It wasn’t long ago that endless miles of telephone wire had one function – enabling phone calls. Today, however, telecom systems form the backbone of technologies we use not only to communicate, but also to enjoy and share multimedia entertainment, tell us where we are and how to get where we want to go, and access volumes of information previously unavailable even in the world’s greatest libraries.
In the financial industry, a similar revolution has occurred. Resources formerly available only to professionals a few years ago have been surpassed by those now available – often free of charge – to clients of online brokerage firms.
As a result, online investing is growing exponentially and encompasses a much wider demographic than ever before. While online trading was once dominated by young male stock traders, today the picture is vastly different.
“Especially over the last few years, more and more of our clients are people of all ages looking to take control of their long-term investments,” says Jason Storsley, president and CEO of RBC Direct Investing.
One impetus for the growing appeal of online investing is the broad range of investments that make it possible for online investors to create diversified, lower-cost, long-term portfolios.
“ETFs (exchange-traded funds) are growing in popularity,” says Mr. Storsley. “We also offer closed-end mutual funds, which are similar to traditional managed mutual funds but trade on the exchange.”
He says RBC also provides alternatives for clients seeking fixed income by offering access to preferred shares and principal-protected notes (products that guarantee the return of principle at maturity, with returns linked to the performance of a particular index, group of commodities or even to inflation.
The challenge is terms such as closed-end mutual funds and principal-protected notes can intimidate rather than inspire some investors.
“What we often hear from our clients is that they don’t know where to start. So while we don’t provide advice about what products clients should buy, we provide the tools, information and resources they’ve asked for, so they can build their investing knowledge and increase their level of investor confidence,” says Mr. Storsley.
RBC Direct Investing website’s ‘Guidance and Planning’ section is a good place to start.
“You’re able to choose among a variety of tailored learning plans, based on your needs,” says Mr. Storsley.
Answers to questions such as ‘Do you want to take a simple or a comprehensive approach to your investments?’ and ‘Are your investments long-term, such as saving for retirement or a child’s education, or shorter-term, such as saving for a down payment on a home?’ help everyone from novices to advanced investors tailor a learning plan.
While novice investors may find information on mutual funds and ETFs highly valuable, advanced investors can hone in on resources focused on subjects such as technical equity trading for profit and how to trade options.
“We see the learning process as a partnership. Just because you’re a self-directed investor doesn’t mean you have to do it yourself. We’re there with you, to give you the tools to invest successfully,” says Mr. Storsley.
Clients who have an online account but who also work with an advisor or planner offline is another growing trend. This shift may signal growing awareness of the value of financial planning beyond the investment realm.
“When financial planning as a concept first arose in the 1980s, it was about much more than making good investment decisions,” says Cary List, president and CEO of the Financial Planning Standards Council. “The last couple of years have brought people back to recognizing the importance and value of financial planning as something separate and distinct from simply making the right investment decisions.”
Financial planning is a process that determines how you can best meet your life goals through the proper management of your financial affairs, says Mr. List.
“Investment decisions are a part of the solution, but professional financial planning advice can also help answer the larger questions, such as ‘Do I pay down my mortgage or use this money to make investments? Am I managing my investments in the most tax-effective way?’”
Shopping for a financial planner? Do your homework.
Self-directed investors who wish to enlist the services of a financial planner for tax, estate and risk management planning may have to do a little legwork to find planners willing to work on a strictly fee-for-service basis.
“More often than not, typical fee structures are based on the planner also serving as investment manager or investment advisor, and being compensated through the implementation on the investment side of things,” says Cary List, president and CEO of the Financial Planning Standards Council. “But we are seeing more flexible arrangements, where planners are offering alternative fee structures to people who have a keen interest in making their own decisions, but need that professional up-front planning advice to put it all in the context of the bigger picture.”
The fpca.ca website provides a search tool that identifies certified financial planners by location.
Once you’ve found certified planners in your area, Mr. List recommends starting with a conversation. “Don’t be afraid to pick up the phone and explain that you are a self-directed investor who wants comprehensive financial planning advice.”
