, beautiful city.

They had it at this incredible set of buildings to kind of a compound that they've restored. It's a 1,400-year-old compound in Norway, if you can believe it. They completely renovated it. It's a beautiful facility to have an event like that. This is the first time they've done this, so we'll see where it goes in the future. I said, if they have it next year, I said, it'd be great to have Ben join. That was my suggestion to Håkon. Anyway, there's four presentations. I thought that I'd go through my presentation, and you and I can just riff off that, if that sounds cool with you.

Mark McGrath: Sure, it's great.

Cameron Passmore: But get this, so the lineup was Antti Ilmanen from AQR. Had a chance to have dinner with all the speakers the night before. Antti is just such a nice person, very, very thoughtful. He was our guest back in episode 202. He talked about expected returns. Then,

Håkon also invited Professor Marcos López de Prado, who is a prof at Cornell. He's

based in Abu Dhabi, and he works at the Abu Dhabi Investment Authority, ADIA, and he presented on machine learning. I tell you, Mark, I understood maybe 10% of the presentation, and that 10% blew me away.

Mark McGrath: That was going to say, yes.

Cameron Passmore: Where this is going is wild.

Mark McGrath: Have you read Antti's book? Is it called Expected Returns?

Cameron Passmore: Yes, I read the book. It's a phenomenal book, and he's a very good communicator. He was at Sidebar, he was at Chicago with Cliff Asness, same time. Cliff's a

bit younger than he is.

Mark McGrath: Oh, interesting.

Cameron Passmore: So, he was close to like Fama and French, and so he's part of that gang from back then. Also presenting at this was Erik Hilde. He's the global head of external strategies at Norges Bank Investment Management. So, that's the Norway fund, the famous Norway fund.

Mark McGrath: Oh, wow. And you guys have talked about that on the podcast, as well, the Norway fund and their model.

Cameron Passmore: It's so fascinating, they're so huge.

Mark McGrath: They're trillion something? More than that?

Cameron Passmore: Almost $2 trillion.

Mark McGrath: Wow.

Cameron Passmore: And they put 3% of the fund into the treasury of the government each year. No deficit, no debt. That 3% makes up one quarter of their spending each year in their budget. It's just an amazing story. So, he talked about how they choose active managers as part of, I think it's a 5% portion of the portfolio. They're not doing large cap U.S. managers. They're really going out the beaten path, and how they do it is absolutely fascinating. They don't look at performance numbers. They go out on the ground, meet the managers in off-the-beaten-path areas of the marketplace. A really, really interesting guy, very good presenter too.

Then, the whole event was hosted by Katie Martin, who's from the Financial Times, and she was a wonderful MC and moderator. So, it was a great event.

Mark McGrath: Quite a lineup.

Cameron Passmore: That's the setup. And they asked me to come to be obviously non-academic, shocker.

Mark McGrath: Nothing personal, Cameron, but I don't know that you'd have much to add to that lineup from a pure academic standpoint on markets.

Cameron Passmore: No, it's a very, very humbling experience to speak alongside them. But I had a different role. Håkon asked me to speak from a practitioner standpoint and what it's like being a practitioner concurrent to this revolution that's happened going back to Markowitz, and Sharpe, and whatnot. So, that's what I talked about. Then, he said, focus on investments and then kind of take a handful of key episodes and distill some of the messages. I thought we kind of run through that.

As I said many times, this revolution that has happened, which has been illustrated on this podcast, it's the people and the work that has gone on for decades in this space to me is simply mind-blowing. We've heard it from whatever, up to now, 160 guests or something is truly inspiring. Even with that, so many people aren't even aware that this is going on.

Mark McGrath: I think the Rational Reminder Podcast has done a good job of bringing those people together and opening other people's eyes. Prior to that, it just wasn't obvious that all this research and academic work had been done to a lot of – I was in the industry for a decade, basically. Not quite a decade, about six years before, I really even understood what index investing was, let alone factors and everything else. So, it's picking up steam, but there's just still a ton of work to be done.

Cameron Passmore: Do you know when the light bulb went off for you?

Mark McGrath: For me, it was 2015, and it was because of Dan Bortolotti and Justin Bender in the writing that they've been doing online. Any captive advisor in Canada has, for the most part, been trained by the institution that they were hired for. Your learning is all top-down from the company that you work for. Unless you're very, very curious, and want to seek outside sources, and believe you have a reason to do that, you just might not stumble upon it. I know advisors have been doing this for 30 years that think indexing is a marketing ploy of some kind.

I stumbled upon Canadian Couch Potato blog and started reading it, and it just blew my mind, and the penny dropped right there and then. I think I've talked about this when I was on as a guest before joining PWL, but I took effectively my entire book of client assets, which was close to $300 million at the time, and I converted it almost 100% index funds within months of understanding how it worked.

Cameron Passmore: It's interesting you use the word curious, because I think that is one of

the common threads of people that embrace this. Because it's easy not to embrace this in the industry, very easy. There's lots of messaging, lots of reasons not to, including compensation.

Mark McGrath: It's hard to sell people on the idea that something so simple and elegant can actually work works so well. I've written about this before, but people love stories. They love narratives. It's very easy to craft a compelling story about companies and allocations to different countries and different asset classes that sound really good and are really easy to buy as a consumer. You don't need any of that, and you just need to own all the companies and keep your costs low. That's actually a really tough pill for a lot of people to swallow. It's more difficult to sell people on the concept of index investing, let alone factors, but index investing loan. I think that's harder to get across to people than a good story about the fancy portfolio.

Cameron Passmore: I agree. It's like at my aha moment, but I started my presentation. I threw up on the screen a slide of us, the YouTube picture of us with Gene Fama. I remember that day, it was Good Friday, 2022, which of course, anyone knows Gene Fama's work ethic. He works every day in the mornings, every day, and he has like since before I was born, and I was born in sixty-six. We're talking a long time, working every single day at this. Classic Gene Fama meet me on Good Friday morning. So, I just remember being at awe. I wasn't nervous. I was nervous for Cliff Asness' interview, but I wasn't nervous. So, I'm like, "How do you get to this point?" So, I started by saying, "We're all here in this room. We're all working for families of some level. We're more on the retail home front. They're more family office type allocators from across Norway. But I said, we're all here for a reason because we care. And to your point, we're curious, that's why we're here."

I told the story of growing up in small town Quebec. I'll post a picture here that we're going to put in the video. But I grew up in small town Quebec and from an age of 10, I worked in a butcher shop, which I absolutely loved. So, I worked with these two guys. And if you're on YouTube, you can see the picture of the two guys I worked with years, from when I was 10 to 20. It was just a little kid when I was at a butcher shop.

