Ben Felix: Rational Reminders for Good Financial Decisions

Summary

Podcast Summary: "Ben Felix: Rational Reminders for Good Financial Decisions"

Podcast Information:

• Title: The Long View
• Host/Author: Morningstar
• Episode: Ben Felix: Rational Reminders for Good Financial Decisions
• Release Date: June 3, 2025

Guests:

• Ben Felix: Chief Investment Officer for PWL Capital, co-host of the Rational Reminder podcast, CFA charter holder, and CFP professional.

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1. Introduction and Background

In the premiere segment of the episode, hosts Amy Arnott and Christine Benz welcome Ben Felix to "The Long View." Ben shares his unique journey from mechanical engineering to finance. Initially pursuing engineering at Northeastern University on a basketball scholarship, Ben admitted that his transition to finance was not driven by a burning passion but rather a series of practical decisions. After realizing the inefficacies in actively managed mutual funds during his MBA program, Ben discovered a more scientific approach to investing through Dimensional Fund Advisors (DFA), which led him to stay in the finance sector.

Notable Quote:

"I stumbled across Dimensional Fund Advisors and their application of the FAMA French asset pricing research, which just made so much sense to me." – Ben Felix [05:07]

2. Role at PWL Capital and Interactions

As the Chief Investment Officer at PWL Capital, Ben elaborates on his role within the firm. While he began as a client-facing advisor, his responsibilities have increasingly shifted towards collaborating with advisors rather than directly managing client relationships. Ben highlights the close-knit nature of PWL, allowing for ad hoc interactions and asynchronous communication, often sparked by discussions from their Rational Reminder podcast.

Notable Quote:

"Our advisors typically invest personally in the same way that they advise their clients." – Ben Felix [05:34]

3. Investing Philosophy: Efficient Markets and Passive vs. Active Management

Ben discusses his investment philosophy, emphasizing a preference for efficient market models and low-cost, diversified portfolios. He acknowledges that while he doesn't hold a religious belief in market efficiency, it serves as a practical framework for decision-making. Comparing the Canadian and U.S. markets, Ben notes that Canada's heavy tilt towards active management is influenced by conflicts of interest and advisors' misguided beliefs, citing a study from the Journal of Finance.

Notable Quote:

"I think efficient markets is a good model for making investment decisions, but like any model, it's not a perfect reflection of reality." – Ben Felix [05:37]

4. The Rational Reminder Podcast: Origins and Community

Ben recounts the inception of the Rational Reminder podcast, attributing its start to PWL Capital's strategic focus on knowledge and communication over ad spend. The podcast quickly gained traction, fostering a robust community of around 11,000 members on their Discourse platform. This community thrives on respectful and informed discussions about investing and financial decision-making.

Notable Quote:

"We got microphones and we recorded an episode, and then I don't think we've missed a single week since then." – Ben Felix [08:54]

5. Favorite Episodes and Impactful Guests

When asked about his favorite episodes, Ben mentions interviews with John Cochran on asset pricing and inflation, as well as Scott Cederberg on life cycle asset allocation. These conversations not only resonated with him but also sparked significant engagement within the podcast community.

Notable Quote:

"Scott's research is so practically relevant, which is why I think it's been popular." – Ben Felix [16:10]

6. PWL Capital's Acquisition by OneDigital

Ben explains the strategic decision for PWL Capital to join OneDigital, highlighting the benefits of access to capital and the ability to acquire like-minded advisor firms across Canada. This partnership aims to amplify PWL's impact by leveraging OneDigital's extensive experience in scaling businesses.

Notable Quote:

"They give us access to capital which lets us acquire like-minded advisor firms in Canada." – Ben Felix [20:44]

7. Client Profiles and Fee Structure

PWL Capital caters primarily to clients with an average household investment of around $2 million, though there is significant dispersion. Ben outlines their tiered fee structure, starting at 1.25% for the first half-million and decreasing with increased investment amounts. He defends the fee levels by benchmarking against similar firms and noting that recent fee adjustments have not adversely affected client growth.

Notable Quote:

"We raised our fee last year from 1% and it has not affected our growth." – Ben Felix [25:03]

8. Investment Approach: Asset Allocation and Global Diversification

Ben describes PWL's asset allocation strategy, which incorporates six core models emphasizing Dimensional funds. Portfolios typically consist of 60-70% in stocks, with moderate tilts towards smaller, cheaper, and more profitable stocks. Despite a significant home country bias (about one-third of portfolios in Canadian equities), Ben justifies this through tax efficiency and empirical research, including studies by Vanguard and Scott Cederberg.

Notable Quote:

"Canadian stocks are more tax efficient for Canadian investors... That's one big reason for the home country bias." – Ben Felix [29:27]

9. Views on Various Asset Classes

Crypto: Ben explains that after thorough exploration, PWL Capital does not include crypto in portfolios due to its high volatility and ideological rather than technical innovations.

Gold: Similarly, Ben dismisses gold as an investment hedging strategy, citing its mixed historical performance and high current real prices, which suggest low future real returns.

Commodities: PWL Capital has evaluated commodities but decided against their inclusion due to low expected returns and unfavorable trade-offs.

Notable Quote:

"We don't use crypto in portfolios. After that whole podcast series, we came away thinking that it's more of an ideological innovation than it is a technical innovation." – Ben Felix [37:13]

10. Current Economic Issues: Tariffs and Inflation

Addressing the impact of tariffs, Ben asserts that the market is appropriately pricing in the uncertainties, and investment strategies should remain steady. On inflation, he references John Cochran's fiscal theory of the price level, suggesting that as long as government deficits are managed responsibly, inflation can remain low. PWL Capital does not employ specific inflation hedges but monitors real return bonds for market indicators.

