A disproportionately higher number of WhereDoesAllMyMoneyGo.com readers than the general population might say “no”, but in reality this represents a very skewed sample. And that doesn’t mean that they are right, either.
The following are some of my views:
- Some investors currently using an advisor could probably be DIY investors
- Some DIY investors should probably be using an advisor
- If someone put a gun to my head and asked me what percentage of investors should be using an advisor I would probably say 9 out of 10 (or 90%)
- Investing/Personal Finance is about 90% psychology and 10% math
- Using a couch potato portfolio does not preclude using a financial advisor
- Indexing wouldn’t work if there were no active managers, it’s a symbiotic relationship, and it’s in equilibrium – right now indexing looks really compelling
- Not all financial advisors are good financial advisors
- Unfortunately, a lot of bad financial advisors can *sound* like good financial advisors
- The barriers to entry for becoming a financial advisor are way too low in Canada
- Really good financial advisors can be worth more than 1%/year in fees/commissions
- 1%/year in fees is a big deal, all other things being equal
- All other things are not equal
These are just some of the topics that I’ve decided to add to the Know Your Advisor eBook, and we’ll flesh them out one by one here on the blog too.
I think that you are selling people short with your 10% DIY competency opinion. I believe that it is higher.
Hi Dale, thanks for your comment. I could very well be wrong, as I didn’t use any scientific polling, but I think I’m in the ball park. The reason I say that is because there are very few people who can also manage and plan their taxes, estate, insurance, etc. If we were looking at only managing an investment portfolio, I would agree that number would be higher. Also, by stating “need a financial advisor” it could mean managing your own portfolio and using a financial advisor for all the other stuff. Does that make the 10% more reasonable? Or do you have your own suggestion? (interested to hear it from others too)
Cheers
Diligently posted to my personal network (via Facebook) with the comment that this article is both “great” and the last four points are “KILLER.” :)
Cheers!
I think you are very right on this one. It’s a sticky spot, though. There are lots of people who needed a good financial advisor long before they had anything worth investing. But without any real assets to invest you wouldn’t get past the first free coffee with most advisors out there (forget about a free cappuccino…) Just look at the hordes of people loading up on mortgages, LOCs, car leases, cottages, timeshares, and other stuff that they really can’t afford. You sure feel rich driving a leased BMW between your 95% leveraged 4,000 sq foot house and your equally leveraged vacation property, but are you?
I think we need to do a much better job raising financial literacy in elementary and high school so that people can make better basic decisions on their own.
An excellent point Gerry: what is a new investor to do? There is certainly the notion out there that an advisor they might go to (who will talk to them) might be more of a product specialist with a script than a client centered advisor (who may have investment minimums or fees out of reach for a new investor). I’ll add that to the list…
Ok, my name ray, and I’m that guy. So where do I turn then? I’ve been making $200,000 plus a year for 6 years. I do have assets, some paid for, but a couple big ones owned by the bank, and I’m in trouble. With a finical advisor, I could pull out of this. Any suggestions?
Regards, Ray
Whereabouts are you located?
Things can change and it does take time out of your day to keep on top of things. People were not talking about index funds and ETFs ten years ago. A DIY has to keep track of current changes such as the best place to buy index funds (TD). Not to mention that companies are always finding new ways to earn money with hidden fees and camouflaged products (for example, all the new ETFs).
Imagine in thirty years, do you still think that you will be reading this website? A financial advisor’s job is to stay on top of all of this for you, for a modest fee. There is nothing wrong with that in principle.
The biggest challenge is that they are paid as salesmen. They should instead have a fiduciary duty to their client and no one else. They should be paid directly by the client and not receive money from mutual fund companies. Only then can you trust their advice.
Wait a second, who said I would be WRITING this website for 30 years! lol
Actually, that would put me at 62 years old, and assuming I keep writing 300ish posts per year would put us close to 10,000 posts. That would be pretty cool!
I know I need a financial adviser. But how do I find one? I’m meeting with a financial investor next week, but is that the same thing?
Pete
Hi Pete, you may want to stay tuned to the blog as I’ll be releasing an ebook all about finding a financial advisor (in Canada). I’ve never heard of someone referring to themselves as a financial investor before, for what it’s worth.
Having a financial advisor would not hurt you, it can only benefit you unless you are stuck with a bad financial advisor You can benefit greatly from having a financial advisor, the last six points are very important. Love the article, and can’t wait to read more about them in the future.
Thanks Sensei – cheers!
And assuming that you’ve decided you need a finanacial advisor, the next step is to find one. Do you have any advice on how to go about doing this?
Hi Susan, in the coming weeks the KYA (Know Your Advisor) eBook should be ready – I would suggest that would be a good starting point…
I think that the vast majority of people are capable of managing their investments themselves using things like index funds and the like. However, there is only a small minority that are actually interested enough in the topic to actually spend the time and energy to educate themselves and do things right. I’d estimate that 90% of the population is better off with an advisor. It’s not a matter of intellect, it’s a matter of effort.