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The most important investment decision you'll ever make (Part 4 of 4)

July 3rd, 2013 by

Part 4 of a 4-part series on weighing whether to become a DIY investor or partner with an advisor


Having discussed the merits and drawbacks of investing on your own versus investing with a financial advisor, we will complete our four-part series with a discussion on a hybrid model: choosing to do some investing yourself while working in conjunction with an advisor. Since many of the disadvantages of DIY investing are the advantages of working with an advisor, it may make sense to you to have the best of both worlds and do both.

Not putting all your eggs in one basket

Diversification is an important concept in investing. It is most often used in reference to building a portfolio; the portfolio should have a breadth of investments to protect it against large losses. Successful diversification means owning some assets that may go up when others go down to “smooth” things out. Managing some of your own accounts while having others managed by an advisor can offer another layer of diversification. This is particularly true if you like to dabble in a specific area of the market (say technology or fashion companies), while your advisor can take a broader approach or specialize in other type of investments. In the world of big pension funds, it’s not uncommon to see them use many different managers. They call this “manager diversification,” and you can do it too.

Having someone to bounce ideas off

The saying that “two heads are better than one” might be a cliché, but it is often true. By having an advisor around to manage a part of your portfolio, you establish a relationship with an investment professional who can offer you new and interesting perspectives about investing. Any investment idea worth entertaining is also one worth arguing, and an advisor can open your eyes to alternative viewpoints, helping you make better-informed decisions. Advisors also have access to extensive high-quality research through their firms, which you as a layperson don’t have access to. Their opinions are therefore often well-informed, and they can supply it to you as well (provided you have a reasonable amount of assets with them).

Spend less on advice

Since you will not incur advisor fees on the portion of your portfolio that you manage by yourself, you end up paying less in fees. This helps you balance the best of both worlds, lowering portfolio costs while maintaining access to good investment advice. Keep in mind that good advice can help you keep your costs low by avoiding mistakes, so the cost savings can work both ways.

Left hand, meet right hand

One thing to keep in mind if you decide to split the work with an advisor is that you need to make sure your efforts are coordinated. Often people don’t like to tell their advisors about the investing they do on their own because they fear their advisor will question their ability to do it, or pressure you to consolidate all your investments with them. A good advisor should help you make good decisions and not impose their own values/judgement, so be sure your advisor knows about any accounts you don’t hold with them and specifically about what you’re investing in. For example, you wouldn’t want to load up on Apple stock only to discover that your advisor did the same in the portfolio she manages for you.

Recent developments

An increasing number of big brokerages are now implementing minimum account fees, which we’ve heard can be upwards of $600-$700 per account, per year. These fees will crush the performance of small TFSA and RESP accounts. This new fee structure may be meant to motivate small account holders to move their account elsewhere and leave only their larger, more profitable accounts. If you have an account with a large institution, be sure to check if they’ve imposed minimum account fees. If they have, consider seeking a portfolio manager or advisor that can offer better pricing for small accounts; or move your small accounts to a discount broker to handle yourself, and leave just the bigger accounts with the advisor.

If after reading this article you decide that hiring an advisor is an avenue you’d like to pursue, take the time to learn the four things a financial advisor should do to earn your trust.

About Larry Berman

Larry Berman is best known to Canadians as the host of the top-rated TV show Berman’s Call on the Business News Network (BNN). After leading an impressive career with some of Canada’s largest financial institutions, Larry had seen enough of the dark side of the financial industry to know that Canadian investors had the deck stacked against them - saddled with the highest fees and lowest levels of financial literacy in the developed world, they needed help. This is why, in 2006, Larry left the corporate world behind to pursue his passion for helping people do better with their money.

Larry is now the co-founder of the Independent Investor Institute – which is dedicated to empowering self-directed investors through hands-on education, and ETF Capital Management, a boutique portfolio management firm for affluent investors who are looking for a highly customized and hands-off approach to investing. Larry also hosts free speaking tours across Canada throughout the year, and free beginner trading workshops through the Independent Investor Institute.

Jun 25 2017 12:31pm

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