What if choosing your asset allocation was as personal as your life story—and as consequential as your retirement? In this episode, we are joined by PWL Capital’s Louai Bibi and Ben Wilson for a deep dive into how advisors guide clients through the most important portfolio decision they’ll ever make. Louai walks us through the research, psychology, and planning frameworks behind determining the right stock/bond mix, while Ben shares real-world insights from client cases where risk tolerance, pensions, and life events shifted the balance. We explore how Monte Carlo simulations stress-test financial plans, why spouses often disagree on risk, and how pensions act as “bond-like assets” in the bigger picture. Ben Wilson also takes us behind the scenes of PWL’s post-OneDigital acquisition journey, revealing why advisors are drawn to join the firm, how succession planning shapes their choices, and why a unified evidence-based philosophy matters in Canada’s wealth management landscape. The episode wraps with a fascinating look at surprising stock return outliers—like Build-A-Bear outperforming Nvidia—and what that teaches us about the futility of stock-picking versus the power of diversification.
Key Points From This Episode:
(0:01:00) Introducing PWL’s Louai Bibi and Ben Wilson—today’s topics: asset allocation, advisor succession, and surprising stock return data.
(0:03:35) Louai explains the asset allocation decision: balancing stocks vs. bonds and why it’s the biggest choice investors make.
(0:05:12) Why asset allocation matters: inflation erodes purchasing power, and stocks/bonds help investors keep up or outpace it.
(0:06:50) Historical lessons: $1 invested since 1970—outcomes for bonds, balanced portfolios, and 100% equities.
(0:08:35) The risks of downturns: 2008 as a case study in how stocks vs. bonds shape losses and recovery times.
(0:11:39) Risk tolerance questionnaires: how PWL uses surveys to gauge willingness vs. capacity to take risk.
(0:13:45) When spouses disagree on risk tolerance—balancing perspectives and sometimes splitting portfolios.
(0:16:42) Risk capacity: pensions, insurance, income stability, and emergency funds all shape asset allocation.
(0:20:08) Real client cases: retirees discovering they don’t need as much stock exposure, or elderly clients increasing equity later in life.
(0:22:47) How often do clients change asset allocations? Rarely—except for life events like retirement.
(0:27:10) Why Monte Carlo simulations are essential for stress-testing financial plans beyond straight-line projections.
(0:30:20) PWL’s “asset allocation email”: summarizing risks, pensions, debt, emergency funds, and personalized tradeoffs.
(0:34:02) Pensions as “bond-like assets”—how they increase ability but decrease need to take risk.
(0:37:11) Closing thoughts from Louai: think in dollar terms, investing is a marathon, and build confidence gradually.
(0:39:32) Education shifts clients’ choices: some reduce risk after learning the realities of volatility, others increase equity exposure with context.
(0:43:10) Advisor “fixed effects”: research shows the advisor’s own perspective strongly shapes client allocations.
(0:45:39) Transition to Ben Wilson: what motivates advisors to join PWL post-OneDigital acquisition.
(0:47:52) Reputation and content: how Rational Reminder, YouTube, blogs, and Canadian Couch Potato attract advisors.
(0:50:34) PWL’s unified philosophy: evidence-based, passive investing with a planning-first approach.
(0:56:30) Key motivators for advisors: reducing admin burdens, escaping “aggregator” models, and building integrated team structures.
(1:00:15) Succession planning: why advisors seek peace of mind for their clients and teams by partnering with PWL.
(1:03:04) Ben Felix on why these conversations are exciting and why advisors should reach out early.
(1:04:54) After show: Nvidia’s insane 70% annualized 5-year return—and why lesser-known names like Build-A-Bear, Celestica, and Dillard’s did even better.
(1:06:33) Celestica’s role in DFA funds and how it helped them keep pace with Shopify-driven indexes.
(1:09:25) Why broad diversification captures unexpected winners (Build-A-Bear included) without speculation.
(1:10:45) Active advisors pitch “winner-picking”—but history shows how impossible that really is.
(1:12:16) Reviews and wrap-up.
Read The Transcript:
EPISODE 373
Ben Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We're hosted by me, Benjamin Felix, Chief Investment Officer, and Dan Bortolotti, Portfolio Manager at PWL Capital. Although today we're joined by two other PWL folks, I was torn about whether I should say we're hosted by four Canadians today, but we're going to say Ben and Louai are guests.
Welcome to episode 373. As I mentioned, today we've got Louai Bibi. He's joining us again.
We had great feedback about his episode on insurance from listeners. He's back to give us another practical perspective this time on how he works through asset allocation with PWL clients. Then we also have PWL's Head of M&A Architecture, Ben Wilson.
Ben and I have worked together at PWL for a long time. He's going to tell us about the reasons that he's saying advisors are giving him for why they're potentially interested in joining PWL. We've mentioned in a few episodes that we're interested in talking to advisors who may want to join the firm.
Ben's been the one leading those conversations. I think he's got some interesting commentary there. He's also a portfolio manager with many years of experience.
I think as Louai talks through both Ben and Dan, we'll have lots of interesting comments to add. We've got Louai' topic on asset allocation, and then we've got Ben's comments on M&A. Then I just came across some crazy individual stock return numbers that I want to talk about at the very end, but just speak to why it's hard to pick stocks.
Anyway, we'll get there later. That's good for a setup though. Anything to add from you guys before we get into the main topic?
Louai Bibi: Can I share one brief story, if that's okay, Ben?
Ben Felix: Of course, do it.
Louai Bibi: Dan, this is going to be like a total fanboy moment for your team. Last year, my girlfriend was one of those lucky people. It was lucky for her, but it wasn't lucky for me.
She got the opportunity to buy the Taylor Swift tickets in Toronto. I was less than thrilled because I knew that I was going with, and I don't like Taylor Swift. We made a deal where if I go with her, I can do whatever I want at the concert.
I was at the concert. She was having a great time. I was initially researching all of Taylor Swift's past boyfriends.
It was a curiosity moment for me. Then I figured, let me do something more productive. I landed on your team's blogs.
Those were just unreal. I was reading through, you guys have your own version of an asset allocation blog. There's VEQT versus XEQT dumping your all-in-one ETFs.
That was a gold mine moment for me. I just wanted to say thank you for that.
Dan Bortolotti: Thanks. I think you're referring to Justin Bender's videos on those topics. He's done some great stuff on asset allocation and on the all-in-one ETF products as well.
I didn't think they would be as popular as Taylor Swift, but maybe he should start selling tickets in a similar price range.
Ben Felix: How did you go from Taylor Swift to the PWL Toronto blog?
Louai Bibi: I don't know, to be honest.
Dan Bortolotti: He just doesn't want to admit that he calls it Swiftie.
Louai Bibi: I don't know how I got there. I was just having a great time, not on the boyfriend deep dive, but once I got into the blogs.
Ben Felix: Did Justin's asset allocation blog come up in a Taylor Swift search? I don't understand.
Louai Bibi: No. I actually don't know how I got from point A to point B. I don't, but I know that I did get there.
Ben Felix: Good story. Justin's blog posts and videos on those topics are excellent. Should we jump into your discussion on asset allocation, Louai?
Louai Bibi: I wanted to come on and talk about how we as advisors and planners help our clients make their own unique asset allocation decision. In my mind, I've got three sections that I would love to go through. The first is, what is the asset allocation decision?
That part is really short and easy. The second is, why is it important? The third is, how do we at PWL help our clients make their own asset allocation decision?
I will just preface that you heard me a couple episodes ago talking about how we help clients make insurance decisions in the context of their own financial plan. That isn't going to look any different than asset allocation. It will always be from the perspective of a financial planning engagement.
It won't be anything different than that. But to kick things off, what the asset allocation decision is in a nutshell is the proportion of stocks to bonds that investors choose to hold in their long-term investment portfolio. So that could look something like 60% stocks, 40% bonds.
That could be 100% stocks. That could be 100% bonds. So there's a lot of variety there.
And I will also say that the asset allocation decision is probably the largest decision in my view that any client makes when working with us. When I think about all of these ideas that we bring to the table in terms of helping clients build more wealth over their lifetimes, getting your asset allocation strategy nailed down from the get-go is up there free. We know what asset allocation is or what that decision could look like.
Why is it important? In very simple form, it's inflation. We know that our money is worth less over time.
