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Discussion Starter #1
As is probably clear from many of my posts; I have a dislike for financial advisers because:

  1. My experience is that they do not add much value.
  2. They have a conflict of interest by definition (they need to make money from you, so they are likely to suggest the products that make them the most money).
  3. You can learn as much (or more) objective investing information yourself.
  4. If you become a DIY investor, you only have yourself to blame if your decisions loose $, and it is more rewarding when your choices make you $.
I was wondering what others think of the above.

For example, I have heard of, but never worked with flat fee financial adviser. Does anyone have experience with this type of adviser and are they likely any different than the grim picture I outline above? I think they would at least not have the conflict of interest issue.

It probably greatly comes down to the specific person you are working with. Unfortunately I have yet to have found a good one. ;(

Thanks.
 

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I agree with all your points. After reading the Naked Investor, I am very convinced advisors add no value.
I am sure there are a few (Hans Merkelbach) that act in a clients best interest.
On one hand a good advisor deserves to be paid and since most people want something for nothing commisons kinda make sense. All fees are hidden so people don't know they are actually paying for something. But the same system is set up for abuse.
If you don't want to DIY then simply DCA into a couch potato portfolio and youshould do better than most funds/advisors.
 

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Fee for service in most cases would most likely be worse. The reason is, that for most people, the reason they go to a financial advisor is to outperform some benchmark index and/or avoid major market declines and volitility. Receive higher returns for lower risk, etc.

Now a financial advisor will most likely be able to provide better performance than a completely uneducated (financially speaking) person, but they (or you) have no better ability to outperform an index, or time the stock market, then does flipping a bloody coin.

With the above paragraph in mind, how would a fee for service person provide this service any better? As for the conflict of interest, that is true, but with fee for service advisors, there is another conflict of interest to think about. You see, the first time you see a fee for service advisor, it may all sound rosy (not unlike your commission advisor I will bet). You get this nice print out of a projected financial plan, they make recommendations of which they have no conflict, that sound so wonderful to you. 6 months later, a year, 3 years, it doesn't matter, you will eventually find out that their projection is fairly worthless, since it is predicated on too many assumptions, of which later variations are a certainty (not their fault of course, but still a problem). Their investment recommendations are no better than flipping a coin (nor will yours be if you do it yourself) and therefore the conflict of interest becomes yours. Are you going to pay this bozo $500 or so, to sit down with him again to update a projection that has very little usefulness and let him flip his coin again at some better investments then the ones he suggested the last time you met?

There in lies the problem. It is not the financial advisors fault (although I am sure there are a lot of unethical ones, but hey, have you ever tried to buy a car lately?) it is the fact that the most important thing that clients want from financial experts, better performance, is the only thing they can never provide.

Is the rest of the stuff worth paying for? Well the financial projections are not. Again, not their fault, but the fault of human beings not given an ability to see into the future. The only reason you should pay a financial advisor, whether fee for service or not, is if you have very little understanding of capital markets. If you invest, with very little training, the stock market will take a large part of your capital as you learn the ropes. It will also take about 10 years of your time to become fully knowledgable. If you do not want to spend, let's say 30% of your invested money and 10 years of mistakes, learning the ropes, then financial advisors are worth it (that is why they are so popular).

The question you want to ask is; will I be willing to fork over a cheque during each meeting, that doesn't seem to accomplish all that much at the time. That is why there are more commission advisors than fee for service, because most people, are not willing to do that.
 

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Discussion Starter #4
The only reason you should pay a financial advisor, whether fee for service or not, is if you have very little understanding of capital markets. If you invest, with very little training, the stock market will take a large part of your capital as you learn the ropes. It will also take about 10 years of your time to become fully knowledgable. If you do not want to spend, let's say 30% of your invested money and 10 years of mistakes, learning the ropes, then financial advisors are worth it (that is why they are so popular).
Good points overall, however I would argue that the above comment you made is not necessarily true.

If a person knows nothing about investing, then they should do a staggered Couch Potato strategy with their $ with low MER funds / ETFs while they learn. This takes basically no learning and there are several resources available for free on how to do it. No paid adviser needed, and relatively low long term risk. In fact, I doubt any adviser (except maybe a pay per use one) would ever even suggest the CP strategy because they will not make high bank fund MERs and will basically be telling the client that their role as an adviser is not actually needed. ;)
 

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Most will agree that return wise most planners can do no better than an index.
Investment wise I do not need a planner/advisor.

