Most of my friends and family invest with a financial advisor. I use the term “advisor” very loosely here because all the pretty much every one of these clients got for their typical 2-1/2 percent fees are a hodgepodge of mutual funds thrown together. It is very rare to see a client with basics like a written financial plan and a well-thought out investment policy. It appears that my circle of friends and family are not uniquely unfortunate; most Canadians who work with an advisor do not have these basics in place.

Jon Chevreau recently reported from a financial planning symposium that even Certified Financial Planners (CFPs) do not routinely create financial plans for their clients. One industry insider said she often sees documents with “Your Financial Plan” cover pages with a simple asset allocation recommendation on the inside. Mr. Chevreau closed his piece with the simple suggestion that ALL clients should routinely get comprehensive financial plans.

The more I see investors indulging in self-destructive habits like panicking, chasing performance, not working from an investment policy, trading too much etc. the more I’m convinced that many investors would be better served working with a financial advisor who can bring some discipline to the investment process. Unfortunately, competent advisors seem to be few and far between. Canadians pay financial advisors billions in compensation each and every year. Is it too much to ask that we receive the service we paid our hard-earned money for?

This article has 17 comments

  1. I still believe that the best financial plan is one that you create for yourself after becoming educated. If you want to use a trusted advisor that has set compensation rate, and doesn’t rely on mutual fund fees, in order to verify your plan, then great. But you shouldn’t rely solely on someone else to manage the money you worked so hard for! Invest 4 hours of your time and read the Wealthy Barber and the sequel, and truly understand what you’re doing!

    • @My University Money: I’d venture that maybe 10% of the population will be able to create their own financial plans. I see this even among my friends and family. Most are very highly educated but simply do not want to manage their own money. That’s just reality, unfortunately.

  2. We agree on the problem but not the solution, Only the wealthy can typically demand decent financial planning unless they hire a fee-only hourly plannner, or learn to plan themselves. There are a number of good, comprehensive calculators to help, such as the free one at retirementadvisor,ca.

  3. Amen to this. Mutual fund providers love to point out that trailer fees are for “ongoing advice,” but very often there is no advice, only product sales. Let’s acknowledge that trailer fees are really for shelf space.

    @My University Money: I agree that people need to take ownership of their own finances and not blindly rely on someone else, but in many cases it’s more difficult than it sounds at first. It takes more time than simply reading one book. We personal finance bloggers have a tendency to forget that not everyone has the interest that we do. :)

  4. “Is it too much to ask that we receive the service we paid our hard-earned money for?”

    Apparently it is. Yet another reason to go DIY, if you can and have the desire. :)

    Good post CC, hopefully such an article will grab some attention from the banks. Will tweet!

  5. the last financial advisor I had was a friend.. notice the ‘was’ portion of that statement.. he totally f*cked us over and then lied about it to his company and the provincial governing body.. never mix money with friends, nor with someone who ‘says’ they’re a financial advisor (because no one cares as much about your financial future than you..

  6. Be careful about lumping ALL blame on advisors (certainly some of it is fair).

    Usually they’re under significant pressure from their firms to gather assets and from clients who are focused on recent performance. I felt this keenly when I worked for a major bank.

    Clients could hold their advisors feet to the fire and the industry could focus more on sound investment principles vs. marketing and asset gathering.

    Also, there are good alternatives. As you and Canadian Couch Potato articulately outline, Canadian investors can build an excellent low cost portfolio themselves. Then, the investor could pay a fee for service RFP or CFP for an unbias financial plan.

  7. We often hear about the mistakes that investors can make when they make their own decisions and how they coud benefit from solid financial advice. This is all true, but your point that few advisors offer solid financial advice is relevant here. It’s not obvious whether the typical investor is better off on his own or with a typical advisor.

  8. @Dr. Dale: I once looked into how easy it is to get a fee-only financial planner. It’s not very easy and it is hard to tell if the ones who seem competent really are.

    @Canadian Couch Potato: I agree. I’m sure there are many competent advisors who deserve to be fairly compensated for their services. The vast majority though deserve a goose egg in my book.

    @My Own Advisor: However much we may plug DIY, the reality is only a small proportion of the population are going to go that route.

    @malingerer: If you are willing to share, did your advisor provide you with a written financial plan, an investment policy statement or at a bare minimum investments based on an asset allocation policy? I’m guessing not.

    @Chris: Certainly I don’t want to put all blame on advisors. The banks and mutual fund companies deserve part of the blame as well. Investors could also educate themselves and demand better and if they don’t get the service, move their accounts elsewhere. I also don’t want to paint all advisors with the same brush. I’m sure there are many very good ones out there.

    @Michael: I agree. As bad as individuals, on average, maybe when it comes to investing on their own, it is not clear that they’ll do any better if they work with the typical financial advisor. It’s a vexing problem.

  9. @Canadian Capitalist: yes to (1) minimal though (2) yes (3) yes, but any of the above didn’t make up the difference for the backend commission structure he was based on (e.g. most bank/insurance company advisors are paid for new business not existing; thus the lack of motivation to keep the current business happy). It was a good lesson for (1) no one cares as much as you do when managing your money, no matter what they say and (2) money/possessions/wealth is all transient (e.g. at the end of your life it’s all gone anyways, make sure you enjoy the ride along the way), no matter how much you have or how successful you are no one gets out alive (see S. Jobs for reference). Cheers :)

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  11. I don’t have a financial advisor as I cannot find a fee-only advisor. I belong to a profession that has a professional association that provides financial service. They did create a financial plan but nothing about investment strategies or discipline. They only really want to sell me their mutual funds, even though they are paid salary and not on commission. When I asked them about certain investment strategies, etf or stock they say I am not too familiar with that. I stopped asking and went DIY. I think they’ll only be interested in me when I have more than 300k to invest and let them manage my money. It was very disappointing that even a professional association financial services don’t offer what is really needed.

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  15. Newbie if you have less then 1m an not adding new money every 3 months…you will get 2 meetings a year (maybe 3) plus 2 hrs of looking over your plan ,per year…an a invite to golf game or some other event….your just a number some were for 1 to 200 plus

  16. financial planners work for money, teachers work for money & is a big reason going to school or hireing a financial planner is not the best path for becomming wealthy.

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