Investor needs less DIY and more expert help


There’s nothing quite like the thrill of online trading. And a couple of really solid wins can get the adrenaline going. But for some reason you don’t seem to be ahead of the game. Your monthly cost in trading commissions, fees, and management expenses seems to be huge. You tend to have more losers than winners on your statement. And you’re snowed under with endless information slips, prospectus packages, proxy forms, and other paperwork that may or may not be crucial. You’re suffering from Do-It-Yourself Syndrome. Fortunately, there’s a relatively simple fix.

If you’re having a bit of trouble sorting out what you own, how your various investment activities are affecting your overall returns, and which of those information packages is important, you might consider getting some help. I know, for self-directed investors, it goes a bit against the grain. But if you’ve gotten to the stage where you sense you’re floundering around in alien seas, think about it.

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A good financial advisor will look at your entire investment world as, in effect, one single portfolio. And that includes both registered accounts (such as RRSPs, TFSAs, and RESPs) as well as your non-registered accounts, say, an online brokerage. In my own financial advisory practice, I look at how all these assets together break out in terms of tax efficiency and appropriate allocation. For clients who thought they were doing just fine, thank you very much, the results can be eye-opening. Many who thought they were being prudent and sensible were shocked to discover they were in fact playing Vegas odds, which, as you may know, aren’t great.

An investment advisor is, very basically, someone who can help you select your investments to meet your financial goals and match your risk-tolerance level. But an investment advisor should do more than suggest what stock “looks good” this month. A lot more.

More important than picking individual investments is for the advisor to practice asset allocation. Research has shown that up to 95% of your investment return is a result of proper asset allocation, not just picking the right individual stock, bond, or fund. It’s important to find an advisor who can provide documentation that clearly outlines an asset allocation methodology that’s right for you. This is generally referred to as an “Investment Policy Statement,” and it will outline your asset mix objectives, your risk tolerance, return objectives, restrictions, constraints, and your time horizon.

How to choose an advisor

Your advisor should not be restricted to using only the products of one company and must have access to a wide range of investment choices, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

When selecting an advisor, use this checklist of basic criteria any advisor must meet:

Written policy.The advisor agrees to manage your assets in accordance with a clear process that is written down and agreed to by both of you. This is the Investment Policy Statement.

Shops the market.Your advisor accesses the whole marketplace for investment products, not just the products offered by a single company. Someone who chooses from the offerings of only one company is a “captive” advisor, and while they may be very competent at what they do, their investment-product universe is very small indeed.

Controls costs.The advisor looks for ways to reduce investment management costs, including the use of low-cost mutual funds and exchange-traded funds (ETFs) in structuring an investment portfolio.

Fair compensation.Your advisor is upfront about how she gets paid, and is paid by fees charged on assets under management instead of relying on commissions and trailer fees (a commission offered by fund companies to advisors for selling their product).

Advisor qualifications

Many financial advisors now also outsource the job of investment management to professional portfolio managers, most of whom now boast advanced financial degrees, including the Chartered Financial Analyst designation, who have large research teams, better access to markets, and cost-effective trading platforms.

This does not mean that you will pay more to have assets managed in this type of arrangement. In fact, in most cases, you will pay less than if a more traditional investment advisor did the whole job. The fees you pay are simply shared between your advisor and the portfolio manager. This arrangement will deliver the best of both worlds, with your financial advisor up in the wheelhouse, directing the whole process for you, while highly trained professionals toil away in the engine room driving your investment strategy and growing your portfolio.

Courtesy Fundata Canada Inc. © 2016. Robyn Thompson, CFP, CIM, FCSI, is president of Castlemark Wealth Management. This article is not intended as personalized advice. Securities mentioned are not guaranteed and carry risk of loss. No promise of performance is made or implied.

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