November 27, 2025

Episode 385: A Case Study on Pension Benefits vs. Commuted Values

November 27, 2025

In this episode, we feature two conversations that highlight PWL’s culture, values, and intentional approach to advice. We first sit down with Trevor Daigle and Brett Watt, founders of EB Wealth in Halifax, to talk about why they chose to merge their thriving independent practice with PWL — PWL’s first acquisition in Atlantic Canada. Trevor and Brett open up about what they saw in PWL’s infrastructure, culture, and client-first philosophy, the internal hurdles they had to clear (including their own egos), and the moment they realized they “couldn’t unsee” what PWL had built. Then, in the second half of the episode, PWL Portfolio Manager and Financial Planner Phil Briggs walks us through a remarkable real-world case. A podcast listener’s father decided to take the commuted value of his defined benefit pension… and the family approached PWL to invest it. Rather than simply execute the plan, Phil stepped back to rigorously analyze whether that decision made sense at all. The result is one of the most compelling demonstrations of evidence-based financial planning we’ve featured on the show — covering risk pooling, tax implications, Monte Carlo results, survivor benefits, and the emotional side of decision-making.

Key Points From This Episode:

(0:00:51) Welcoming Trevor and Brett — and why their practice, EB Wealth, aligned so closely with PWL’s holistic philosophy.

(0:02:30) How long-term cultural fit, infrastructure, and research depth drove their decision to join PWL.

(0:04:57) “We can’t unsee that”: The moment a visit to Ottawa convinced them PWL’s values were real at every level.

(0:07:45) Their biggest concern: giving up control after years of running an independent practice — and how that shifted.

(0:09:43) Setting aside ego: How thinking long-term and client-first changed their perspective on joining PWL.

(0:11:35) What excites them most about the future: growth, learning, and being surrounded by experts who prioritize client outcomes.

(0:13:17) Seeing PWL’s collaborative culture in action — and why industry-typical “sales meetings” were nowhere to be found.

(0:14:43) Transitioning clients and feeling the immediate impact on conversations and relationships.

Phil Briggs on the Defined Benefit Pension Case

(15:05) The setup: A podcast listener reaches out after his father already decided to take the commuted value of a DB pension.

(17:25) Why Phil was surprised — and the questions he wanted answered before talking about investing.

(17:25–18:49) The benefits of staying in a DB pension: risk transfer, inflation protection, and mortality pooling.

(19:07) The risks: employer insolvency, underfunding, and historical examples like Sears Canada and Nortel.

(20:10–22:04) Evaluating pension solvency: sponsors, surplus status, funding ratios, diversification, and regulatory filings.

(23:49) Reasons someone might take the commuted value: investment preferences, life expectancy concerns, and survivor benefits — the central issue in this case.

(25:15–30:52) The tax trap: how the “excess amount” of a commuted value can trigger immediate taxation — in this case at the 53.53% marginal rate — and how RRSP room and PARs interact.

(31:26–33:53) Modeling the decision: building retirement scenarios in financial planning software, including spending, inflation, CPP/OAS, rental income, and Monte Carlo analysis.

(34:00–37:54) Results:

60/40 investment after commuting: overfunded plan but with significant volatility.
100% equity: higher legacy, similar failure rate.
Leaving the pension with the employer: similar retirement score but dramatically higher Monte Carlo success (96%) due to guaranteed income, inflation hedging, and tax smoothing.

(38:32–40:55) Why the pension’s stable income floor and deferred taxation made such a big difference — even in a shortened-life-expectancy scenario.

(41:05–41:37) Other firms simply accepted the commuted-value plan; PWL was the only firm to fully analyze the decision.

(43:50–44:53) How personal values, risks, and emotional comfort interact with data in real financial planning decisions.

(45:00–47:28) The next decision: choosing between a higher pension with a 2/3 survivor benefit or a lower pension with a 100% survivor benefit — and how break-even analysis (age 81) informed the client’s choice.

(47:44–48:31) Why planning software provides clarity people can’t get through gut feel alone.

(48:31–49:59) Trust and incentives: why turning down a large investable sum was the right decision — and why PWL celebrates that.

(50:08–51:01) Culture + incentives: how PWL’s structure allows advisors to prioritize clients without sales pressure.

Read The Transcript:

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 Ben Wilson, Head of M&A at PWL Capital.

Ben Wilson: Welcome to episode 385. We are welcoming some special guests to this podcast, Trevor Daigle and Brett Watt, who recently just joined PWL. It's our first acquisition in Atlantic Canada.

They come from a team called EB Wealth, based in Halifax, Nova Scotia. So, super excited for that conversation to chat about what led to their decision to come and join PWL. Any obstacles that came in the road throughout their process, but ultimately, what excited them and what they're looking forward to going forward.

Ben Felix: They're a great couple of guys. People will hear as they answer the questions that we ask, but they're just through and through good people. Super excited to have them here.

Super excited for PWL to have a presence in Atlantic Canada. That's pretty exciting in the evolution of our firm. Their practice, EB Wealth, very similar to PWL, delivers holistic wealth management that integrates investment management strategies and comprehensive financial planning.

Same investment philosophy, same approach to clients. It's cool to hear them explain their perception of PWL and their experience with PWL so far and why they decided to join. You guys will get to hear that in a minute.

Then after hearing from Trevor and Brett, we have a honestly just fascinating conversation with Phil Briggs, one of PWL's portfolio managers and financial planners, about a client case where the client had to decide whether to take the commuted value of their pension and invest or keep the pension benefit. Actually, I said they had to decide, but they had actually already decided when they reached out. They reached out to Phil and said, hey, listen, we're taking the commuted value of this pension.

