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Investment tips: is it worth hiring a professional?
Satisfaction with self-directed brokerages has increased significantly, with the overall satisfaction score increasing 33 points to 631 (out of 1,000) in 2024, according to research from JD Power.
This trend suggests a growing approval of DIY investing in Canada, but that doesn’t necessarily mean it’s right for you. Let’s look at all the reasons why you would choose DIY investing or when you should seek out a professional advisor.
Understanding DIY Investing
DIY investing allows you to manage your investments without professional help, offering flexibility and potentially lower costs. It requires knowledge, discipline and the right tools and technical knowledge.
DIY investing involves selecting and managing investments such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs) on your own. Generally, you will spend some time researching and selecting assets, monitoring performance, and rebalancing portfolios. DIY investors tend to use discount brokers to buy and sell securities.
DIY investors often stay up to date with market trends and economic indicators. Although it can be cost-effective, it can require a lot of time and effort.
Pros and Cons of DIY Investing
Pros:
- Cost Savings: Lower fees as there are no professional management fees.
- Control: Full control over investment choices and strategies.
- Flexibility: Ability to quickly adjust portfolios based on market changes.
Cons:
- Complexity: Requires a strong understanding of investment principles.
- Time-consuming: Ongoing research and portfolio management are required.
- Risk: Potential for poor investment decisions due to lack of experience.
Hire a professional consultant or planner
Financial advisors and planners offer guidance on a variety of investment decisions and financial plans. As a former financial advisor, I have helped many clients set and achieve financial goals, create budgets, and manage investments.
Advisors typically begin by assessing the client’s current financial situation and risk tolerance. Advisors often monitor investments and suggest adjustments based on market conditions and personal financial changes.
Financial advisor fees in Canada can vary widely. There are several common fee structures such as commission-based, fee-only, and fee-based.
Commission-based: Advisors earn a commission for the financial products they sell. While this can align interests, it can also lead to potential conflicts of interest.
Fee only: Clients pay a flat or hourly fee for services, which often leads to unbiased advice. This framework is transparent but can be a bit expensive.
Fee-Based: This can be structured in a number of ways, but the most common is a fee based on the percentage of your assets under management (AUM).
Pros and cons of hiring a financial advisor
Pros:
- Expert guidance: Advisors offer expert knowledge and personalized financial plans.
- Advanced tools: They have access to sophisticated financial analysis tools.
- Emotional discipline: Counselors help maintain a long-term perspective and avoid emotional decisions.
- Time saving: They manage investments, saving time and effort.
Cons:
- Higher costs: Advisors charge fees that can potentially impact overall returns.
- Conflicts of interest: Some may have incentives to sell specific products.
- Less control: You delegate some investment decisions to the advisor.
- Varied quality: The quality of advice can differ significantly between advisors.
Value of financial advice
Canadian investors have a high level of trust and satisfaction in their financial advisors. This 2022 IFIC report notes that a recent study by the Institute of Certified Financial Planners found that 97% of Canadian investors trust their financial advisors.
The same survey highlighted that 80 percent of mutual fund investors and 73 percent of ETF investors believe they get better returns with a financial advisor.
The same IFIC report mentions that a significant portion of advised investors (53 percent) have less than $100,000 in investable assets. This shows that financial advice is accessible even for those with smaller portfolios.
Final thoughts
Deciding between DIY investing and hiring a professional advisor can be a challenge for Canadians. It’s important to weigh the pros and cons of each approach to see what’s best for you.
DIY investing offers cost savings, control and flexibility, but requires significant time, effort and knowledge. On the other hand, financial advisors provide expert guidance, emotional discipline and comprehensive financial planning, but they come with higher costs and potential conflicts of interest.
Ultimately, the best choice depends on your financial knowledge, time availability and comfort in managing your investments, as well as whether you want the peace of mind of hiring someone to help.
Once your investment strategy is defined, you can focus on other important aspects of financial planning, such as determining how much money do you need to retire in canada.
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of Canadian readers daily on Financial plan.
Do you have any questions, tips or story ideas about personal finance? Please send us an email at dotcom@bellmedia.ca.