I think back to those times now, and maybe, I'm picking up strings here to make no sense, but there's things I learned in that butcher shop, even at a young age. Things like, take care of the customer, try to learn as much you can with the product. They had me at age 12, I was serving customers meat at the counter. Now, you never let a 12-year-old do it, serving customers and knowing how to do the right thing for customers and not screwing them with a piece of junk, meat or something.

But I also learned, price is clear. We used to go into the cooler on Saturdays and noons, see what we had a lot of, because we were closed on Sundays. Whatever was there had to go. So, of course, you adjust the prices to clear. Well, think about that in a market standpoint. Every trade's got to clear, every stock, every buyers got to be sent to want to buy that stock, which leads to expect to return, of course. That whole experience, I look back, like we're all working in a butcher shop now. Take care of people, and markets work, and price is clear.

I started off by telling that story, which seemed to resonate. Then, after I graduated, got a job, people heard the story. Got a job selling beef. Realize I was just basically a "machine" for a commodity. Wasn't adding a lot of value. This was back in the David Chilton era. Mutual funds were hot, wealthy barber in Canada. I think Canada created the back-end load commission. I started selling back-end load commission mutual funds. Quickly realized, that wasn't right. That didn't feel right.

Mark McGrath: Back-end load is DSC, is it not?

Cameron Passmore: DSC.

Mark McGrath: You buy the fund, there's no commission to buy as a buyer of the fund, as a client, but you're effectively locked into that fund for usually like five to seven years, I want to say, and there's a declining commission on it. So, you can't sell without triggering a commission, right? That's what back-end load is.

Cameron Passmore: So, you put in $10 ,000 into a mutual fund, and we would make – doing 500, 600, 700 bucks commission. As long as the clients held it for seven years, they wouldn't pay the commission. We never talked about expense ratios. But you look back, I mean, the MERs were well north of two, some were north of three, but we never talked about that, I never trained on it. You didn't know, but I ended up at a Cheers Bar in Fidelity.

I went on a due diligence trip to Boston, ironically, at Benson Boston. Ended up at the Cheers Bar with a Fidelity executive and said, "If you don't go fee-based, you're dead in five years." This was ninety-five-ish.

Mark McGrath: That's what they told you?

Cameron Passmore: He told me that on the side, we were chatting at lunch. So, I came back to Ottawa like afraid for our business, and we got to go fee-based or we are dead. So, that's when we met our current friends at PWL Capital and joined in 1996 to go fee-based, because they did an independent fee-based platform in Canada. Then, good friend of mine who was at the firm then, Keith, who said, "Pick managers." I get so frustrated, because you pick a manager and they would quit or go to a different firm. It's so exasperating. And Keith said, "Well, you can have this all go away by going indexing." We had been trained, Mark, to defend ourselves against indexing. It's crazy. In hindsight, it's absolutely crazy. We were trained about that.

Mark McGrath: This is ninety-six, did you say?

Cameron Passmore: Ninety-six. So, ETFs were just starting.

Mark McGrath: The first one was launched here in Canada, wasn't it?

Cameron Passmore: Absolutely. We beat the U.S. on it. That's when we really got into ETFs and Keith wrote a book on it, The Empowered Investor. This is our good friend, Keith Matthews. So, you know, they all go away, and you're fee-based, you're paid by the client, no matter what the product is. You're kind of product agnostic from a comp standpoint. So, look at index funds. The light bulbs just went off big time. I was like, you mean, all this manager selection nonsense in a reasonable environment can go away? Yes, it goes away.

So, it's an amazing epiphany for us. This is just when the industry was getting going. Meanwhile, back at the ranch, this is after the Fama-French famous three-factor paper of ninety-three, with the factors that explain expected returns on portfolios. This is long after Sharpe, this is long after Markowitz, long after the Chris database, long after computers arrived at University of Chicago, and other universities of course. So, we had this explosion of technology, and data, and brain power to start figuring out how markets work. Like, this was going on just as I was discovering indexing.

Mark McGrath: Crazy.

Cameron Passmore: It just became this eye-popping experience of curiosity. Because at the time, if you've heard this story as well, this is before Google. So, you go to the library, start picking up books that felt like Larry Swedroe's books, and William Bernstein's books, and our friend Dan Solin's books, and you kind of dig into this world. It's like, you just learned about all these names, Fama, French, Sharpe, Markowitz, and it goes on, and on, and on, and on. It's like it's just like this candy store of ideas that you could bring back to your financial planning practice. Like a butcher shop, just do good service, do what's best. So, that's the story I started telling at the event.

I obviously left the selling the beef commodity business and set up a financial planning practice. Learned about this revolution, joined PWL, and then just kind of kept a head down, and kept taking care of people, and here we are. But can you imagine what it was like to be in the scientific domain of science of investing back then? It must have been wild. I mean, Fama called it fish in a barrel to find stuff.

Mark McGrath: For anybody who's seen Tune Out the Noise, which is the documentary about the founding of Dimensional in a lot of ways, but also about that era. The documentary I thought was really, really interesting, specifically those scenes. This was a new science back then. And the fish in the barrel analogy is because of the things that we take for granted today, the information, and data that we take for granted today that we're building it back then. So, there was just – every question you can think of today that has a very well-documented answer about markets. Those questions hadn't really been asked or they'd been asked, but they couldn't be solved back then. And now, they had the data, the computers, the brain power to start looking at these questions. They must've just had a lot of fun.

Cameron Passmore: Oh, it must've been a ball. It's still remarkable to me that some of the basic concepts, markets work, diversification is your buddy, risk and return are related. Those basic foundational blocks still by many people aren't appreciated today, let alone a lot of things that we've covered off with the academics that we've had on the podcast.

Mark McGrath: For sure. I don't know how much attention you paid to the U.S. election as we were coming into it the other day, but everyone was glued to the betting markets, and the poly market, and a bunch of other ones. It was just really fascinating to me to just watch how much stock people put into those betting markets as being predictive of the outcome, because those markets are allegedly efficient, because it's the wisdom of crowds. But how few people believe in market efficiency at the same time. It was just funny to me that it's like, you believe in the betting market is relatively efficient, but you can beat the market picking stocks at the same time. The cognitive dissonance to me was just fascinating to watch.

Cameron Passmore: I went from telling that collection of stories and then jumped into talking about a bunch of podcast guests that kind of stood out to me. Of course, I picked some of the bigger names that we've had on for a little bit of impact. But the first one I want to talk about there, and still, it's an amazing interview to me, is our conversation with Nobel laureate, Professor Gene Fama. Firstly, he's super gracious, very kind. We, I think, got 61 questions in with Professor Fama. If anyone has not listened to it yet, it's a must listen interview, of course.