Notable Quote:

"As long as government deficits are paired with a credible promise to repay, inflation in a country can stay low." – Ben Felix [35:14]

11. Retirement Planning and Drawdown Strategies

Ben advocates for personalized retirement drawdown strategies over rigid spending rules. By regularly updating financial planning projections and engaging in meaningful conversations with clients, PWL Capital helps retirees adjust their spending based on individual circumstances and priorities, rather than adhering to a fixed formula.

Notable Quote:

"It's going to be based on their specific situation and what's important to them at that time." – Ben Felix [43:18]

12. Total Cost Reporting Initiative in Canada

Ben discusses the forthcoming total cost reporting requirement in Canada, which will mandate advisors to disclose both their fees and the embedded fees in investment products. He believes this transparency will illuminate the true costs clients bear and potentially shift preferences towards low-cost index funds.

Notable Quote:

"All of a sudden people are going to realize, or at least it'll be explicitly presented to them, how much they're actually paying for their investment products." – Ben Felix [49:02]

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Conclusion

Ben Felix provides insightful perspectives on investment strategies, the importance of efficient market models, and the evolving landscape of financial advising in Canada. His emphasis on education, transparency, and personalized client interactions underscores PWL Capital's commitment to fostering informed and rational financial decisions.

Final Notable Quote:

"I think educating clients on their financial situation, on how much they are able to spend, may help in some cases, but it doesn't always work." – Ben Felix [45:49]

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Note: This summary excludes advertisements, introductory segments, and outtro sections to focus solely on the substantive content of the conversation.

Transcript

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[Morningstar Disclosure]

Important disclosure information at the conclusion of this episode.

[Amy Arnott]

Hi and welcome to the Long View. I'm Amy Arnott, Portfolio Strategist for Morningstar.

[Christine Benz]

And I'm Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar.

[Amy Arnott]

Our guest on the podcast today is Ben Felix. Ben is Chief Investment Officer for PWL Capital, a Canadian wealth management firm. He also co hosts the Rational Reminder podcast and is the host of a YouTube channel that covers finance and investing related topics. He joined PWL Capital in 2013 after completing a degree in Mechanical Engineering as well as an mba. He is a CFA charter holder and a CFP professional. Ben, welcome to the Longview.

[Ben Felix]

Thank you so much for having me.

[Amy Arnott]

Well, it's great to have you here. We wanted to start by talking a bit about your background. You have a bachelor's degree in mechanical engineering. How did you decide to kind of pivot toward the finance side?

[Ben Felix]

Yeah, good question. It wasn't that intentional. I went to Northeastern University in Boston. I'm Canadian. I live in Canada, but went to Northeastern on a basketball scholarship. And when I went there I had to pick an academic program. And so I chose engineering because I kind of like building things growing up and it was supposed to be one of the hardest programs and I thought that sounded cool and it was really hard. So I did that. And then I finished that degree and left Northeastern to come back to Canada to play a little bit more basketball at a Canadian university. And then again, I was in the same situation where I had to pick an academic program and I had no idea what it wanted to do with my life. Still, I figured an MBA would give me a lot of options. I didn't want to be an engineer. I didn't think so. I didn't want to do a master's in engineering. So I picked an MBA and I picked a finance program again because it was supposed to be the hardest path of the mba, which it was, and that was it. So I ended up in finance, kind of following basketball, I guess. I never really had a burning passion for finance that led me here, but I'm pretty happy this is where I landed.

[Christine Benz]

We want to talk about your work with PWL Capital where you are Chief Investment Officer and you're Portfolio manager. Can you talk about how you interact with the firm's advisors and do you work directly with clients at all?

[Ben Felix]

I did start out as a client facing advisor, so I am still involved in some of those client relationships, but it's increasingly rare for me to be directly involved. There are still some relationships that I'm more closely involved in, but it's not super common at this point. I do have great relationships with all of our advisors. PWL is still relatively small and so I'm able to have those close relationships. My interactions with them are, I would say, mostly ad hoc when things come up for them or if client situations come up that they want to discuss. But a lot of our advisors, I think probably all of our advisors listen to our podcast the Rational Reminder. And so we kind of interact asynchronously through that. And I will often have follow up discussions with advisors based on something that they heard on the podcast.

[Amy Arnott]

Have you always been sort of a believer in efficient markets and low cost diversified portfolios, or is that something that evolved over time?

[Ben Felix]

So when I came into finance, I knew very little about investing. Like when I started my mba, my finance knowledge was basically zero. Maybe I learned a little bit about the business of engineering in my engineering program, but I didn't know anything about investing. And I thought like an engineer because that's how I'd been trained in school. And so I got some experience early on through an internship program with a firm that recommended actively managed mutual funds. And I remember being super excited to understand their model and their approach for choosing the funds for picking managers. I assumed that there was going to be some complex and really interesting analysis, but I was let down. There was really no process beyond, I don't know, subjective evaluation, maybe a little bit of a look at past performance. I was really disappointed at that point. I was ready to leave finance and go back to engineering, but I stumbled across dimensional fund advisors and their application of the FAMA French asset pricing research, which is something that I had learned about a little bit in my finance classes. And that just made so much sense to me. And so when I realized that there was a relatively scientific way to approach investing, I decided to stick around in finance. And then I ultimately ended up at pwl, which is a firm that's kind of built on that type of thinking. Now I wouldn't say that I'm a believer in efficient markets because I think belief makes it sound almost religious. But I think efficient markets is a good model for making investment decisions. But like any model, it's not a perfect reflection of reality.

[Christine Benz]

Canada's retail market tilts heavily toward active management. Is this by choice or by prescription? And I'm wondering what will it take to move the needle to get more people into low cost index based portfolios in Canada?

