Retire 30% wealthier? Why not more?

Canadian discount investment service Questrade, which offers both an online brokerage and ETF investment portfolios, has based a television campaign on “tough questions” about fees. I thought it might be useful to gather up the evidence and arguments about the value of advice.

The Value of Advice

HOW DOES WORKING WITH A FINANCIAL ADVISOR AFFECT CLIENT OUTCOMES?

A study by CIRANO found that a household that worked with an advisor for one to four years had almost twice as many assets as a household without an advisor. After 15 years or more, it had almost four times as many. Claiming that investors can retire “30%” richer without an advisor is not necessarily accurate.

HOW DO ADVISORS PROVIDE HOLISTIC FINANCIAL ADVICE?

Advisors can design services and solutions for a wide variety of clients, from the beginning investor to the young family to retirees. Advisors can survey and select products to create a portfolio that is tailored to all of an investor’s needs, from tax and income issues to time horizons to socially responsible investing.

HOW DO ADVISORS ADD VALUE DURING MARKET CYCLES?

Advisors can provide investment education and discipline. They may also promote regular investment, help bring balance to their clients’ portfolios and work to shield them from emotional investing.

HOW ELSE DO FINANCIAL ADVISORS ADD VALUE?

Good financial habits and planning contribute to financial success. Advisors can help to provide the discipline and expertise.  They can help clients:

– save effectively

– take advantage of company plans and government savings instruments

– factor in tax issues

– avoid bad financial habits

– understand the implications of their financial situation and set goals

– think through estate issues

– make decisions and avoid procrastinating

Questrade’s claim to superior performance seems to rest on its lower fees: If you spend 30% less on fees, you will get results that are 30% better. Of course, it’s not that simple.

Certainly, fees are an important part of the equation when considering where to put your money.  For disciplined, knowledgeable do-it-yourselfers, discount services can be attractive – but just because you can doesn’t mean that you should.

Do-it-yourself investors can often face a number of emotional and technical challenges when it comes to selecting and managing their investments.  And unless they can be certain to overcome these obstacles, most would be better off working with a professional who provides unbiased advice for a reasonable fee.