There has been a lot written about whether it is better to work with a financial adviser or to manage your financial affairs yourself. There has been even more focus on adviser fees and what that means to your financial situation.
It’s a fair question – without a blanket answer. The answer will be different depending on the individual or couple involved.
Like all services, working with the least professional provider will always be a bad choice. How to find the best provider for your needs is a separate topic addressed in a previous column. What I can do is outline the services that some financial advisers, such as ourselves, provide for their fee. And for your personal circumstances, you can compare your needs, interests and skill set to this list. By then determining the monetary cost for professional advice, you can determine whether to work with a financial adviser or do it yourself.
1) Can a professional, experienced, connected investment manager earn better returns for a particular risk level, than you can managing the money yourself? If so, do you believe it is likely 0.5 per cent a year, 1 per cent a year, 2 per cent a year or more? Have you measured your personal returns?
2) Do you have a good measure of the amount of risk that is currently in your portfolio? Do you understand the levels of exposure you have to various companies or industries? Are you diversified in sectors that tend to move down at the same time? Sometimes risk isn’t easy to see in a portfolio without the tools and experience to measure it.
3) Is a professional firm more capable of accessing better pricing on bonds than yourself? In our experience, institutional pricing can often improve bond returns by 0.5 per cent to 1 per cent when compared with retail pricing.
4) Is there an ability for a professional firm to get better prices on stock buys and sells? We believe that based on using an advanced trading algorithm, we can add 0.25 per cent to 0.5 per cent by getting better buy and sell prices on trades.
5) Are you being as tax-efficient as possible in your portfolio? By earning interest income in taxable accounts, are you paying too much tax? Could this be costing you several hundred or thousand dollars a year in extra taxes?
6) Are you reviewing areas to better manage income splitting, managing your existing capital losses to earn “tax-free” capital gains, or thinking about whether a spousal loan makes sense for your situation?
7) Are you an impulsive investor or a disciplined investor? Does it help you to have another person to protect you from making major investment changes too often? Is there someone to guide you through difficult periods in the stock market by sharing historical perspective?
8) Is there access to or knowledge about certain types of investments like convertible debentures or preferred shares that could help you to achieve better returns with lower risk?
9) How does your investment portfolio align with your overall goals and needs? Do you have a financial plan that outlines your likely income, taxes and cash flow over the next five, 10 or 30 years? How does this overall knowledge guide many of your investment decisions around risk, income, spending and gifting?
10) Do you have debt expertise to ensure you get the lowest lending rates, and to allow you to deduct as much interest as possible?
11) Do you have insurance expertise tied to an overall financial plan? Do you need more? Do you need less? Is it the right type of insurance? Can you get the same coverage cheaper?
12) Do you have an adviser that can help you to stickhandle legal and accounting choices and decisions – other than your lawyer or accountant? If you need a lawyer or accountant, do you know how to find a good one?
13) What if something happens to you? Is a spouse or other family member able to take over the management of their financial lives – or will they need guidance? If they will need guidance, it’s important to have a trusted adviser in place before anything sudden happens.
14) What happens in the case of death? What will your likely estate size be? What type of taxes will be owing? Are things set up to be handled the way you would like?
15) Is there someone that persuades you to do things you know you ought to do, even though you don’t feel like doing them?
16) Is there someone a phone call away to answer financial questions for you?
17) Is there someone that can listen to your specific situation and provide feedback in a way that a magazine or newsletter does not?
When you consider the various points on this list, how much would it be worth to you if you could find this adviser and relationship? Is it worth 4 per cent of your assets a year? Is it worth 2 per cent? Or is it worth nothing?
If this list of issues is worth at least 1 per cent to 2 per cent a year to you, then you should try to find a good financial planner. If you think it is worth less to you, then it is probably best to manage things yourself.
Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He has an MBA from the Schulich School of Business and is a certified financial planner. He was vice-president of business strategy at a major Canadian brokerage firm.
Follow Ted on his blog at The Canadian Financial Planner.