Episode 54 – DIY or Full-Service Concierge


DIY or Full-Service Concierge by Astra Financial

When it comes to investing, there’s A LOT that needs to be considered. Think about these questions…

– How are you picking what companies to invest in?
– Have you seen their financial statements?
– Will they weather the storms of inflation, stock market crashes, etc.?

Having a financial planner ensures that you KNOW the facts about a company before you invest. Investing is a tricky world to navigate on your own, and there’s nothing wrong with getting help. It may actually be better for your future!

Join me for Episode 54 as I discuss what a financial planner can do for you and your investments!

Show Notes:

Hey there, this is Episode 54. Today, I want to talk about doing-it-yourself investing or using a financial planner? Now, for the sake of keeping today’s chat short, I’m not going to go in-depth on the difference in quality of advisors, the difference between a certified financial planner and advisor, or a product sales representative. Check out an earlier podcast of mine. One of the first few, I think, where I talk about the differences, that’s going to be important. 

I can go on long rants about it, but for today, let’s just assume that we’re talking about a high qualified, certified financial planner that has transparent fees and no commission from products. Let’s also assume they run a top-notch business that has exceptional client service. So, the question then, based on that certified financial planner or a do-it-yourself portfolio, which one gives you better returns? 

Let’s start with the cost of this exceptional and transparent certified financial planner. Let’s assume the cost is 1% of your total assets that are invested, paid monthly, which is, it works out to be 1/12th, and you can see that every month. There are no commissions or trailing commissions. Okay, so, even with the cost of an advisor, you are ahead with the expert advice, versus doing it on your own. I know I’m biased, but there are reasons why behind this. I’m not even going to get into the taxes you save in retirement planning by having an expert help you with all that planning. Tax planning can save thousands and thousands in retirement. I’ve seen so many mistakes in case studies and things that all it takes is some planning ahead of time and also the tax knowledge. 

Okay, so research shows that the wealth of investors who work with advisors is greater than those trying to do it by themselves. So, this is actually proven. While some companies try to get you to see green with certain ads claiming, “You can retire with more money by saving on advisor fees and doing it all on your own.” The truth is, the wealth gap increases significantly for investors the longer they spend with their advisors compared to their solo counterparts. 

So, there are multiple studies that prove this. The one I’m referring to right now is from the Investment Funds Institute of Canada, “Modest investors, easy access, and the freedom to choose are keys to successful long-term investing”. And so that was an Advisor Insights, January 2018. The research sample studied consistently showed that investors who work with financial advisors have more wealth in investable assets. All I can say is that if you start off at the gym and you’re a do-it-yourselfer,  you’re going to look across, and you’re going to see someone that is working with a trainer, they have a plan, they’re joining a progression group class. They’re more buffed. I know because I keep looking over and going, “Oh, how do I get those muscles?” So it’s the same kind of idea. 

There are over 16,000 funds in Canada to choose from, and that is in the fund library. I didn’t just make up that number. Never mind the new ones popping up as I speak right now. I get things across from my desk all the time. Your advisor has to sift through all of these investment alternatives and find the one best suited for you. They’re constantly gathering facts, applying reasoning to those facts, to come up with convictions that they can invest behind. 

So last week’s podcast, I talk about inflation in your portfolio. I mentioned that there are winners and losers in inflation. The losers are those companies that are highly leveraged and hardly have any cash on hand. They just borrowed money out through the ying-yang, and the interest rates are going to rise. How do you know these facts about a company? So if you are randomly stock-picking, how do you have access as a do-it-yourselfer to the financial statements and know what companies can weather the storms? What homework have you done? 

I am sure there are some anomalies out there of people that actually have access and know-how to do this, and they’re doing great. That’s good. The bulk of us, the remaining amount of people out there, you’re not going to know what to look for. You’re not going to have the experience. 

Now, aside from picking top-notch companies to invest in and building your diversification, there is another factor that is priceless. And that is your behaviour. And this is why I need a trainer at the gym. Because I most definitely do not want to increase my weights. You know,  Jamie will always ask me, “Is that heavy enough?” and I’m like, “Oh yeah.” She’s like, “Yeah, we can go heavier.” And I’m like, “Oh.” My behaviour needs that extra boost from her, and it’s the same idea with a financial advisor and having clients. Your behaviour is the biggest factor on how well your portfolio does.

Yes, picking the right stocks or the investment manager and keeping fees down is important. But your actions, particularly when markets are at extremes, have a bigger impact. It’s a known fact that markets overreact in both directions. It’s not a matter of if the market blows your socks off one day and melts down another, but when.