We know that if we walk into a grocery store with 10 bucks today, we might walk out with five apples. But if we do it again in 10 years, we're probably walking out with less. The Bank of Canada has a really cool calculator on their website where you can go and look at various points in time and plug in, if I bought something for $1 in 1970, how much would it cost me today in 2025?
So I went through that exercise. I was pretty shocked. Something that costed $1 55 years ago now costs over $8 today.
At that point, it's kind of obvious that as investors, there's some sort of action that we should be taking to make sure that our money is keeping up with inflation over time, if not outpacing it. Because eventually, we all want to get to a point where we're financially independent, we can turn off our incomes, and then eventually rely on our portfolio to maintain our standard of living. So we know that to get to that point, there needs to be some sort of action or activity on our end.
We've always been a very research and evidence-based team. And there's a ton of research and evidence that suggests that a great way to combat inflation is to invest in stocks and bonds. For your long-term money, it's not for your immediate needs.
Our colleague Ray put together a really interesting blog a few months ago, where he took a look at what $1 invested in different asset allocation strategies was worth by the end of 2024. And I've got that right in front of me. I thought it was kind of interesting to go through the results.
If you were invested in 100% bonds, your dollar invested in 1970 turned into almost 49 bucks. If I think of a medium-risk portfolio where it's 60% stocks, 40% bonds, your dollar turned into $98. And if you were in 100% stocks, your dollar in 1970 turned into over 130 bucks.
So you might look at all of that upside and say, well, why wouldn't I just invest in 100% stocks? And I think the answer from my perspective is because investing is risky. And stocks and bonds have different risks.
Stocks are risky because they fluctuate pretty dramatically in the short term. And bonds are risky because they have lower expected returns relative to stocks. And they're very sensitive to changes in the interest rate environment.
So we kind of just mapped out what some of the upside for investors has been over the last 55 years in various strategies. Let's think about the downside. And the most extreme one that comes to my mind and call it the last 20 years was 2008.
And I thought it was interesting to look at a couple of different strategies to understand what is the worst thing that an investor could have experienced. And if you were in 100% stocks, your portfolio in 2008 declined 48% in value. Pretty extreme.
And not only did it decline 48%, but you also had to sit on your hands and do nothing for four years just to break even again. That's a different way to think about your asset allocation decision. If I think about a portfolio with less stocks and more bonds, thinking about a 40-60 split in this example, your portfolio in 2008 declined 19%.
And not only did it go down by 19%, but it only took nine months to recover. So it becomes really interesting to reframe how we think about stocks and bonds as including more stocks in your portfolio is a really interesting way to increase the ceiling for how much wealth you can accumulate over your lifetime. But including more bonds in the portfolio was also a really great way to avoid a more serious market correction as equities fluctuate.
Ben Felix: Can I add a comment there? Like in Ray's example, that was a post-1970 sample. Bonds did pretty well.
If you look at broader samples, that's the Scott Cederburg kind of research. There's a pretty good chance if you look at a global sample that bonds lose value to inflation for long-term investors. It might protect you from short-term downside risk, but bonds have their own totally unique risks, particularly for long-term investors.
And stocks have relatively been pretty protective of that type of erosion of purchasing power in the long run.
Louai Bibi: Yeah, it's a fair point. And Ray's article was also using just Canadian bonds. That's something that's a little bit more cherry-picked and not as robust as it should be when making this decision.
It was more for illustrative purposes, but it's a totally fair point. I think the other thing that we cannot do as planners and advisors, Ben and Dan and other Ben, if you guys feel differently, is actually tell clients how much risk they should be taking. I think that risk is very personal.
Everybody's got different experiences growing up with money. They've got different levels of comfort and awareness investing in stock and bond markets. So the goal will always be to help clients make an informed and educated decision, but not by telling them what they should do.
Ben Wilson: I agree with that. The other thing that we also keep in mind as advisors is, although we're not telling them what to do, as you said, we're educating them and letting them come to a decision. But as advisors, we're also in this every day.
So we're thinking and evaluating all the different factors that go into that decision, their experience, their time horizon, their objectives, etc. And then helping them to understand an asset allocation that is actually suitable for them. Because someone might just say, well, this looks good to me and never actually experienced it.
But it's a lot different to actually go through it yourself. You gave the 2008 example. You don't know how you're going to react to that until you've actually been through it with your own money. And it's hard to predict that in advance.
Ben Felix: Can that go in the other direction too, Ben? Can there be cases where a client wants to have a portfolio that's really, really conservative because they maybe aren't understanding the long-term risks that they're exposed to?
Ben Wilson: Well, absolutely. I've had conversations like that with clients where when we look at their risk, we have a risk tolerance questionnaire that Louai is going to get into, but they got a really low score on that. But they were 30-year-old investors with high incomes and trusted to work with us to help them make good decisions.
If we just took that score on its own, they would have been a low-risk investor that would have put their results at risk. But we looked at all the other factors that come into that decision and recommended a more appropriate risk with higher stock allocation in that case.
Louai Bibi: I will jump into the risk questionnaires that we send the clients. And these aren't proprietary to PWL. There's some really great ones for DIY investors.
Vanguard has an awesome one. But we're trying to help clients nail down two key components of risk. The first is their tolerance, their willingness to take on risk.
And we send clients a short questionnaire that goes through simulated market declines, understanding if they had excess cash. Would they put it against their mortgage? Would they buy real estate?
Would they buy stocks or bonds? I find that that's a nice exercise to get a little bit of a pulse check on how clients feel about risk. But it's by no means where we stop in terms of actually deciding on asset allocation.
The other thing that's really interesting with these risk tolerance questionnaires is that when you're working with spouses, it is so rare for them to have the exact same outcomes. And this is where you can really dive in and understand what the differences are and why they exist. Is one person savvier than the other?
Is one person doing more of the household investing and planning to the point where the other person doesn't feel comfortable? I'm going to jump into this in the next section a little bit more. But we had a client who their spouse was totally down to being 100% equity.
He gets the research. He's a rational reminder nerd. He was ready. His spouse was more like 80, 20, 70, 30. She was less comfortable. We chatted through her survey responses.
And what we found was that what kept her from being in 100% equity was a little bit of insecurity around what would happen in the short term if one of them were to get sick or lose their jobs. And we did some really thoughtful planning around emergency funds and insurance. And then she ended up in 100% equity very comfortably.
So this is just a perfect example of where you cannot take these survey results at face value and you've got to dive deeper.
Ben Felix: I'd be really interested to hear maybe before you jump into the risk tolerance topic, how Dan and Ben Wilson work through that when spouses have extremely different risk tolerance answers.
Ben Wilson: We see cases often where there tends to be one spouse that is more financially dominant that the other spouse just trust them to make the decision. When we look at that, the two different scores, we can't just rely on the more financially savvy spouse's risk tolerance and score. We need to take both into consideration.
Even if most of the money is sourced by the higher income spouse who happens to be the financially savvy one, we need to view them as separate individuals as part of the same household. And we can't just say, your husband's great with 100% equity. We're going to do that.
We've got to evaluate and understand why one might be higher than the other and come to a decision that makes sense for everybody. Sometimes that means the lower risk tolerance spouse moves up. Sometimes it means the higher risk tolerance spouse moves down.
Sometimes it means we have two separate asset mixes for their respective pots of money.
Dan Bortolotti: We do it very similarly as well. Sometimes you will see this with spouses who are dramatically different ages and therefore, perhaps one is already retired and the other one is still working. In that case, it could make sense to have two separate investment policy statements with two different asset allocations.
Now that has more to do, I think, with time horizon than it does with temperament. But I agree, Ben, with what you said about you can't just simply say, well, spouse A looks after most of the investment decision, so we're going to default to his or her risk tolerance because it's disrespectful of the other one. In most cases, I think you have to come down closer to the more conservative spouse because going the other direction just creates too many potential problems.
Oftentimes, we'll have a discussion. We'll try to meet in the middle somewhere. You don't often get one spouse who wants 100% equities and the other one who wants 50.
That would be a really dramatic difference. And sometimes I find, honestly, the difference between 60% and 70% equities on a day-to-day basis is trivial. You're not going to notice that in short to medium term movements in the market, I don't think.
So you can often just kind of meet in the middle, do 65%. The important thing is to listen to both spouses and understand what their concerns are and not be dismissive of one who you feel is either too aggressive or too conservative based on your own opinions.
