Nancy Graham June 29, 2017 Personal Wealth Are Your Investment Management Costs Earning Their Keep? How much are YOU paying for financial advice? Have you tallied the total amount? By the way, what are you actually receiving for those advisor fees? If your answers look something like this, we need to talk. I’m not saying there isn’t wonderful financial advice out there. But if your advisor hasn’t kept up with today’s best practices, you may be paying white tablecloth, filet mignon prices for the equivalent of a fast-food burger. So what does good financial advice look like – the kind that’s actually worth paying extra for? I recently promised to take a closer look at this question. What does good financial advice look like? Actually, it may be easier to start with what it isn’t: It should NOT resemble business as usual on Bay Street. Traditionally, too many “advisors” have been charging multiple percentage points – often thousands or tens thousands of dollars annually – just to serve up little more than a basic investment portfolio. There are a couple of problems with this antiquated model. First, most actively minded advisors haven’t even been very good at that ONE, portfolio-management task. Too many traditional advisors approach the markets like they’re in possession of specialized knowledge on how to outperform the market – or protect you in a down market – or get you a better return for less risk – or or or — this is what’s known as “active investing.” Active managers are forever trying to predict the next hot and cold stocks, sectors or markets to chase or flee. They then shift your holdings around in an attempt to stay one step ahead of the game. The thing is, there’s an enormous amount of evidence dating back to the 1950s, demonstrating that this just doesn’t work. After costs, you’re far more likely to underperform than beat the market. A recent report here in Canada revealed that over a 10 year period, between 75-99% of actively managed mutual funds underperformed the market. So if you’re paying an advisor to deliver a broken model that defies what we know about efficient investing, you may be better off heading straight to the casino instead. At least there, you can enjoy some bright lights and ringing bells while you’re paying your “fees.” Other advisors may build a “set and forget” investment portfolio for you, perhaps using bargain-basement index funds or ETFs. If this is the sole service you are getting you could do this one task on your own with the help of Justin Benders DIY blog. So, if you’re going to pay for extra service, you deserve a whole lot more for your extra advisor fee … which, by the way, should be closer to 1,2 percent or less, instead of multiple digits all by itself. Managing your money and everything it can do for you is a lot like running a business … call it “My Money, Incorporated.” Just as when you hire a Chief Financial Officer for your business, finding the right “personal CFO” for your “My Money Inc.” involves looking for that delicate balance of qualities that lead to a profitable relationship … profitable for YOU, that is. Of course you want someone who has book learning and is a seasoned professional. Your financial advisor also has to have the right range of services. He or she should have what it takes to gather all of your financial pieces into a satisfying whole – from properly managing your investments, to integrating your tax preparation and planning, insurance and risk management, business and estate planning interests, modelling your sustainable retirement income, and more. My colleague Jennifer Vachon recently listed all the “and mores” you might expect in this recent post. Last but not least, your advisor should have the gumption to tell you when you are about to make what we refer to in financial lingo as a bone-headed move. For example, even the best-built portfolio in the world won’t hold up if you panic and sell at the first sign of trouble. In other words, can you trust the advisor you’ve hired to, first and foremost, look out for YOUR best financial interests above all else? This is a big one. So big, that I plan to address it at greater length in my next post. Wait ‘til you see what happens when your best interests take back seat to somebody else’s corporate quotas. Share: Facebook Twitter LinkedIn Email CIRO Advisor Report
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