In recent months, investment firms dedicated to attracting do-it-yourself investors have been running television commercials about how financial advisors are sleazy, smug business people who are only looking out for themselves at the expense of their clients. The advertisers do a wonderful job at suggesting that people shouldn’t be dealing with a financial advisor because they’re the only ones making money even if clients lose money. Heck, they do such a convincing job that they even have me thinking that I should be using their services – and I am a financial advisor!

I’m kidding.

Let’s carefully look at what they’re really saying, and then decide for ourselves, shall we? The advertisers would like people to think that they can manage their own money and even get higher returns than those working with a financial advisor because the advisor is charging fees. Let me see if I have that right; I studied finance, completed educational and licensing requirements to become Life and Health Insurance Advisor and an Investment Fund Advisor in Ontario, and have experience managing clients’ financial affairs. The average public… well, maybe they took that one economics class in grade 10 and sometimes watch the business news so now they’re pros. Just like someone who took a health class in grade 12 can perform their own colonoscopy.

They are likely thinking, “I’m not rich like Daddy Warbucks. (Google the name, if you don’t know it) I don’t need a financial advisor.” Think again, Annie. You may need someone managing your financial portfolio, and here’s why; you need money when you retire. What are the odds that someone will need income in addition to what the government provides in their retirement? Trick question; it’s pretty much everyone.

The government of Canada will provide a maximum benefit consisting of the Canada Pension Plan and Old Age Security totalling $20,650[1] per year. The poverty line in Canada is $22,133[2]. In other-words, if people want to have a nice retirement, heck, any retirement at all, people should invest wisely.

These do-it-yourselfers are likely now thinking, “I don’t need an advisor; the commercial told me they’re all a bunch of crooks like Gordon Gekko. (Again, go to Google). Why should I let a financial advisor skim money off my investments with fees when I can manage it myself? I bought into those hyped up investments over the holidays because I heard everyone else was making money…. they are going to go up soon… right?”

This is what most people do; they hear someone mention to them that they made a lot of money on a particular investment, and then they invest in the same trying to make some quick returns based on a “fear of losing out”. But often by this time, the investment has peaked and is starting a decline, and they lose money on the investment.

Statistics show that people who use a financial advisor will see their savings grow 2.5 times as much as a non-advised investor after only 15 years3. The next time someone says, “The commercial told me I can save 2% on fees by investing on my own,” you can tell them, “Yes, but my money actually grew 2.5 times more than yours!”  Okay, this is obviously a hypothetical example and past performance cannot be used as a guarantee of future performance, but my point is that saving money on fees is only one part of the equation.

Finally, an experienced financial advisor takes a complete view of their client’s financial affairs. They can explain needs based on individual retirement goals, taking into account inflation, as well as any insurance requirements based on financial risk.

The do-it-yourselfers who get in trouble then decide they need a financial advisor. “I’m going to my bank tomorrow,” they say. “I’m going to get an advisor who is paid a steady salary, not one of those commissioned advisors – a Jordan Belfort wannabe. (Google him. Last one, I promise!)

Is this a good idea?

An employed financial advisor at a bank is often incentivised based on how many clients they bring in, not on how well the clients’ investments perform. If the value of their accounts goes down, the advisors are not financially impacted.  As well, often this job is not a career and they move to other areas in the bank. They are not invested in building a relationship with clients!

On the other hand, someone who works as an independent financial advisor is incentivised to keep their clients happy. For these advisors, their income is tied to the value of their clients’ portfolio.  Satisfied clients also refer their family and friends.

For some people “do it themselves” investing might lead to a good return, but according to some research, using an independent financial advisor may lead to a better retirement.[3]

[1] https://www.benefitscanada.com/news/new-oas-and-cpp-and-benefit-amounts-take-effect-for-2018-108699

[2] https://www.ctvnews.ca/canada/census-children-make-up-one-quarter-of-4-8m-canadians-living-in-poverty-1.3587472

3 https://www.mackenzieinvestments.com/en/investor-education/all-about-advice