Even the experts need good advice

I'm not very handy, which is why I don't do a lot of do-it-yourself projects around the house. When we installed a new kitchen a few years ago, the heavy lifting for me was to pick up a pen and write a cheque to a professional builder.

I'm also not an expert on taxes or Canadian law. So I use trusted advisers to look after my accounting and legal requirements. Most people with no legal experience wouldn't draft up a binding agreement on their own, or represent themselves in court. So why do so many people think they know enough to look after their own investments?

I've talked with many people about their investment strategies over the last few years. I'm amazed at how many people think they can outsmart the market on their own. It's almost like a point of pride: they think they can pick investments better than anybody else and that if they ask for help it's a sign of weakness, like asking for directions when you're lost.

The markets are the sum total of all the available knowledge and intelligence in the world. Why would I, sitting in my basement in Ottawa, be able to make picks that are better than the total of all the experts and other investors out there?

Even people with financial expertise use a financial adviser. Look at this video from Dimensional on the value of advice.

I don't act without expert advice in any area where I'm not an expert. I rely on people with more knowledge and information whenever I can. And that's especially important to me when it comes to my life savings.

By: Mark Sutcliffe | 0 comments

The problem with trailer fees

Most Canadians probably figure their financial planner has nothing but their best interests at heart. Unfortunately, there's no legal requirement for financial advisers to put their clients' goals ahead of their own. And there is plenty of evidence to suggest that many advisers do exactly the opposite.

Have a look at this article by the Globe and Mail's Janet McFarland:

It shows what happens when mutual funds pay trailer fees - effectively, big commissions - to advisers. Many of these commissions are not disclosed to the client. But they certainly make it more likely that advisers will recommend the funds, even if they're not performing particularly well.

That's why it's critical that you know how your adviser is getting paid. Ask questions. Insist on answers. And if your adviser is being paid by the mutual fund companies and not by you, can you really count on them to give you the best advice, any more than any other commissioned sales person?

I would never trust anyone getting paid big commissions by mutual fund companies to put my interests first. That's why I prefer the model used by independent financial advisers, who charge an annual fee to the client for their services, meaning they work for you and not the big funds they are selling.

By: Mark Sutcliffe | 0 comments