[Ben Felix]

Yeah, Canada is a funny market. We do track this at PWL in a report that we publish once a year called the passive versus active fund monitor. Using Morningstar data for 2024, we found that the Canadian fund market is about 80% active, which compared to the US is obviously a lot more active. But in 2015 we were closer to 90%. So it is moving in the right direction, but just more slowly than the states. I think conflicts of interest likely play a role. If you look at the distribution of Canadian fund assets, a lot of them are still in commission based mutual funds which tend to be actively managed. I think they're probably all actively managed. So that's definitely one piece is the conflicts. And we've got some very strong financial institutions in Canada that are eager to sell their commission based products. There's also though a pretty well known study in the Journal of Finance, the Misguided beliefs of financial advisors. And they look at a Canadian sample, so it's very relevant to this conversation, to your question. They look at this sample of Canadian advisors and they show that advisors typically invest personally in the same way that they advise their clients. So they do the same, what I would call mistakes. They trade too much, they chase past returns and they use actively managed funds. So that study kind of suggests that it's not just about conflicts of interest, but that advisor beliefs are also driving the allocations to active funds in Canada. And so based on that, I think it's probably as much about advisor education as it is about conflicts of interest. On that, I sit on the proficiency committee for CIRO for Canada's securities regulatory body. And I do think there's a lot of good work happening on advisor proficiency in Canada right now. So I'm hoping that things get better.

[Amy Arnott]

So you mentioned the FAMA French frame factors. And I'm curious if there's any conflict between having market efficiency as a mental model and the DFA approach of tilting portfolios to try to capture higher expected returns from things like size, value and profitability.

[Ben Felix]

Well, I Think. Like I mentioned earlier, efficient markets is just a model. I think Dimensional's approach can fit with that model if you apply risk based explanations to the higher expected returns that Dimensional is pursuing. But even Dimensional doesn't take a hard line. I think maybe they used to, but more recently they've really softened on whether premiums are risk based or behavioral. I don't think there's a conflict, but I also don't think it makes sense to be super dogmatic about beliefs in finance.

[Christine Benz]

Wanted to switch over to your podcast, the Rational Reminder. You started that podcast back in 2018. What was your goal in starting a podcast?

[Ben Felix]

PWL as a firm had some incredible foresight. Looking back, they had incredible foresight. Around the same time that I joined the firm. We'd realized that we were too small to compete on ad spend, for example, with the big Canadian banks. We couldn't outspend them, but we knew that we could compete on knowledge and on communication. But we also recognized that people don't want to hear from PWL Capital Incorporated. They want to hear from people. And so what PWL did back then is they empowered advisors at the firm to create content. They encouraged blogging, but then they engaged with a third party that supported video content. And they basically said, any advisor that wants to make videos, they can do that. And so that content creation has really been a big part of our DNA for many years now. So I eventually put my hand up as one of the advisors and said that I would make videos. I started a YouTube channel that had a bit of success back then. And then based on that, I approached Cameron, who's now PWL's CEO, and I said, hey, why don't we start a podcast? And he was like, awesome, let's do it. So we got microphones and we recorded an episode. And then I don't think we've missed a single week since then.

[Amy Arnott]

You also have a pretty active message board community associated with the podcast. How did that get started? Was that sort of part of the same strategy of wanting to have more active sort of grassroots communication efforts?

[Ben Felix]

You know, the podcast community just kind of. It kind of came out of the fact that there was just massive demand for discussion after episodes. We initially had a podcast website just to. It's the same website we have now for the podcast where we post the transcripts as blog posts, which had comment sections and so people could comment. And the comment sections were getting so insane with discussion that it was like, it was hard to manage. And so we started looking for platforms that were designed to facilitate community discussions. And we landed on this platform called Discourse, I think a fairly well known sort of forum software. We started using that. We've used it ever since. It's been great. But that community has really flourished. I think there's around 11,000 people in there now. It gets around 500,000 page views per month. I don't think there's anything quite like it on the Internet where all these people are very respectful, very nerdy. And I say that in an endearing way. And a lot of them are highly educated. There are a ton of people in there who are either past guests or otherwise highly educated in finance, and they're engaging in just really good discussions about investing in financial decision making. And that's @community rationalreminder ca. If people want to check it out, you do have to apply. We ask people to write a little few sentences about why they want to join. And it is really heavily moderated from some great volunteer moderators. But yeah, I mean, it's a really neat thing that just kind of emerged.

[Christine Benz]

Out of the podcast so that content moderation seems a little bit old school. I'm curious, why do you think that's so important to have active moderators in there and also to kind of qualify your group of contributors? Why is that important?

[Ben Felix]

Well, discussions can go off the rails, people can get off topic, and sometimes people can just be unpleasant. And so because we have volunteer moderators who are members of the community, and we choose moderators who typically have been there for a long time and are active contributors, they really want to just make it continue to be the great place that it is for the type of discussions that take place there. So we do occasionally have members who join. It's typically a new member and they are contributing in a positive way. And the moderators will very quickly either correct the behavior or remove that person. And that just keeps the discussions clean and focused on the right things.

[Amy Arnott]

How did you come up with the Rational Reminder name?

[Ben Felix]

We decided we were going to start a podcast and then we realized we needed to call it something. So I texted my friend Aaron. He's a very nerdy guy. Not a finance nerd though. And we went back and forth a bit and came up with the name Rational Reminder. The idea, I mean, it sounds the R and R, but the idea behind it was that the podcast is about making good financial decisions. And even if people shouldn't always strive to do what is rational, I think it's useful to have reminders about what a rational person would do. And so that was kind of the initial idea of the podcast. Probably have strayed away from that a little bit because we've had lots of episodes on psychology and non rational things, but that was the idea.

