While there are lots of investment advisers out there eager for your business, it is surprisingly difficult to get one-time investment advice without making a long-term commitment.
Almost all investment advisers expect you to hand your portfolio to them if you want their help, which generally entails paying ongoing fees taken directly from your account for as long as they control it.
That makes it difficult to get good investment advice if, for example, you’re a do-it-yourself investor who wants help getting started or taking your portfolio to the next level. Or you might want a second opinion assessing the portfolio you’re getting from your existing investment adviser, but you aren’t ready to commit to a different adviser.
While options to get one-time advice without handing over your portfolio are limited, we’ve identified three good choices that might help you in specific circumstances: a portfolio review; a website that identifies some simple but excellent portfolio options; and a rare example of a portfolio manager who provides investment advice on a fee-for-service basis without directly holding your assets.
It should be recognized that the prevalent practice of turning your portfolio over to an investment adviser to get advice and service in managing your portfolio works fine in most cases — provided you’re looking for ongoing investment advice and then you get value for your fees.
But you can see why the investment industry likes it. It makes it easy for an investment adviser to collect fees regardless of the amount of advice and service they provide. They never need to persuade you to write a cheque. Once they have your account, inertia works in their favour since it takes time and effort for you to find a better alternative and then move your money.
It would also be useful to have more options to get one-time investment advice on a fee-for-service basis if you don’t have money with an adviser.
The fee-for-service model has proven its worth in financial planning, where a growing number of people prepare plans for a one-time fee. If it works in financial planning, why not for investment advice?
Investment industry regulations play a role here. They require that investment professionals must be “registered” (that is, licensed) in order to make specific recommendations to a particular client. While that generally makes a lot of sense — you don’t want unqualified individuals working outside the regulatory environment messing with people’s investments — it does restrict legitimate investment advice from knowledgeable but unregistered planners and other professionals.
Now we discuss three options to get one-time investment advice.
If you have doubts about how your portfolio is set up, you may benefit from a portfolio review. That might apply whether you have your money with an existing investment adviser or you’re investing on your own.
Darryl Brown is an investment consultant with a chartered financial analyst designation who conducts portfolio reviews for a one-time fee. A typical client might be nearing retirement and have $ 400,000 to $ 500,000 with an existing investment adviser, but isn’t confident he or she is getting the necessary help.
The review can help assess whether the portfolio design is meeting the client’s needs and whether the fees are reasonable in relation to the value provided. If the client wants a change in investment adviser, Brown can help identify other good options; he isn’t registered as an investment adviser himself so he isn’t able to recommend specific investments to a particular client.
Brown says full-service financial advisers can justify the fees they’re charging if they provide good advice and service including financial planning. But he points out that a mutual-fund adviser for a $ 400,000 to $ 500,000 portfolio typically charges about $ 9,000 in annual fees (for advice as well as the product). “If you’re only getting a sales call once a year from your financial person, there’s no real reason you should be paying those fees,” Brown says.
Brown typically charges $ 1,500 to $ 3,000, based on portfolio size and complexity. He works through his own company, You&Yours Financial, and with several financial planning firms such as Spring Financial Planning.
One-purchase ETF portfolio
If you want to manage your own investments but don’t have extensive experience, it’s easy to get overwhelmed by all the investment choices out there.
Fortunately, these days you’re able to buy a well-diversified low-fee passive portfolio with a single purchase. And there is also an excellent free website, canadiancouchpotato.com, that points you to some of the best of those simple but good-quality options.
“The challenge for the do-it-yourself investor today is to accept and embrace those simple solutions and not resist them and labour under this illusion that more complex is more sophisticated,” says website founder Dan Bortolotti. “If you’re just starting out and have no experience, why do you want to make things more difficult?”
Bortolotti is a certified financial planner and portfolio manager with PWL Capital Inc., an investment firm for high-net-worth investors. As a sideline, he has operated canadiancouchpotato.com for 12 years to provide a free educational website for passive do-it-yourself investors.
To find the right ETF, you need to first figure out for yourself what asset allocation you’re looking for. The website then identifies one-purchase ETF portfolios that are compatible.
For example, say you want 60 per cent equity and 40 per cent fixed income, a fairly standard asset allocation for long-term investors with moderate risk tolerance. The website identifies two compatible options: the Vanguard Balanced ETF Portfolio (ticker: VBAL); and the iShares Core Balanced ETF Portfolio (ticker:XBAL). Annual fees for those ETFs, as shown in the management expense ratio, are 20 to 25 basis points — far cheaper than the 200 basis points you typically pay for a balanced portfolio of active mutual funds bought through an adviser. (One per cent equals 100 basis points.)
Rare fee-only investment adviser
Gordon Stockman and his firm Nextgen Financial Planning Inc. are rare birds in the financial world: they provide integrated financial planning and investment advice on a fee-only basis, without holding your assets. Stockman had worked for years as a planner but then went through the relatively arduous process of getting licensed to provide the full gamut of investment advice.
“If you become a fee-only financial planner and you’re not registered (to provide investment advice), then you need to stop your discussion with your client when it’s at the high level of asset allocation,” explains Stockman, who is Nextgen’s chief executive officer. “Ultimately the customer is better served by having the person who did their financial planning assist them and hold their hand during the investment process. As an unregistered fee-only planner, you cannot cross the chasm.”
Typically, Nextgen helps clients prepare a financial plan and then helps design a low-fee passive portfolio to support it. It hands actual management of investment assets to a third-party firm, often a low-cost robo-adviser, that suits the client. Nextgen also provides investment advice to people with employer defined-contribution pension plans. (Many of the company’s clients are close to retirement. Nextgen helps them reduce risk in their portfolios as they approach retirement and create reliable cash flow afterward.)
The firm offers integrated financial planning, tax preparation and planning, as well as investment advice on an ongoing basis for a monthly fee, but it is also happy to provide one-time investment advice. It charges $ 35 to $ 180 a month for ongoing advice depending on frequency of contact and other factors, and $ 840 for a “standard” one-time investment plan.
Nextgen and Stockman are registered as portfolio managers in Ontario, and a national rollout is planned. (Technically the individual registration is as an “advising representative.”) Stockman is also a certified financial planner and a chartered professional accountant. To become registered as an advising representative, he earned the additional designation of chartered investment manager and worked with a portfolio manager firm for four years.
Stockman says that registration to provide investment advice should be much more straightforward for financial planners who provide that investment advice as part of the planning process, provided the investment assets are held at a registered third-party firm.