By Darren Coleman

Special to the Financial Independence Hub

There is an Oscar Wilde quote that goes like this: “A cynic knows the price of everything and the value of nothing.” I think of it every time I see one of those Questrade TV commercials where the client meets with their wealth-management advisor so they can tell the person they are fired. Why? The fees are too high.

The commercials drive home the point that advice costs more than doing things yourself, which is no surprise. I’m also flattered because in one of the ads, the character has my name – Darren – and it makes me think I might be in that seat. But that’s as far as the similarity goes because in all the years I have been in this business no client has ever told me they are leaving because of my fees. Not one.

This is where I think those TV ads miss the point. The issue at hand should not be about price. It should be about Value.

All those ads focus on the price of advice and the implication is clear: that advisors are gouging their clients. The advisor gets to retire early because of fat fees while the client, according to the ads, loses up to 30% of their retirement savings to fees. While the math in these ads may be  questionable, the ads also ignore any benefit that the Advisor’s advice may bring.

The ads showcase clients not experiencing true value

Let’s explore what these ads are really about. What they showcase is that the client is not experiencing true value in the relationship. So, the client decides to go it alone and hire Questrade’s robot to do things for them. Questrade, and ‘robo-advisors’ as they are called in the industry, offer a discounted trading commission to do-it-yourself traders, along with pre-built portfolios for more passive investors. As there is no personalized advice on any financial matters for the client, the fees are much lower. Which is as it should be.

I, for one, would never use such a service. I don’t even like those robot vacuum cleaners; the one my wife bought always gets caught under the couch because it can’t find its own way out, which is annoying. I also dislike those robot attendants which more and more companies are using for navigating their telephone systems. And I use these analogies for good reason.

As far as handling your investments and financial matters, does going it alone or going with a pre-built model portfolio actually work? The evidence shows this is not the best solution for most people.

Behavioural mistakes rob people of bulk of their returns

Every year Dalbar, North America’s leading independent expert for evaluating, auditing and rating business practices, produces its annual Quantitative Analysis of Investor Behaviourstudy, which shows that most investors underperform their own investment portfolios. Year after year, investors buy and sell at the wrong times. They do this because they allow their emotions to get in the way. Consider it part of the human condition. Believe me, professional advisors know all about these tendencies: that behavioural mistakes rob people of the bulk of their returns.

For example, in March 2019, Dalbar calculated that the average investor lost more than twice as much as the market in the previous year! The average investor saw their portfolio drop by more than 9% while the market was down only 4%. And this was no fluke. Over a 20-year time period, these mistakes have continued and investors, on average, underperformed the broad market by about 4% annually. Continue Reading…