According to the J.D. Power survey, satisfaction with self-managed brokerages is improving significantly, with the overall satisfaction score expected to rise 33 points to 631 (out of 1,000) by 2024.
This trend shows that DIY investing is becoming more and more accepted in Canada, but that doesn't necessarily mean it's right for you. Let's take a look at all the reasons why you might choose DIY investing and when you should hire a professional advisor.
Understanding DIY Investing
DIY investing allows you to manage your investments without the help of professionals, giving you more flexibility and potentially lowering costs. DIY investing requires knowledge, discipline, the right tools, and technical knowledge.
DIY investing involves selecting and managing your own investments, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). It usually takes time to research and select assets, monitor performance, and rebalance your portfolio. DIY investors tend to use discount brokerages to buy and sell securities.
DIY investors often stay up to date on market trends and economic indicators, which can be cost-effective but can require a lot of time and effort.
The pros and cons of DIY investing
Strong Points:
- Cost savings: Fees are lower as there are no professional management fees.
- Control: You have complete control over your investment choices and strategies.
- Flexibility: Ability to quickly adjust portfolios in response to market changes.
Cons:
- Complexity: Requires a solid understanding of investment principles.
- It takes time: It requires ongoing research and portfolio management.
- Risk: Lack of expertise may lead to poor investment decisions.
Hire a professional advisor or planner
Financial advisors and planners offer advice on a variety of investment decisions and financial planning. As a former financial advisor, I have helped many clients set and achieve financial goals, create budgets, and manage their investments.
An advisor typically starts by assessing a client's current financial situation and risk tolerance. Advisors often monitor investments and suggest adjustments based on changing market conditions or personal financial circumstances.
Fees for financial advisors in Canada vary widely, with several common fee structures including commission-based, fee-only and fee-based.
Commission-based: Advisors earn commission on the financial products they sell, which can create a alignment of interests but can also create a conflict of interest.
Commission only: Clients pay a flat or hourly fee for services, which generally results in unbiased advice. This structure is transparent, but can be a bit pricey.
Charge: This can be structured in a variety of ways, but the most common is a fee based on a percentage of assets under management (AUM).
The pros and cons of hiring a financial advisor
Strong Points:
- Expert guidance: Advisors offer expertise and personalized financial planning.
- Advanced Tools: Access advanced financial analysis tools.
- Emotional discipline: Advisors help you maintain a long-term perspective and avoid emotional decisions.
- Save time: Take control of your investment and save time and effort.
Cons:
- Rising costs: Advisors charge fees, which can impact your overall revenue.
- Conflict of interest: Some people have incentives to sell certain products.
- Less control: You delegate some investment decisions to your advisor.
- Varied quality: The quality of advice can vary widely from advisor to advisor.
The value of financial advice
Canadian investors have high trust and satisfaction with their financial advisors: This 2022 report from IFIC points out that a recent survey by the Institute of Certified Financial Planners found that 97% of Canadian investors trust their financial advisors.
The same survey found that 80% of mutual fund investors and 73% of ETF investors believe they would achieve better returns by hiring a financial advisor.
The same IFIC report noted that a significant proportion of advised investors (53%) had less than $100,000 in investable assets, indicating that financial advice is also available to those with smaller portfolios.
Final thoughts
Deciding whether to invest on your own or hire a professional advisor can be a difficult decision for Canadians. It's important to weigh the pros and cons of each approach to find what's best for you.
DIY investing offers cost savings, control and flexibility but requires significant time, effort and knowledge, while financial advisors offer expert guidance, emotional discipline and comprehensive financial planning but come with higher costs and potential conflicts of interest.
Ultimately, the best choice will depend on your financial knowledge, your time availability, your comfort level with managing your investments, and whether you want the peace of mind that comes with hiring someone to help you.
Once you have your investment strategy in place, you can focus on other important aspects of financial planning, like determining how much money you will 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 at Blueprint Financial.
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