[Christine Benz]

I'm curious about time management with the content creation and the podcast and balancing those activities alongside the other parts of your job. Can you talk about how you fit the podcast in? It seems like with a weekly cadence to your podcast, and each episode probably takes a fair amount of time. How do you fit that in alongside the other stuff you have to get done?

[Ben Felix]

They are very time consuming. But the way that I think about this is that all the research that I should be doing anyway in my role as CIO of pwl, this is the work that I should be doing anyway. And so having the podcast really just puts structure around work that I should be doing anyway in my role. The other added benefit of the podcast, so the structure is big because we have the episode every week. And so I have to make sure that I'm. I'm doing the research for the episodes. But then the other really cool thing about it is that not only am I doing that research, but I'm getting access to the people who created the research that I'm often reading. So if I read the papers of Eugene Fama or Kent French or Robert Merton or John Cochran, the fact that I have this podcast that a lot of those guys have been on makes it interesting for other top academics to come on as guests, which allows me to reach out and say, hey, would you like to come on our podcast? So then I read all the research and then I get to talk to them about it, which I think is pretty cool and probably benefits our firm and our clients. And then the other big benefit of the podcast, as opposed to me just sitting there doing research by myself, is that I get immediate feedback from tens of thousands of listeners, many of whom are highly educated themselves. So I know pretty quickly if I've said something that doesn't make sense or if there's another avenue of research that I need to explore to better understand the topic. And I really can't think of other ways to get that kind of access to experts and that kind of feedback loop on ideas other than doing a podcast. So it is time consuming, but I think it's work that I would ideally be doing anyway. And I think it puts a lot more structure and has other added benefits.

[Amy Arnott]

So you have a pretty extensive archive of episodes. I think there's something like 353 on the site. And I'm curious. Curious do you have a favorite episode or favorite guest that you've talked to?

[Ben Felix]

It's kind of like picking a favorite child. It's really hard to think about. We've had so many incredible guests. It's crazy to look back at some of the people we've had conversations with. I would say that the most impactful ones for me and the ones that I often think back to or go back and reread the transcripts of are the ones with John Cochran. We did one with him on asset pricing and portfolio theory, and we did a second one with him on inflation and his fiscal theory of the price level on inflation I just find to be fascinating and very elegant. So that's definitely one. Scott Cederberg is another one on life cycle asset allocation. That definitely struck a chord with me, but also with our audience. Every time we've had Scott on a couple of times now, and every time we do an episode with him, the number of comments in the community and on YouTube on those episode discussions are just enormous. And I think Scott's research is so practically relevant, which is why I think it's been popular. It's got a very simple conclusion. I think we'll talk about it later, but it's very practically relevant to most investors.

[Christine Benz]

Were there any interviews that surprised you or made you think about investing in a different way?

[Ben Felix]

So I've never been surprised by an interview, and that's just because I only ask questions that I already know the answer to. That might sound like a weird thing to say, but I prepare for the interviews by reading literally all of the guests research. And if they've done other podcasts, I'll listen to all their other podcast appearances. So by the time we're talking to them, by the time I'm figuring out what questions I want to ask them, I already kind of know what they're going to say. So I've never had a guest answer a question. I'm like blown away. Sometimes I'll act like I'm blown away for dramatic effect on the podcast, but I've never actually been blown away. Now, that being said, Andrew Chen's research was his answers to the questions I asked didn't blow me away, but the research itself, when I was reading it, was very interesting. He basically showed that factor premiums, which is a big part of what Dimensional is pursuing, have declined dramatically after costs since around 2005, which if true, is a big deal for a firm like PWL that's extensively using products from Dimensional. Now, I don't think Andrew's research is conclusive enough to abandon that approach to investing, but it was definitely a guest that made me think pretty deeply about how we manage portfolios. And then Scott Cederberg I mentioned that was another one that had an impact on the way that I think about investing.

[Amy Arnott]

You also occasionally venture into non financial topics. How do you decide when to mix things up with topics that aren't directly related to finance and investing?

[Ben Felix]

So much of the work that we do with clients is not directly about their finances. Their money and their investments are there to facilitate living a good life. But sometimes people need help designing what a good life looks like for them in order to make financial decisions. And so we were really heavily influenced by Brian Portnoy on this topic to just start thinking about this stuff and incorporating it into the advice that we give clients. I don't really have a framework or a formula for how we decide when we're going to do non financial episodes, but if we read a book or find research that we think would be valuable for our clients and our advisors to incorporate into their financial decisions, then we'll try and do an episode on it. And like I mentioned earlier, we've been pretty lucky where because we have a pretty good track record of past guests and our podcast been around for a while, usually if we reach out to an author or an academic, they'll agree to come on the podcast. So yeah, we've had some great non.

[Christine Benz]

Financial guests too who have been some of your favorites. And I will say Amy and I are taking some notes here as you're naming some of your favorite guests. But how about in the non financial category?

[Ben Felix]

Yeah, it's again tough to pick favorites. I think we've had relatively few of them and they've all been quite impactful in the way that we think about approaching financial advice. But Brian Portnoy has got to be at the top of the list just because he took us from not thinking about this stuff as much as we probably should have. And I think this is probably true for a lot of financial firms. He took us from there to understanding that this should be front and center in the way that we give advice. And he really put us on that path of looking for other non financial guests to speak to as we sought to understand that topic. So his episode's got to be up there and he was a big influence on all of the other episodes that we did.

[Amy Arnott]

So we wanted to also talk a bit about your firm PW Capital and PWL recently joined a larger firm called One Digital and I'm curious, what did you all see as the main benefits of becoming part of a larger firm?

