Investing on your own
May 8 2008 by Ellen Roseman
Maybe you’re fed up with your financial adviser. Maybe you want to try managing your own investments. How much time and effort does it take to be a do-it-yourself investor?
My current Money 911 series is about flying solo. I think the time is right for many investors to ditch their high-priced help and take over the work themselves.
It’s not so hard. Believe me, I have a self-directed account and I don’t look at it every day — or even every week if I get really busy. It takes less time and effort than you probably imagine to pick a diversified group of investments and adjust them periodically.
You need to find your own trustworthy sources of advice about investing. I’d welcome suggestions from DIY investors about the tools you find indispensible to managing your money without outside help.
Who do you trust? What books, magazines, TV shows, websites or blogs do you consult on a regular basis? Does your discount brokerage have good online resources?
I’ve received lots of comments about my ongoing series and I’m posting some below.
Lawrence McCann
May 8 2008
Here’s information about the launch last February of http://www.CanadianFixedIncome.ca.
This is an online reference tool providing investors with access to the price/yield information from CBID – Canada’s only electronic, multi-dealer fixed income market.
We are committed to increasing the overall level of knowledge and awareness of fixed income in Canada – and believe that providing market transparency is a solid first step.
“We believe that market transparency serves to increase market awareness and that this awareness will lead to better pricing, better investment decisions and ultimately an enhanced trading experience for all of our CBID™ marketplace participants,” says Chris Jackson, Executive Vice President of Perimeter Financial and Managing Director of Perimeter Markets Inc.
Visitors to CanadianFixedIncome.ca can access price and yield information updated throughout the day on a selection of active T-bills, Government of Canada, provincial and corporate bonds.
In addition, a list of previous day’s 4 PM EST closing prices is provided on over 3,000 bond issues.
Perimeter Financial Corp., http://www.pfin.ca, develops technology solutions for the financial services industry. Through its wholly-owned subsidiary, Perimeter Markets Inc., it operates CBID™ for the Canadian fixed income and futures markets.
Timothy
May 8 2008
I’m a student from London, Ontario, currently studying Strategic Leadership towards Sustainability (www.bth.se/msls) in Sweden. I’m writing a thesis on the Socially Responsible Investing (SRI) industry and how to use financial capital to help move society towards sustainability.
I saw in your April 6th article that you are presenting a series on taking control of your own investments. I’ve spoken to many people who are frustrated about their advisor’s lack of knowledge on social & environmental issues.
Moreover, there are a wide range of SRI products, with varying degrees of financial and sustainability strategies that can get confusing.
Over the past few months, I have been exploring this field, amassing a deep understanding of the issues, as well as developing a network of Canadian experts. My focus has been on using a more strict definition of Sustainability (outlined by The Natural Step, http://www.naturalstep.ca) to help guide investment decisions.
I think one of the biggest problems with SRI today is the lack of proper information. I’ve spoken to too many people who asked their advisor about investing ethically or in the environment, and were met with resistance and skepticism that it would have an impact. I’m happy you’re approaching this from a self-directed perspective, and I hope that some financial advisors are listening!
We work in groups of 3 here. I’m with another Canadian and a Brazilian and we are formulating the argument for something we call ‘Strategic Sustainable Investing’. We have created a tool that does forward-looking research to determine which companies have the best strategies (vision & actions) for dealing with Emerging Sustainability Issues.
A crucial aspect of our work is showing how a good ustainability strategy will benefit the company’s bottom line.
We base a lot of our arguments on the work of Bob Willard in his books “The Sustainability Advantage” and “The Next Sustainability Wave: Building Boardroom Buy-In”. Bob lives in Whitby, Ontario, and our chats with him have been a huge help.
Also, we have used Peter Camejo’s book “The SRI Advantage: Why Socially Responsible Investing Has Outperformed Financially”, which has studies that show how SRI has just barely generated better returns than the market, but often with lower risk exposure.
Paul Hawken wrote a great article on the problems with SRI that can be found here: http://www.responsibleinvesting.org/database/dokuman/SRI%20Report%2010-04_word.pdf
We base our argument on 3 assumptions:
Increasing NGO pressure and consumer demand for sustainability.
Increasing government legislation for sustainability.
And increasing transparency of companies’ sustainable/unsustainable actions.
Based on these assumptions, companies that are leading the transition will benefit from increased market share, worker productivity and lower risk.
Right now I’m working on incorporating sustainability issues into traditional financial metrics. I think I can make the link to a lower Weight Adjusted Cost of Capital (WACC), and I’m trying to develop the argument that Money Managers can generate positive Alpha by hedging funds/indexes that are overweighted in unsustainable sectors (pretty much all of them) by investing in companies and baskets that have different risk exposure (i.e. sustainability).
This way, managers can still generate returns during the social/environmental turmoil that will arise as issues like climate change, water scarcity, and income inequality get worse. These arguments are still in their infancy, but give me a few weeks
In terms of the self-directed investor that wants to generate competitive returns while investing with their conscience, I would advise them to imagine a future they want to be a part of. Visualize what a sustainable society would look like, and then think about whether the company you just invested in would be a part of that society.
With every investment you are creating the future. Investors should try to create one that they would enjoy. If enough people agree with your vision, then the stock price will rise and the company will grow, helping this vision become reality.
You might want to speak with Johnny Fansher, he’s from my hometown (London) and has lots of experience building personalized ethical portfolios for clients. His website is http://www.johnnyfansher.com
Sorry for the monster email, but I just get so excited about this stuff!!
Jim Chuong
May 8 2008
You interviewed me in the past about investing and books (the interview is down the left-hand side on my web site at http://www.ticonline.com).