Tell us how you're going to invest it for us. That's not what Phil did. I won't spoil it, but we'll walk through Phil's analysis with Phil.

Any comments there, Ben, before we go?

Ben Wilson: Very cool case that shows the intentional approach that we take to planning and thoughtful, not just, oh yeah, that makes sense. We'll execute what you want. It's a good testament to the work our planners do at PWL.

Ben Felix: Let's go to our conversation with Trevor and Brett and then make sure you stick around for the meat of the episode after that with Phil Briggs.

Ben Wilson: Welcome Trevor and Brett to the Rational Reminder Podcast and welcome to the team at PWL. We're happy to have you on our team.

Trevor Daigle: Thanks for having us.

Ben Wilson: We'll get right into it here. We got a few questions to understand what led you to PWL and what led you to this decision to jump in and join the team. First question, how did you decide to merge your growing independent practice with PWL?

Brett Watt: We've been avid followers of the Rational Reminder Podcast and PWL as a whole for many years, probably since inception of the Rational Reminder Podcast. We've had conversations with a couple of you guys over this time and really have admired everything that PWL is doing from afar. For us, the decision really came as we looked at how we want to grow as advisors and also as a business and really what we want to deliver for our clients.

We were having some success running an independent practice on the East Coast. We had built something we were pretty proud of, but we also recognized that to continue to improve the overall client experience, there were conversations that could be had. So when we started to talk with PWL and the team there and we started to explore things and everything that you were doing, we looked at infrastructure that you had, the research depth, the culture, all of that was truly inspiring for us.

We really viewed this as a way to take our expertise to the next level and to deliver that amazing client experience to all current clients and future clients as well.

Trevor Daigle: Just to add to that as well, I think looking at the landscape of what was happening in financial services in Canada in particular, what the future looks like, being probably the oldest member of this conversation and nearly 30 years in the industry, I was really looking at what does this mean for our clients from a long-term perspective and looking at where the larger organizations are planning on doing for client service in the next 20 to 30 years.

It was important for me to make sure that as I look at this from a long-term perspective that I won't be here and I'm leaving money behind and clients behind. I want that to be left with people who I'm comfortable with, I'm confident can deliver great experience and are focused on the client experience. That was a huge part of it as well for us.

Ben Felix: Was there a moment that you guys realized that this was the right thing to do?

Trevor Daigle: Brett and I had talked about this actually a couple of times. It was actually after we traveled to Ottawa to visit you guys and spend a day with PWL. We had obviously had a number of conversations leading up and doing some due diligence, but part of that for us towards the end of it was coming to figure out if you guys were real.

What I mean by that is it was great, we met Cameron, we'd had some great conversations with Ben Wilson, we'd been introduced to a few people, but those are all at the top. What we really wanted to understand is does this culture disseminate down through the organization? We've all had meetings and conversations with people at the top who tell you all kinds of wonderful things.

The question is, are they able to execute? And more importantly, are they delivering? Having gone to Ottawa that first time to meet with the leadership team, to have conversations with some of the advisory team, to meet a bunch of your different members at different levels throughout the organization, and to understand and see that what you say and what you do are actually the same thing at all levels throughout the organization.

30 years in the industry, I'd never seen that. I'd seen culture be created at the top and not disseminated down through the organizations, so it was really interesting for me to see. We left that meeting and you'd shared some other information with me, and we got into our Uber on our way back to the hotel, and I looked at Brett and went, we can't unsee that.

To me, it was kind of the defining moment of, I know what I want to do.

Ben Wilson: Wow, that's awesome.

Brett Watt: I think one moment for me was actually coming home from that trip. My wife and I always joke that she has this sixth sense or gut feeling. We talked through the trip to Ottawa, and we talked through meeting everyone in the team, and everything that this could mean to us, both as a business, to our family, what this role could mean for me for the next 20, 30 years until my eventual retirement, and then also what the other options were.

If we were to continue to do this independently as we were, where we were enjoying that, we were having success, and we talked through the pros and cons, but I think she listened through my excitement and everything that came with talking about PWL, and she said to me after that, you talk about this differently than I've heard you talk about your career for the last 10 years, and what the future could hold doing this as EB Wealth independently.

Ben Wilson: Pretty cool. We feel that culture internally, and we live it, but it's great to get that external confirmation. We're actually seeing it and seeing you live it, and we want to be part of that, which is a pretty powerful statement.

Trevor Daigle: A lot of people talk about a client-focused approach. Rare have I seen it in action and delivered on a daily, consistent basis throughout all members of the organization. That is what has impressed me the most, is this commitment that client comes first, and it's felt everywhere through the process, and even as we transition over, we continue to feel like that is the priority for everyone.

Ben Wilson: As you went through this decision-making process, were there any concerns that you had? I don't want to know, because I know originally you said no when we first asked you, and you turned around and ended up joining. What were the concerns that you were battling through together?

Brett Watt: We talk a lot to clients about controlling what they can control. In our business, we know that in talking with clients, we're not going to control the stock market. We're going to focus on those planning variables that we can control.

All the different things you talk about on this podcast, and then as owners of that actual business, we started to look at that and say, well, in this world, we know we can control all these different variables. We know what the future holds. We know that we can do it in the way that we want to run the business, deal with those client relationships, provide value to clients.

So, joining something where ultimately we didn't have that final say or all of the control was a little scary. I know we talked to many different firms across Atlantic or Canada in general over the years, and that was something that we did not want to give up. We wanted to be able to continue to build what we were building and be able to provide clients with the deliverables that we thought were the best for their long-term outcomes.