[Ben Felix]

Yeah, it's a great question that we've had to answer a lot since we did the deal with OneDigital. We had a great business with good organic growth, good revenue. We were financially strong and we grew a ton. I've been with PWL for just under 12 years and we've grown a ton over that time. We've roughly 10x'd our revenue in the last decade or so. And we'd really figured out our advisor team structure, we'd figured out our organizational structure, but we still today only manage about $5 billion for Canadians. And that's great growth relative to where we started. But we want to have a bigger impact and I think in a lot of ways we're positioned to have a bigger impact. We never planned on selling or joining a larger firm and we were approached by multiple buyers out of the blue last year and we initially shut them all down because this just wasn't part of our plan. But that experience of being approached and having people interested in joining with us or buying us really got us thinking about what the possibilities were and what could be and how we could leverage that type of situation to scale our impact. So we started thinking about that onedigital. Out of the people we had talked to, they'd really struck us as unique. They were laser focused on fitness with the people at any firm that they acquire, laser focused on internal culture and obsessed with having a positive impact on their clients. That's really what they aim to do. And so when they reached back out, we took the call, went to visit them at their offices and we really hit it off with their leadership team and all of the people that we talked to while we were there. So it really came down to two things, I would say that helped us make this decision to sell. They give us access to capital which lets us acquire like minded advisor firms in Canada. Advisor teams and firms. There are a ton of great advisors like we know so many of them here in Canada, which is a pretty small market who think like we do about financial planning and about portfolio management, but they're sitting in firms that are not aligned with our approach and with their own approach. And so while we were financially healthy, but before joining OneDigital, the capital requirements in Canada for dealer members would have made it really hard for us to do any meaningful acquisitions. And OneDigital with a stroke of a pen changes that. So that was a big reason. And then the other thing is once we started thinking like that, once we started thinking about 10xing again from where we are now and getting into the world of acquiring other firms and potentially large teams and things like that. We're really out of our element at that point. And then one digital on the other hand has done I think over 200 acquisitions and I've got a leadership team that's running a business at a scale that we can only aspire to. So we just thought between those two things and for where we want to go, partnering with them really set us up to accelerate the impact that we think we can have in Canada.

[Christine Benz]

What's your typical client profile at pwl and wondering if you anticipate that will change at all with the acquisition might understanding of that firm of OneDigital is that they have a big emphasis on workplace right of accessing clients through providing them with workplace wellness solutions. But maybe talk about that.

[Ben Felix]

Yeah, that's right. So they talk about workplace to wealth and that's their core business is really the benefits market in the U.S. and 401 s retirement plans in Canada. It's going to be a little bit different because they're starting with we are their first acquisition outside of the United States. And so we don't have a workplace to wealth set up in Canada at the moment. It's something that they're definitely going to explore. But for now we're focused on wealth in Canada. Right now our average client household has about $2 million invested with PWL. A lot of dispersion under the hood on that number though we do have cohorts of much larger clients and we also have a team dedicated to what we call emerging wealth. I do love the workplace to wealth idea. I think it's very smart and serves the client well. So we'll see where that goes in Canada.

[Amy Arnott]

What does your fee structure look like for a typical client?

[Ben Felix]

We have a tiered fee structure that starts at 1.25% in the first half a million and then it decreases pretty aggressively from there. Like at 2 million we're at 0.85%.

[Christine Benz]

I'm curious. That seems high. 1.25%. Is fee compression coming for advisors in Canada?

[Ben Felix]

I don't think it's high. We benchmark against Canadian and US peer firms that are in many ways very similar to PWL and we're kind of right on target at the lower end. 1.25 is maybe slightly on the high side of normal, but I don't think it's crazy high. And it does let us take on smaller clients. We raise that fee last year from 1% and it has not affected our growth and our existing clients were not unhappy about it. So fee compression? Yeah, we raised our fees last year and lost very few clients and have continued to grow. So that would, at least in our case, lead me to believe that it's not a huge issue at the moment.

[Amy Arnott]

Have you thought at all about alternate fee structures like flat fees or subscription based fees, things like that?

[Ben Felix]

Yep, it's one of the most common discussions that we have about that topic, about our offering and how we charge for it. We've toyed with the idea of doing fee only financial planning. We have not talked about a flat fee, asset management or wealth management service. The thing for us right now is that because we're growing at a pretty good clip and we're at capacity with that, offering alternative fee models and alternative service offerings is just not something that we feel like we need to do.

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[Christine Benz]

Over to discuss investing in portfolio management. You've referenced DFA a couple of times. Do you also work with products from other fund companies besides Dimensional?

[Ben Felix]

Yeah, we do. So dimensional is really the vast majority of our assets, but some of our advisors are using index funds from companies that Everybody knows, like iShares and Vanguard BMO in Canada and a few others. But it's mostly dimensional and it's all philosophically kind of cut from the same cloth. We're either using dimensional funds or market cap weighted index funds, but you're not going to find any actively managed funds or anything like that at pwl.

[Amy Arnott]

What does a typical client asset allocation look like and do you have a model portfolio that you use for different types of clients?

[Ben Felix]

Yeah, we're mainly using six core models just with different asset allocations, all dimensional funds and just pretty plain vanilla stocks, bonds, and a little bit of REITs. Our average client is kind of 60 to 70% invested in stocks, but as you'd expect, there's lots of dispersion around that. Using the dimensional funds, we have moderate tilts towards smaller, cheaper and more profitable stocks relative to a market cap weighted index. But it's nothing crazy. The tilts are nothing crazy. We do generally have home country bias in our models. Yeah, but the main difference between any two clients portfolios is typically going to be their allocation between stocks and bonds. Some of our advisors are using a mix of dimensional funds and some advisors are using exclusively cap weighted index funds just based on their own preference or their clients preferences.

