I was going to start a 97 part series on my investment portfolio today but Outroupistache had a comment on my first post where he suggested writing about investment related areas that still need improvement.
So without further adieu…
Financial Advisors – This is wishful thinking, right up there with world peace, but I wish that the financial advisory field was a regulated profession and not an industry group of commissioned salespeople. This may not be all that relevant to a hard core DIYer but there are a lot of other DIYers who would still like to use a professional for some aspects of their planning. Fee-based planning seems to be the answer although from what I understand it’s very difficult to make a living charging fees when all the other financial advisors are “free”.
Mutual fund costs – According to a recent study by some international academics, we have the highest mutual fund fees in the world. I’m not convinced of the accuracy of their measurements but I don’t doubt their final conclusion. This really is up to the consumer to change. As long as 99% of investors don’t know or care about relative costs then they will never come down. Investors need to shop around a bit for cheaper funds. As well, all the major mutual fund companies will reduce their management fees by up to 0.5% or so and the annual trailer fees paid to the advisor can also be reduced by up to 0.5% as well. You would need a fairly large portfolio (I would guess $300k+) to be able to knock 1% off the management fee but I would suggest that if you have at least $50,000 you should ask about a reduction, if you have more than $100k then demand it. It might only be 0.25% but that still makes a difference. If anyone out there has done this then please let me know the details of your situation.
Education – I recall some economics courses being offered in high school (which I didn’t take) but I don’t remember any personal finance or investing courses. These should be mandatory courses for high school students and should be offered to post-secondary students as well. It seems like most people are afraid to do any investing on their own because they don’t know the first thing about it. If they even had a basic level of understanding of investing and financial planning then they would be far better prepared to deal with financial advisors or to do it themselves.
Any other ideas on investment areas that need improvement?
9 replies on “DIY Investor Wish List”
My wish list would include more competition for financial products and services in Canada. Check out the advantages that US investors have: Vanguard index funds, rock-bottom commissions (even free), a long list of low-fee funds, etc.
Kind of expanding on your first “wish” but I wish ALL investors (including DIY) would realize that no one cares more about growing your wealth then you yourself. Advisors will *CLAIM* expert status and that they will do better then you, but in fact no one is more motivated then you to help your money grow. You’ve invested SO much time earning it (in most cases), why not spend a little time figuring out the west way to manage it? With just a little bit of knowledge you’ll pull ahead of the “experts” who are making fast decisions for your money based on what’s best for *THEM*.
CC – I agree that more competition is better for investors. Lower fees for managed mutual funds is one area where there is a huge difference from the US. Advisors are paid too much here as well for the service they provide.
Mr. Cheap – you are correct! DIY investing/planning is not an all or nothing proposition. There’s no reason why someone can’t read a couple of books on personal finance & investing and then still use a financial advisor for some or all of their needs. At least then they’ll be going in with their eyes open and can keep up with their finances.
You are spot on especially with regard to the financial advisors and the education that to me are inter-related. As little as I know, I am constantly appalled by the real ignorance I continually encounter among professionals outside the very narrow area of their specialty – a tax person who knows little about investing, an investing specialist who doesn’t have a clue about insurance and so on. With the constant impetus to sell their breadwinner product added in, the result is much sub-optimal or purely wasteful/wrong advice. That is not universal, some to their credit have told me at times that I don’t need their product but it seems more the exception than the rule. Informed buyers (i.e. us, the public) formed through basic education, can find better advisors because we know what to look for.
Outroupistache – I completely disagree with your statement “As little as I know”, trust me, you know a lot!. And more importantly, what you don’t know, you will research it until you figure it out.
As I mentioned, anytime you have a commission-based compensation, there is a conflict of interest which cannot be resolved. The other problem is that FAs are basically salespeople so it’s not that important that they know finance, just that they can move the product.
FP – I am glad to see others articulating the issues with the commission-based oligarchy that we have in financial services.
I don’t think it’s that you can’t do well as a fee-based advisor, but that there is a barrier to entry with the mass market. Fee-based planners are more common with high net worth individuals, particularly in the US. The key is to show them the costs of their commission-based planners. The best way to do that is to challenge the ‘price’ of the products offered (ie. mutual funds), kind of like how Expedia et al. have made huge inroads against the travel agencies.
I could go on for a lot longer, but I’ll save that for a post sometime 🙂
In B.C. in the 1990s there was a required Business Ed course in grade 10. I remember having to plan a move into one’s own apartment with a roommate, making a budget for it, etc. I don’t think there was much useful content. I probably wouldn’t have cared at the time anyway.
That’s interesting Monica. If I had been enrolled in a personal finance course in high school, I’m sure I would have ignored (or skipped) it as well 🙂
Mike
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