John and Ingrid Boyson, Elora, Ont.
Now: June 2014
Visitors to John and Ingrid Boyson’s home in Elora, Ont., may notice that there is a certain… er, whiff in the air. The source is easy to find. Behind the Boysons’ rambling farmhouse are two barns populated by 18,000 squawking chickens. To the naive eye, the birds look like noisy, smelly nuisances. To the Boysons, they represent a fortune—$1.3 million to be precise.
That’s the amount the family will net when they complete the sale of their chicken quota this year. The Boysons (we’ve changed their names to protect their privacy) bought the quota—essentially a government-granted right to raise and sell a set number of chickens—12 years ago. Since then, John has earned about $110,000 a year from raising roaster chickens while Ingrid has taught full time at a local high school. But John, 49, and Ingrid, 50, have decided it’s time to get out of the fowl business. They’re tired of having to stick close to the farm, especially now that their three boys are growing older. And John has started to develop a stubborn hacking cough and breathing problems that may be related to toxic fumes from chicken dung and feathers.
Given John’s health problems, the decision to get out of farming has been easy. What hasn’t been so easy is deciding what to do with the pile of money the Boysons will soon be enjoying. A couple of months ago, after he received an initial $200,000 down payment on the quota sale, John visited three local financial advisers, but came away less than overwhelmed by their pitches. The advisers wanted to charge 1.5% a year to manage the Boysons’ windfall. Add to that management fees of about 1.5% for his mutual funds and the Boysons’ total investing costs would soar to 3%, or $39,000 a year. That struck John as being rather expensive for what amounts to a bit of advice on asset allocation and some straightforward estate planning. “All three advisers were very hospitable, well-spoken and gave me very glossy, well-put-together packages of information,” says John. “But I just don’t know if a 1.5% fee, year after year, is reasonable. With mutual fund fees added on top of that, it sure looks expensive.” It’s not as if the Boysons are seeking a complicated investing plan. Their goal is to invest their money in a conservative, well-diversified portfolio so that it produces a permanent income of $45,000 a year after tax. John and Ingrid feel they can live on that amount in three years, when Ingrid plans to retire from teaching. In fact, if everything goes according to plan, the Boysons hope to live on interest and capital gains alone, so they can leave their entire $1.3-million nest egg to their sons.
John has spent the past few months reading up on investing and he feels his expectations for his future portfolio are reasonable. But he doesn’t know for sure. And he’s not certain who he should trust to steer him straight. He knows he has just one chance to get it right. “I’ve been asking myself, ‘Is it viable for me to manage the money myself?’ ” John says. “Or should I swallow the fee and leave it up to the professionals?”
John has always been cautious with his money, an attitude he learned from his parents, who immigrated to Canada from Poland in the 1950s after losing their furniture business in the Second World War. His father built a small contracting business and taught his son to be frugal and hardworking.
John studied geology at university and spent his 20s and early 30s wandering Canada, working as a mine surveyor. That footloose lifestyle changed when he met Ingrid at a folk festival near Kitchener, Ont. They married a year later and decided they wanted to start a family immediately.
The only question was what John could do for a living. He explored opportunities such as buying an apple orchard. Then, after a Sunday afternoon chat with Ingrid’s uncle, a chicken farmer, he made up his mind to get into the poultry business. Getting started took courage. The couple borrowed $300,000 from a local bank and $200,000 more from their parents. They used $400,000 of that money to purchase their quota. Within a year, they had their chicken farm—and a mountain of debt.
For the first eight years, the couple lived on Ingrid’s salary as a schoolteacher and used most of the money they made from the farm to pay off their debts. The remainder went to expanding their farmhouse so it could accommodate a growing family that now includes D’Arcy, 13, Henry, 12, and John Jr., 6.
In the 12 years he has raised chickens, John has never taken a vacation. His life revolves around the rhythm of his business and he does every bit of the work himself. The cycle begins when the young birds arrive at his farm, fresh from the local hatchery. John puts them in the barns, feeds them daily, and checks them constantly for illness. He can relax only when the birds reach the 12- week mark. At that point, six trailers arrive to transport the 3.5-kg roasters to a slaughterhouse where they are killed, then shipped to supermarkets. “Once the chickens leave the barn, I spend a month cleaning and disinfecting the barns to get them ready for the next batch of birds,” explains John. “It’s a huge job.”
John’s relentless work has made his operation a success, but he doesn’t want his boys to follow in his path. He and Ingrid send their kids to a camp in Northern Ontario for a month every summer and keep them busy the rest of the time with swimming, basketball and guitar lessons. Much bigger expenses are on the horizon. John and Ingrid want to pay for each of their boys to attend university outside Canada so they can experience life in a different part of the world, in a foreign culture.
The Boysons’ other big goal is to travel. This year, they plan to enjoy their first vacation as a family—something they’ve never done because John has always been anchored to the farm. Further in the future, they want to visit Poland to see extended family. “We’ve always kept in touch by mail or phone but it’s important to us that the boys see their family’s roots,” says Ingrid.