But as we talked more and more to the team at PWL and looked in depth at everything that you've built, we looked at ourselves and said, they've got everything we could dream of and more. As Trevor said earlier, now that we've seen all of this, how could we not go in that direction? Because that's going to take us as advisors to the next level and also in the end bring more to our clients in how we're working with them.

Trevor Daigle: Having been entrepreneurial for our entire careers, the PWL model is different. If you're an advisor out there and you're looking at what does PWL offer, it's a very different overall experience. That was something that we needed to get our heads wrapped around.

The question is, is it more of the same? As Brett said, we know what we're doing, we know how to do it, we know how success is, we know how to continue to grow. When we did take a look at this, for us, this is like a 10-year evolutionary leap that we couldn't really make on our own, not that quickly.

If you're focused on the client, you're looking and going, man, we can deliver so much more. The philosophy is the same, the care about clients is the same, the drive and the goal is the same, is to give people a better experience, a better relationship with their money. When we do that and we look hard at it, we have to say, you know what, maybe we need to set our egos aside here.

Because let's be honest, this is what we're talking about. If we put that aside and we say, let's do what's right for clients, let's look at what's right for business, let's take a look at how this model works for Trevor and Brett. I think when we did that, it became very clear for us what the right answer was.

The original answer was no, because we didn't really understand and we were putting our egos ahead of some of the other things that were important. But then when we sat back and gave ourselves time, headspace to think about it, I think we thought about it in the right way.

Ben Felix: Those are two very, very thoughtful answers to that question. Very cool to hear.

Ben Wilson: Good for you to recognize that your own ego was getting in the way and this is something we want to do that's beyond ourselves and better for our clients. That's pretty cool.

Trevor Daigle: Not everybody is going to be able to think like this. For those advisors who can think like that, I want a really wonderful experience. I want a great career and I'm okay to not have my name and I'm okay not to be the star of the firm.

That's good. This was a wonderful for that.

Ben Felix: That's a great explanation. When you guys look ahead to the future, what are you most excited about?

Trevor Daigle: I'm going to say growing. I'm in my mid-fifties. I'm not done growing as an individual.

I'm not done growing as an advisor. We've often talked to our clients about this is about being better for them, both as a practice and as an individual. I'm looking forward to learning the stuff I don't know and to becoming better at the stuff I do know.

I really think that in partnership with PWL, that's going to happen pretty quickly. My knowledge is going to grow and my skillsets are going to grow.

Brett Watt: Yeah...I was going to go in the same direction, just with learning, being able to learn from the team here. Everyone on this team is super impressive. We can only imagine how much we're going to learn so quickly.

I know just yesterday, we joined a firm-wide advisor call and it was super interesting to just sit there and take in all the different things the team was talking about. Something that really stuck out to me was after sitting in on many of those advisor calls over the years, whether it be at a larger firm or another smaller firm that we've been at over the years, this call was all about what we're doing as a team to deliver better outcomes to clients, talking about how we can optimize certain things in our planning software, how different situations are going to make the clients have a better outcome overall, versus many of those conversations or sales meetings in the past are all about sales targets. How are we going to put in this new product, get sales to the next level?

There was none of that on this call. It was super inspiring to sit in on and see, okay, this is really how they're approaching the business and they're really trying to deliver the best value to all of their clients.

Trevor Daigle: That and the collaborative approach, I thought that was really, really interesting. Now, as we did our due diligence, we talked a lot about that collaboration approach. I'd heard a lot in other firms.

Seeing an action yesterday was something else entirely. It was really nice. It was comforting again to know it was another prime experience.

As I said to Ben Felix when I joined this call, he asked us how things were going and I was like, man, you guys have come exactly as advertised and that is refreshing.

Ben Felix: That's cool to hear. I don't even think about those advisor calls as being unique but when you say that, I've been at a firm also where those advisor calls are all about sales, how to meet the next target, which product has to move and all that kind of stuff. That's just not something that we talk about.

That just comes as second nature, I think, at PWL. It's part of who we are. Hearing you guys comment on it externally from a more recent external perspective, it's like, oh yeah, that probably is pretty unique across the industry.

That's pretty cool.

Trevor Daigle: Yeah, it really is.

Ben Felix: Awesome. Well, hey guys, super excited to have you at the firm. We really appreciate you coming to the podcast to talk about your decision.

Ben Wilson: Great answers. Awesome conversation.

Trevor Daigle: Again, it's been thought-provoking for us the entire journey and it continues to be and at the end of the day, it's only week two but we thought we had great conversations with clients prior to this. I'm already starting to see how those conversations are strengthening already and those relationships are getting deeper and that's just on some quick 30-minute phone calls with everybody just to fill them in on what's going on. There's already value being delivered and they're already seeing it for the most part.

Ben Felix: Wow, that's amazing. Phil Briggs, welcome back to the Rational Reminder Podcast.

Phil Briggs: Thanks so much for inviting me back. I'm excited to be here.

Ben Felix: Super excited to be talking to you. You sent me this case. You told me about it a while ago and I was like, man, we got to do this in the podcast.

Tell us about the client case.

Phil Briggs: I thought this was a cool story as well and really appreciate the opportunity to come on and explain what happened. I feel like a lot of the time people reach out and I've had a ton of conversations over the past few years with so many different people across the country that are reaching out to us and are interested in what we do at PWL. Not everybody always understands the financial planning aspect of what we do.