[Christine Benz]

So the topic of global diversification is a hot one these days. And you referenced that your portfolios typically have a home country bias. Can you talk about how you determine the allocations to Canadian securities, non Canadian securities in other parts of the world?

[Ben Felix]

Yeah. So we have about a third of our portfolios in Canada, which is definitely a significant home country bias. We I think have pretty good reasons for doing it, which I guess you'd hope if we're doing it. But Canadian stocks are more tax efficient for Canadian investors in both taxable and in a lot of cases also in non taxable accounts. So that's one big reason for the home country bias. And then there's a couple of interesting empirical pieces of research that suggest about the home country bias that we have. Vanguard has one paper where they look at the sort of optimal allocation to Canadian stocks for a Canadian investor and they arrive at about a third. We replicated their study going further back in time using the Dimson Mars Staunton data and found almost an identical result. Now that's not super strong evidence, but it's something to go on. And then the other input there is more recent, which is Scott Cederberg's research where he finds, using a totally different approach, that having about one third of an equity portfolio in home country stocks makes sense. So between tax efficiency, the Vanguard study, our replication of it, and Scott Cederberg's study, that's kind of how we arrive at the 1/3 in Canada and then other than that we market cap weight the remainder of the world.

[Amy Arnott]

So I wanted to follow up on Scott Cederberg's research and I think he essentially concluded that if you're saving for retirement, you wanted to be exclusively in equities in a globally diversified equity portfolio. And I'm curious if you agree with that conclusion.

[Ben Felix]

Yeah. So his finding was not just if you're saving for retirement, his finding, him and his co author's finding was that investors should be in 100% equity portfolios for their full life cycle, saving for Retirement and right through to the end of retirement, right through until death, which is a big conclusion to draw. I think they did a good job with their analysis. And then of course the international diversification piece. So they said 100% equities with a third domestic country and the remainder in international stocks, which is very different from the typical advice that you should start out in an equity heavy portfolio and then transition toward a more bond heavy portfolio over time. So that's the headline result, is that you should be 100% stocks all the time. But I think the real insight from their research, which I do agree with, is that nominal intermediate government bonds, which is what they're looking at for bonds, are riskier for long term investors than people generally think. And that stocks are maybe a little bit safer for long term investors than people generally think. We do have some clients in 100% equity portfolios. I'm personally invested that way. Not because of Scott's paper. That's how I was investing before his paper was even written. I don't think it makes sense for everyone. And I think Scott would agree. Their paper shows within the specific data that they analyzed shows a certain result. But I don't think Scott's going to go and tell everyone that they should be in 100% equity portfolios. People are constrained by their behavioral loss tolerance and their ability to take risk. So 100% stocks isn't going to be right for everyone. And then the other big thing with Scott's research is that they're looking at a specific set of data. They're looking at market cap weighted equities, intermediate term government bonds for 39 countries for the period 1890 through 2023. Not all countries are there for the full sample. Some of them have shorter histories. And then they do this bootstrap simulation to create a million hypothetical scenarios. Anyway, that part doesn't really matter too much. But the important thing is their conclusions hold within that specific data set. But if we include things like factor tilts, like what dimensional does, or corporate bonds or maybe some other assets, and if we acknowledge the fact that future returns could be different from the past, I think we need to be careful taking Scott's findings as precise advice, like literally taking it as everyone should be 100% equity with a third in their domestic country, and so on and so forth. But I think the main insights from their paper that are useful are that international diversification is important, that home country bias for countries like Canada is not a terrible idea. Countries like Canada being smaller market cap countries. And then that stocks are a bit safer for long term investors than people often think and that bonds are maybe nominal bonds are maybe a bit riskier. Do I agree with the research? I wouldn't use it as a prescription, but I think that it's very insightful.

[Amy Arnott]

So the risk of nominal bonds is that mainly inflation risk? That's the issue there?

[Ben Felix]

Yeah. So that's what they find in their research, is that when inflation happens, nominal bonds get just absolutely smoked. And one of the problems is that stocks tend to have negative autocorrelation. So bad real returns for stocks tend to be followed by slightly better returns for stocks which makes them a little bit less risky at long horizons. When you have bad real returns for nominal bonds, they tend to be followed by more bad returns which makes them a little bit riskier for long term investors.

[Christine Benz]

Inflation is another hot topic these days. Certainly here in the US it looks like inflation in Canada has been running a bit lower than here in the us. Do you think inflation can remain low and are there certain types of assets that you like to use with clients as an inflation hedge? I heard that the inflation protected bond market in Canada is a little different than what we have here in the.

[Ben Felix]

U.S. yeah, it's a much smaller market and it's declining because we've ended our real return. They're called real return bonds. We've ended our real return bond program here in Canada. So we weren't using them before. Some people surely were then. I'm sure they were sad about it. Theoretically, I think it's bad that we've eliminated that program. But I can't say that with too much conviction because we weren't actually using them in client portfolios. We don't do anything fancy to hedge unexpected inflation. We've looked at a lot of different asset classes and strategies and we just didn't like the trade offs. I don't have specific inflation predictions. I think if you look at the Canadian bond market, so we do still have real return bonds that are still trading. So we can look at the break even inflation that the market is pricing in. It's nothing too exciting. I really like I mentioned it earlier, John Cochran's fiscal theory of the price level. It basically says the price level adjusts so that the real value of nominal debt equals the present value of real primary surpluses. Basically, as long as government deficits are paired with a credible promise to repay. As long as deficits are invested in productive ways, inflation in a country can stay low. So what really matters for inflation in that theory is debt relative to people's assessment of whether the government can and will eventually repay that debt. And so within that framework, I think Canada's fine as long as we don't start doing anything too crazy on the fiscal front.