Ben Wilson: In a more extreme case where one spouse truly doesn't care and is disengaged, the only option we really have is if you are completely delegating this to your spouse, we need you to sign a power of attorney document to delegate that control and authority to them, which we have done in some cases. But usually, once you get to that part of the conversation, like, okay, well, I'm not sure I want to do that fully. And then you get the other spouse more engaged in the decision.
Ben Felix: That's really interesting. It's implied that they're delegating before they sign. Once you make it explicit, they're like, oh, maybe I actually don't want to do this.
Louai Bibi: Exactly. So that was the risk tolerance component of those surveys that we send out. The second important piece is the capacity front, your ability to take on risk as an investor.
And we're looking at parts of your strategy or your situation where we want to understand, have you set up an emergency fund? Do you have appropriate and sufficient insurance? What's your cash flow like?
Are you a government of Canada employee with a defined benefit pension? Or are you an independent contractor with very sporadic and variable income? Do you need the money in 20 years versus do you need it in two?
That's going to definitely influence how that money gets invested. And once we've kind of married up risk tolerance and risk capacity, we've got access to software that grades those results relative to other people who have taken similar surveys. And what we end up with is a suggested asset allocation range.
So for example, if you are what's considered a high risk investor, potentially our software might come back and say somewhere between 70% and 100% equity is a reasonable place to start. And so that's a nice segue for us to get into the meat of our asset allocation planning, which is building a financial plan for any of our clients or prospective clients that shows what point A looks like. So that's your income, your expenses, your net worth, just general life circumstances.
Point B, which is where you want to be in the future in terms of how much you want to spend, financial independence, major purchase objectives. And then we really get to start planning around asset allocation in the context of your financial plan. And what I think is really neat about this process is we talked about point A and point B.
We have to make assumptions to help bridge that gap. Some of those assumptions are how much are you going to spend? How much are you going to save?
What is the investment return that your portfolio is generating? And I find that this exercise is really fun for two different demographics of clients. You've got the deaccumulators where they're getting close to financial independence or they've officially transitioned to retirement where they're withdrawing from their portfolio.
And you can help map out that they can potentially take less risk with their investments. An interesting scenario that we came across earlier this year was a lovely retired couple here in Ottawa who are invested in 80% stocks in their mid-60s. And we showed them that their plan worked in 20% stocks, 80% bonds.
Now that's not the asset allocation strategy that we landed on because we know that holding bonds is risky for different reasons. But it was really interesting to really help take the guesswork out of asset allocation planning, especially at such a pivotal stage, and help clients have more certainty over their investment and financial planning outcomes by taking away stock risk that they didn't need to take on. For accumulators, it's also really interesting because when you do it in the context of somebody's financial plan, you get to assess what is the floor, what is the minimum return that your portfolio needs to generate to help you achieve your goals.
And then the difference between that floor, let's say it's 60-40 and 100% equity, it ends up being a reflection of somebody's willingness and ability to take on extra risk in exchange for better investment outcomes long-term. So that's always been a fun exercise for us.
Ben Wilson: I've got an interesting example to share. We have some investors that are older that had a conservative risk tolerance for a long period of time. And the main client, the husband that has been with us for years, he had an event that put him in a home and he could no longer make decisions on his own.
That event also resulted in their household expenses increasing because the wife who wasn't a client at the time was managing the condo that they had, plus they had to pay for this new home and the additional care. All this stress led to the wife becoming clients of PWL and her saying, I've got too much on my mind. It's so emotionally heavy to deal with my husband.
I'm delegating responsibility to my daughter and her husband who had POA over them. And the POA, we went through the plan and they'd been so conservative for so long that everything looked good up until that point. But now all of a sudden at the end of life, their expenses have shot up way higher than they ever expected.
So we actually moved from a conservative portfolio to something like 70% stock, 30% bonds, which for an 80-year-old couple, that sounds a bit aggressive. They also had pensions. That's another example we're going to get into here shortly.
But that gives you the ability to take on more equity exposure risk while still having the comfort that it's not too aggressive given their life circumstances. So the power attorney in consultation with their other siblings had the peace of mind that, yeah, this extra equity exposure is going to put us in a better place and give us a more likelihood to cover all the expenses now that the two parents are both in a home at this point.
Dan Bortolotti: That's a situation too where the power of attorney is not just looking at the time horizon of their parents, but the time horizon of the money, which presumably becomes an inheritance at some point. Time horizon is an important consideration when choosing asset allocation, but it's sometimes misunderstood. I'm sure you guys have spoken with people who sort of think, well, I'm 10 years till retirement, so my time horizon is 10 years.
What about the 30 years of retirement you're going to be spending the portfolio? So your time horizon is much longer. It's similar, I think, with elderly people who have more money than they know they're going to need and some significant chunk of that portfolio is intended to be passed along to their kids.
That money has to be thought of with a longer time horizon than their own lifespan. There's a number of factors I think you need to consider when making that overall decision.
Ben Felix: I've got a question. You guys have mentioned one example of someone changing their asset allocation later in life. How common is it for clients to change their asset allocation throughout their investment lifetime?
Ben Wilson: I'd say it's not too common. We try to pick an asset mix that makes sense for a long period of time and we'd only change it for specific events. A triggering event where we would review, not necessarily change, would be retirement.
Again, to what Dan said, you have to look at time horizon. Someone retires at age 65, maybe they want to reduce their equity exposure because they're stressed about seeing the portfolio move up and down. Whereas someone that retires at, say, 50, they've got a much longer time horizon in retirement.
So they've got the benefit of longevity and time that they don't necessarily need to adjust their equity mix down so soon or possibly not at all because of the longer period that they're going to be invested.
Dan Bortolotti: I would say I've seen it in a few different cases. Retirement is the obvious one. We definitely reduce the equity allocation when people have retired.
As we've just talked about, the time horizon might be longer than people think. But the fact is, once people stop earning money, especially high income earners who are no longer earning that income, they're just fundamentally more sensitive to drops in their portfolio value than they were when they were working and they could add new money to replace those losses. So we definitely don't want people to have a high level of anxiety about portfolio volatility in retirement.
I like to tell them, if you've made it this far and we've done the plan, you've won the game. You don't want to spend your retirement checking your phone every 12 hours to see how the portfolio is performing. So that's the one.
I think there are cases where people have misjudged their risk tolerance and then that needs to be changed. And that can happen in both directions. I think it's more common for people, especially if we're setting their asset allocation target in the middle of a bull market or on the end of a bull market.
Everybody just overestimates their risk tolerance. The joke is like everyone tolerates upside volatility. I'm totally fine with a 25%, 30% gain in my portfolio.
I just don't like it going in the other direction. Sometimes people will do that. And then when the bear market finally comes, they're the ones that are first to call and say, hey, should we sell, should we change?
It's like, all right, now we need to have a discussion because I think you overestimated your risk tolerance. That said, I've also had people with fairly conservative portfolios and we've gone through a bear market and it hasn't bothered them at all. And they said, I think I probably can go up a little bit, 10% more in equities.
And we've done that, especially for inexperienced investors who don't really know what their risk tolerance is until they've experienced it. Give them five years or so to go through with both up and down markets. They have a little bit better sense of what their true risk tolerance is. And at that point, we can increase the equity allocation if they're comfortable.
Ben Wilson: That's a great point, Dan. I was thinking the same thing often with younger investors that are just starting out. They don't know what they don't know.
So if they're not comfortable taking that leap of faith, maybe it's better to start a bit more conservative to ease them into what it's like to be invested with their own money.
Dan Bortolotti: I agree with that. And a lot of people don't. I certainly heard people say things like, well, if you're young, you should be 100% stocks.
I'm like, well, theoretically, sure. But if you've never invested before, you've never lost 48% of your money, like Louai just mentioned in 2008. And I don't care if you're investing $10,000, you lose 48% of that.
If that's your life savings, that's traumatic. So I think people need to get a sense of what their own risk tolerance is before they make that decision to go very aggressive.
Ben Felix: For a project that I'm working on, I asked all of our portfolio managers and a bunch of our other advisors who are not portfolio managers, why their clients are not in 100% equity portfolios. And I got a bunch of great answers. But one of them is, to your point just now, Dan, if they were all robots, they would be. I thought that was pretty good.
Dan Bortolotti: That's exactly it. It's hard to argue with the theoretical 100% equity portfolio. But as any advisor knows who works with real people, there's theory and there's practice.