They think it's largely about portfolio management, which I know we've talked about a lot in the past on the podcast and I thought that this was just a great example to highlight in practice what does financial planning look like. The story that I wanted to share today was about a podcast listener who reached out on behalf of his parents to PWL hoping that we could help with portfolio management and financial planning. The situation was that the father had actually recently retired at the age of 65 and had made the decision to take the commuted value of his company's defined benefit pension plan.

The primary reason that they were reaching out to us was because this decision had already been made and they wanted help with investing the funds to try and help fund the parents' retirement goals. Most of the initial questions that they sent me in advance of the meeting were all related to portfolio management. What was the strategy that we would be employing for the funds?

I think it's worth mentioning the son did have a high amount of financial literacy, regular podcast listener, big fan of your YouTube channel, Ben. He had some ideas around what they should be doing. In theory, he could have helped them manage the funds even in a DIY account, but after discussions among the family, they all felt that maybe it would be better to hire an arm's length advisory firm who could give them some objective advice.

That was part of why they reached out to us initially. As I prepared for the meeting, I have to say I was a little bit surprised that the decision had already been made to take the commuted value. I actually wanted to ask a little bit more about the thought process that went into that upfront before I started getting into portfolio recommendations.

Ben Wilson: It sounds like a fascinating story. When you approached this, what made you surprised and what questions did you want to ask about them taking the commuted value?

Phil Briggs: I've been in financial services for 15 years. I would say in my experience, generally people tend to have a preference for leaving the pension plan with their employer for a lot of different reasons. There are a lot of benefits to doing that.

The biggest one is that the risk of not being able to make future retirement payments is transferred from the individual to the pension provider. People tend to prefer that rather than all of the risk being on them to invest the funds successfully themselves. In some cases, the pension benefits provided by the employer do have a cost of living adjustment as well.

There's a nice hedge against inflation there. That was the case here as well. Our potential client, the pension benefits did have a cost of living adjustment.

I thought that was something worth considering. The other big thing with leaving a pension with the employer is that there is an element of risk sharing with the other contributors to the pension plan. Not all pension recipients are going to live for the same amount of time.

It's strange to think about, but those who die earlier in a sense are subsidizing the other pension recipients who live for a longer period of time. For these reasons and other reasons, people tend to prefer leaving the pension with their company and receiving that guaranteed income stream for life rather than taking the cash and investing the funds themselves.

Ben Felix: Classic risk pooling. You're transferring a lot of the risk to the employer, which is great. You've got a bit of an inflation hedge in there with a cost of living adjustment.

Then you've got the mortality risk pooling. Yeah, those are all great arguments to keep a pension benefit. Are there downsides of keeping the pension with the employer?

Phil Briggs: Definitely. There's a few downsides to think about. Number one is obviously it is possible that the pension provider could become insolvent and unable to provide the retirement benefits that they've promised.

We have seen a few noteworthy examples of this in Canada in the past. I think if I remember correctly, the Sears Canada pension plan was pretty dramatically cut due to underfunding. Nortel was a company that provided defined benefit pension benefits that had to be cut.

It is possible that the pension provider might not be able to meet their obligations if they run into trouble.

Ben Felix: That's a really interesting point. How do you decide, yeah, this is a safe pension or maybe not?

Ben Wilson: I would just add there, I have a real life experience with that. My father-in-law actually worked for Nortel. He has lived this experience where he was expecting a pension from Nortel.

We all know what happened there. He got dribs and drabs, but nowhere near what he was expecting. That obviously changes your retirement plans.

There's real risks there.

Phil Briggs: For sure. If you are going to leave the pension with the employer, trying to assess their creditworthiness and the likelihood that they might not be able to meet their obligations is definitely something to look into. There is a lot of publicly available information about the funded status of company pension plans out there.

In this case, specifically, we were able to look up some of the information. We knew, for example, that the company that's sponsoring the pension plan is wholly owned by a Canadian province. We felt that that suggested a high likelihood of ongoing stability.

I think if they were in a less stable business, we might dive a little bit deeper into the pension plan's financial statements. Looking at things like the solvency ratio or the capitalization ratio, which are measures of a pension plan's ability to meet its obligations. We looked at this company's financial statements.

We did see that they're currently in a surplus position. Their assets exceed their liabilities. The company that's sponsoring the plan does have an investment-grade credit rating.

These all made us feel pretty comfortable. Pension plans are all subject to regulation. We did see that the pension plan is consistently filing its annual financial statements and actuarial reports with its provincial regulator.

This would suggest they're doing what they're supposed to do in order to meet their obligations in the future. The other big thing is the actual underlying investments themselves within the pension plan. We saw that they're invested in a diversified portfolio of fixed income equities, some real assets, a small allocation to alternatives.

There's broad diversification, a decent amount of liquidity. These are all things that we consider in assessing the credit worthiness of a pension plan.

Ben Felix: That's important. It's not all invested in the stock of the company, which has happened, I think, in some of those extreme cases. Maybe Nortel, I'm not 100% sure on that one.

I think Enron is another one where the pension plan was invested in the stock of the company, which is classic risk management failure.

Ben Wilson: I'm thinking of the Nortel example. Back then, it probably seemed like a pretty solid, stable, successful business. That's partly why private companies have moved, for the most part, away from defined benefit pension plans.

Most big companies are doing defined contribution pension plans, which put some of the risk back on the investor. As you can see, in big company cases that we've seen in the past, they can still fail. They're a lot more common in the cases of government pensions or the teacher's pension or bigger organizations like that, where there's a steady stream, a much more likely government-supported stream of income to fund the pension for decades to come.