Some of the highlights that I took away, one is markets are efficient. He said, stock prices reflect all available information, making it tough to consistently outperform the market. He's very skeptical of active management. Argues, most managers don't outperform passive strategies after fees. In fact, if you want to participate in the markets, what you want to get rid of is the bad act of managers because they can actually make the markets less efficient. Find that really interesting. If over time, the bad active managers fall away, it makes the markets even harder to be, because what's left are the great managers. It's a fact of life that you will not get a precise number for expected returns.

Same goes for factor premium numbers. He says, you may have high long-term expected returns, but they're not certain. Never forget, back to my point earlier, markets always have to clear. Every stock must be owned, so the price paid must be good enough to entice the buyer. Gene Fama doesn't know how to advise on private equity. I think there's information in that statement. Asked him, "Why would you deviate from a market portfolio?" And he said, "Taste. Simply is taste. If you have a different tolerance for risk." Then, lastly, my other point takeaway was, 90% of the investment industry's research is marketing.

Mark McGrath: It's not deceitful. That's not the right word, but it's disguised in such a way that I think a lot of people don't realize it's marketing. That's the tricky part.

Cameron Passmore: Yes. Often, in many cases, they're selling a story that people want to buy. Let's face it, there's great stories, right? Everybody wants to outperform.

Mark McGrath: The previous firm I worked for, I tried to introduce them to indexing. They were big on the traditional active managers, pick the best managers, and forget about the MERs for this matter. When I tried to introduce them to indexing, they were like, "No, no, no. That's just all marketing." It just blew my mind that for almost 30 years, they'd been fed marketing from big active fund companies, and thought that was data, but thought indexing was marketing. They had it completely backwards, and I stopped discussing with them at that point.

Cameron Passmore: The next interview I highlighted was our one with Ken French. Again, another must-see episode. He talked about how asset pricing models try to give us expected returns. However, the actual return is made up of expected and the unexpected. He really talked a lot about the unexpected return. The unexpected can absolutely swamp the expected and many people draw way too many conclusions from the unexpected. For sure, you see that all the time. And so, a few years, deliver the expected return, which is also an interesting stat.

Premium for small value has been more reliable than the market premium. Institutions drive way too much activity based on three to five years of data. There's so much wasted energy. Ken never argues that prices are right. He does not know which ones are too high and which ones are too low.

Mark McGrath: I think that's such an important point. If you're discussing market efficiency with people, it's not that prices are always right. It's that you don't know when they are and when they aren't, right?

Cameron Passmore: And for the value factor, [inaudible 0:22:34], he refers book-to-value, it is much more stable and thus, has fewer transaction cost.

Mark McGrath: Did I tell you I met Ken French at the conference – was it last year? I guess it was last year. He just finished the talk, and then he was out grabbing something to eat at the buffet table. He was just there by himself, and I was -- I think making a phone call or something to my wife. It's like, "I got to go. I got to go meet Ken French." She's like, "Who?" Click, and I ran over to the table, and I was just really nervous, and I didn't know what to say. I kind of just told him I was a big fan and I don't think I impressed him that much. He just went back to picking his buffet food very quickly.

Cameron Passmore: He's a great guy. Next one I highlighted was, our conversation with Nobel laureate, Robert Merton, who on a personal note, I thought he was the kindest guy ever. I mean, it's Bob Merton, right? He's contributed so much to financial economics. Has worked in the seventies on options pricing, it was so important to so many different fields of business. It's incredible what he's done, but he kept on apologizing for long answers. I'm like, "You're Bob Merton, we'll listen to you all day long." He said, "Maybe I'm talking and rambling on here too much for your audience."

He made a lot of great points. Number one, markets get trades done, and they also provide information. The market is a vital source of information. When you trade, you must ask yourself, what information do you have that is better than the market, and what information does the market have that is better than what you have? That is, to me, very profound. There's, what? Seven hundred billion dollars of trading done every day. A lot of information in that. Market efficiency has been tested for more than 50 years and it is hard to beat. You need to define what your risk-free asset is and it is likely something different for each of us.

This next one was my biggest takeaway, and I think about often. Stocks are risky over the long run. In fact, the risk gets larger over time. Sure, the average return might be stable, but a lot of large numbers can bite you at the wrong time. The idea that you are assured a high return over the long term is dangerously wrong.

Mark McGrath: People have a tough time with that one. I think over the long run, people think stocks are safer. What you're talking about there is the potential for the wide dispersion of outcomes, because they're volatile, you don't know what the returns are going to be. The longer the time horizon, the wider that dispersion gets.

Cameron Passmore: And you can go blow up in the last year or something, depending what your time frame is, and very few people have perpetual time frames. The risk-free asset pays me when I want to get paid. We also talked about financial literacy. He says, "I always try to make it easy for people to make decisions. Teaching financial literacy is hard and might not work." That kind of flies in the face of what Annamaria Lusardi talked about, which I don't know who's right, but I find it very fascinating. So, he's all about having easier decisions for people to make for their financial decision-making.

Another one that stands out, I've learned to appreciate more, I've listened to it several times since then, was economist, John Cochrane from the Hoover Institution. John's a brilliant, brilliant mind, brilliant communicator, but you got to pay attention to keep up with what he's saying, if you remember. First thing, price changes reflect lower discount rates. Stock price increases are often due to lower discount rates, not necessarily higher future cash flow expectations. Higher valuation ratios predict lower long-term returns. High price to earnings ratios generally predicts lower future returns over long horizons. However, he's unable to capitalize on this reliability from a market timing asset allocation perspective. It's about these ebbs and flows of returns. If you go through a period of higher returns, you just have expectations of low returns going forward, and these cycles happen. That's his point.

Mark McGrath: This morning, I was walking back from dropping my son off at school and just thinking about what the markets have done this year. We're recording this on the 7th of November, and yesterday, markets just went on an absolute tear after Trump was declared the winner of the election. When you think about long-term average returns, then you think about years like this year where markets are up 20%, 30%, 40%, depending on what you're looking at over the past 12 months. And you have to think, if I was expecting the S&P to compound at 10%, and definitely, do I expect it from here, like from this point, 10% from here, when market has just gone up. Just so unbelievably much. To your point, it's hard to capitalize. What are you going to do? Time the market now and say, "It's up so much, I'm going to get out"? What if it does compound from this point at 10 %? It's such an impossible, difficult decision to make as somebody has to think about their own money.