Louai Bibi: I think it's actually important to note though, like Ben, you brought up a couple of your clients where the equity allocation has gone up to potentially enhance investment returns to allow for a higher spending policy because of what's happened. I think it's important to note that we do stress test all of our clients' plans using Monte Carlo simulations. We're testing a thousand different scenarios of good and bad stock returns against their financial security or independence.
If we were looking on a straight line basis where we're just assuming that clients get the average rate of return each year with no volatility, of course, you're going to bump them up to 70% and their plan's going to look great. But we're not doing that. We are accounting for 2008 returns.
We're accounting for COVID mini decline, whatever you want to call that. We're accounting for interest rate hikes, wars, tariffs. And I find that that brings our clients a lot of comfort knowing that they don't need to take more risk with their portfolio to account for these scenarios that we haven't thought of. It's always going to be baked into the planning that we do.
Ben Wilson: I often find the Monte Carlo simulation as a highlight of client planning meetings. Like, okay, these are great. The assumptions, you show them on a straight line basis, which basically means this is what it looks like if you get the expected rate of return year after year.
But we coach clients, that's not reality. They're like waiting for the punchline. So how successful is it really?
And then you show them and you see the broad range of outcomes and they can see, okay, this is in the right range and I'm comfortable with this result. And it gives me confidence that I can actually achieve this plan rather than hoping that the straight line assumption works out because sometimes it can be pretty misleading. And I know there's a lot of advisors out there that don't use Monte Carlo analysis.
And that's arguably irresponsible because on the surface, we've seen straight line results that look very successful. But after doing the Monte Carlo, maybe you've got a 60% success rate. You want to go on a hope that about 60% of the time you're going to be okay and the rest you're going to have to reduce.
That's not how I would want to build my personal plan. So I think we owe it to clients to show them how we stress test the plans.
Dan Bortolotti: I think it's an important part of the conversation to when we have a major downturn, because that's the time when clients are going to call and say, do we need to rethink the plan? Do we need to redo those projections? And usually say to them, well, look, we can update them.
But the projection did not assume that no bear markets would occur between now and the end of your life. The expectation of bear markets is built into the Monte Carlo. If you're doing a plan with a client and they've got a 90, 95% Monte Carlo, you can comfort them that this is already baked into the expectations.
This is not something we didn't prepare for. We didn't know when it was going to happen, but we certainly anticipated that it was going to happen. And no, we don't need to rebuild this plan from the ground up.
We can certainly review it and give you some reassurance, but we don't need to reinvent the wheel because we had a bear market. We know that's going to happen and that's baked into the plan.
Louai Bibi: This next step is my favorite part. It's what we call the asset allocation email. This isn't an email that we send every time.
Sometimes we're just having these conversations in real time with clients and prospective clients, but it's basically the asset allocation. I'm going to say outline instead of proposal because we're not telling clients what allocation to choose. But what that email or conversation looks like is a brief summary of why we know that clients need to take on stock and bond exposure in their portfolios.
We're also going to highlight parts of their financial circumstances that might allow for more stocks, might allow for less and the same for bonds. And just to give you a few examples of some considerations that we're thinking of, we're thinking about clients who are paying their mortgages or maybe just debt in general more aggressively than they have to. From my perspective, that is absolutely an investment decision and you are getting a guaranteed after-tax rate of return equal to whatever the interest rate is.
That might give you more willingness or capacity to include more stocks in your long-term portfolio maybe. You might have access to a defined benefit pension plan or you might have access to Canada pension plan or old age security if you've retired and drawn on those sources. That is guaranteed income that shows up for you in retirement no matter what is going on in the markets.
If we think about your net worth more holistically, that's like having extra bonds in the portfolio. We're going to take a look at how you are invested today and understand how that translates into potentially a new portfolio and how an investor has reacted to declines in the past. For example, we recently just started working with this family that's in 100% stocks, but they're in 100% stocks in 50 stocks.
100% stocks in 15,000 different ones because we're buying the total universe is a very different experience. So it's almost like you're taking a risk off the table even though your allocation hasn't changed. We're also going to take a look at the emergency fund planning that I mentioned.
These are all such cool ideas to help inform asset allocation. From there, we're going to talk about reasons after we've thought about your situation why you should or shouldn't include more stocks or bonds. When I think about reasons to include more stocks in the portfolio, it's because you want to improve potentially when you could retire or become financially independent.
Prove how much you spend over your lifetime, how big of a legacy or state you leave behind one day. When I think about reasons to include more bonds in the portfolio, my mind goes to more psychological comfort when we know markets are going to fluctuate because they for sure will. More certainty over your financial planning outcomes.
And we'll always outline all of this information to our clients in writing with a PDF version of our model portfolios because we want clients to be able to track our conversation from start to finish where we've said, look at the potential upside of including more stocks in the portfolio. Look at the potential downside in the short or medium term. Here are some great reasons involved with your situation or your net worth that might justify certain decisions you could make around asset allocation.
And here are some ways that you could either get more peace of mind or certainty or improve your outcomes. And from there, hopefully we've given our clients enough information to make as educated as a decision as they can, knowing that this is a process that we check in on pretty regularly with our clients. And we don't necessarily change asset allocations frequently, but we are going to check in and make sure that they're still relevant from time to time for sure.
Ben Wilson: One of the scenarios you kind of mentioned was the scenario where you have a pension. I think that one's worth highlighting. Clients often separate their pension from their portfolio.
I think it's prudent to look at that holistically. If you think of your pension, as Louai said, it's guaranteed income, but that's guaranteed income for a 30 plus year retirement period. If you think about the present value of that as an asset in your portfolio, it can become a pretty significant number.
For example, I ran a quick calculation. Someone has a $70,000 pension for a life expectancy of 30 years at a 4% discount rate. That has a present value of $1.2 million. For a typical client, that's usually a very large percentage of their overall portfolio that enables the client to take on more risk if they so choose. There's a bit of a psychological game here though, because when the fixed income asset, the pension sits outside of the portfolio, they're going to experience more short-term volatility in their actual portfolio. So they have to be psychologically prepared for that short-term volatility.
But if you look at it all as one picture, you could effectively be 70, 80, 100% equity if your pension is large enough to offset and give you that overall asset mix that you're more comfortable with.
Dan Bortolotti: There's a flip side to that as well. That's a really common question that we get from people. If they say like, I have a pension, an employer pension, how does that affect my asset allocation decision?
And as you noted, Ben, the conventional wisdom is consider it like a fixed income component. But I would say if we break down the asset allocation decision, we use Larry Suedro's terms, you assess your ability, your willingness and your need to take risk. Having a guaranteed pension increases your ability to take risk, but it decreases your need to take risk because you're probably drawing your portfolio down at a much lower withdrawal rate than you would have if you didn't have the pension.
So if those two cancel each other out, it comes down to your willingness. If you can stomach the additional risk, for sure you have more ability to increase the equity allocation. But I would just temper that by saying, if you can't take the risk, if you're just naturally a risk-averse person, you can have a more conservative portfolio than someone else without a pension because your pension is replacing most of your, or is forming most of your retirement income.
So it really comes down in the end to your temperament rather than your specific situation.
Ben Wilson: Oh, absolutely. The other thing is it comes back to the financial plan where we project this out. If your pension covers the majority of your expenses, that's another factor to the puzzle.
You're not going to need your portfolio as much. Do you have any other objectives with that money? Do you want to help your kids?
Do you not care? Do you want to just spend it? Do you want to give it to charity? Those all change the potential asset allocation for each client.
Louai Bibi: So maybe two final closing remarks, and you guys have already nailed these earlier as I was going through this. The first, which we actually haven't discussed yet, but it was included in Justin's asset allocation article, was making sure that when you're thinking about declines, especially, to do so in absolute dollar terms. We actually had a client come see us at the office last week, retiring in end of next year.
He's in 60, 40, and he said, listen, I've been a super disciplined investor for the last 10 years. I'm super dialed into the research on why it makes sense to keep more stocks in my portfolio long-term. So I want to check out being in 70, 30.
So we went through this process. We got to the PDF model portfolio page, and we simulated a couple of declines in dollar terms. You can see his eyes open a little bit in terms of what could happen in this potentially worst case drawdown scenario.
And I mean, who knows what worst case really looks like in the future. But I think it sheds a different light on what you might actually be willing to stomach in that scenario. And the second idea is just that investing is a marathon and it's not a sprint.