[Amy Arnott]

I'm curious about commodities. Is that something that you use with your client portfolios?

[Ben Felix]

No. So that's one of the things we've looked at as a possibility. We just didn't love the trade offs. Low expected returns most of the time, and they can pay off sometimes, but it just wasn't a trade off that we were interested in.

[Christine Benz]

We're giving you kind of a lightning round on various assets, but we wanted to ask about crypto. What's your opinion about the role it can play in a diversified portfolio, if any at all?

[Ben Felix]

Yeah, so crypto is an interesting one. We did a whole podcast series on crypto because we really wanted to understand it. What had happened there actually is that we. We kind of ignored it, as I think a lot of people in tradfi and in traditional finance did for a long time. And then we had Professor Cam Harvey on our podcast, who is a highly respected academic researcher. Two hour episodes, one of our longest episodes ever. We spent half of that episode talking about traditional finance and his research in that area. And then we spent half of the episode talking about crypto. And he was so passionate about it and so excited about it that Cameron and I walked away from that interview and said, okay, we better take this more seriously and look into crypto. That was when Bitcoin was at $60,000 for the first time. Crashed soon after. Now, of course it's back up again, but I would say that we don't use crypto in portfolios. After that whole podcast series, we came away from it thinking that it's more of an ideological innovation than it is a technical innovation. You talk to people who know software and who understand that side of the technology. They did some satoshi, did some interesting things to create bitcoin. I don't want to minimize that too much, but it wasn't a massive technical innovation. But I think ideologically it represents something that's very important to a lot of people and it caters to a certain worldview that some people find very attractive. So to that extent it'll be valuable for people who hold those views. But I don't think it's an asset. Crypto in general is an asset class with positive expected returns and I think it will continue to be highly volatile, so we don't touch it in portfolios.

[Amy Arnott]

Another asset class that's been attracting a huge amount of attention lately has been gold. And as we're taping this toward the end of April, I think it's trading around $3,400 an ounce. Do you think that investors are expecting too much from gold as sort of a safe haven asset? And is gold something that you use with your clients at all?

[Ben Felix]

Gold is another one that we've looked at pretty closely and decided not to allocate to, which, as you mentioned, has been a little bit painful recently. Not having half of our portfolios in gold, that would have been great, but it's not something that we do put in client portfolios. Its historical performance as a safe haven asset is mixed, which is one of the reasons that we didn't use it. If it was a perfect hedge for market crashes or something, then maybe it'd be more interesting. But it has not been historically my concern for investors right now, because as you guys know as well as anybody, when an asset class performs well, all of a sudden, investors get interested in it. But when the real price of gold is high, you can kind of assume that gold maintains its real value at very long horizons, which it has done historically. And if you believe that to be true, there's this kind of golden constant value for what gold should be worth. You can measure whether the actual price of gold is low or high relative to that gold constant value. Right now, the real price of gold is quite high. And historically, when the real price of gold is high, future real returns tend to be quite low. So hopefully we don't see the mind the gap report showing that investors underperformed in gold over the next few years.

[Christine Benz]

The elephant in the room as we're having this conversation today is tariffs. I'm curious to hear how you're thinking about the potential impact of tariffs globally and also how you're handling this issue with your client portfolio.

[Ben Felix]

So, yeah, I mean, I think that the market is pricing the expected effects of tariffs every day. As we learn more information, the market's clearly not loving what it's seeing. I don't think there's a whole lot that investors can do about it in portfolios or with asset allocation, other than going back in time and investing in gold, maybe, but we've handled it for our clients through communication. We send occasional emails to all of our clients when stuff is happening. And so we've done that twice throughout this tariff situation. Canada's obviously been impacted directly by some of the stuff that's happening there. And so we've really just tried to explain to clients, exactly what is happening, why it's affecting stock prices, and why we think it makes sense to stay the course. That's been our approach.

[Amy Arnott]

Do you think that the market is overreacting to the whole trade war issue, or is it really something that could create significant change to economies globally?

[Ben Felix]

I think it does have the potential. I mean, it seems to be reversing a little bit today with the communications about what the plans are there. But I think anytime asset prices have big swings like we've seen recently, it's always because something might change. Not that it's necessarily going to, but it's all because there's uncertainty. If the market knew exactly how something like the tariff situation would affect cash flows in the future, then asset prices wouldn't change that much, they wouldn't swing that much. And in this case, tariffs are not a new thing, obviously. But the way that they're being weaponized and the constantly changing logic, if we can call it that, justifying the tariffs, that's all unique and that's all different from anything that we've seen at least as long as I've been around. I think the market's probably reacting the way that it should based on a pretty uncertain situation.

[Christine Benz]

One topic of keen interest to Amy and me is retirement drawdown, retirement decumulation. And you've done a fair amount of research on strategies to help retirees spend from their portfolios to do you have a preferred one that you like to use with your clients?