Cameron Passmore: Yes. Maybe you get Fama that says, you should expect a real return, something like 4% on stock, something in that zone. A lot of people are coming out, I think Goldman came out and Antti has used this number as well, like real returns on U.S. markets could be the three-ish real over the next decade because we've come through a period of such great returns. We've also come through a period where interest rates have fallen on average over the past 20 years. All the cost of borrowing is a lot less for companies. So, that helps their P&L. And if the risk appetite goes up, you can get great returns that have happened with lower returns going forward because of those phenomena.

But as Ben talked about in one episode, to continue to expect the PE multiples, to keep expanding, it's a tough assumption to make. A lot of people are throwing in the towel on global diversification. That was one of the things they talked about a lot at the conference last week. John also talked about how market predictability doesn't equal inefficiency. Predictable long-term returns don't prove market inefficiency. They simply reflect rational responses to risk.

Mark McGrath: So interesting.

Cameron Passmore: And risk management is key. Investors should focus on managing risk tied to their unique circumstances, rather than seeking short-term gains or market timing. They also said, it's very hard to ignore the risk when the markets get cheap even for smart, long-term investors because there's always a story. When markets go down, there's always a story as to why. So, we can say, "Oh, I can take a 25% market correction. No problem." But it's always connected to COVID, or a plane of flying to a building, or a debt crisis, or tech bubble, or some other event.

Mark McGrath: They call it the hard-right edge. When you're at the hard-right edge of that graph, and you don't know what the future looks like, it's so easy in hindsight to go back and be like, "I would have bought here and I would not have been scared during 2008 when markets were down 50%." But when you're going through it, you're at the hard right edge of the graph, and you don't know what's coming, people feel a lot differently.

Cameron Passmore: I then talked quickly about Antti Ilmanen's key points he gave to us when he was on the podcast. Again, another must-listen episode. Historical data can mislead long-term historical returns. While useful, can be distorted by big valuation shifts. Like we were just talking about the equity boom in the U.S. has been unbelievable. Forward-looking yield-based estimates provide a clearer picture for expected returns. Low-expected returns are here. U.S. markets show low-expected real returns at 3% range due to high evaluations.

Investors have borrowed returns in the future, we said, locking in a low-return environment. Any contrarian strategy needs patience. He talked about this at dinner, how he acknowledges that he is a contrarian, but you do need to be patient, especially with value strategy. We've talked about a lot, right, value under performance lately. Value and contrarian investing are hard to time. They can be profitable in the long run, but often require long periods of patience that's shown by the U.S. markets over valuation.

You talk about yesterday; do you see small value? I know this is one day. This is simply an observation. Small value is up 7.25% in the U.S. yesterday.

Mark McGrath: It's wild.

Cameron Passmore: It's wild. It could come so fast.

Mark McGrath: One of the better days I've ever seen, those factor premiums come out of nowhere. You need to be in your seat to capture them. And yesterday was just one of those days. Somebody on Twitter posted, "Don't get too excited about it." I was like, "No, please just let me have this one day. Let me enjoy this."

Cameron Passmore: You want to talk about illiquid assets, not being as profitable as expected, despite their popularity? Illiquid assets like private equity in real estate may not offer larger premiums investors hope for. Often, delivering only modest returns due to their peel of smoothing service, and the volatility laundering that we've talked about before. And some people are willing to pay extra for that.

Mark McGrath: It's a feature, not a bug.

Cameron Passmore: Then, from a personal planning standpoint, lower returns mean a higher savings rate. Expected return is down, individuals need to save more. At 2% drop in expected returns can nearly double required savings rate. Lastly, I talked about the time we had Professor Ludovic Phalippou on to talk about private equity. That was, I thought, one of the great interviews. Kudos to Ben for getting Ludovic on. He was a great guy, very articulate, and talked about private equity, because we get asked that often about private equity.

He highlighted a few things. Number one, private equity involves complex terms. Institutionalized private equity refers to third-party investment in private companies, which is very distinct from personal ownership. There's great challenges in measuring returns. Private equity lacks standardized measures like public equity does, making IRR calculations misleading. I would argue, most people don't understand how IRR works and how it can be misleading.

Mark McGrath: That discussion that you guys had with them around how IRR works, I remember I was driving from Squamish to Vancouver, and it's a long winding highway drive and I was listening to that episode. Just, that part on IRRs was mind-blowing to me.

Cameron Passmore: And how if you bank in our IRR early in the life of the fund, it carries with you for a long time. Talked about fees as well, high fees are common, private equity funds can typically in the end charge around 6% to 7% in fees. I think some would say, it's lower now because returns are lower, and a lot of the returns are based on the carry. So, some debate around that, but the point is, the fees are high and pay attention. Benchmarking is tricky, comparing private and public equity performance requires careful industry and geography adjustments.

So, those are the ones that I highlighted, and these are kind of the hot topics that were discussed in the room. I thought it ended up coming across okay, I would hope that Håkon and Magnus were pleased with it. But my key takeaway to them in terms of a community looking to create this cluster of excellence was, there has been an unbelievable revolution and so many people, pros and amateurs, are completely oblivious to this revolution. And so much of this industry, I think you'd agree, can't afford to embrace it because it could be business suicide if you do.

Mark McGrath: I think that's true if you go about it the wrong way. A good friend of mine asked me about this recently. He was having trouble with basically doing an about-face with his clients. And I've worked with doctors for a long time, so I tend to use analogies that resonate with them. I told my friend, I was like, "Well, think about it if a doctor came across a new procedure. Maybe it wasn't even a new procedure, it was just an old procedure that just had better health outcomes for their patients. But they didn't know about it before, and now they know about it. You would expect your doctor to implement that procedure if you knew that it was going to have better health outcomes. Even if it had been around for decades and they'd been doing something else, that's what you're hiring good advice for." It's not about saying, I was wrong all these years. It's about saying, now, I understand this better and I think this is a better solution, and I'm going to implement it for clients.

Cameron Passmore: I obviously agree, but most people treat their doctor the great respect, it wouldn't challenge. Many people would challenge you or I on active or passive, or anything else.

Mark McGrath: They do it every day.

Cameron Passmore: So, it's a little different dynamic, I would argue back. Well, obviously, I agree. Of course, you got to do if you learn this information.

Mark McGrath: Yes. Because, I mean, what's the alternative? You learn it, you know it's better and you don't implement it for your clients?

Cameron Passmore: I don't know. If you're kind of on the sunset of your career, it's a lot of work, a lot of explaining, a lot of business risk.

