She Changed Up Her MD Backpack With A Financial Mentor

physician DIY investing
Wow. Look how toned her arms are! Must have spent some time doing ortho.

Loonie Doctor Editorial:  Last week I suggested that Canadian physicians should consider lightening the fee load in their investment backpacks. A few weeks ago, I helped a colleague of mine switch up her MDF backpack to an ETF portfolio. She had been sitting on a combination of cash and some MD mutual funds in her accounts. She felt that it was obviously sub-optimal, it bothered her, but she was unsure of how exactly to move forward.  I teach and help people clinically in my practice all of the time, but helping her take control of her investing felt like the most profound intervention that I did that week.

A few  things struck me as we walked through it together:

  1. She was an excellent business woman. Her billing organization was top-notch. The overhead expenditures for her practice had been nicely optimized also.
  2. Her family was spending within their means and saving a good chunk (30% gross savings rate) every year. Awesome.
  3. Her investment returns were very similar to mine, except about 1.5-2%/yr lower. Almost exactly the management costs of her mutual funds. She is in the early years of her practice. So, not a big loss at this point. However, with her strong savings rate and the net investment performance difference – this would cost an extra $750K in current buying power by her mid-50s due to the mutual fund fees.

It’s not just about the money.

I have outlined the basic financial numbers above, but what I really want to share is the personal experience behind them. Enough of my blathering.

I will turn it over to my colleague:

Hello all. I wanted to share my experience with you about…

Well, in my mind (sounds cheesy but wait for it…), taking control over my own financial future.

Now that’s a big statement, and I have no guarantees that it will be successful. However, I’ve made a big change and I’m hoping that sharing my experience might help others in similar situations to do the same.

Let me tell you a little bit about myself.

I am a subspecialty plus fellowship trained doctor. My training, including maternity leaves/fellowship/job search, took some time… A long time in fact.

Somewhere near the beginning of residency I first formally met with MD Financial (MDF). They were available, friendly, and had a good reputation. Best of all, I bought into the idea that they were “free”. To be fair, at that time, with significant student debt, saving for a wedding and a down payment – they were in fact free.

Then, over years of them helping with planning our cash flow and goal setting – I got rid of my student debt, purchased our first home, started very slowly filling our RRSPs… and once we had kids, RESPs. Following that, I incorporated and opened a corporate investment account. Before I knew it, and without paying too much attention, we had built a portfolio of mutual funds with MDF.

To take a step back, my husband and I both come from immigrant families who, while we were growing up, often focused on making ends meet – not RRSPs. Neither of us is particularly spreadsheet or finance savvy. To be totally honest, neither of us even likes “finance”. And so we just kept on keeping on with MDF.

Fast forward to the present: being a few years into practice.

Things changed quickly – significantly more income and a significantly bigger mortgage. Mentors beginning to retire. A child in grade school starting to answer more than “garbage man” when you ask him what he wants to be. And with all of that, I was busier than ever.

At this same time, all the changes for physicians in Ontario with contractual strife were in full swing. Plus, the talk in the surgeons lounge about it. The line on my  billing report that says “OHIP discount” – shrinking my billings while my expenses didn’t shrink. Most recently, the quick (and for me unexpected) change in income splitting. That one is huge, as my husband is a stay-at-home-Dad.

And then the kicker…

A talk which showed projections for retirement savings in two scenarios. One for an MD that pays attention and one that doesn’t. [LD: I inserted the charts below from some of my “talk slides”]

ETF index investing

mutual funds versus ETF retirement

I finally decided it was time to take some interest!

So first I watched the videos by Paul Healy on the FB physician independence group about the basics and learned about the “evidence”. Then I gave MDF and another bank a true chance. I booked time off and went to them with my intentions to save and plan for our family’s future.

At those meetings I asked them about index investing and the evidence for it. They did not dispute that, but tried hard to sell their products – more mutual funds, more fund managers to “watch” my investments. I left those meetings with many glossy pages, but no further ahead. If I wanted to make the change I was going to have to do it myself.

I found a mentor – the Loonie Doctor.

[LD: We work together in real life and she approached me following a talk that I had arranged for our staff association. I will say that the real life me has waaayyy less ear-hair than Yoda though.]

