There has been much in the media about fees – what you pay for investment management of your investments. As with every service you need to assess the value you are receiving for what you are paying for.
I love the ads promoting you “can” retire up to 30% wealthier. “Can” implies maybe. But at what cost?
There are two types of investing – active and passive.
Active management is what you get when you invest in mutual funds like most consumers do. Advocates of active management believe paying to have others conduct time consuming and confusing investment research for them will bring about better performance, net of fees, than investing in an index.
Passive management is what you get when you invest in an index or mirror an index (ETF’s – exchange traded funds). Advocates of passive management are attracted to the lower fees (because there is no research to pay for) believe performance is better, net of fees, paid than active management.
Which one is better, is not for this article. The answer depends on the circumstances.
Lower fees mean you give up something. What you’re losing with passive investing often is financial planning advice, which extends far beyond investing.
To get lower gas prices you now pump your own gas, fill the air in your tires and wash your own windows. Watch the gas station scene in Back to the Future.
Low-fee passive management also means losing access to a trusted relationship with a financial advisor/planner. You see, the fees you pay for active management are not just to cover investment research and administration. They also provide an option to compensate a financial advisor for their time and financial advice. While there is a push to pay financial planning fees for out of pocket, paying from their investments remains the preferred way consumers want to pay for it.
Robo-advisors is another thing in play now where to reduce fees we are being persuaded to trust computers with our financial planning. Just watch I, Robot and see what can happen when we let AI (artificial intelligence) run our lives. In my opinion, robo-advisors will never replace the value of a good trusted financial advisor.
Studies continue to prove people who use advice and services from a good trusted financial planner do significantly better than those who do it on their own, even after fees are considered. https://www.financialplanningforcanadians.ca/
We expect many or all our clients read, listen, and watch things from online digital sources. They may offer you advice or they tell you what the cheapest thing for you is, but it might not have any attachment to your goals and objectives.
The internet, media, special agenda people and critics do not know you, your goals, your feelings, and your risk tolerance. So, it’s hard for them to tell you what to do as opposed to someone, like us, who can sit across the table and look you in the eye, and where you have a relationship.
Dave Otto B.B.A. CFP®️ CLU®️ CH.F.C.®️ EPC™️
Founder and President, DO FINANCIAL
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