Where I feel they could possibly provide value is in tax/estate planning.

Perhaps you are over insured, or maybye you hold GICs outside a registered account.
Maybe you will be in the same tax bracket when you retire and the RSP might not be such a good idea.

Planning a non registered account with capital gains instead of an RSP may be better?

An investment loan with interest payments equal to that the RSP deduction would give you the same deduction.

Invest the same way you would in a RSP.

This I believe would be of value.

To simply sell me a buch of funds based on my "age minus 100" should be in equities,etc and I might add expensive to own and most likely to underperform is of no value.

Max out the RSP/TFSA put it into a couch portfolio and there you go.
 

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If a person knows nothing about investing, then they should do a staggered Couch Potato strategy with their $ with low MER funds / ETFs while they learn.
Ah, but if a person knows nothing about investing, he/she would not know about couch potato strategy, ETFs, etc. either.
It's the three levels of learning & ignorance:
1. You don't know what you don't know
2. You know what you don't know
3. You know what you need to know

Most people (myself included) came to know about indexed investing (couch potato, etc.) after being burnt by mutual funds and/or financial advisors.
 

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Discussion Starter #8
Where I feel they could possibly provide value is in tax/estate planning.

Perhaps you are over insured, or maybye you hold GICs outside a registered account.
Maybe you will be in the same tax bracket when you retire and the RSP might not be such a good idea.

Planning a non registered account with capital gains instead of an RSP may be better?

An investment loan with interest payments equal to that the RSP deduction would give you the same deduction.

Invest the same way you would in a RSP.

This I believe would be of value.
That sounds mostly like an accountant to me; which I do think have a purpose in my life now and, from my experience, are charge per hour type arrangement.

Some are probably more of a mix (accountant and planner), so we maybe saying the same thing, just using different terms.
 

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It's hard to find a good mix. An accountant is unlikely to review your insurance coverage, and you are unlikely to discuss (as a routine matter) your whole financial picture with an accountant, just what he or she needs to do your taxes. (Presuming you are an "ordinary" Canadian, with no trusts, exceptional family situations, or a corporation.)

The CFP designation is intended to provide a minimum competency profile in the areas of risk management, investment management, tax planning, and more; but so long as most investment advisors/"financial planners" are compensated for placing product, what most clients will get is product recommendations. Not tax planning advice; not rebalancing; not an investment policy statement; not "financial planning" in any larger picture.
 

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Two categories of planning

Keep in mind that it is important to differentiate Investment Advice from Financial Planning advice. Investment advice requires a lot of time, energy, insight and (sometimes) luck.

Financial planning involves the cash flow aspects.... salary, when you plan to retire, spending levels, how much to save/withdraw, taxes, insurance, non investment events and entities such as real estate, loans, pensions, entitlements...

Investment planning is the "what" to invest in part of investing, financial (cash flow) planning is the "how much" and "when" part of the puzzle. Unlike, investment planning, cash flow planning is well within the individuals' ability to DIY.

For instance, could you imagine your financial advisor sitting down on his own and what-iffing your personal parameters such as retirement age, how much you plan to leave as an estate, whether or not you should sell the family cottage in 10 years, pay off your line of credit next year or let it ride? No way... not mine anyway.
 

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Most CFPs are not planners just salespeople
I would choose an accountant with a tax specialty not one who simply counts beans for a tax return.

A whole plan including age, familly, tax considerations, cash flow etc is what I would place a value on.

Most advisors simply know how to sell.
 

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Hmmm. I'm not sure I'd agree that cash flow management (defined to include retirement timing) is "well within" the DIY capacities of most individuals.

I think I probably have it the other way 'round: I'm a couch potato investor, and taking care of my portfolio is not complex or time-consuming.

However -- timing my retirement? That involves, for example, understanding the sequence of returns risk, wealth projections taking withdrawals into account, plus longevity and inflation risk. Decumulation portfolios are actually quite different than accumulation portfolios, and the stakes are much higher at retirement than before.
 

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"Good points overall, however I would argue that the above comment you made is not necessarily true.

If a person knows nothing about investing, then they should do a staggered Couch Potato strategy with their $ with low MER funds / ETFs while they learn."