Before they hit the road, the Boysons want to make sure their money is well invested. John has spent months reading investment newsletters and magazines. He feels that a well-balanced stock portfolio is his best bet for good returns, but he has a lot of questions. Should he diversify outside of North America? How can he protect himself from currency risks? And how can he build a portfolio that can sail through a market downturn? His eye isn’t on the next year or two, but a generation away. “Both my parents and Ingrid’s family helped us out monetarily when we bought our farm,” says John. “We want to give our boys the same head start when it comes time for them to pursue their dreams. We want the money to always be there for them.”
John Boyson may feel he is up to managing his $1.3-million windfall, but our experts aren’t so sure. Kelly Rodgers, president of Rodgers Investment Consulting in Toronto, and Eric Kirzner, the John H. Watson Chair in Value Investing at the University of Toronto’s Rotman School of Management, both question whether Boyson should attempt to run his portfolio himself.
“Even those of us who are relatively sophisticated investors are subject to emotions,” says Kirzner. “We’re myopic and we review our portfolios too often. We make emotional decisions based on fear and greed and this leads to expensive mistakes.”
Kirzner believes Boyson’s best course of action would be to find an adviser he can trust, but he acknowledges how difficult that is. “Finding a good financial planner is no mean task,” he says. To succeed, Boyson should be prepared to devote weeks to interviewing prospective advisers. He should steer clear of the people who want to put him in high-priced “wrap” accounts. He should also avoid advisers who sell only mutual funds—they’re likely to be more interested in moving product than in offering customized advice.
To avoid potential conflicts of interest, Boyson may want to first consider planners who would charge by the hour rather than by the size of his portfolio. He can begin his search by going to the Directory of the Canadian Association of Financial Planners (www.cafp.org/search) and reading the member profiles.
Once Boyson has interviewed candidates and narrowed his list down to a few names, he should use his bargaining power to maximum advantage. He should demand that each potential adviser put together a formal written proposal detailing how he or she would manage the $1.3 million. The proposal should outline all of the fees that would be charged (including any trailer fees that the adviser may collect from mutual funds), what products would be used, how often the adviser would report to Boyson, and what other services (like estate planning) the adviser would provide.
What if Boyson decides he wants to manage his portfolio himself? Kirzner doesn’t recommend this option, but if Boyson is determined to pilot his own ship, Kirzner suggests that he stick to a simple system based on a mix of index funds. Such a system can be quite effective if faithfully implemented. It doesn’t require expert investing knowledge—just a willingness to stick to a predetermined mix of funds through thick and thin.
As an example of one possible approach, Kirzner points to what he calls his Easy Chair Portfolio. It consists of a simple blend of mostly exchange-traded index funds that span all the major asset classes. To follow the Easy Chair system, Boyson would place 30% of his money in five-year Government of Canada bonds (TSX:XGV), 20% in a money-market fund, 30% in a fund that tracks the S&P/TSX 60 index (TSX:XIU), 10% in a fund that tracks the S&P 500 index in the U.S. (TSX:XSP) and the final 10% in an index that tracks markets in Europe, Australia and the Far East (TSX:XIN).
Kirzner figures this portfolio should yield Boyson 3.6% after tax in a typical year. That translates into $46,800 net a year for the Boysons—a bit more than the $45,000 they feel they need to maintain their lifestyle. But Kirzner cautions that the actual amount will vary from year to year—and that’s where a good financial adviser could pay off, by helping to keep Boyson on track during down periods.
Rodgers agrees with Kirzner that it’s difficult to manage a portfolio yourself; she, too, recommends Boyson find a good adviser. But she suggests that he steer clear of the normal run of financial planners or stockbrokers, because they will only put him into a prepackaged assortment of mutual funds or pooled funds.
Given the size of his portfolio, she advises Boyson to go directly to an investment counseling firm. These firms manage portfolios on a discretionary basis—in other words, they make all the investment decisions for their clients. Most investment counselors have the Chartered Financial Analyst designation, the most respected qualification in the field, and are proficient at developing custom portfolios for clients.
By going to an investment counselor, Boyson will be dealing with the person who is actually making the investment decisions on his portfolio. He can hold the counselor directly accountable for his portfolio’s performance, instead of dealing with a financial planner, who is essentially nothing more than a middleman between the client and the actual money manager.
Boyson can look for prospective investment counselors by going to the Investment Counsel Association of Canada Web site at www.investmentcounsel.org. There, he will find a membership directory with profiles of various firms. If he wants, he can contact those firms directly and ask for proposals.
Since the search can be complicated, he may want to hire a professional consultant, like Ernst & Young Investment Advisers or Rodgers’ own company, to help him sift through the myriad of counselors out there. “A consultant can put together a list of reputable counselors for him,” says Rodgers. “A consultant can also take him through the interviewing process and, eventually, the hiring process.”
Boyson should expect to pay a consultant about $6,000 to perform an organized search for a good counselor and to help in the initial portfolio implementation, says Rodgers. After that, Boyson should expect to pay his counselor an annual fee of about 1.25%, which includes a custodial charge of 0.25%. “What you are paying for when you pay a management fee is risk control,” explains Rodgers. “You’re not hiring a manager to make you a lot of money. You’re hiring him to keep what you’ve made. You want a manager you can stay with for the next 20 years—not for the next 18 months.”