We met one afternoon and I couldn’t believe how simple it was. Honestly… I sold all my high fee mutual funds with a few clicks. It felt scary and freeing at the same time. Another quick meeting and I had switched all of our savings into a balanced portfolio of ETFs. Neatly organized in my corporate account and our RRSPs. We started making use of our TFSAs as the powerful investment vehicle that they are meant to be. They had been sitting under-resucitated previously.

Since then – how do I feel?

Yes, a bit nervous, but also more in control. It is amazing how much of a subliminal drain this had been in the background. Having the feeling that your financial plan isn’t optimal, but also not knowing or having the confidence to fix it on your own is uncomfortable. [LD: Especially for someone who makes major life-altering decisions and takes decisive action as part of their career on a daily basis. Major cognitive dissonance! See… I did take psych!]

I will be meeting with the Loonie Doctor again every 6 months to learn how to re-balance it.

A few points to highlight:

learning to invest1. I am in my very early career. So, like starting my practice with an EMR. I feel like this is the time to pay attention and be on track. [LD: A course correction onto the right path early is way better than unlearning what you have learned later].

2. I have never been one to check my investments frequently or buy/sell based on market rumours. To be honest, I feel too busy with a young family and work to do that. So, index investing works well for me. [LD: These are all good things from a behavioural finance standpoint – told you she had her head screwed on straight]

3. I feel confident in the mentor I have been lucky to find.

4. Perhaps the best part – not one phone call from MDF about the changes! Probably because I’m small potatoes to them, but it made the financial “break up” easy for me. [LD: Worst case scenario would just be some paperwork to change to an MD Direct account at MDF . It will be interesting to see how they handle this. I am in the same boat, have met with my MD advisor since, and so far no problems either].

Loonie Doctor Post-Hoc Analysis:

I loved hearing this perspective and thank my colleague for sharing it. I think that many of my readers will identify with this post.

I hope that it spurs two main groups of readers into action:

  • For those who are looking to take control of their investing – I hope this helps shed a light on how easy it is to do and the impact that it can have. Some trepidation is totally normal. Look for a mentor if you know of one.
  • For the experienced investors – My desire is that you see how rewarding this can be as a mentor and the impact that it can have on a colleague. Mentoring from the clinical, administrative, and academic standpoints are already deeply ingrained in medical culture. I hope that we can add financial mentorship to that list. Consider helping a colleague starting out, or if you don’t know of one, then sign up as a mentor on the Physician Financial Independence Facebook group (a closed group for Canadian physicians and dentists only). Demand currently outstrips supply.
  • Hopefully by financially mentoring, we will not only help our mentees, but also create more mentors.

19 comments

  1. Hey LD!!!

    This is awesome!!! Most/ all of my girlfriends who I talk to simply roll their eyes and say “Aw, I don’t care about any of this stuff” and go back to chatting about other things. I have given up quite frankly so I applaud you LD! Maybe given a talk was probably the best way to do this.

    My MDF guy knows not to bother with me about their mutual funds, their high cost advisor services and such. They monitor your activity so he knows when I buy my own GICs online, make my trades, online chat with the main office when I need to, etc.

    It will be interesting to see if their online trading platform improves with their recent acquisition by Scotiabank.

    If the choice was a higher MER mutual fund versus the low cost broad based ETFs like Couch Potato portfolio or Justin Bender’s five fund portfolio, it’s simply a no brainer. The difference in fees is ginormous.

    1. Hey Dr. MB! It will be interesting to see how it pans out with MDF. I know some who have had to switch to MD Direct (piece of cake) rather than stay with their advisor and others whose advisor continues as per normal even though they us MD Direct rather than the mutual funds or asset-based fee model. I suspect that there will be variability and advisor discretion to not ruffle MD feathers too much at first since the Scotiabank buy-out is causing a bit of a PR difficulty for their branding. Regardless, I agree it is hard to go wrong with DIY due to the fee savings. People may need help to take the plunge, but they have to want to – many find sudden motivation when they see concrete number projections like in my slide.
      -LD

  2. A heart warming story! Was it the 3 or 5 fund portfolio? I think, too, that mentors will play a valuable role in the next bear market reinforcing the importance of staying the course and rebalancing, and if need be “talking mentees off the ledge.”

