The debate about whether you are better off to seek financial advice from paid advisors or to do it yourself (DIY) rages on. Both sides make good points, but they don’t exactly address the same issues.
Advocates of financial advice point out that most people just don’t have the knowledge to properly invest their own money. Even those with the right knowledge tend to make emotional mistakes that lead to portfolio destroying buy-high and sell-low behaviour. This is all true.
However, the majority of investors who seek out a financial advisor will not get the good advice they need. There are great financial advisors out there, but there are more mutual fund salespeople who have little investing knowledge beyond understanding that they need more assets under management to earn enough income to pay their bills.
DIY advocates say that a basic indexing approach is simple and easy to implement and will outperform the majority of investors. This is true. I do this myself and find it quite simple. The most challenging part is to avoid making emotional decisions in volatile markets.
However, discussions with many investors have persuaded me that most people will never handle their own portfolios successfully. Many won’t try out of fear. Others will chase performance in mutual funds. Some will take wild chances on a small number of individual stocks as I did earlier in my investing career.
This all leads to a somewhat depressing conclusion. Despite the fact that investing successfully can be simple, the majority of people need help, and the odds are that they won’t get good help even if they seek it.
In the end, I think asking “financial advisor or DIY” is the wrong question. A better question is how do we fix the current investing landscape? I see two possible routes. One is to take the choice out of people’s hands to some degree by expanding the government’s role, perhaps by increasing CPP deductions and benefits. Another possibility is to drastically change the rules under which financial advisors operate. Making them meet a fiduciary standard would be a great change. Many investors would be shocked to learn that their advisor is not required to act in their best interests.