Phil Briggs: If there are thousands of people that are going to be receiving those pension benefits as well, I personally would think that the chances that the provincial government would let a pension plan become insolvent like that maybe are low. Certainly, it's not just a matter of comparing the numbers, the expected return on investment, the pension payments. The solvency is a huge issue to consider.

We definitely tried to look into that. I don't profess to be a pension solvency expert, but certainly tried to provide my client with some perspective and some information on what we were seeing.

Ben Wilson: Aside from insolvency, is there any other downsides that are worth considering if you have a defined benefit pension?

Phil Briggs: I guess, in theory, an individual could invest the funds themselves so successfully that they get a higher set of lifetime payments from the funds compared to what the employer might get. In theory, that could happen. It's also possible that what I mentioned earlier where the pension recipient might have a shortened life expectancy, maybe they have health issues or something like that, and they could be concerned that their surviving spouse or eligible beneficiaries might receive reduced pension benefits or nothing in the event of an early death.

Those are additional considerations beyond just the solvency of the pension to consider. And it was actually that last reason that drove this prospective client that I was speaking with to make the decision to take the commuted value. He had experienced a pretty significant health issue right before retirement, and he was concerned about the idea of leaving his spouse with a reduced pension.

There's only a two-thirds survivor benefit in the event of an early death for him. And so, that was the rationale initially for taking the commuted value.

Ben Wilson: It makes perfect sense. And it's a real human response to iPad health concern. I don't want my spouse to be stuck with less money.

Given that, why didn't you just proceed with investing the commuted value of the pension at PWL?

Phil Briggs: I agree that the logic made sense, but I still wanted to test it with our financial planning software and see what the numbers and see what the data would say. I wanted to account for things like market volatility just to see if taking the commuted value, even in the shortened life expectancy scenario, was the optimal decision. I ran all of this through our financial planning software.

And what was cool was prior to the meeting where I presented this information to the client, I think they thought they were signing on to hear about the investment proposal that I had built for them. But actually, what I had prepared was this analysis where I actually compared leaving the pension with the employer to taking the commuted value in our financial planning software just to help assess this decision right from step one. I'll take a couple of minutes here and maybe just describe some of the inputs that I put into the software and then some of the results that I saw.

Let's start with scenario one was taking the commuted value. And I looked at a couple of different options here. I'll give you some of the numbers that we were talking about that I entered into our software.

So, taking the commuted value actually involved receiving two amounts of money for this client. The first is the locked in amount that was going to be transferred into a locked in retirement account. This amount was $1.267 million. The locked in amount is an amount that corresponds to the maximum tax sheltered transfer value that can go into a locked in retirement savings arrangement. It's an amount that is received on a tax deferred basis. There's no upfront tax hit for receiving this amount.

The amount is calculated based on the income tax act in Canada, which provides an age based factor that is multiplied by your annual lifetime retirement benefit. That's what determines the maximum transfer value. This amount is only based on the expected pension benefit.

It doesn't take into consideration the value of other benefits, such as the cost of living adjustments, or in some cases when you receive a defined benefit plan, you also get medical benefits with that. Those additional benefits are excluded from this maximum transfer amount. Oftentimes the maximum transfer amount is actually less than the true cost of the benefits that are being provided from the pension.

The additional benefits, so things like cost of living adjustment or medical benefits, those are paid out on what is known as the excess amount. That's the second amount that my client was eligible to receive, and this amount was just over $740,000. This excess amount represents the amount above the maximum transfer value, and it is fully taxable as income in the year that it's received.

You can try to reduce the tax owing on this amount by contributing hopefully a good chunk of it into your RRSP. My prospective client knew this, but unfortunately had already used up his entire RRSP limit for the year because he'd worked a full year, had a salary bonus, has some rental income coming in. Because he had already maxed out his RRSP for the year, this entire value was going to be subject to tax at his marginal tax rate that year.

I should mention, just because that was the case here for this client, it doesn't mean that in every case when you take the commuted value that you can't shelter some of the excess amount from taxes by making a contribution to your RRSP. In some cases, you can recover some of your RRSP limit through what's called a pension adjustment reversal. For anyone that has a Canadian pension plan, you'll notice that your available RRSP room is reduced each year because of what's called a pension adjustment.

You can see the amount of the pension adjustment on your T4 every year, and you can also see it on your notice of assessment from CRA. It represents the total value of the retirement benefits that you earned that year through your company pension. What it does is it reduces your RRSP room for the following year.

The purpose of these pension adjustments is to ensure fairness between those who have pension plans and those who don't. It wouldn't be fair if you had a pension and full RRSP room, it effectively reduces your available RRSP room in future years. In some cases, when you take the commuted value, you can recover some of your RRSP room through a pension adjustment reversal when the total of your past pension adjustments exceeds the commuted value that you're going to receive.

In the case for my client, had all of those past pension adjustments, those decreases to his RRSP room, exceeded the $1.267 million that he was going to receive as his locked-in value, the difference would have been recoverable for him or would have been added back to his RRSP limit. Now, unfortunately, his past pension adjustments did not exceed that commuted value, and so he wasn't able to recover any RRSP room. It meant that entire excess amount, $740,000, was going to be fully taxable all in one year, and most of that was going to be taxed at the top marginal tax rate in Ontario, which is 53.53% when combined with the federal tax rate.

Ben Felix: Man, that's so interesting. There's the annuity consideration. Is it better to have this annuity versus this risky asset invested?

