Active or Passive, Advisor or No Advisor?

I think some people might believe that the choice to be an active or passive investor is essentially the choice between using an advisor or “doing it themself”. It is not.

There are investors who manage their own portfolios and some of them are active day traders and some of them are couch potato proponents. There is a whole spectrum of investors in-between.  There’s nothing earth-shattering about that  statement.

Then we have the realm of the investor who uses an advisor. There are many advisors who use actively managed investment funds. There are fewer advisors who use passive investment vehicles (index ETFs, index mutual funds) in tandem with active strategies (market timing, sector rotation, core-satellite, etc.), and there are fewer advisors still who use a couch potato strategy (but they certainly exist).

Then we have advisors who focus only on portfolio management, and we have those that handle both portfolio management and financial planning. There are even advisors who handle the financial planning and outsource the investment management to an ICPM (Investment Counsellor Portfolio Manager), which is a fast growing model BTW.

Personally I believe that most people need a good advisor (with emphasis being on the “good”), but with the laser like focus on index fund fees versus actively managed funds with baked in advisor compensation, the discussion isn’t as precise as it should be. It’s been whittled down to 0.35% to run your own portfolio versus 2.5% to use an advisor = $100,000’s of money lost to fees over 50 years or whatever.

It’s so much more complicated than that. We’ll discuss some more in the near future.