Mark McGrath: But you got to live with that. You got to live with the idea that you know there's a better way, and you've -- for selfish reasons, decided not to do it.

Cameron Passmore: I also told the group, I said, you need to be immersed, so I plotted them and I hope they create some sort of hub of excellence. I said, in my opinion, you kind of need to be immersed in people that want to think and learn, are curious about this stuff, and can share ideas. So, I thought it was just great that you have this hundred or so people from all kinds of different organizations, different family offices. If you can come together to share best practices, I think that can really help the learning, the appreciation. Because the stuff is hard. And if you can share off each other, I said, that would be very good for the group.

I said, it's also super fun to be curious about learning and there's so much to learn in this space. It's hard. So, if you can get safety numbers to do some of this work, I think that's a great thing. I also said, it's great fun to see people change their and to become enlightened. Like the epiphany you and I have had, it was fun for us. It's fun to impart that on others, it's fun to see others kind of have an aha moment as well. It's also important to quiet the noise, you quoted the movie, cut the noise. I go back to ninety-five when that light bulb went off when Keith told me, "I mean, I don't have to worry about all these active managers. Think of the noise, it goes away.

Mark McGrath: Well, and the ancillary benefit to that is, you don't have to spend as much time talking about markets. If you're on board, you get what markets give and it frees up all of your time to do the really important stuff. Like the financial planning, the behavioral management and everything else that really moves the dial for a lot of people. Because I remember, before, when you're picking active managers and looking at performance, your meeting with clients that's largely taken up by defending the performance of the selection of managers that you've chosen for them, whether it's good or bad. It's just such a waste of time.

In hindsight, it blows my mind that people paid me to do that, when I could have been like, "Oh, yes, market's up. Oh, I didn't even know. Great. I saw it on Twitter. Cool." "Now, let's talk about retirement, financial planning, and tax planning." And that gives you wanting to give your kids and everything else. It kind of multiply the effect of not only tuning out the noise, which makes the investment side of things easier, but also sort of accelerates the benefits of spending the time on the other important things like financial planning.

Cameron Passmore: Think of the progress. I think back to the butcher shop, the competition. We were down the street from a big national chain. We were just this tiny grocery store, but we would compete. That made us all better, and the competition drives progress, better service, better product, better prices. And this happens every day all around the world for thousands of companies with millions of employees. Then, on top of that, you've got to market pricing that value those companies hundreds of millions of times a day. I mean, it's an incredible adaptive system globally. Think about that. It's absolutely mind-blowing. All the analysts, and all the towers, and all the cities all around the world, it really is an amazing, amazing system of progress. So, by embracing this philosophy that markets work, you kind of go along with this.

My last message was, unintended consequences will rule the future. You don't know the benefits you're going to get out of this, much like we didn't know the benefits from starting Ben's YouTube channel or this podcast, or Money Scope, or whatever other endeavor we've done. You never really know what's going to play. Like one of the biggest unintended consequences that we had was finding phenomenal talent, like how we met. We didn't plan this, and we started it so many years ago. Unintended consequences, call it luck, call it whatever you want. Well, rules. So, I said to the group, I said, you don't know what you're going to create here, but it could be pretty cool. That's where it went. It was super fun.

Mark McGrath: That's great. And a cool place to do it too, Norway. I mean, obviously, they're from Norway, the organizers, that's why it was there. But it's cool for you to get to go specifically to a place like that, to hang out with these people.

Cameron Passmore: Have you been to Norway?

Mark McGrath: No. I was in Sweden this summer, because my sister-in-law lives in Sweden. I was in Stockholm, which is a beautiful, beautiful city. So, that's about as far as I've gone into the Nordic countries, so to speak.

Cameron Passmore: We started in Oslo, and we stayed in a hotel right off the main square by the train station. The first thing you notice, and as someone with tinnitus, I really noticed it, it's quiet. It's so quiet. They have the highest proportion of electric vehicles. The public transit is, as far as I could tell, all electric. It is so quiet. It is fantastic. The other thing is, they love their saunas or saunas, however you pronounce it. And fjords come in to downtown of Oslo by this beautiful modern art gallery, spectacular building right on the water. But across the water, it might be, I don't know, 50 meters or something. There's a bunch of floating sauna huts. So, people are going in the sauna and then doing the coal plunge in the water, which is like nine degrees year-round. And it's right in front of the art gallery, and you can rent like the sauna. These are public saunas. So cool.

Mark McGrath: What time did it get dark there?

Cameron Passmore: It got dark 5:00, 5:30. It wasn't that different than here, and it looks similar to here, similar trees and stuff, but it was beautiful. We did a nice boat tour and the landscape is spectacular. It's just an astonishingly beautiful place.

Mark McGrath: Nice. Well, next time, I'm in that part of the world.

Cameron Passmore: People are great, food was great, we loved everything about it. Then, we flew up to Trondheim where the event was, and that's like 500 kilometers northwest of Oslo. Again, right on the coast. Well, inland a little bit, but again, a lovely city with beautiful waterways, and it's a little rainy and damp when we were there, which was to be expected. It was fantastic. We had to go back. We didn't make it to Bergen, which is on the west coast, which apparently, it's the spectacular scenery in the fjords, we didn't know. We didn't pay good enough attention. So, shame on us, I guess.

Mark McGrath: No, next time.

Cameron Passmore: Next time, yes.

Mark McGrath: Nice.

***

Mark McGrath: Still blows my mind that you were getting into that type of portfolio management and thinking about markets as early as you did. Because like I said, I think a lot of people spend their whole careers and just never stumble across it. So, it still is really fascinating to me that this was happening for you back in the nineties.

But I want to go back, and thinking about your career and where you are today. As you mentioned, we talk to advisors all the time. People on LinkedIn reach out to me all the time, new advisors, people thinking about getting into the industry, people have been in it for a little while, trying to figure out their way, big fans of the podcast. So, they are kind of stumbling upon this revolution that you've discussed.

What would be your biggest piece of advice to somebody who's just getting started in our industry with what you know today?

Cameron Passmore: I mean, there's so many facets to that. There's from the actual, what are you going to deliver? What's your investment philosophy going to be? You better make sure you've got a good one that's robust and can stand the test of time. That, to me, speaks of quality. So, you better get one, and you better get it early, and spend some time trying to understand that. If it's different than what we're proposing, I have a hard time giving all the work that we've done embracing something else, but maybe there is something else out there that works for you. But as David Booth says, have a philosophy and stick with it. That's from an investment philosophy standpoint, but it's also from an industry standpoint.