    Btw re your great slides, the SPIVA reports, which now go back 15 years, show that for all asset classes only about 5% or less of active managers beat their risk adjusted index, and some authorities think that by the time we get out to 20 years, it will be more like 2%.

    1. Thanks Grant. You always raise great points for discussion!

      We talked about how simple or complex to make her portfolio. The difference between number of funds to balance wasn’t so much of an issue for her. It was more about getting through the mechanics of doing it and the confidence doing that. She also wanted to go “all in” and use a format that she could just grow rather than start with a few ETFs and add new parts as her portfolio got bigger over time. This wasn’t what I went in expecting, but worked well. She also had a wide variety of account types. So, it was easy to plop different ETFs in different accounts. Overall, we used about seven ETFs. More complicated than most beginners would/should take on, but we really are going to go through this together long-term (as long as the chocolate keeps flowing 😉 and it fit with what she wanted to do. We spent a whole afternoon chatting – it was quite enjoyable. I learned a lot about how someone starting out may think that was different from my pre-conceived notions. Things that I thought would be scary or too complicated were not and things that I thought were easy had more angst associated.

      My mentee’s risk tolerance was on the higher end, given her early career and attitudes towards investing – even with some challenging and probing. I agree that mentors are still likely to play a key role for reassurance in a downtown. Investing is easy when the markets go up, but they usually don’t take as smooth a ride up as we have had recently. That said, I think those who set their portfolios on autopilot with only deliberate periodic rebalancing will have a behavioural advantage over those who constantly watch their portfolios.

      In terms of the SPIVA data and my slide. I actually agonized a little on what to put for the bottom caveat of that slide. The active manager performance compared to passive fluctuates depending on the length of the time frame and the exact time frame looked at. People pick and choose what suits their bias in various articles. Any decent length time-frame favours passive. The longer the time-frame, and especially over the most recent decade where we have had a less volatile upward moving markets strongly favours passive (as you point out). It really has the active manager performance looking bad and worsening. I was reluctant to be too precise because at some point, there will be a period where active managers may do “less bad” and “only” 70-80% under-perform the market. It is still a bad long-term bet, but I was reluctant to be too concrete with a point estimate since past performance does not predict the future. When we do have a blip, I don’t want people to go “ah-ha you said it was 5% and now it is 20% and improving rapidly – I want to switch to active because I project that improving pattern into the future” (as humans do). I am influenced in that habit by my clinical practice. If I have a brutally sick patient with 80% predicted mortality and I emphatically tell their family that they are “likely” to die and by chance they don’t. Then, when they get some other 100% fatal problem a month or year later, they won’t believe me. People are funny in how they perceive probabilities and patterns. Maybe I am over thinking it, but the more time I spend working with data and probabilities, the more cautious I get about it. I become progressively more sympathetic to the radiologist’s hedging their reports 🙂
      -LD

      1. Interesting to hear your experience with your mentee and makes me think of the value of some sort of forum for mentors to share their experience/tips as this is likely a new experience for most, if not all of us. Yes, there definately is an advantage of a simple format that will suffice from the beginning. There maybe is a small tradeoff with tax efficiency, but worth it for the reduced complexity and ease of managing the portfolio.

        I agree with your thoughtful comment about the likelihood of active manager outperformance. It’s true that over shorter time periods, active managers in aggregate can do well, even the majority of them outperforming the market, or segments of the market, but over the long term – 20 years and more – which really is the only time period that matters, the outperformers become very few. And yes, past performance does not predict the future, but costs do and invariably actively managed funds are more expensive than index funds. Great discussion!

        1. I think a mentor forum is a fantastic idea! We’ll have to see about organizing something like that as the Facebook mentor programme matures. I am finding all of the different perspectives from that group really informative (both from the questions asked and the answers given).