We've chatted a little bit about younger investors who feel the need to be in 100% stocks because they're told that that makes sense for them or because they want to catch up on like savings or returns that they didn't capture before. I don't really buy into that. I'm thinking about the daughter of one of our clients where she's in her early 20s.
She's living at home. Parents are giving her a little bit of money to invest, but she's also never invested. She didn't even know what a stock or bond was before we got on the call.
For me to put her in 100% stocks and say, don't even look at it. You'll thank me later. And then she looks at it and she freaks out and that totally changes how she thinks about investing long-term.
That's just such a disservice. It is so valuable to start in an asset allocation strategy that maybe has less equity to start. To your point, Dan, build confidence as an investor.
And then maybe you gradually work your way up the equity ladder. Maybe you don't. But the point is that we're trying to build more educated, confident, and informed investors over time.
And I just don't think that bouncing around asset allocation strategies is the right call. You stick to something that you know will bring you peace of mind and you stay there for as long as you can and you reassess. That's good advice.
Ben Felix: How much do you guys find that education throughout this process of talking to the client about all of the different things that might impact their asset allocation and the things that they should be thinking about? How much do you find that impacts what they end up choosing relative to what they might've chosen without having gone through that process?
Dan Bortolotti: I would say that the more you try to educate people about historical volatility, the more likely they will dial down the risk. I think most people go in thinking, obviously stocks return more than bonds. I'm going to go 80, 90% stocks.
To your point, Louai, when you not only say to them, well, look, stocks can lose 50% of their value, even a diversified stock portfolio. And 50% for you, let's say their portfolio is really large. Let's say it's $5 million.
It's one thing to say, well, you're going to lose 20%. It's another thing to say, you can lose a million dollars. That starts people to pay a little bit more attention.
So there's that. I think the other thing is most people, when you talk to them, don't understand how risky stocks are. They think 10% is a severe bear market.
10% is nothing. I think you really have to stress and remind people that stocks have fallen 20, 30, 40, even 50%. Not 1929, 2008.
That wasn't ancient history. The dot-com bubble a little earlier than that. These really sharp declines happen and they don't always recover as quickly as the tariff crash in April or the COVID crash in 2020.
They stay down for a long time. And not to scare people, but to say to people, do not underestimate how volatile stocks can be. And once you do that, I think people are saying, yeah, 60%, 70% sounds better to me than 80 or 90 or 100.
Louai Bibi: I find more clients take, to Dan's point, risk off the table once we go through, especially building the financial plan that shows that you don't need to be in 100% equity to achieve your goals. Like that's a game changer for a lot of families that we work with.
Ben Wilson: I think it comes down to the goals of the clients that you were, Dan and Louie, you're saying, but I've also seen clients, I'm working with you. I trust you to coach me and keep me in my seat. I'm going to rely on your advice.
I'm willing to take on more equity risk if that's going to optimize my results. Some people have specific goals that they shoot for. Some people just want to optimize as much as they can.
Some people are 100% equity and, oh, I also want to borrow money to invest. We don't have many clients like that, but if you have the circumstances to warrant that, we can set up a plan that makes sense for you. Again, depends on the circumstances, but it's a continuous learning process.
When different events come up, we're often getting questions like, is this time different? And remind me, should we be changing that portfolio? And it's always a very similar answer.
But every time you give that answer, the clients appreciate it. They understand and it gives them reassurance. We do have a sound strategy and you're not wavering from it.
That voice of consistency over years has been a very welcome approach for many clients. You're not changing because something has happened. You are sticking to what you said originally.
And even through the hard times, you're giving us the same message. And I think that's pretty valuable for clients.
Ben Felix: And it's interesting to hear the different answers on that. It's been a while for me choosing an asset allocation with a client. If I think back to those conversations, my experience would have been almost the opposite of yours, Dan, where I would explain to people, here's how volatile stocks can be.
You should expect these large drops. Here's why that hasn't actually mattered that much in the long run, if you can stomach it. And here's why bonds have their own unique risks for long-term investors.
And then that can lead people to take more equity exposure than they would have otherwise. There's a paper on how important advisor fixed effects are in their client's asset allocations. It makes me think of that paper, which is a really interesting thing to think about as an advisor and as a CIO, I guess, thinking about how different portfolio managers might be allocating their client's assets and how the advisor fixed effects might be affecting that.
Dan Bortolotti: You're talking about the advisor's own biases about whether they're conservative or aggressive by nature?
Ben Felix: I don't even know if bias is the right word. Advisor fixed effects is what does that advisor think is right? If you go and hold that constant and look at all of the clients of one advisor versus another advisor, that advisor fixed effect, in this research I'm talking about, that advisor fixed effect has a bigger impact on client asset allocations than individual client circumstances.
Dan Bortolotti: That does make sense because I think a lot of clients rely on the advisor's recommendation. At the end of the day, almost every client that I've onboarded, I feel like at some point they say, what would you do in my position? It's too much of a cop-out to just say, well, it's very individual, you can do whatever you want.
Part of being an advisor means advising, not just simply presenting a bunch of options with no context. So I certainly had that conversation with a client who is in both directions. If a client says, I want to be 50-50 and they also want to retire early, we'll say, well, I think you probably need more growth in the portfolio.
Then again, you don't just have to wave your hands, you can do a plan and show them this. You can talk them up, but you can also go the other direction and say, you don't need to be 90% stocks. You saved enough, you could have a 2% return for the rest of your retirement and accomplish all your goals.
So why are you driving a Ferrari when you could drive a minivan? I think that's an important way to frame it as well. It's mostly about listening to the client, understanding their goals and then trying to steer them towards an allocation that they can stick with for the long-term.
Ben Felix: That makes a lot of sense. All right, I think that's good for the asset allocation topic. Move on to Ben Wilson.
I'm super curious to hear your observations now that you've been having all these conversations with advisors that might be interested in joining. What is making PWL interesting to them?
Ben Wilson: It's been a cool experience. So people that don't know when we got acquired by OneDigital in January, one of the objectives that we had and why we were excited about the idea of partnering with OneDigital was to kind of fast track our growth to attract like-minded advisors that want to be part of the same mission and ultimately serve more Canadians with better index-based, fiduciary, planning-first advice that is unfortunately not as popular across the country that is bank-dominated. A lot of advisors are reaching out to us and often when they're not even actively looking to sell, either reaching out directly or responding to a reach out that we have sent to them to say, be open to chat and compare notes.
And many of them haven't even thought about succession at all. There's tends to be some themes that come up that motivates those conversations. I've compiled a few different motivators that I'm going to go through here.
One of the first ones that motivates people, which is very specific to PWL, is just the reputation that we have built through the podcast, through Ben's YouTube channels, through the white papers and blogs, the expertise. Recently, we had another team member, Travis Fedema, get in the top three of the CFP marks. That is now the fourth advisor on our team that has made it in the top three in the last three years, Louai being one of them, which is fantastic.
It just shows the caliber of talent that we attract to PWL.
Ben Felix: I've got to give a shout out here to Dan and Justin too, because I was, pre my YouTube channel, pre Rational Reminder, you guys really made a name for PWL in a way that when we started doing other content, people were like, oh, we should listen to these guys because they came from the same firm as Justin and Dan, but you guys really charted that path for our firm.
Ben Wilson: Yeah, absolutely. That comes up all the time, the Canadian couch potato and the Canadian portfolio manager content that's been out there for years.
Dan Bortolotti: Yeah, thanks. I think we recognized early on that it's really the best way to demonstrate your expertise, not only that, but also demonstrate that you actually care about clients. I think that comes across in the nature of the content that we've been putting out, both clients and other advisors recognize that and are attracted to it. So that's been great.
Ben Wilson: It's interesting. And a lot of the conversations, there's been a few advisors that have told me, I'm interested to talk to you to hear about what PWL is up to, what the story is. But if anybody else that was looking to acquire approached me, I wouldn't even take the conversation.
I think that there on its own is powerful, not committing, just open to talk, to explore what the opportunity might look like. They're curious about what there is to come and what the opportunity might be. It's pretty cool experience so far.
The second motivator is just simply curiosity. Lots of people learning to reach out on a Octopita bill and see what are the options that are out there. This seems like you're building something different than the traditional financial options that are in our space.