I understand what you want to do, because as you know, working with clients, you're carrying a lot of relationships and commitments in your head, and they're always there. So, it's not a typical nine to five job. I think you'd agree. You're invested in these people, and these are people with real issues, and real families, and kids they want to be educated, and parents they got to take care of, and insurance needs, and all kinds of stuff going on. I mean, it's a wonderful thing to bring your A game as much as you can. But it's not like a light switch type job, where you just -- you can't mail in this job.

Mark McGrath: No, you're in it or you're not.

Cameron Passmore: My other advice I give to people is to really understand the firm that you're in. Understand, are you part of a team? Are you a silo? What's the ownership like? What's the long-term plan like. I think a lot of people don't spend enough time understanding that to make sure there's a good philosophical fit. And maybe, it takes time in the boat to get an appreciation for that, but have lots of conversations with people about that. What would you say, biggest piece of advice you give to people?

Mark McGrath: I think you hit a lot of it. I think, philosophy matters. You can fumble that very easily, because again, a lot of advisors, they get into the industry, are trained from the top down within the organization that they work for without that sort of innate curiosity to go beyond that. Then, some firms are great and they're teaching the right things, and you're not, unfortunately. Stumbling upon your own investment philosophy, I think often, even that part can be difficult. Because in a lot of ways, you start in sales almost, right? So, you're selling the story or the product of the firm that you work for. So, the investment philosophy is important, but don't be discouraged if it takes a while to get there.

If you're already here listening to Cameron and I discuss this, you're probably well past this point, I think, for the most part. I would say, somebody getting just into this industry, the most important thing for me was my network. You and I wouldn't know each other had I not started writing on the Internet a while back, I think. I wrote on Twitter because I didn't know how to build a business, so I just started writing on Twitter. But the major benefit that came from that, that I didn't expect was I developed all these incredible friendships with other advisors, and other people, not just advisors, but accountants, and other people in our industry and tangential to that industry.

I've created these friendships and this network where – I joked with my wife the other day that, I'm at a point now where if you ever fired me, Cameron, I could go get a job tomorrow because I've made all these friends in the industry that would gladly take me on. That's such a huge benefit, not only because it gives you safety, but also because there's so many great people to learn from out there and so many different perspectives. If you're just kind of operating in a silo, you just might not realize how big this world that you and I operate in is, and you might not learn a bunch of great things that you could have learned early on. So, I think developing your network in the early days is a huge boon.

Cameron Passmore: I love meeting new people in this business. When I reached out to Larry Swedroe back in ninety-eight or ninety-nine, found his email somehow, because that's pre-Google. He offered to come to Ottawa three times to speak for us. It wasn't for money. We made a donation on his behalf and took him white water rafting. He was just unbelievable. Look at Dan Solin and the relationship we got with Dan. He got this book coming out, which I want you to talk about after perhaps. But I reached out to Dan around the same time. He's become a very dear friend of mine and just spent time here in Ottawa, and was at the podcast meetup, and just a wonderful person. I did not reach out, but we're all trying to, again, we're curious. We want to help people. And the more we all come together in this community, the better it is for everybody.

Mark McGrath: Absolutely. Does your answer differ to those who are kind of later in their careers?

Cameron Passmore: My belief is, empower the G2, the generation advisor. As you know, we have an incredible team here. We have incredibly young team, talented, highly credentialed. Get out of the way, and help the next generation, really make a difference, let them have impact. I hear many stories where that's not the case in organizations, and they're kept under [inaudible 0:44:50], "They're too young. They don't know what I know." It's like, "Well, I don't know, man, this team here is pretty good. They're highly credentialed, highly capable, highly skilled, and they've got the reps, and the client meetings, and the ability to have great conversations and take advantage of some of the tools that you've helped build, that Braden has helped build with Ben, and this incredible team of thinking. Well, let's just give them the waive. That's not the right – because that sounds like abdication, but help them become what they can become and let them run with stuff." That would be my main piece of advice on the science investing side. It's never too late to learn like you said earlier. There's a lot of really good, young, smart people.

Mark McGrath: Even coming to PWL, I thought I was a pretty good planner and I'm meeting some of my colleagues. They're just freakishly good at what they do, and I learn a ton from them every day and that's impressive.

Cameron Passmore: And you add a ton to them every day.

Mark McGrath: Maybe a couple things, if you could go back now to when you started, you did get on this horse pretty early in your career, but if you go back to the very, very beginning. Is there anything you would have done dramatically differently?

Cameron Passmore: Oh, man. It's been super fun. I mean, I regret not knowing about the science of investing. I'm kind of embarrassed because I'm sure I studied Fama and French in university in some economics class. I know we studied Sharpe and risk, and I know Markowitz was in there, but I wasn't bright enough to draw the line between all my undergrad. Then, two years later, this industry, I just didn't. I'm not selling beef; I'm going to sell mutual funds. It was literally that simple.

The decision was not about modern portfolio theory, or the benefits of diversification, or how to allocate your assets at all. It's, okay, you're selling a cow – literally, you're selling a cow one day to selling a mutual on the next day. Look, we do it, you can do it. It was nothing more than that. I knew nothing. I don't say that with pride. I'm proud of how I changed, but how I joined the industry is ridiculous. I knew there was a need for this part of the industry. I read The Wealthy Barber, David Shilton, that whole. I knew about that revolution. But in terms of the implementation side, clueless, embarrassingly clueless.

You did a simple exam and went to market. It's crazy. Selling mutual funds, we're getting free laptops. And I remember getting a leather jacket once for selling a bunch of mutual fund money. I mean, this is nuts. The industry's changed a lot. This goes back to the Glorianne Stromberg report of the nineties. A lot of things have changed to the industry's credit.

Back-end load funds are gone now. So, things are much, much better, and the product that's are available, you can get a beautifully built portfolio for 10, 20m 30 basis points. That's probably less than half the operating cost 30 years ago. We would go to dinners with – our sessions with ETF manufacturers and have them explain to us how ETF actually works, like the whole creation redemption mechanism. It's like this mind-blowing thing,

Mark McGrath: I like how you did magic hands there.

Cameron Passmore: You guys do this for five basis points. What are you talking about? Five. The advances in technology in this space are simply mind-boggling. You can get a globally diversified portfolio today for – what is it at Vanguard? Eighteen, 20, 22 basis points?

Mark McGrath: Yes, 20 at the low end, I think from iShares. Then Vanguard is like 22 or something, 24.

Cameron Passmore: Dimensional value tilted, rebalanced, beautiful implementation portfolio for 30 or 32. This is just incredible technology. I don't have any regrets. Maybe you should have known some stuff earlier, but super happy with what we did, and the luck, and whatnot along the way. And where we are today is just it's amazing.