          I 100% agree that the long-term performance is the most important since we should be looking to long-term investment horizons. My struggle is with the practical piece of getting people to stick to that view over those long periods. The in-between “one hit wonders” are few and far between, but incredibly powerful at drawing people’s attention. My hope is that by acknowledging that they exist (even some uncertainty with fluctuations including the active manager best-case cherried-picked data) and putting it in the context that the odds are still strongly against it working out over the longer haul for any individual investor defuses some of that power. Muddling my way through it!

  3. Hi LD: It’s great that you are helping a colleague. You should get more than candy bars, MD/FA charges 1% for the advice 🙂

    I think the hardest part with DIY is to have a plan and stick with it. Majority of people underperform by selling low and buying high. Psychology plays a big part.

    somewhat off the topic, I have been thinking about efficient withdrawal of corporate funds and smoothing out one’s lifestyle. What about using LOC (at prime of course) to finance spending and save the rest in corporation if one is at the top tax bracket (so >50% tax)? This assumes that the expenses would drop in the next 10 years (kids, mortgage) and more cash flow would be available. The number seems to make sense but goes against the general teaching.

    1. Hey BC Doc! I agree psychology is the toughest part longer term. A mentor will hopefully be helpful. The whole risk assessment reminds me of medical exams. It is the best we have, but high fidelity simulation would be better. Anyone can talk about how they would calmly and methodically manage a code blue, but doing it in the chaos of real life is totally different. Having an experienced colleague in those situations is very helpful.

      I am intrigued by your LOC idea. Functionally, it would be like using leverage to invest, except it is indirect. You would lose the ability to deduct the interest payment from your income though. The other risk would be that the numbers will change as rates rise. I don’t think I would want to risk all the complexity for 10 years and my LOC room isn’t that big. You would have to be making a really big arbitrage from dropping tax brackets to make it worth it I would think. Neat idea – I need to think about it!

      I have a large corp LOC available with nothing on it. The way that I am using it is twofold. I have it there so I don’t need a lump of emergency cash around, allowing me to be maximally invested instead. I also have the “investing policy” that if there is a major correction (30%) in equities that I will use the LOC to invest using leverage since the market will have been “de-risked”. That allows me psychologically to hold less bonds than I would otherwise since that rebalancing by selling bonds in an equity correction is one of the great functions of bonds in a portfolio (in addition to smoothing volatility). Also, a bit of different thinking, but the way I think about leverage is whether I can stomach the probable risk/reward. If I can’t, I will make a behavioural mistake magnified by leverage. Having the leverage available, but not using it,let’s me stomach more risk without really taking much more risk.
      -LD

      1. Hi LD:

        I got a HELOC with the same idea. maybe I should approach a different bank and ask for a business LOC as well. NB with MDM didn’t give a big business LOC.

        I think using LOC would add to the complexity and probably is not worthwhile. after a certain point, the savings probably doesn’t justify the effort. I tend to focus on the tree and miss the forest.

  4. Hi LD: It’s great that you are helping a colleague. You should get more than candy bars though, MD/FA charges 1% for the advice 🙂

    I think the hardest part with DIY is to have a plan and stick with it. Majority of people underperform by selling low and buying high. Psychology plays a big part.

    somewhat off the topic, I have been thinking about efficient withdrawal of corporate funds and smoothing out one’s lifestyle. What about using LOC (at prime of course) to finance spending and save the rest in corporation if one is at the top tax bracket (so >50% tax)? This assumes that the expenses would drop in the next 10 years (kids, mortgage) and more cash flow would be available. The number seems to make sense but goes against the general teaching.

  5. Hey LD & BC Doc!

    That’s EXACTLY what I will do once I have all my cash fully invested and the market drops. I would use an LOC and less bond funds. I like my GICs for its simplicity and I can just wait for my rolling ladder to mature to pay off the LOC.

    When I used to do simulators in Medicine, I could always tell it was not real…just saying… Losing real money is visceral. Nothing could replicate it for me since it’s not really all about me but my hubby freaking out!

    1. Totally, although I will say that some of the high fidelity medical crisis simulations that I have seen done recently in a well equipped sim lab with actual healthcare team participants have been pretty good. The best that I can think of financially would be to have a setup where you log into your account and it shows all of your accounts down by 30%. Followed a few minutes later by a message saying “Gotcha… Psych!”. How someone feels in those few minutes would be telling.