We're looking to become an integrated firm, not a typical aggregator, which I'll share more about in a minute. But our goal is become the leading independent wealth management firm in Canada and change the Canadian financial wealth management space by building like a better, more client focused business. And this tends to catch the attention of many advisors out there.
Another key driver is the unified investment philosophy focused on the academic evidence, the Fama French model, taking a planning first approach is important in the investment landscape. There's a lot of people that their value that they offer the client is the investment management. I'll build you a portfolio that can get you better returns.
That's not where we focus our energy. Yes, investment returns are important and we try to build a portfolio that makes the most sense based on all the academic data. But we're really focusing on the things that we can control.
And that comes down to your financial plan. We can control your asset mix. We can look at your spending.
We can look at how much you're saving. We can adjust your retirement date, help you reach some of these objectives along the way. Having that unified philosophy and approach is also very attractive.
And the PWL model, we're all working as part of one team towards a single mission. It's different than what we know is out there in the landscape.
Ben Felix: I'm curious for you, Dan, you made the decision is different because it wasn't an acquisition. You were starting a practice. But when you decided to go into practice in this industry, as opposed to being a blogger, you could have gone anywhere.
You had a large following. You could have built a practice probably at any firm. How important was PWL's unified philosophy and approach like Ben just described?
How important was that to your decision to come to PWL? Obviously, Justin was part of that too, because you guys had a relationship. Be curious in your thoughts.
Dan Bortolotti: Well, it was fundamentally important. It's interesting because the story I always tell is as my writing started to gain a bigger audience, it also gained a bit of an audience with like-minded advisors. Of course, PWL was the most enthusiastic backer, I think, because at that time, remember, we're going back 15 years.
There was not a lot of investment firms that were advocating passive strategies. When Justin and I started collaborating a bit and hit it off as friends, I think it was over a beer one time, he just said to me, have you ever thought about becoming an advisor? I laughed.
I said, of course not. Literally never crossed my mind. But once he made the case for it, it started to make a lot of sense.
As good as it was to feel like I had some influence in improving people's investment, education and whatnot, at the end of the day, I didn't have any direct influence on anybody. It was all indirect. Once I started to appreciate I could actually work with people directly, it would have much more of an impact, but I never even considered working at any other firm and find it hard to imagine doing so now.
I can tell you flat out, I would never do it. It would either be within the PWL structure or some independent firm. I can't see joining any other kind of firm because it's just a unique place.
I was lucky to have encountered it when I did. It was fundamental to the decision. Ben W., can I ask you this question?
I'm wondering how many advisors you're encountering that truly do share the same philosophy because in my experience, I think there's a lot of advisors who mean really well. I don't think there's any question that the planning first approach is far more prevalent than it has ever been, but the sort of what I would call a kind of purely passive investment strategy seems to me to still be pretty rare. There are tons of advisors who use index-based products, particularly ETFs, but use them in mostly active ways or use them as part of a core and pay more strategy that I call it where the index part of the portfolio along with private equity and mortgage lending and all kinds of other things.
Are you finding there's a lot of people out there who you're looking at their practice and their approach and going, you guys are basically doing 90% overlap with what we do, or do you think that if advisors come aboard with our team, there's going to be some changes that they implement in order to change their practices to be more aligned with what we do as a group?
Ben Wilson: I think up to this point, we're focusing on the advisors that there is the 90% of overlap. We're well connected with the DFA advisor community. We're well connected with FPAC, which tends to be more forward-looking.
A lot of them are index investors already or moving in that direction. So we've built a good network of advisors already that know us, they're reaching out, interested in having conversations. So, so far, there has been overlap, but I think there's definitely going to be an opportunity as we continue down this path.
This is going to build momentum as like-minded advisors join in. Those are the easy wins, so to speak. But then as we get out there in the news or in the social networks, this is different.
There's a lot more movement towards index investing and PWL is hopefully a catalyst to that as Vanguard has attracted a lot of growth in the US towards index investing. There's a lot of ground to gain here in Canada. I think there could be opportunities if advisors are more active, but see the opportunity to move to index, or haven't done it, or not sure how to approach it. That could be opportunities to partner with PWL at some point.
Louai Bibi: I've been to a couple of dimensional conferences this year. It's actually been fascinating. You're attached to PWL.
You're almost like a celebrity in this world. It's so interesting to have advisors come up to you and ask you about how you interact with clients, how the business is structured. They're curious for some of the reasons Ben's mentioned.
I just wanted to highlight that that is super cool and that is always super welcome that I know that everybody on the team feels the same way too.
Ben Felix: The dimensional community is a pretty good source of connections for what you mentioned, Dan. People that don't necessarily use market cap weighted index funds, obviously being in the dimensional community, but people who think that way, generally speaking, and have a planning focus and have their practices set up in a certain way because dimensional has provided resources and information on all of those things. It's kind of like if you're a client, an advisor who is able to use dimensional funds, even if they're using index funds and not dimensional funds or a combination, you can be pretty sure that they have a reasonably good handle on the evidence and on what the data say about active management versus indexing and all the other things that we talk about on this podcast.
Likewise, you can be pretty sure that they're going to take a planning first approach because that's a big part of the dimensional philosophy. It's the same kind of thing for us as a potential acquirer. If we're looking for like-minded individuals, people who are within that community are a pretty good starting point.
Ben Wilson: If we move on to the next motivator, another topic that leads people to come out is when advisors become successful and start growing a business, ironically, they end up spending less time with clients, which is what they're passionate about, what drew them to the business in the first place, but now they've got a team, so they've got to deal with HR management and issues that come up. They've got to deal with compliance supervision, vendor management for all the tools that they need for managing the team and processes, strategic planning and infrastructure that keeps a firm running. So they end up spending a lot less time doing the client work where they're bringing value to clients and helping them achieve their goals.
People come to us kind of like, what does this look like? Ultimately at PWL, you're an employee of PWL. I think Ben mentioned this on an earlier episode.
I made a post about this. People are afraid of becoming an employee because they're not employable. We kind of don't take that view at PWL.
Yes, technically on paper, you're an employee, but we want people to come and build the business with us, partner with us and bring value to clients and use the skills that you have. A lot of advisors out there are such skilled advisors that we want them to spend more time in front of clients and let the business managers handle that part because that's where they're the most skilled. That's an interesting reason that brings more advisors into the conversation as well.
Another motivator that comes up in Canada, there's a lot of independent wealth management firms. Most of these independent firms are what we kind of refer to as aggregators. An aggregator is a loosely tied group of advisors who run their own businesses, but share access to tools.
So there's lots of independent firms out there where you're attached to a dealer. The dealer provides back office support, such as operations, compliance support, sometimes marketing support, access to tools to help you run your business, which is a very common platform. Works very well for a lot of advisors, but you're essentially plugging in, paying them a percentage of your commission and operating on your own little island.
With PWL, we're taking a different approach where we're looking to have this fully integrated platform. We do have a fully integrated platform, but we're continuing to scale that based on the shared values with a quality team culture, taking the planning first approach, common investment philosophy, but like all working together as part of one team. That leads to shared resources, collaboration, redundancy across teams.
So perfect example. If Louai is out of the office, he's part of a diamond team structure so that Louai can actually fully unplug and we can be sure that the clients are taken care of. I'm the same way as part of my own diamond.
A couple of years ago, I went on a three week vacation, was fully unplugged and came back almost to inbox zero for anything related to clients, which is such a refreshing feeling. And if you're on your own running your own business, it's probably hard to take a vacation without having to check in on your emails on at least a daily basis to answer any requests that are coming in. Having this integrated model allows advisors to truly scale instead of staying siloed and being part of an integrated team.
And I see the benefits of this daily. Our team members are collaborating regularly through Microsoft Teams, setting up calls. I've got a scenario with a client that I haven't seen before that are just having trouble, want to make sure it's presented properly.
I'll call up one of the other advisors on the team and say, can you just take a second look at this? And then we give the client better advice. We're fine tuning our skills and each of us are becoming better advisors day after day.
The last motivator I have on here is talking about legacy and succession. Succession tends to be one of the hardest and most emotional decisions that an advisor will ever make in their financial career. And for most advisors, it's not just about the financial payout.
It's what's going to happen to their clients, what's going to happen to their team that they've built. Are clients going to follow the same type of philosophy that they've built a career on? Finding the right partner, whether that be to work with for the remainder of your career or to kind of hand the reins when you're nearing the end.