So, investors make their biggest mistakes when prices are far off-trend. Fueled by emotion, they make the boldest moves, often with the most disastrous results. Can you think of someone right now that you know, and they’ve told you that they sold their investments, and it happened to be when the market was down? So in 2008, 2009, we all know somebody that sold at the bottom, and they’re like, “That’s it. I can’t take it anymore.” In hindsight, they look back, and it was actually at the bottom of the market, and they bought into GICs. I know somebody that, right as the pandemic was happening in March through a grapevine, through a grapevine wife told me that her spouse had cashed in their entire tax-free savings account.

They didn’t want to lose all their money, so they got out. Think of that person. They have really let emotion get in the way, and they have locked in their losses and lost money. That is when a financial advisor there will be like, “Check yourself before you wreck yourself.” Human reaction is to get out, run, flee, sell. That is when you need that rational, clear thinking and reasoning. 

I joke, and it’s not really a joke. I earned my 1% when the markets were down. Everybody needs that conversation, and we pull up the financial plan, and we say, “This is why we’re staying the course. This is what we’re doing.” And we stay, and it comes back. 

Multiple studies found that potential advisor value added varied from – and I’m going to start throwing out some numbers here – 1.59% over 3% a year. So that’s a study in 2015 by researcher Michael Kitson. It was called Evaluating Financial Planning Strategies and Quantifying Their Impact. So between a 1.59% and a 3% increase by having a financial advisor. So you already have that 1% advisor fee, let’s say your exceptional certified financial planner charges that 1%. Just by having them, you’ve already surpassed that fee and got a better rate of return. Another study from Toronto-based Russell Investments in Canada has found a similar result. Financial advisors deliver value at a level almost triple the typical advisory fee of 1%. So that’s that 3%. And there’s another one I could go through here. There’s study after study. So invaluable. 

The FP Canada financial stress index was conducted in 2021, and this is after the pandemic. And here is a quote from them, “When looking into the future, Canadians who work with a professional financial planner are more likely to say they feel more hopeful about their money situation and financial future than they did a year ago.” So that’s 73% are hopeful versus the 56% of people that don’t work with an advisor. So it’s clear if you care about your health, you need to tend to your finances, and you’re going to need that professional coaching, professional planning. 

That’s part of your health. Health is your biggest wealth and that’s emotional and stress as well. Those who work with a planner are less likely to say they lost sleep because of their financial worries. Imagine you have a confidant that you can actually talk to about your money, and it’s without shame, it’s without judgment. It’s somebody there, cheering you on. So it’s also about that, you know, alleviating the stress. So we have improved investment returns when you work with an advisor, and you have less stress. To me, that’s a bit of a win, and you probably have time on your hands versus the DYI. 

So this is from MoneySense Magazine Canada in general, this is their quote, “In general, paying for advice makes more sense if you have a reasonably large amount of money. Good advice becomes cost-effective when its cost is spread over a reasonably large portfolio, and top advisors often don’t take small accounts.” So that’s one of the reasons. “You have complicated needs in areas like planning for retirement tax or state. Great advice has greater impact.” And that’s thousands in taxes that I was talking about earlier, about in retirement with the proper retirement planning. And so that’s about finding someone who specializes in that, and they’re going to actually save you a lot. And it also saves you time. So that’s the other thing MoneySense Magazine had said is that “If you’d rather spend your time on other things, you’re paying for something you lack or don’t have time to do properly.”

If you want to go it alone as a do-it-yourself investor, you don’t have to be an investment expert, but you need at least basic investment knowledge and confidence in your self-sufficiency. At a minimum, you have to understand the basics of setting an appropriate asset allocation and rebalancing regularly, and you need to be able to commit the time to manage your own money. And it’s about, you have to have the fortitude to stay the course when markets become turbulent. Panic selling is a no-no.

No matter what you choose, you need a financial plan. I do plans all the time for younger people managing their own portfolios. So for DYIers, you still need to have that path created and just kind of a glance over, and where can you save taxes? What’s the best decision? You need expert guidance, no matter what, and coaching in everything financial to make sure that you just, you know, you’ve set your autopilot and you’re on the right course. 

No matter your opinion, though. I am a firm believer that where you put your attention, you will grow. So, if you are managing your own money and you’re putting away each month, each year, consistently taking care of your present financial self and your future self, you are doing better than nothing. I mean, give yourself a pat on the back because you are still taking care of your finances. Something is generally better than nothing.

So just start. That’s it for today. Happy investing. Until next week. Take care.