That's one piece of this decision, but there's also a tax decision where the present value of taxes that you'd pay over your lifetime are probably going to be quite a bit higher in the case where you take, I guess it still depends on how long you live. Either way, you've got this big upfront loss of tax deferral that you otherwise, if you just take the pension benefit, would defer over time, probably paid at a lower tax rate over time and spread it out over your life. Complex decision.

Phil Briggs: Very complex decision, but I do think, not to bury the lead of the conclusion here, but that upfront tax hit likely played a big role in the results that I was seeing in the software. Scenario one, again, receiving the commuted value, we modeled receiving this large locked-in amount into a lira, just over 1.4 million, and then this large taxable amount, the excess amount, 740K all in one year. We compared this and investing this in different asset allocations to leaving the pension with the employer, which was the second broad scenario.

The monthly pension benefit was a pre-tax amount of $8,515 per month, and this benefit did have a cost of living adjustment, which we assumed would be 2% per year, meaning that the pension benefits were not actually going to keep up with inflation. We were using a 2.5% inflation rate in the plan, and then we also included the two-thirds survivor benefit in the event that the pensioner passed away. Oftentimes, we tried looking this up.

Oftentimes, pension providers will put a cap on their cost of living adjustments, so they'll say, okay, they will match increases in inflation up to a certain limit. We tried to be a bit conservative and say, okay, let's assume that inflation is higher than the cost of living adjustments for the pension throughout the life of this plan. Those are the two scenarios we were comparing.

The other inputs to this plan, the spending goal for this family was $10,000 a month after tax indexed to inflation for life. I also added in a $50,000 after-tax lump sum expense that occurred once every seven years in the plan, just to capture things like car purchases or large home renovations, just to have some degree of variable spending rather than straight-line spending throughout the life of the plan. We also included estimates of both their Canada pension plan and old age security benefits.

They also received $60,000 a year in rental income. They both have a combination of other investments in things like RSPs, TFSAs, and non-registered accounts. They also own a primary residence and a rental property, both of which we assumed would never be sold to help fund their retirement.

Ben Felix: Going through all that, maybe I'm biased here, but that seems a little bit better than just going off gut feel or rule of thumb. What were the results?

Phil Briggs: I also thought that it made more sense than just going off of gut feel. In both cases, whether it was leaving the pension with the employer or taking the commuted value, the plan was successful. They were able to achieve the spending goals that we entered into the plan, which was great.

The key question that I then wanted to analyze was, which one made them better? In particular, in a shortened life expectancy scenario, which was the big concern here, was taking the commuted value the better choice than leaving the employer. I ran three different scenarios, and I'll share the results of each of them.

Each of these scenarios, what we did was we modeled the client living until the normal age that we would usually do, which is age 95. I also then modeled what happens if he passed away 10 years into retirement. Take my word for it that the plan was successful either way, all the way out to age 95.

Really, what we wanted to look at were what were the results if he passed away early, just 10 years into retirement. Scenario one was take the commuted value and invest in a 60-40 allocation. We found that the retirement score in the plan was 113%.

Retirement score in conquest in the financial planning software that we're using represents the clients, the way the software defines it is they call it the retirement abilities. Basically, their ability to spend money in retirement as a ratio against the expenses that we've loaded into the plan. A 113% score would represent an overfunded plan, essentially.

They had a higher ability to spend beyond the spending goals that we'd entered into the plan. We also, in assessing whether a plan is successful, look at the legacy value. Is there money left over at the end of this plan?

We found that the legacy value was about 5.5 million in present value dollars. When we build these plans, all of the initial calculations are done on a straight line basis, assuming guaranteed returns from the investment portfolio, which we know is a dangerous assumption to make. We also run 1000 Monte Carlo Simulations to include variable investment returns throughout the life of the plan.

The results of the Monte Carlo Simulations come in a volatility score where we see of the 1000 simulations, in how many of them were we able to achieve the funding goals and the spending goals in the plan versus how many were we not able to achieve the spending goals. In the case of taking the commuted value, investing in a 60-40 allocation, the volatility score was 84%, which is pretty closely aligned to our target. We're generally looking for anywhere from 80% to 90% we would consider to be a successful plan.

Taking the commuted value and investing in a 60-40 allocation, we judged to be a successful plan. The second thing that I looked at, and hopefully the Rational Reminder community will be happy that I modeled this, what would if they took the commuted value and invested 100% in equities throughout the life of their retirement? We found that this did make some improvements to the plan.

The retirement score went up to 139%, which makes sense. If we're getting a guaranteed higher expected return, we would expect the plan to look better. The legacy value also increased to $6.4 million in present value dollars. Interestingly though, the volatility score in the Monte Carlo simulations was about the same as investing 60-40. The volatility score with the 100% equity allocation was 83%, indicating that when market volatility was considered, this plan was failing about the same amount of the time as investing in 60-40.

Ben Felix: That is interesting. In that case, you call it the same, the same roughly volatility score, the same success rate or whatever. In the 100% equity case, you've got a higher expected legacy.

You still have about the same chance of having a bad retirement spending outcome, but on average, you expect to have more wealth at death.

Phil Briggs: Exactly.

Ben Wilson: We've seen this lots of times in client scenarios where the Monte Carlo result is very similar when you have higher equity, but the tails are much wider. Higher potential on the upside, but also you could be worse off on the downside.

Phil Briggs: Exactly. Those were the results for taking the commuted value, investing the money themselves, and I compared this to then leaving the pension with the employer. What I found was that the retirement score was very similar to that of the 60-40 scenario.

The retirement score when leaving the pension with the employer was 115%. The legacy value was about the same as 60-40 scenario as well, 5.5 million in present value dollars. What was very interesting was that the volatility score was 96%.