That's important both to you, to your team and to your clients. That's something that's often overlooked. I mentioned the beginning.
There's many advisors out there that haven't even thought of succession at all. I'd encourage every advisor out there, no matter where you are in your career, to proactively think about succession. The earlier you do that, the better prepared you can be because you don't want to be in a place where you have some health concern come up and you're forced to make a quick decision, which could sacrifice economic value, could sacrifice suitable fit for your clients or your team, be a rushed decision.
It's just better to proactively plan that in advance. I was actually just talking to an advisor this afternoon who we've been talking to and we're progressing in conversations. This advisor said once they got to the point in the next stage in their succession planning discussions with us, a huge weight was lifted off their shoulders.
This has been weighing on this person for multiple years and now that there's a possible solution in place, it's just such a relief and then exciting to join something that we can build together.
Ben Felix: Very cool.
Ben Wilson: Cool conversations. And to sum it up, it's not always about selling these conversations. Like it's often just about learning, curiosity, how we can align, how we could compare notes.
We're always open to those types of conversations. Sometimes people are actively looking towards a succession plan, but I think the common thread in all these conversations, the lesson, key takeaway that I would share is that having a conversation doesn't cost anyone anything, but not having that conversation could be a huge opportunity cost. Could cost you a lot throughout your career or at the end of your career.
So encourage any advisors out there listening that are curious to have a conversation. Cameron and I are always interested in talking. Ben Felix, happy to have a chat as well.
Reach out. Like I said, conversation doesn't cost you anything.
Ben Felix: It's really cool how many of those conversations we are having. It's definitely been one of the most exciting parts of the post one digital acquisition chapter.
Ben Wilson: Absolutely.
Ben Felix: All right. Should we go to the after show?
Dan Bortolotti: Yeah, let's do it.
Ben Felix: Let's go. I just have one little anecdote. Anecdata. Data. I don't know what it is. So everyone knows that an Nvidia stock has performed crazy well.
It's been this massive story. So it's annualized return over the last five years is over 70%. Zero.
70% annualized for the five years ending August 27th, 2025. That's objectively crazy. It makes sense when you think about it that there are stocks out there that have done better than Nvidia.
Nvidia is a really big company. It makes up a huge portion of indexes. Combine that with its crazy performance, everybody's heard about it.
But there's this massive distribution of stock returns and all this massive number of stocks. What's even crazier than Nvidia is that Build-A-Bear Workshop Incorporated has returned an annualized 97.23% over the same period. Dillard's, the department store chain, returned an annualized 88.68% over the same period. And a Canadian company, Celestica, it's a Canadian multinational design manufacturing hardware platform and supply chain electronics manufacturing services company. This is the US listed version of the stock. So this is in US dollars.
All of these numbers are in US dollars. They returned an annualized 92.92% over the same period. Interesting to show that anyone that regrets missing out on Nvidia should maybe regret missing out on Build-A-Bear or Celestica or Dillard's even more than they regret missing Nvidia.
Dan Bortolotti: I definitely regret missing out on Build-A-Bear.
Ben Felix: How did we miss that trade, Dan?
Dan Bortolotti: It seemed so obvious when you were in one. This is the next big thing. What are you going to do?
Ben Felix: I was building the bear and I was putting its eyes on it.
Dan Bortolotti: I just knew this was the trade. I'm thinking it's got to be 97.23% annualized.
Ben Felix: Completely insane. Now I got curious about these companies. How significant are they?
Build-A-Bear and Dillard's, I think the names are known. Celestica, I honestly had not heard of. I looked at Celestica though.
It's one of the top holdings in the DFA Canadian Vector Equity Fund, which is interesting. That fund has actually outperformed XIC, the iShares Core S&P TSX Composite Index for the trailing three, five and 10-year periods ending August 27th, 2025, which surprised me because that fund does not hold Shopify, which is one of the best performing stocks in the Canadian market. Seeing that it holds Celestica, I was like, okay, maybe that starts to make a little bit more sense just in terms of how that fund has been able to keep up while not holding Shopify.
I got curious about those numbers over the last three years. Over the last five years, Shopify has actually not done great because it did really well, crashed down and it's come back a little bit. But over the last three years, it's had really high returns.
It's returned an annualized 65.88%. You look at that, it's like, how can the vector fund, which doesn't hold that, how can that keep up with the index where Shopify is one of the largest holdings? Celestica, which as I mentioned, is one of the larger holdings in the vector fund has returned over the last three years, 171.22% annualized. It's just crazy.
Dan Bortolotti: Is Celestica in the S&P TSX composite or is it too small?
Ben Felix: It is in there. I did look at the holdings. It makes up 0.79% of XIC.
Dan Bortolotti: But it's less than 1% even after having returned 171% for the last three years.
Ben Felix: It was a fraction of a percent and now it's a slightly larger fraction of a It's not a huge holding in vector, but I mean, nothing is a huge holding in either of these funds really. The largest holding in XIC is Royal Bank at 6.95% and then Shopify at 5.78%. The Canadian vector fund also has RBC as the largest holding at 5.29%. But Celestica is 2.2% of the vector fund. So it is a larger holding.
And I did go back to historical holding periods and it has been a relatively large holding for a bit going back in time. Somebody had tweeted about Build to Bear outperforming NVIDIA. So I just went and pulled, I did US listed first, all the US listed stocks with annualized returns above 70% and just went through to see if there were interesting names in there.
And then they did the same thing for Canadian. Maybe Celestica showed up in that search too because it's dual listed. Little interesting story to show that picking stocks is really hard.
It's easy to look back and say, oh man, I missed NVIDIA. But nobody looks back and say, oh man, I missed Build to Bear. But Build to Bear was the bigger miss.
You don't know where returns are going to come from. That's one of the attractive things about just owning the index or the vector fund, I guess. Owning everything, owning a cross section of stocks with or without moderate tilts towards small cavern value if you so choose.
Dan Bortolotti: It's worth mentioning actually that DFA vector fund, last time I looked, its number of holdings is over 500 companies, something like that. It's bigger than the TSX composite index, which is more like 250, 260. I don't know if that's still the case, but certainly you've got everything in there.
Ben Felix: XIC is 215-ish holdings, 216. I'm just looking at the Excel that has all the holdings. Then Canadian vector has 320 at the moment.
Dan Bortolotti: So more than XIC.
Ben Felix: It is interesting, you're right. I think XIC is excluding a lot of smaller stuff. I think also the Canadian core fund is kind of interesting. I think it has a larger number of holdings too.
Dan Bortolotti: The point here just being, if you own everything, then you're going to get all the Build to Bears and Celesticas you probably wouldn't get even potentially in a large cap index fund. It's not the entire market.
Ben Felix: Yeah. So the Canadian core fund is 367 holdings. So even more than the vector fund, because the vector fund is excluding some companies.
Another interesting thing that I came across just as I was looking at these numbers is that the largest holding in the US vector equity fund, these are all as of June for these percentages, is Nvidia. That kind of surprised me.
Dan Bortolotti: Yeah. Not a traditional value stock. Certainly not a small cap stock.
Ben Felix: I know that they changed the vector weightings to be more equally weighted toward size value and profitability premiums. I'd have to look at, dig into the numbers, but maybe it's the profitability that's giving it a boost in there. I found that interesting. I was surprised.
Louai Bibi: This whole deep dive reminded me of a conversation that I had with a prospective client a couple of weeks ago where she's interviewing a few firms. And one of the big firms that is US based that is a very active manager was one of those options. And the advisor there told her, hey, did you know that the majority of stock returns come from a really small handful of stocks?
And I was like, yeah, I have heard of that. And she goes, yeah. And that advisor did a review of my portfolio and saw that I owned 100 stocks and how bad that was.
And I was like, you are not going to like us then. We are in trouble.
Dan Bortolotti: Louie, it's obvious you just figure out which ones are going to deliver the highest returns and buy them. It's classic. And I think that you'll see a lot of active advisors will do things like that too, where they just look at the most recent good performers and then put out a recommended list and people, well, I'm going to check your recommended list.
Oh, look at that. These have all been great recent performers. It's a big surprise which one came first, the list or the performance.
But that's the playbook. Like you said, the sooner a prospective client gets that that's not what we do, the easier the conversation becomes.
Louai Bibi: Different world.
