Do you need a financial advisor to start investing?

The investment industry has become increasingly complex with more choice and options than ever before. For many Canadians, the starting place might be to get some help from a financial advisor.  While that may be intuitive, it's important to start with what financial advisors really offer and see if it matches what you are looking for.  There are different types of financial advisors:
  • The product salesman.  The most common financial advisor you will find are the ones that really sell products to get paid.  Some sell life insurance but most sell some type of investments like mutual funds.  Some are generalists while others specialize.  Some are paid by commissions, some are on salary.  Some are independent and others are captive.  And, some financial advisors are good and unfortunately, some are not.
  • Fee-based advisors.  Fee-based advisors have been around for a long time but are typically out of reach unless you have a significant sum of money to invest.  They typically sell products as well but their compensation or fee is typically charged outside of the investments.  Often Fee-based advisors will charge a fee based on the assets that they are managing or overseeing.  The rate is typically around 1.0% to 1.5% depending on lots of different factors.  Generally, the fees are negotiable based on the size of the account.  The more money you have the more power you have to negotiate the fees.
  • Fee-only advisors.  There is a growing camp of advisors that don't sell a product but rather charge a fee for their help and advice.  Some of these Fee-Only Advisors can help with investing but many can't or won't because of licensing liability issues.

In my 25 years of involvement in the financial industry, I think the majority of people either need help or want help from a professional.  As a result, I've believed strongly there is value in getting help.  That being said, there are more and more people concerned about high fees, the quality of advice and objectivity.  I see more and more people asking the question of whether they need an advisor and whether they can invest on their own.

Can you invest by yourself?

I think the simple answer to this question is yes but it really depends on a number of factors.  In today's online world, technology has created more opportunities and possibilities to invest money on your own without an advisor.  But before you jump in with both feet, you should ask yourself a few questions:
  1. Do I have the time to learn more about investing on my own?  There's no shortage of information.  Just google “Do it yourself investing” and you'll find lots of places to learn more about it.  It's going to take some time but there's definitely some good information out there on low-cost mutual funds, Exchange Traded Funds (ETFs), Stocks, and other investments.  You'll need to also learn about RRSPs vs TFSAs and non-registered accounts.
  2. Do I have the time to manage my investment portfolio?  The term do it yourself means exactly that.  You are on your own so you will have to devote some time to managing and monitoring your investments.  I'm not suggesting you need to be a day trader or even watch the portfolio every week or even every month but you should make the time to watch and review your portfolio a couple of times a year.
  3. Do I have the desire to manage my own investments?  We all have good intentions but you need to be really honest with yourself.  Investing on your own may sound sexy and interesting but really ask yourself if that's you.
  4. Do I have the confidence to invest on my own?  This is such an important question as well.  I believe that investing on your own is not that difficult.  I believe investing does not have to be rocket science but it's not my money you are investing . . . it's yours!  You have to believe that you can do this before you move forward.
I've met a lot of people over the years who have the time, the desire and even enough knowledge to invest on their own but they lack the confidence.  I've seen people with confidence and desire but they lack time and knowledge.  If you don't have all these qualities – time, knowledge, desire and confidence – then you may want to start by getting a little help or start small before you jump in with both feet.

How to get started with do-it-yourself investing?

If you are ready to invest on your own, you will need to open up a trading account.  All the major banks have their versions of trading account for do-it-yourself investors:
There's also a few other options like

Moneysense does a great job comparing some of the different discount brokerages in Canada.

Personally, I chose Questrade for my trading account because I like using ETF investments.  One of the key advantages to using Questrade is that I can buy ETFs for free.  There is a cost to sell ETFs but no cost to buy them.

With these trading platforms, you can invest in pretty much anything and everything from stocks and bonds to mutual funds to ETFs.  Your biggest challenge will not be having enough choice but rather how do you deal with too much choice.

Related article:  My Portfolio of ETFs

Do I have other options?

As I've said, there are more options than ever and one of the options growing in popularity for the do it your self-investor is robo-advisors or what I call the service-on-demand model.

With the service-on-demand model of investing, there is a middle ground for investors that want to tackle investing on their own at a much lower cost but still can get help if needed.

Some of the options with this model include:

When these options first came out, I was a little skeptical.  After more research, time and exploration, I think there is a place for these solutions.  In fact, I am thinking of opening up an account at Wealthsimple with my kids RESP funds.

Summary

The primary premise in the investment industry is that your investments should suit your needs.  You can now build on this foundation by choosing the strategy that best suits your desire and confidence to invest on your own or with some help, either with a financial advisor, the bank or now, even using online robo-advisors.

Good luck!

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.

For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

6 Responses to Do you need a financial advisor to start investing?

  1. Jim,

    This is a great topic.

    Today, there are umpteen more investing options than when I started in 1972.

    My favourite new option, that materialized much later after I started investing, is practice investment accounts available at many discount brokers.

    Practice accounts help to get familiar with what’s available at discount brokerages without investing any real money. You learn about some mechanics and some semantics.

    Of the dozen or so advisors I’ve had since 1972, one served my purposes, answered my questions, objected to my reasoning, found answers when he didn’t know, provided topical suggestions. He was eventually promoted. Sad!

    Most people underestimate themselves when it comes to investing. Usually because of emotional reactions to money.

    Yet they raise kids, operate dangerous equipment daily, face adversity like illness, job loss, burnt dinner.

    Remove the emotional attribute given to money and treat money like a tool, possibly a knife. A knife is dangerous but most useful when sharp, at hand when needed, used as a knife and not a bottle opener.

    And then there are the variety of knives. How many do you have in your kitchen drawer? What type? Are there seldom used useful knives?

    Money is a tool. Experts use tools in a variety of ways that you may not need or want.