Mark McGrath: That's great. I was looking at this stuff the other day. There's over 100,000 licensed advisors in Canada, if you include insurance licenses. We have some of the highest per capita advisor-to-consumer ratios in all of the developed world, which is really interesting. And as you know, there's a lot of listeners out there that are advisors, but there's a lot of consumers out there too. What do you think consumers can do to ensure that they're getting advice that is aligned with a lot of the things that you've discussed here today? Because the consumer generally, unfortunately, if there's a big cohort of advisors out there that don't know about these revolutions that are happening, then I would expect even fewer consumers understand that. So as a consumer, what do you think they can do to ensure that they're getting advice that's optimal?

Cameron Passmore: That is so hard, particularly hard in Canada with the environment, with the dominance of the banks in the country. I'm not saying banks are necessarily bad. There's a lot of great people in the banks. I'm not saying that at all. But if you're going to go outside of that channel, where are you going to go? Who are you going to trust? You're like, ghostbusters, right? Like, who you're going to call. If you're not trained to know the difference, how do you know it? It's really, really hard. I'm very sympathetic at that. What do you think is the answer?

Mark McGrath: I gave a presentation over the weekend at the Physician Financial Independence Conference. This is a huge growing cohort of physicians in Canada that are trying to take personal finance into their own hands. And actually, Ben and Dr. Mark Soth, the Loonie Doctor, they did a live Money Scope podcast there, and I was also asked to present on common mistakes that physicians make.

But anyways, the first one was, everybody wants your business, not everyone deserves it. I think, the level of due diligence that you need to do to make sure that you're getting something worth paying for, I think is very, very high. These days, luckily, I think it's a little bit easier to vet people, just because of the Internet. I mean, think about this podcast, the writing I do on Twitter and the blog posting, everything, like part of that social proof is that we're out there. People contact me all the time and they're like, "I already know you because I've been following you," and that type of thing.

I think consumers should probably gravitate towards people that have made their thoughts public, at least, so you can get an idea not only of their expertise, and skill level, but about their style and that type of thing. Interview more than one person. Even when I'm talking to people who might be interested in PWA services, I'm like, "Go interview some other people. Go talk to a couple firms. Make sure that what we are offering to you is the thing that you need." Then, I think referrals go a long way if you've got close, trusted family, or friends that have been working with a professional for some time and they're pleased with it. I think that goes a long way. But for consumers, it's really tough, there's so much noise out there.

Cameron Passmore: I agree.

Mark McGrath: What do you think the advisory community should be doing to improve the industry?

Cameron Passmore: We're doing our small part by putting out content like this. Part of our value system is to put information out to the world with the belief that it's going to come back in some way and help us, right? The unintended consequences, the tools that Braden has built and the white papers that we put out in this podcast, and Ben's YouTube, and all the work that you and many others here do. So, I think we're doing all the small part of just putting information out there, try to make the industry better.

Kudos to Ben for doing joint projects with other advisors and other firms. I think that's pretty cool. There's more than enough people for us all to help all of us. Everyone needs help. So many people are underserved. So, it's not about hoarding business at all. That's what comes to mind on the top of my head, to try to help. What do you think?

Mark McGrath: That's really, really important. To your point, it's sort of this abundance mentality. A lot of people keep things really close to the chest and they're hypercompetitive. But like at the end of the day, there's so many people that need help. There's so many great advisors out there, like that cross-firm collaboration you talked about with Ben, and that kind of stuff. I've got a group of friends and they all work for different firms, and I pick their brains about stuff all the time. And we talk about planning scenarios and this kind of stuff. There's just so many good people out there that do want to help. And I just think, if we continue to do the things that we're doing, the podcast, and focusing on financial education and literacy, and that type of thing, kind of works from that perspective.

Shout out to FPAC, the Financial Planning Association of Canada. They're doing a lot in that realm from the regulatory standpoint even. So, there's these kinds of grassroots movements that are popping up all over the place and just get the message out, everything. Okay, last question. Do you think the future of advice looks different from the past?

Cameron Passmore: I'm torn on this, because so many people don't have just basic advice. Something as basic as a good person to talk to, to get basic advice about how portfolios work, how financial planning works. So, many people just need that. That doesn't require AI. That doesn't require a lot of technology. The basic meat and potatoes, solid, trustworthy, straightforward, respectable advice and implementation. That's on one hand. So many people still don't have that. But on the other hand, when you think about what is possible in this new world of technology, it is truly amazing.

Some sort of digitally enhanced environment where AI is helping pick up on social cues and conversations to help give better advice, where the platform can help the advisor understand you better. Comb through the different meetings you've had with your advisor to pick up on trends of mood, and empathy, and all these different things to help you realize things that you might not even know about, you and your money life. There's so many fascinating things going on in that space. I can't wait to see how that might play out. Who knows how it's going to play out? It might be a big flop; it might be completely game-changing. So, I'm kind of torn on that.

Mark McGrath: Yes, it's interesting to see. Like any big technological revolution, there's going to be people that embrace it, people that don't, and it can enhance people who use it correctly and enhance their practices in the way they do things. It can change the way they do things. And if anything else, it might eliminate some of the lower-hanging fruit. At the same time, those who embrace it, I think will do well.

Cameron Passmore: Call me nuts, but the past decade, there's been this infatuation with having portals and beautiful graphics of your portfolio, and returns, and all this stuff. It's like, yes, that's all nice, and beautiful, and cool. Robinhood, and trading platforms, and all this. But it's like, really? How many people actually got the returns of what the total market offered over the past 30 years?

Mark McGrath: Oh, so few.

Cameron Passmore: Would a digital interface have helped you? It probably would have hurt you.

Mark McGrath: I have a small account at another firm, because I put some money away from my son, and they've got an app, and it's just really easy to see, and it's really intuitive, and he's six. And so, it's just easy for me to just like, let's throw some money in there. I'm trying to achieve my volatility in the markets, and that kind of thing. But because I have this app on my phone, I don't check my own personal portfolio, like literally never.

Cameron Passmore: No, I know you don't.

Mark McGrath: Never. But this little app with like a meaningless amount of money in it that's on my phone, I'm like, "Oh." It's so enticing, and like you get notification or whatever. That addiction to being able to seek information at your fingertips. To your point, I think it really throws a wrench in the behavioural side of portfolio management. And people just make so many bad decisions and now, they're just making it easier to make bad decisions. Whether you know it or not, every time you look at your portfolio, you're making a decision, buy, sell, or hold. Whether you recognize that or not, you're making a decision.