Unfortuneately the experience I refer to has nothing to do with learning all about the various investment choices. It is more about understanding how the stock market works, that past performance has absolulely nothing to do with future performance, market sentiment and more importantly your own risk tolerance and personality.

You will make all the fundamental mistakes that everyone makes, as you learn these things. The couch potatoe does not immune you from yourself.

After about 10 years and 1/3 of your wealth, you may finally start to understand yourself enough to start making money, but even that is not guaranteed. What investment you make will have no consequence to this.

I know there are many examples of people who make a lot of money almost right away. There are also examples of people flipping a coin 5 times in a row and calling it correctly. For those so called successful investors, all I can say, is it may take 15 years and about 40% of their wealth, seeing how they got improper feedback so early on in their quest for knowledge.

Good luck.
 

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I have a friend who went to a investment advisor. He shared with me that he was physically sick because he was freaked out about making a decision.

I don't need an advisor, he does.

IMHO almost everyone who is on this board got their start with a Financial Advisor so at least for starting people off they are invaluable. As we went forward we became unhappy with the performance of these funds, however at least for our initial forays they were helpful.
 

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even among the princes & cardinals of the trade - the true investment counsel, who are mostly CFAs - it is difficult to find a good fit. First-rate individual personalized attention usually begins around $10M. From $2-10M the clients, even the clients of investment counsel, are generally pooled & advice is off-the-rack.

and the rest of us are nowhere in this picture.

so a gigantic and ever-growing category of middle-class investors is not being well-served & has not been well-served for many years, imo. Has our MoneyGal not posted recently that a mutual fund license can be obtained with nothing more than grade school math ...

the only solution as i see it is to introduce the study of finance in the high schools. With only the limited objective of getting teens to understand that the sector is an unavoidable part of life. That it's complex, challenging, easier than algebra, can be treacherous, requires a lifetime of learning, has a huge potential payoff, and deserves as much time & attention as buying & looking after a car.

it would be nice if people could grow up armoured with the same kind of knowledge that helps them not to buy a lemon of a car or a lemon of a house.

my neighbourhood bank branch is a small, crowded, popular place where staff works in glass-fronted cubicles and everybody knows your name. It's heartening to see the number of young working people sitting in appointments with the 2 or 3 investment advisors at this branch. My hope is always that these young people graduate soon from mutual funds & GICs, unfold their wings & move up. I know it's fashionable in this forum to scoff at bank investment reps, but in my view they are fine contacts for a novice investor. It's pretty much guaranteed that they will not destroy or maraud a young person's first investment account & often they can find or provide helpful learning tools.
 

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Hmmm. I'm not sure I'd agree that cash flow management (defined to include retirement timing) is "well within" the DIY capacities of most individuals.
Yes, I should have have qualified that. What I meant to say was that this type of inclusive, tax-based, needs driven, cash flow planning is far beyond the capabilities of the average joe with time on his hands and an ability to wield a spreadsheet.

There are, however, programs out there which can be invoked by DIY-ers and which can handle these complexities. (said he self-servingly)
 

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Discussion Starter #18
I have a friend who went to a investment advisor. He shared with me that he was physically sick because he was freaked out about making a decision.

I don't need an advisor, he does.

IMHO almost everyone who is on this board got their start with a Financial Advisor so at least for starting people off they are invaluable. As we went forward we became unhappy with the performance of these funds, however at least for our initial forays they were helpful.
Fair points, especially regarding that a financial advisers value greatly depends on where you are in life; never thought of that point much.

Your friend needs to see his doctor; there are medications that may help him greatly. Half serious suggestion. ;)
 

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Discussion Starter #19
the only solution as i see it is to introduce the study of finance in the high schools. With only the limited objective of getting teens to understand that the sector is an unavoidable part of life. That it's complex, challenging, easier than algebra, can be treacherous, requires a lifetime of learning, has a huge potential payoff, and deserves as much time & attention as buying & looking after a car.

it would be nice if people could grow up armoured with the same kind of knowledge that helps them not to buy a lemon of a car or a lemon of a house.
This is a great idea and now that you raise it I am surprised that it is not at least an elective in high schools. It could help so many future savers. What a great idea.

My attitude is that self education is the key to a healthy financial future. No one cares about your finances more than you do!
100% agreed!
 
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