    Which expert is best for you? When? How?

    I eventually learned that I was failing at finding the right financial expert.

    So I learned how to use the tool itself. I also learned that I didn’t want to be a day trader and live in front of screen most of the day.

    I learned that I needed monthly income. I looked for and found what generates monthly cash. I learned that this monthly cash can be automatically reinvested at not cost and then it generated more monthly cash.

    One of the “other” advisors explained OPM – Other People’s Money – and it’s tax advantages and it’s leverage advantages and risks.

    Today, the Internet is the one tool available to almost everyone. It needs to explored to find what feels right to understand and use the money tool.

    Jim has written under “Can you invest by yourself?” that “you should make the time to watch and review your portfolio a couple of times a year.”

    I strongly disagree with that statement. Because you need to learn about your portfolio, you need to become familiar with it. Using a SmartPhone or a laptop, it takes a few minutes – literally – to see what’s happening via numbers or charts.

    Knowing what’s happening gives one confidence, or possibly dread, about what your portfolio is doing.

    Confidence is a peaceful, happy feeling. Or you made a mistake and chose the wrong advisor or wrong investment product for your situation.

    I think the almost daily 3-5 minute monitoring is necessary in the first few years. Call it training for a marathon.

    Finally, you must define why you’re investing.

  2. Hello Jim

    Again, great article. (Apart from the term “term” in paragraph 2. It should be “time” instead)

    I believe you answered the question as a pretty resounding, “no, not really”.

    I concur and am happy to use TD Direct investing as well as maximizing the waived fees at Wealthsimple by recruiting acquaintances, family and friends. This one is an extremely passive investment but I really want to focus on Claude’s (avid follower of your blog) baby, namely the focus on dividends. I get the idea of it but lack knowledge of how to use available tools. The solution for that is probably not a financial advisor per se, but a person familiar with program soft ware usage, etc. I know a long time advisor that hardly ever uses the internet but depends almost entirely on existing clients whom he procured many years before the internet was a household necessity. I don’t think he added a new client in the past 5 years. I truly believe investment advisors are are dying breed and only have to blame themselves (and their employers) for being threatened by impending extinction

    • Peter,

      Try this to find dividends to investigate that could suit your plans and goals.

      google tmxmoney dividend screener

      https://web.tmxmoney.com/screener.php?locale=EN

      click add criteria

      Hints:
      • eliminate all criteria except “Exchange”
      • select Current Dividend Yield rather than rate
      • change Condition to >= then 5
      • you’ll get ±355 results
      • click “Edit Columns”
      • click “View more columns”
      • deselect most useless fields for our purposes; keep Symbol Company Name Price
      • select “Dividend” and “Yield” and “Yield 5 year average”
      • click Save
      • click the Yield column to sort by Yield (up or down)
      • if you copy the >7% results and paste them to a spreadsheet, you’ll have a list of ±150 TSX stock/funds that pay over 7%
      • these are the headings/columns I used:
      Symbol Company Name Price Dividend Volume Yield Yield (5 Y…

      Now it’s up to you.

  3. I started buying RRSP’s with my bank, I knew nothing about the world of finance so trusted them do the investing for me.
    Every 3 months I would receive a nice envelope in the mail with statements on shiny paper. It all looked very nice…Except there was no gains showing. I put money into my RRSP’s every year, and every quarter I’d get my statement showing no gain. No losses, but no gains either. If I remember correctly I was invested in equity based mutual funds.
    Well after 7 years of that, and 7 years closer to retirement with nothing to show for it profit wise. I sought out another advisor and left the bank. And 6 years after that, I was basically getting the same results. I was getting tired of everyone making money from my RRSP’s except me. So I just decided to start doing it myself.
    Went back to my bank and filled out the necessary forms to open a BMO Inverstorline acc. And I haven’t looked back.

    I’ve been doing my own for 13 years now. Tentative at first of course. Took baby steps for the 1st year or so. But as my confidence grew, so do my profit. I managed to dodge the “great recession” in 08 (thankfully) And got back into the markets in early 09, and caught the recovery in Canada. I currently have 3 separate Investorline accounts. Besides the RRSP acc, I also have a TFSA acc. and an acc. for non tax sheltered stock trading.
    Long story short, I just retired this week at age 60. I’m a blue collar guy and have been a factory worker all my life. If a guy like me can do it….anyone can. Just take the time to read and learn and watch.

    • Dennis,

      Most people are like you; frustrated by experts claims and non-results.

      Few take steps to manage their money and educate themselves. The motivation is simple: make money with your own money.

      I like that you mentioned ’08-’09. I too benefited greatly by monitoring the markets and my portfolio and taking advantage of the recovery. Another mini-crash happened in January ’16 and I benefited from that one also.

      Seeing results you made happen is rewarding.

  4. Hi Jim. This is an excellent article and an important subject. I think if a young investor is willing to do some reading and learning to understand investing and the investing industry they can easily do it themselves. Investing has a lot of hype, yet a portfolio of 3 or 4 ETFs or TD eFunds can be very easy to manage.

    If a young investor took the time to read a couple of books like If You Can by William Bernstein and Millionaire Teacher by Andrew Hallam, then saves somewhere between 10 and 20% of their gross income every year in a balanced low-cost portfolio they will end up better off than many advisor managed portfolios, especially high fee ones that pay sales commissions and trailing commissions.

    When an investor really needs an advisor is when their life gets more complicated such as marriage, kids, own business, or about 15 years from retirement, they should seek out a fee only financial planner to run a detailed plan. Even then, they can easily continue to be self directed investors. Unfortunately this approach is not lucrative for the financial advisor, so it is not very common.

    I switched over to the model I described above, and wish I had been able to do it 20 years ago, but the simple investment products and discount brokers were not available back then.

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