The more times you're forced to make a decision around something, the higher the probability that you're going to introduce an error into your decision-making. So, it just becomes very obvious to me that the easier we make it for people to tinker, the worse things are going to go for them overall.

Cameron Passmore: So, if you're a pro, and you don't need some fancy interface, why would end users need it?

Mark McGrath: Because I think a lot of them think that's a benefit in some way. The ease of access to which you can buy call options.

Cameron Passmore: Need is different than wanting. They might want it.

Mark McGrath: Totally, yes. For a lot of people, they don't know the difference between the need and the want. Information is always useful and that's not necessarily the case. If you're a long-term investor, that's just so irrelevant.

Cameron Passmore: Completely irrelevant.

Mark McGrath: On the planning side, I think it's maybe more interesting, like if there's tools that allow you to engage with your own finances in other ways, like budgeting, and tracking apps, and that kind of thing, maybe, on the portfolio side, I'm less interested.

Cameron Passmore: That, I agree with, because people change situations, change, and to have an environment where you can kind of go in and maybe put in some of your metrics, and to have the advisor aware that you were in there, playing with it, so you can have some sort of, perhaps a digital platform for communication back and forth on stuff. So, you kind of put in this, "I was thinking about sending my daughter to university, whatever." A year later, what's the impact on the plan? Or, "Maybe, I want to retire a couple of years earlier." Because

that comes up a lot, and it may not be a rushed answer to get back, but you go

into the environment, and play with it. And you can go back and say, "Oh, I noticed you were doing this." So, I think, that would be really fascinating.

Mark McGrath: Yes, that's true. Little kind of sandbox environments where you can test things yourself. And a lot of what we do is just interpretation. The software itself, as powerful as it may be, is really not the thing that we deliver to clients. It's interpreting models, and interpreting projections, and that type of things. On the one hand, you don't want people have so much power that they can really mess with things, because they might not know what they've done, or they might not be able to explain the impact of certain changes they've made if they're doing their own plans and that kind of stuff. So, you want to put some guardrails around that stuff if that's what you're doing.

Cameron Passmore: I gave a presentation this morning to a firm in the U.S. that has to talk about our firm. I was talking about Ben and Braden's realization when they're building out some of these tools. Often, the planning industry will give rule-of-thumb type feedback. But some of these inputs are so complicated, like different tax inputs, different planning inputs. But then, when you overlay, "Well, what's your objective? Do you want maximum income at retirement? Do you want to retire earlier? Do you want maximum estate?" Like, depending on what your variables are, this becomes an impossible matrix for a human mind to be able to do on their own. You have to build out an algorithm to help solve this. Until you start to see that, you're unable to give the advice. I mean, that was a huge realization that those guys had when building out these models.

Mark McGrath: It's super complex in and of itself, but then you add humans to the mix, and it becomes – there's no rule of thumb. I hate rule of thumbs. Rule of thumb as a rule itself.

Cameron Passmore: Is there anything else cool going on in your world?

Mark McGrath: Halloween was lots of fun, took the kids out to trick or treating. That was great. My daughter's 19 months, she's starting to talk now. She's always had a good number of words for her age. She's like hitting the appropriate milestones. In the past couple of days, she's just started repeating everything we say, in her little baby speech, and it's just the best.

Cameron Passmore: You got to be careful.

Mark McGrath: Oh, I know, but it's just amazing. Like to just hear her say things like, "Whoopsies" after she dropped something. And it's just, her vocabulary is exploding just over the past couple of days. It's just so much fun. You, what's going on? You just got back from a big trip. What else is planned?

Cameron Passmore: Big trip, yes, and we had our amazing Australian trip. So, something I learned, it's the recent travel it causes, but I never paid attention to Aeroplan points, and I never even thought about it. We're at Norway last week, and I noticed I got this upgrade credits or something. I had no idea what it – I know what an upgrade is, I didn't know how it worked, so I started playing around with it. For like a couple of upgrade points, and I had 40 of them or something. I'm going out to Vancouver as you know in a few weeks. You only get like an upgrade on the flight to Vancouver for two points and then no money. Well, that's pretty cool. So, I just started playing around with this app, and I started to understand how you – it's going to slow down now, because my travel schedule is going to be dramatically less going forward. But a trip to Australia, and then Norway will add up points a little bit quicker.

Mark McGrath: There's like entire blogs dedicated to like travel hacking.

Cameron Passmore: I know nothing about this world.

Mark McGrath: Jordan told me about one. Prince of Travel, I think, and it's like travel hacking to the extreme, and there's people that are like devote travel hackers, and points hackers, and that kind of stuff. And making sure they're maximizing stuff, and opening multiple credit cards, and buying some things on one, some things on the other to get all these points. I'm like you, I've completely ignored it my entire life, and I don't think I have even as much as like an Aeroplan points number or whatever. Because I'm just like, I just don't want to keep track of all this stuff.

Cameron Passmore: But you see how it brings you in, because you want to keep your status. We also learn, because we have whatever level of status, I don't even know. But you end up being in a lower number boarding group, which means less risk of not having space for your carry -on luggage, which of course, the eternal issue is certainly when you fly in Canada. There's enough space for you to get that carry-on luggage stress going on if you're in group five.

Mark McGrath: I only ever bring a backpack because I can tuck it under the seat in front of me. That's my number one rule.

Cameron Passmore: That's the Ben Felix way of traveling, always with a backpack.

Mark McGrath: Yeah, but his backpack is probably as big as my suitcase.

Cameron Passmore: I realize I'm in a privileged position for reason to travel for that, but it's a world I had no idea about. Other than that, man, we're a month away. Well, just another month away from Christmas. It's crazy, this year, is just flown by.

Mark McGrath: Yes. No, it has. I was thinking about that the other day. I can't remember why, but almost a new year. I'm off to Mexico again for Christmas this year. Looking forward to that.

Cameron Passmore: Love it. That's awesome. All right. This has been fun, Mark. We should do two of us more often.

Mark McGrath: Yes, just casual. I mean, who needs Ben Felix?

Cameron Passmore: Who needs Ben? I mean, maybe we can get him a new podcast to start. We'll just have The Rambling Guys podcast, or maybe he'll tell us to get our own after this.

Mark McGrath: Yes, that's true. He can take the Rational Reminder, and we can start one.

Cameron Passmore: Maybe he'll kick us off [inaudible 1:00:27] never ever be back on. To him and Dan, this might be our spawn song.

Mark McGrath: This might be the last one. Yes. Awesome. It's good.

Cameron Passmore: Great to see, as always, everybody. Thanks for listening. Have a great day.

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