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“Those who understand it, earn it..”

May 16, 2024

“Those who understand it, earn it..”

With the NHL playoffs beginning a few weeks ago, no doubt many of you witnessed the continued obsession self-directed platforms put on “Retiring 30% Wealthier”. If you have seen these ads, it would suggest you would do well with them. The constant undermining of “Dad’s Guy” has led us to write this post – debunking the promotional ads that discount the value of financial advice.

Our team feels that investors deserve to see the transparency of these products;

They’re low cost, right? Yes. The actual on-going Management Expense Ratios (MER) and fees for some self-directed portfolios are on average cheaper than an actively managed fund or portfolio MER. This makes sense given that there is no active management and no experienced, well-trained and proven portfolio managers making active decisions (which has its own pros and cons but that’s a separate discussion). They are simply using a collection of passive Exchange Traded Funds to slightly underperform the index after fees. We are not saying there is anything wrong with this, in fact for many investors using passive asset allocation portfolio’s is a great approach.

The problem? They refuse to use an apples-to-apples comparison. Many other fund providers also offer passive investment strategies with low fees (this is not something unique to self-directed brokerages). It is important to remember that many of these online brokerages also impose other fees on transactions as well, outside of the MERs. Since they are a discount broker, clients will have to pay for any and every additional service (buys, sells, switches, transfers, etc.). This is similar to a discount airline that will charge you for your bag, seat selection and maybe a bag of peanuts.

The other reason they are cheap is there is no professional advice attached to your portfolio outside of rebalancing investments. The importance of retirement, education, estate and tax planning are completely disregarded. Research shows that investor performance lags investment performance when investors do not have the benefit of ongoing advice… this means most investors long-term return is much lower than the products long-term return (from jumping in and out at the wrong times).

“They go after everyone with the same brush. They fail to acknowledge the actual value of advice” says Jason Pereira, a financial planner and portfolio manager who is founding ex-president of the Financial Planning Association of Canada.

He continues, “Of course they do. They legally cannot offer advice, so it’s in their best interest to not even acknowledge the value of it.”

Apples-to Apples Comparison: The fact that these online brokerages do not distinguish between advisors providing minimal value and those providing extensive value does not sit well with many financial professionals.

Don’t get us wrong, there are certainly financial professionals charging high fees and not delivering said level of value. At the end of the day, it’s important for investors not to be misled by these silly claims on TV, and sift through the facts to get a clear apples-to-apples comparison of investment products and services. The fact that these self-directed portfolios have underperformed some of their peers plus the fact that they don’t offer any personal financial advice (which has even more value for most investors) makes their ads quite misleading.. but non-the less quite compelling to most audiences.

The Bottom Line – Yes, fees are very important.. but what are you getting for those fees? Portfolio management, professional advice, and personalized service can give families the peace of mind that they’re on the right path.

As Warren Buffet famously said, “Price is what you pay, value is what you get”.

It is our strong belief that to be successful in reaching your goals it is necessary to have a plan in place and to follow a process. That is, to make your life and financial decisions not by accident but by design.

Remember, successful people ACT towards the future they want!

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