A significant improvement, in my opinion, above the results of investing the money themselves. In trying to assess why we were getting such a better result here, I see a couple of likely explanations. I think pretty obviously in the simulations that featured poor market returns, the client is still receiving his defined pension benefit payments.

The pension is substantially raising the floor of guaranteed income in retirement. Because the pension payments have that cost of living adjustment, the pension is acting as a hedge against both volatility risk and inflation risk, which I thought was pretty attractive. Then the other thing was the thing that you mentioned earlier, Ben, which was leaving the pension with the employer allows the client to avoid taking such a large tax hit on that excess amount up front.

Effectively, they're able to smooth out the tax liability on those benefits over more tax years. With this in mind, I presented this to the client and felt that there was a pretty good case for leaving the pension with the employer rather than taking the commuted value. Even in the case, again, remember all of these results are based on him passing away 10 years into retirement and his spouse receiving a pretty significantly reduced pension.

Even in that scenario, it seemed to me like leaving the pension with the employer was potentially the better choice. And the client's reaction to this was they were very grateful to see this analysis. They'd assumed that the shorter life expectancy automatically meant that taking the commuted value would be the better decision.

So, having the data to actually quantify the different outcomes of each decision was enlightening for them. Ultimately, they agreed with me and decided to leave the pension with the employer.

Ben Felix: That all makes sense to me. Did they arrive at the conclusion that taking the commuted value made sense on their own or did they talk to any other firms before talking to PWL?

Phil Briggs: I think that that was their initial conclusion on their own, but they also did interview several other firms in addition to PWL. My impression in talking with them afterwards is that we were the only ones that did this kind of analysis for them. I think everybody else just kind of went along with, yeah, okay, we'll invest these funds for you and here are some ideas related to that.

They were pretty grateful to see this analysis and commented afterwards that nobody else had shown this to them.

Ben Felix: Super interesting.

Ben Wilson: I find this fascinating. At face value, it seems like a relatively simple decision. Should I take this commuted value to find benefit pension?

I've got a health concern. Let's take the cash to avoid that risk. When you actually dive into it, it's a much more complex decision and the average person can't do this analysis without proper tools and knowledge of thinking about all these factors.

You think about inflation, you're thinking about tax impact, the volatility of the equity if you invest that way. There's a whole bunch of different factors here that change the complexity of this decision even though it seems like a relatively easy choice. They had quite frankly already made that choice.

You basically had to show them this isn't the right choice. Even though it's the right choice, it's not even the choice that's in the best interest of PWL. This is clearly in the best interest of the clients.

If you had taken the commuted value, you would have had 1.5 million or something to invest after tax in a PWL portfolio where we earned fees on it, which it's crazy. We basically said, no, this isn't the right choice. This isn't going to benefit us, but we want to give you the right advice that's good for your future.

Ben Felix: It doesn't sound like Phil said this isn't the right choice. We talked about this in a recent episode about base rates. So much of our role is providing base rates.

In this case, the client came with a preconception about what they should do. Phil just laid out, here are three different scenarios. Here are the expected outcomes of those scenarios.

What do you think makes sense? Then they are able to make a decision with better information. So, it's not so much do this, it's here are the base rates.

Here's the information required to make a decision. What do you think? We can, of course, influence the direction people go in, but I think providing that base rate information to help people make their own good decisions is a huge part of what we do for clients.

Ben Wilson: That's a good point. We often go through, here's the scenarios that we reviewed, one, two, and three. We recommend scenario X for this reason, and you can make your decision.

Any questions, let us know. But here's the analysis we went through and what led us to our conclusion.

Phil Briggs: Everyone, when it comes to financial decision making, people are different. People have different values, different things that they might prioritize. Oftentimes, trying to present the data objectively in this way is helpful for that decision making.

But I find when I'm working with clients, a lot of the time I'll say, well, based on what I know about you and your personal values and what's important to you, maybe you're giving weighting to a particular aspect of the decision based on its importance to you for whatever reason. So maybe that ends up being the optimal decision as opposed to another choice that you might make. It really is this combination of weighing, what does the data say?

What are your values? What's important to you? How does it make you feel?

This type of analysis, I think, should be done on an individual basis for everybody rather than just relying on rules of thumb or just saying, what's important to me? I think these things in combination lead to hopefully good decision making that aligns with your own personal values.

Ben Wilson: After this process, you led them to make the decision to keep the pension. What other decisions followed from that?

Phil Briggs: There was another big decision after landing on the decision to leave the pension with the employer. They are then given a sheet where there's all these different pension options that they have to choose from. The main crux of the decision was, do I take a higher pension benefit with a lower survivor benefit?

So, you could take a higher pension amount with a two-third survivor benefit. Or there was another option that involved receiving a lower pension benefit, but with a 100% survivor benefit for his surviving spouse if the client were to pass away. After doing all of that initial analysis, we were then faced with the second question, which was fun to dive into as well.

The way that we tried to frame this question was we said, okay, how long does the client need to live in order for the first option, so the higher pension benefit with the lower survivor rate, how long does he need to live for that decision to come out ahead compared to the one with the higher survivor benefit? Intuitively, we understand if he were to pass away a year into retirement, the option with the higher survivor benefit was going to be the better choice. If he lived for a long period of time, then option number one, where he's receiving the higher pension benefit for himself would end up being the better choice.