Ben Felix: Very, very different. It is interesting though. We talked about this with Hank Bessembinder, but he talks about how his research can be used in either direction.
And he's seen that. He's even careful in the podcast that he did with us to not push too hard in either direction. Yes, most returns come from a few stocks.
That could either mean that you or it could mean that you should pick, if you think you can, those stocks that are going to perform.
Dan Bortolotti: If you know going in that buying a total market index that might include like in the US over 3000 stocks, and the majority of them are going to be losers over time, you could spin that in a way that says, well, why would anybody buy a total market index fund when it's filled with mostly losers? And then the insight comes when you realize because identifying the winners ahead of time is impossible. It's not as straightforward as that might make it sound. It's not intuitive. I don't think.
Ben Felix: No, it's not at all. All right. We got a couple of reviews.
I'll do the disclaimer. Dan, you want to do the first review and Louie, you want to do the second one?
Dan Bortolotti: I'd love to. Yeah, I get to do the nice short one.
Ben Felix: We have a few reviews from Apple podcast to read under SEC regulations that were required to disclose whether a review, which may be interpreted as a testimonial was left by a client, whether any direct or indirect compensation was paid for the review. Or whether there are any conflicts of interest related to the review as reviews are generally anonymous, including both of these ones because they're from MPRMT and raging immoderate. Those are pretty anonymous.
I could not guess who they are. We are unable to identify if the reviewer is a client or disclose any such conflicts of interest. As I've said, the last times I've read that disclaimer, we have never paid for a review and we would not do that because that would be pretty weird.
But anyway, there's the disclaimer.
Dan Bortolotti: Well, we can pay for this one. A+++, by far the best personal finance podcast out there. Absolutely stellar. And that's the one from MPRMT from Canada.
Ben Felix: A very nice review.
Dan Bortolotti: Short and sweet.
Louai Bibi: Second review, objective and informed. This one's a little bit longer, so bear with me.
For context first, I am a long-time financial services employee, both individual contributor and leader on both sides of the balance sheet. I'm also a licensed advisor with a CFP, CIM, LLQP, that's insurance license in Canada, and some other designations. I've worked for big banks and smaller firms.
These guys take the passion into modeling and math that I wish the entire industry did. They discuss the trade-offs in financial decisions logically and in detail. Financial literacy is arguably the most important skill every adult needs.
This podcast will improve viewers whatever level you are at. Good guests, good subjects, and honest open discussions. They point out the lack of transparency, product pushes, and all of the rest of the warts in the financial services industry has in abundance.
But without sounding sanctimonious, thanks for the big word there, that was most embarrassing for me, judgmental, or with the pearl clutching you tend to find on most podcasts regardless of the subject. You can tell they weren't comfortable with the industry and its focus on growth and sales without the accompanying fiduciary responsibility. The best way to help make the industry better is by having more people listen to this podcast and become informed.
I fully endorse you listen to The Rational Reminder by Raging Immoderate. Strong feelings.
Ben Felix: Very nice endorsement.
Louai Bibi: Great review.
Ben Felix: Yeah, it's a good one. I did want to mention, I didn't put this in the notes. I got an email from someone who works at a bank as a financial planner.
Our last episode, as regular listeners will know, was about the OSC and CIRA report showing through a survey of bank mutual fund representatives that there's a really strong sales culture at banks that may impede the quality of advice given to bank customers. We did a whole episode on that. I got an email from someone who works in the bank and they were not impressed with the episode, which may not be surprising.
But they did raise some interesting points, so I thought it was worth addressing. They explained that there are different types of mutual fund licensed representatives at banks, financial planners being one that I think is probably a pretty universal title. There are other representatives who are more obviously salespeople who are selling all different types of products.
The point that they were making to me is that financial planners specifically with a financial planning designation in a financial planner role at the bank will tend to be a little bit different, elevated to a slightly higher level of held to a higher standard than someone whose main job is selling products. Now they did say that they still have sales targets and sales pressure, but they also said that if they're doing their job well, they have not found that to be an issue. They also said that they do have access to bank index funds.
Now those index funds have much higher fees than an index ETF that you'd buy, or even like a TDE series mutual fund. Their fees were on average a little bit under a percent for a globally diversified portfolio, which is high. However, that fee is covering the cost of the product and access to the financial planner at the bank.
You take it together, it's not actually that crazy when you consider that somebody working with a firm like PWL would be in a pretty similar range for their advice and products. We did mention we've hired a financial planner, at least one from a bank, and they're fantastic. They had a similar experience where they were able to use bank index funds when they worked there for a period of their career.
They were not compensated. The index funds didn't count toward their bonus, but that did change later on before they came over to PWL. I just wanted to shine a light on the points that this person is making, that they're saying, well, hey, I work at a bank.
I am a CFP professional. I think I'm doing good work. There are some of us out here.
Now that doesn't counteract the weight of the data from the CRO and OSC research. I think it's still true that if you walk into a bank, the quality of advice that you should expect is pretty low. Sales pressure is an issue regardless, but I think it's fair to air the concerns that this listener raised.
We may have painted banks in too poor of a light. Although we did say that there are good people working at the banks, but it's worth saying again that even though that research I think is legitimate and concerning, that does not mean there are not some good people like this listener that emailed me who are doing proper financial planning, working at a bank, using index funds, doing all the right things, just happen to work at the bank. I just wanted to get that out there.
Dan Bortolotti: I don't think the issue is the character or the quality of the people. It's the incentive structure. If you were to pay a financial planner a salary at a bank and their job was to deliver service to their clients, I'm sure they would do a good job of it or at least they would do no better or worse than anybody in a similar structure at a different type of firm.
If you're going to create a structure where people's compensation is based on how much insurance they recommend, how much mutual funds they sell, whether they get people to sign up for lines of credit, you're going to get predictable results.
Ben Felix: Charlie Munger quote, show me the incentive and I'll show you the outcome.
Dan Bortolotti: That's a fair comment.
Ben Felix: I felt a little bad because this is a listener who engages with our content, who's practicing a lot of things that we talk about. I think they felt like they were painted unfairly. That is worth mentioning.
We got two meetups coming up in Victoria on September 15th, Vancouver on September 17th. We have 16 people signed up so far for Victoria, 32 for Vancouver. Usually more people than sign up actually come, but it would be great for us to have numbers.
If you're planning on coming to either of those meetups, we will put a form in the Rational Reminder community and the YouTube show notes and I guess the show notes for the audio podcast too. If you're planning on coming and have not filled out the form, please do so so we have accurate numbers just for booking space and stuff like that. But it should be good. Those meetups are always fun.
Ben Wilson: It's also worth mentioning that Cameron, Brady and other advisors on our team and I will be at the future proof conference in Huntington Beach, California from September 7th to 10th. So anybody in the industry that's attending that conference, reach out. We'd love to meet up when we're there.
Ben Felix: Very cool. All right. Anything else guys?
Ben Wilson: Nothing from here.
Dan Bortolotti: That’s all from me.
Ben Felix: All right. Thanks everybody for listening.
Disclosure:
Portfolio management and brokerage services in Canada are offered exclusively by PWL Capital, Inc. (“PWL Capital”) which is regulated by the Canadian Investment Regulatory Organization (CIRO) and is a member of the Canadian Investor Protection Fund (CIPF). Investment advisory services in the United States of America are offered exclusively by OneDigital Investment Advisors LLC (“OneDigital”). OneDigital and PWL Capital are affiliated entities, however, each company has financial responsibility for only its own products and services.
Nothing herein constitutes an offer or solicitation to buy or sell any security. This communication is distributed for informational purposes only; the information contained herein has been derived from sources believed to be accurate, but no guarantee as to its accuracy or completeness can be made. Furthermore, nothing herein should be construed as investment, tax or legal advice and/or used to make any investment decisions. Different types of investments and investment strategies have varying degrees of risk and are not suitable for all investors. You should consult with a professional adviser to see how the information contained herein may apply to your individual circumstances. All market indices discussed are unmanaged, do not incur management fees, and cannot be invested in directly. All investing involves risk of loss and nothing herein should be construed as a guarantee of any specific outcome or profit. Past performance is not indicative of or a guarantee of future results. All statements and opinions presented herein are those of the individual hosts and/or guests, are current only as of this communication’s original publication date and are subject to change without notice. Neither OneDigital nor PWL Capital has any obligation to provide revised statements and/or opinions in the event of changed circumstances.
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