[Ben Felix]

So they're really fun to model, as you guys know, and you've done some great stuff on this too. And I think we can get really interesting insights from modeling different strategies, like just even very generally speaking, how flexible spending affects retirement outcomes. But I don't think spending rules are great for clients, like telling someone that they need to cut back on their spending this year because the rule says so, even if it's the best rule ever, that doesn't make a whole lot of sense without understanding what is specifically going on in that client's life. So we approach retirement drawdown by updating our clients financial planning projections at least once a year, oftentimes more frequently and typically around periods of market volatility like we're seeing recently and having a discussion based on that and based on the things going on in their lives and their current priorities. So that could mean sometimes, depending on what the financial planning projection says, that could mean increasing or decreasing their spending from time to time, which mirrors a variable withdrawal strategy. But it's really going to be based on their specific situation and what's important to them at that time. There could be a case where a variable spending policy might say a rule or a formula might say that they should reduce their spending that year, but they have the opportunity to go on, I don't know, a once in a lifetime trip or to see their ill family member for the last time. And you're not going to stick to the rule. It just wouldn't make sense to do that. So we just do it by updating financial planning projections and having conversations with clients to understand what's important to them. And people will cut spending when it makes sense to do so. I don't think you need a rule for that. People will know that hey, the market's down and going on that trip wasn't that important to me anyway, so we're going to skip it this year. But somebody else might say that their trip or whatever they were going to spend on is really important and so they wouldn't follow the rule anyway. I think it's a very individual thing to the point that it's hard to apply anything systematic to it.

[Christine Benz]

I wanted to ask about a related issue which is just that it seems that some, maybe especially higher net worth clients, people have kind of an aversion to spending what might be an appropriate amount that they tend to underspend and under consume relative to what they could do. I'm curious if you encounter that with your clients and if so, how you help coach them through that so that they are spending appropriately and maybe even doing some lifetime giving to loved ones or charity or whatever.

[Ben Felix]

Yeah, it's almost like a paradoxical thing where people who end up having a lot of money got there because they didn't spend very much, but then it makes it hard for them to spend because that's how they've lived their entire lives. It's a challenge. I don't have a silver bullet solution, but we do try to educate people on the fact that they are able to spend more if they want to. But we have also found that sometimes if we really push people on that, they get uncomfortable and they just say like, listen, I appreciate what you guys are saying, but I don't want to spend more money. And sometimes that changes over time with things like children or grandchildren or causes that become important to them. But it is a challenge. I agree with you. I wish I had a one size fits all solution to solve it. But I do think that educating clients on their financial situation, on how much they are able to spend it may help in Some cases, but it doesn't always work.

[Amy Arnott]

So I'm assuming that you use some sort of Monte Carlo based retirement planning software. And I'm curious, is there a certain probability of success that you kind of set as a threshold or does that vary by client?

[Ben Felix]

Yeah, that's a very difficult question. The Monte Carlo success rates are a tricky thing. We have a soft rule of wanting to be at least 85%, but that can change a lot based on the client and their situation. We also have to recognize the limitations of using Monte Carlo analysis and the return distributions that most softwares are able to handle. Like we talked about the Scott Cederberg research earlier, Monte Carlo typically assumes that returns are completely random, which makes stocks risky assets a little bit riskier at long horizons for investors and makes Monte Carlo look a little bit worse than it would if it incorporated the auto correlation, negative auto correlation that we actually see in stocks. So there's lots of little details like that that you have to be pretty aware of. But if I had to give a. This is our benchmark. We do want to see an 85% success rate, but we also try and have a very nuanced discussion with clients about what that means and how to interpret it.

[Christine Benz]

I'm curious whether you have any thoughts on the fire movement, financial independence, retire early, and maybe you can talk about what types of issues would be fire people should be thinking about if they want to pursue this approach.

[Ben Felix]

I don't have really strong thoughts on it. I've talked about it on our podcast a few times and I've said things that make people that consider themselves to be part of that movement very annoyed.

[Christine Benz]

Like what?

[Ben Felix]

Well, just saying that. Why don't you find work that you like? And I say that as someone who would not pursue financial independence, retire early because I really enjoy my job and I like working and I still have a very balanced life. It just doesn't make sense to me to strive for a life where I stop working. Now, fire people would say that they might still work, but do work that's more meaningful, but maybe doesn't pay as much. And that's. That's fine. I find my work meaningful and it pays well. So I don't see any reason to change.

[Amy Arnott]

So for our last question, we also wanted to ask about this total cost reporting initiative in Canada. Do you see that kind of moving the needle for Canadians to scrutinize the value that they get from the advice relationship?

[Ben Felix]

Yeah, I think that will be a positive change in Canada. So right now, for context, investment statements are required to show fees that are paid to the advisor directly, but not the fund fees like the embedded fees in financial products. So if a fee based Advisor is charging 1% and using an active fund with a 1% expense ratio, the client currently is only required to be shown the 1% fee that's going to the advisor, but not the total 2% that they're actually paying for the overall service and investment product. And so this new disclosure, total cost reporting is going to require showing both sides of the fee. Now this is a problem I think in Canada right now because you could have two different advisors. One's charging 1% and using an active fund with a 1% management expense ratio, and another advisor that's using an index fund with a 10 basis point expense ratio also charging 1%. Right now the client only sees the 1% fee that they're paying to the advisor for advice, but they don't see that they're paying an additional 90 basis points to the advisor using the actively managed fund. So I think, like you asked earlier about the situation with active funds in Canada and I think that this will likely help with that because all of a sudden people are going to realize, or at least it'll be explicitly presented to them, how much they're actually paying for their investment products.

[Amy Arnott]

Well, Ben, thank you so much for taking the time to talk with us today. This has been a great conversation.

[Ben Felix]

Well, thanks so much for the invitation. It's an honor to be invited and I really appreciate it.

[Christine Benz]

Thanks so much Ben.

[Amy Arnott]

Thank you for joining us on the longview. If you could please take a moment to subscribe to and rate the podcast on Apple, Spotify or wherever you you get your podcasts. You could follow me on social media.

[Christine Benz]

AmyArnot on LinkedIn and @ChristineBenz on X or Christine Benz on LinkedIn.

[Amy Arnott]

George Cassidy is our engineer for the podcast and Carrie Gretchik produces the show Notes each week. Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us at belong [e-mail] until next time. Thanks for joining us.

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[Amy Arnott]

Morningstar.

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