So, we needed to figure out where the break-even point was. To figure this out, we built a chart that totaled the amount of combined pension benefits received for the couple based on death at every possible age between ages 65 and 95 for the client. In looking at that, we determined that the break-even occurred at age 81, meaning that the client needed to live for about 16 more years for option number one to come out ahead compared to option number two with the higher survivor benefit.

What's interesting is that when we presented this analysis, he actually felt pretty good about the break-even analysis and decided to take the first option with the higher pension benefit for himself. We went from taking the commuted value due to potential life expectancy considerations to figuring out a compromised solution to a degree where we're going to leave the pension benefit with the employer but take the higher pension amount. I just thought it was really interesting that that was the choice he ended up landing on.

Ben Wilson: Super interesting. Such a crazy contrast in the beginning where I want the commuted value because I'm worried about health risk. It's actually not that bad.

I'm going to take a bet on my life expectancy to live beyond age 81 is essentially what he said.

Ben Felix: You see the financial planning outcomes. It's so hard for people to think about long-term financial stuff because compounding is hard to think about. People suffer from the exponential growth bias, all that kind of stuff.

When you ask someone a question like this, it's really, really hard to have a mental model of what makes sense. When you use a software that accounts for expected returns, taxes, inflation, all that kind of stuff, and you see, oh, this is how that changes the expected outcome, and we see this with clients all the time, that tends to give people a ton of peace of mind because it's something that you just can't think through easily in your head. It makes sense that once you see, okay, that's the expected outcome even if I pass away early, that's not nearly as bad as I thought.

Let's take this option. Very, very cool case though, Phil.

Phil Briggs: I really appreciate the opportunity to come on and share this and just give people a look kind of behind the scenes in terms of what we're doing on a day-to-day basis. My favorite things about this story though are I love the fact that a podcast listener, himself a DIYer with a high level of financial literacy, referred someone in his circle that he knew would need professional help. I love that the decision was made using objective data rather than trying to guess what the optimal decision was going to be based on rules of thumb.

I also wanted to just highlight what you guys said earlier, which is the fact that for me working here at PWL, the fact that the firm is a place where we truly put the best interests of clients first is so important to me. I love that this is a story about turning down a large sum of money that we could have managed and charged fees on. Nobody that works here is disappointed that I did that.

Instead, this is a story that we're celebrating and that we want to showcase. I really do believe that situations like this can lead to a win-win. Ultimately, these folks are still coming on board as clients.

They're going to have us manage the rest of their investment assets. The trust that we built by doing this analysis upfront, by giving them objective advice that was in their best interest, I think is going to lead to a great long-term relationship. I'm super excited to be working with them.

Super excited that I had the opportunity to do this planning upfront. This was a lot of fun.

Ben Wilson: It's awesome. I think doing good planning that's in the best interests of clients always trumps closing a sale quickly. There's no way around that.

Ben Felix: It's part of our culture. That's just something that we have always done. That's something that Cameron always did.

It's something that I find super, super important. As we've grown, every person that we've hired has that same belief system and same approach. There's a cultural aspect and then there's the incentive aspect.

Even if we had that, it would be hard to have that culture. Even if we were hiring people like that and then paying them 2% of all new investment assets, it becomes a lot harder to make those good values-based decisions when you're staring down a potentially huge bonus. That's not how we compensate people.

I think we have just this incredible culture, the right incentive structure that really, really puts clients first and we have people who want that. If we had people who wanted to live in a sales environment, none of it worked. Those two things, I think, the incentive structure and the culture, they work together to create this client first environment that we have that our people want to be in.

Phil Briggs: Absolutely.

Ben Wilson: The marketing team, along with myself, would come up with a new landing page on our PWL website to highlight M&A. It's going to be a spot where over time, we'll add some M&A-related content, add some resources for anybody that's curious to learn what it's like to be part of PWL. If you're an advisor out there, curious, there's also a web form on there where you can reach out to have a confidential, no-obligation conversation just to compare notes and see what we're doing.

We love learning about practices and what advisors are doing out there. Just a new spot on our website and we're going to link the page in the show notes if anyone wants to check that out.

Ben Felix: People should check it out. People got to hear from Trevor and Brett earlier about their experience making that decision and then being part of the firm now for a few weeks. They've heard from Connor and Taylor a while ago and hopefully, they'll continue hearing from more people who have decided to join our firm.

It's really cool, man. When we talked to Trevor and I don't know if we said this when we were recording or not, I can't remember, but hearing the external perspective on PWL's culture, I guess not external anymore, but from somebody who's come from the outside and is looking at PWL as opposed to us who have been in it for so long, hearing them explain what they see and what it feels like to be a part of it, man, it's cool.

It's a really fun part of my career so far has been this pivot toward like, hey, we can welcome people who have built their own successful businesses into what we've built. It's a cool thing to do.

Ben Wilson: It's super fun. In our chat with Trevor and Brett after, we dove a little bit deeper and said, when you made that decision to turn us down the first time, what went into that? It wasn't really anything about PWLs.

This is getting real. We need to have a self-reflection to understand what's important to us, what we value. The thing that I found super interesting was that Trevor and Brett are at different stages in their career and they admitted that they both value different things, but they both aligned with this model despite being at their different stages, which was a pretty cool insight that they provided after.

Ben Felix: Totally. It is a big decision. We went through the same thing.

When people started approaching us, we shut people down for years. Then when it got more serious in more recent history, we still shut people down. It took a long time for us to wrap our heads around the opportunity that it could create.

Neat stuff. Hopefully, we can keep having those conversations and have new awesome people join our firm. For sure.

All right. Anything else?

Ben Wilson: That's it.

Ben Felix: Very cool. Thanks everyone 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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