The value of knowledge

Do you need a Financial Advisor?

There used to be a time when investors who wanted to purchase stocks and mutual funds had only one way to go – through a financial advisor.  But since 1984, when Toronto Dominion launched its discount brokerage services have appeared allowing individuals to choose to continue working with an advisor or execute trades themselves by phone or online.

Many investors are unclear about what financial advisors do and how they are compensated.  This is understandable as every advisor has a different skill set and offers various services.  Spending some time this spring to understand the services and options available may provide clarity on the benefits of working with an advisor.

The decision for some investors to do their own finances may come down to wanting to save money.  Another reason may be that individuals feel that it is easy to take control of their own investments.  These individuals may also be unaware of the services offered by financial advisors.  The more time you dedicate to your financial needs the more likely you are to realize the benefits of working with a qualified financial advisor.

Is It Too Expensive?

When fees are charged on a per transaction basis, the value of the service is directly linked to the cost of the trade.  Unlike an accountant or lawyer that charge a fee based on time, financial advisors historically have charged on a transactional basis.  The premise being, the more trades you are doing, the more work the financial advisor is doing on your behalf.  This is only partially true as the majority of the services that many financial advisors provide are not billed in this traditional way.  The industry solution to this issue was to develop a fee-based platform.  Fee-based advisory services are charged a flat fee that is based on your total investment assets – these types of accounts provides free trades up to a reasonable limit.  This places the focus on all of the services provided by the financial advisor including transactional costs.  This also highlights the other services that financial advisors do, such as structuring your total finances in a way that saves you money.

Past Experience

Some individuals may have received poor advice from an advisor in the past leading them to question why they are paying fees when they may not perceive value in return.  In these cases, we encourage investors to consider the following:  How much effort did you put in to finding the best financial advisor?  Did you stay the course when things got volatile?  Did you take unnecessary risks?  Did you have a plan?

Easy to Do Yourself

A discount brokerage representative does not provide advice on individual investments or offer other value added services that an advisor does.  Some discount brokerage firms are beginning to provide their clients with limited access to research.  Will you have the time to read through research reports and understand the financial jargon?  Are you able to develop a diversified portfolio that optimizes returns while minimizing risk?  Financial markets have become more complicated and staying on top of all the changes and financial news is more than a full time job.

Taking Out Emotion

Removing the emotions from buy and sell decisions is important.  All too often when individuals are making their own investment decisions, they are based on emotions such as anxiety about not being in the markets, or being nervous about overexposure in the markets.  An advisor can offer guidance having experienced several market cycles.

Limited Time

Many savvy investors use the services of a financial advisor.  Having a trusted advisor to discuss your total financial picture with can give you more assurance that the decisions being made are the correct ones.  Individuals that are busy at work often have limited time to attend to financial affairs.  Others may want to enjoy retirement without the daily work of monitoring their investments.  Regardless of the individual’s stage in life, they can be comforted by having an advisor that knows about their personal situation.

Other Services

There are many things that some advisors do for clients that can easily go unnoticed.  An investor that gets fixated on the cost of a single trade may decide that doing trades themselves through the internet is a prudent move.  What is the big picture here?  Is it time to cut corners when it comes to your finances?  What is the value lost by not having an advisor on your side to help you achieve your goals?  A simple strategy recommended by your advisor may increase returns, reduce risk, save taxes, and simplify your life.  An advisor can provide clarity when you receive conflicting advice from friends and family.

A trusted financial advisor is dedicated to keeping up-to-date on regulatory changes and financial news.  Financial advisors have resources and a network of professionals that provide solutions to the most complex of financial questions.  Most individuals are more likely to achieve their financial goals if they work with a knowledgeable advisor.