My first financial advisor was just some random sales guy from a mutual fund company. I really thought he was a legit advisor and that I was an investor. I was seduced by a workplace seminar on investing for retirement, so I went in and later signed on for a one on one appointment.
I really was an investor but he was no advisor. He got paid to flog company specific mutual funds to unsuspecting noobs like me and my wife.
Nice guy sure but only concerned with the commish he was making on peddling high cost funds and then settling back until I called with more cash to put to work.
I suspect a lot of people in the 80's and 90's got their start investing this way. The problem with mutual funds is cost. Way too high and you can buy cheaper just like anything out there in the world if you want to take he time to look.
It always pays to shop around, but we inherently trust these salespeople and end up handing over our money only to lose a lot by way of the slow drip of high fees via MERs.
The Problem With Mutual Funds
- employ sales people
- they are NOT advisors
- limited training and experience discerning client needs
- always represent the institution NOT you
- we are TOO trusting with sales gurus
- highest cost products out there
- compensated by trailer fees and DSC (deferred sales charges)
- takes 7 years before you can sell with no penalty
I ended up selling all of our mutual funds once I did the math and found out just how much was getting siphoned off in fees per year. The average Canadian Equity Mutual Fund charges 2.5% per year is fees. On a $100,000 portfolio that is $2,500.Way too much when you can buy an ETF that covers the whole Canadian market place for 0.06%. That's a saving of $2,440 a year. Pay $60 a year or $2,500?
ETFs are far and away cheaper and a big reason why mutual funds are becoming obsolete. Only the sales guys/gals win at this game.
Financial Planners
- usually called fee-only planners
- they charge an hourly fee
- will map out a plan for you to follow
- one time event after consultation
- you are responsible to buy the investment products
- you are in charge of the day to day portfolio management
I've never used one but doing some cursory due diligence throughout the years they can charge anywhere from $2,500-$3,000 to set up a one time plan for you.
The tough slogging of building and managing the portfolio is left up to you anyway. If you feel you need a push in the back via a plan first then this is better than using a sales person. It's time consuming and expensive to get started in my opinion.
Financial Advisors
- draws up a plan and implements it
- gives tax advice
- plans for your retirement
- gives kid's education advice (RESP)
- helps with real estate financing if required
- charges a percentage of AUM (Assets Under Management) 1% or less
A financial advisor in my opinion is the best of the three choices if you need someone to hold your hand. If you have the money to pay someone to do this for you then do it.
I am my own advisor. I save the 1% they charge and do my own investing. Another thing to keep in mind is you still pay for your ETF fees on top of the management fees. It could add up to 1.5% total per year every year.
I am my own advisor. I save the 1% they charge and do my own investing. Another thing to keep in mind is you still pay for your ETF fees on top of the management fees. It could add up to 1.5% total per year every year.
I see nothing wrong with developing a relationship with an advisor and getting all of the other help you need with planning for retirement and your future. They are tough to find and now as a retiree I am comfortable with doing it myself.
Having said that, I follow Garth Turner's blog greaterfool.ca and he also runs a financial advisory firm over at Turner Investments. I believe they would help improve your financial health if this is all too complicated for you.
I receive no financial compensation from anyone mentioned here.
Do you use an advisor? Are you happy with the results so far?
Related Post:
No comments:
Post a Comment