    2. Hi Dr. MB:

      How are you doing?
      that sounds like a good plan! I don’t think you need to get too fancy in your situation.

  6. Yoda LD and Padawan,

    Thank you for sharing your experience! I think this post will be comforting to other physicians learning about DIY investing that it’s normal to have concerns/worries like yourself when taking the steps to “control of your financial future”. It can be scary at first, but afterward, you realize that it’s really not that difficult.

    My colleague (who I “mentored”) did the same thing as you did before taking the plunge. After learning about index investing, she went back to her MD Financial Advisor to get his opinion, as she was still a bit wary of doing it herself. He told her that he could design and manage an “index portfolio” for her. It consisted of 12 funds! They were basically funds that duplicated each other’s assets (i.e 3 Canadian equity “index” funds from 3 different institutions) with average MER of about 0.85. It was bizarre! Either he didn’t know what “index” investing really entails, or he was trying to pull the wool over her eyes That was the tipping point for her.

    I think for early career physicians like yourself and my colleague, it is “easier” to become a DIY investor, as their portfolios are in the early stages. It would be interesting to hear about the stories of older physicians who decide to take control of their finances. I think that these situations would be more complex with their larger portfolios holding a multitude of investment funds/stocks that have been accumulated over the years by their advisor.

    Congrats on becoming a DIY Jedi Master!

    DN

    1. Thanks DN! Don’t know that I am a master yet. I have the light-saber burns to prove it 😉 I keep learning new things when trying to answer new questions.

      Glad (and not surprised) to hear that you are doing this also. What a bizarre interaction with your colleague’s advisor.

      I have been thinking about our more senior colleagues also. Switching their RRSPs and TFSAs to a lower cost ETF indexing approach would make sense and should be straightforward. For those with large corporate accounts, the trade off on capital gains tax for selling a mutual fund in a taxable account against the remaining time invested at lower fees is more complicated. I am actually going to make a… wait for it… excel calculator to help with this. It will probably be part of the package I am building to help people transition to DIY investing. I plan to build a multi-media approach. Some posts with diagrams for those who like that, some videos (if I can figure out technology), and an excel-based tool with step by step tabs that take care of calculating things. I am still not totally sure of timeframe because it is summer and it is an ambitious project, but I will plug away at it.
      -LD

    2. As a senior colleague who was fairly senior when I made the switch, I can speak to that. In my case it wasn’t particular complicated, but it is more intimidating implementing a portfolio of low 7 figures, which I couldn’t have done without a friend holding my hand. In my case a friend opened my eyes to the real cost of active mangement and the wisdom of passive indexing. I was with a very high fee active manager, so the transfer in cash was not difficult. Because of even more earlier mistakes and poor returns of the active manager, the capital gain, although it was in the low 6 figures, was not as much as it might have been. The tax paid was about 2 1/2 years of the fee savings from the change, so looking at it in that simple way, it was a no brainer to do it. Regardless, I was ready to make the change. I wish I has learnt this stuff when I was younger. Although FI now, I would have been FI many many years earlier. Certainly a fairly high income and a very high savings rate (around 50%) can make up for a lot of mistakes and high fee active managers. So that experience has led to me to want to help young docs avoid the mistakes I made, by way of the new mentorship programme, and any other ways that may be helpful.

      1. Thanks for sharing your personal experience, Grant. I think what you describe is a very common scenario and many docs will identify with it. From what I have seen, you are helping more than just the young docs and many of our more senior (it is all relative :)) colleagues are benefiting also. I also think it is promising to hear how your being helped by a friend inspired you to carry it forward. Hopefully, physician mentorship in finance will continue to snowball like that.
        -LD

  7. Excellent article as always!
    Slowly we are turning physicians away from the dark side! If you get to be Luke Skywalker I want to be Obi-Wan. You see what I did there! Star Wars reference. Never mind…I’ll leave the humour to you.

    1. Thanks for stopping by and commenting Paul! Together I genuinely think that we will make a difference one doc at a time and leverage that. But, vigilant we must be. Many are the paths to the Dark Side. See how I went all Yoda on you there, Obi-Wan 😉
      -LD

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