My wife and I do not use a financial planner, nor do we invest in mutual funds. We made a lot of mistakes but eventually became millionaires in our early 30s.
How to be successful on your own is a big topic. The short answer is that patience is absolutely necessary for success in investing.
I like to say that investing is simple but not easy. This can best be explained by thinking of training for a run. The training concepts are not difficult, but to actually do the training day-in and day-out is not easy. The same holds true for investing.
The concepts behind the arithmetic used to evaluate investments is simple; most high school students can quickly understand them. But to use the skills patiently is not easy especially when the crowd is telling you that you’re wrong (”I’ve doubled my money in Nortel in 6 months!”, “We’re in a prolonged recession with no end in sight!”, etc.).
People don’t understand that just because they are ready to “invest” does not necessarily mean that, at the moment, there is anything worthwhile to invest in.
With regards to discount brokerages, our style of investing is buying quality assets and never selling. With this in mind, the per transaction fee is not particularly important (i.e. paying $9.99 per trade or $29.99 per trade isn’t a factor since we tend to buy 1 stock a year; 2 if we’re hyperactive).
What is important to us is:
1. Responsive customer service (we’re not put on hold for 1 hour to speak to a person)
2. Reliable order execution (you get the price and quantity that you ask for)
3. The ability to buy/sell call/put options.
We’ve owned the same stocks for almost the last decade - Berkshire Hathaway, Fossil, The Buckle and K-Swiss.
We used to have Oakley stock (and we still would), but they were bought out by Luxottica. We would have prefered to exchange our Oakley stock for Luxottica stock, but they did the buyout in cash.
We also own real estate that we purchased 10 years ago.
We are looking to buy either stock or real estate. The stock market is showing some promise - another 10-25% decline would be ideal. The real estate market isn’t great for deals at the moment.
Wealth is created when you buy good assets and hold them for a very long time.
In my view, 99.9% of the time investing involves watching and reading; only 0.1% of the time is required for buying.
Steve
May 8 2008
When you discuss discount brokerages, I hope you will mention Interactive Brokers (http://www.interactivebrokers.ca).
It probably isn’t the best choice for many of your readers, but should be considered. It has a solid reputation and really the lowest commission fees in the business (compared to the traditional Canadian ‘discount’ brokers, the difference is jaw-dropping).
It offers little to no support in the way of hand holding or even research - but does have top-notch trade execution.
The biggest problem is that they don’t have RRSP accounts, which is probably a show-stopper for many.
Bill Bruner
May 8 2008
I would caution anyone trying to manage their own investments to do only a portion themselves. Have an expert for most of your money.
In my case, 10% is what I use and the rest is handled by a professional who I saw on ROBTV (now BNN).
My website (www.Stockchase.com) was started years ago so I would be able to do my own investing without brokers, funds, etc. It was eventually put on the internet to help other investors and is free for everyone.
It must be popular as we get about 17,000 hits a day during the week, less on weekends.
Basically, it consists of comments from market experts on BNN’s Market Call and Market Call Tonight. Viewers either phone or e-mail their questions and I simply try to copy what is said.
The great thing is that we can compare what all the experts say about any stock. They also give Top Picks, which can be considered. It not only allows you to consider what to Buy, but also what you may want to Sell.
There are also some other good sites such as Tradingchief and Stockhouse and probably others that would be of interest. Hope this helps.
RF
May 8 2008
I’m in the midst of switching mostly to ETFs, so I’m doing some reading and a lot of thinking. But I still have a lot of questions. Perhaps you’ll consider addressing them in future columns if you haven’t already planned to do so.
In no particular sequence:
1. With ETFs becoming increasingly popular, the supply of ETFs continues to grow. Unfortunately, it seems that some ETFs are just mutual funds with a lower MER and a new name.
Any ETF that isn’t an index ETF requires active management that has all the potential problems of the regular mutual funds, although they do have the real advantage of lower MERs and being traded on the TSX.
Some ETFs claim to be index-based, but sometimes the index seems a bit obscure or artificial, which means it is hard to understand what the ETF is really invested in and trying to track. A lot of the newer ETFs do not really seem suited for passive investing.
2. Even with index ETFs, I’m not sure if they are all as safe as they seem. I do not mean the expected ups and downs of the market(s); that is a given and hopefully proper diversification will lower the total volatility.
I’ve some concerns about how some ETFs plan to track their index. The most understandable and safest method seems to me would be to just own all the stocks or bonds in the same proportion they are in the index. That seems rather idiot-proof and easy to manage. But some ETFs attempt to mirror the index with various other techniques and investments. So we are back to actively managed mutual funds with all their weaknesses. Hardly passive investments.
I see plenty of problems with such methodologies. I also wonder why not just owning the index isn’t the best way to go. The problem with other methodologies is that who knows how sound they are and if they will stand the test of time.
Testing using historical data is fine, but who knows how applicable that might be to the next 5 or 10 years. It might take that amount of time for serious flaws to show up.
The other problem is just what investments they hold in their attempt to track the index. How sound are those investments? Could an ETF load up on the equivalent of ACBP or some other dubious investment that might go belly up? That would really hurt: the index rockets up but the ETF goes down because one of its major holdings fails. The only thing ETF about these are that they are traded on the exchange.
How about something on how various specific ETFs track their index?
3. Some ETFs are hedged to eliminate foreign exchange risk and to allow them to be held in RRSPs & RRIFs. I can see the advantage of them being eligible for inclusion in registered accounts, but I wonder about the value for open accounts. It is hard to foretell the future but it doesn’t seem likely that the Canadian dollar will go much higher and stay there, so I do not see a great advantage in hedging against an increased Canadian dollar — and a lower Canadian dollar would increase the value of foreign investments.
Hedging might work for an ETF tracking a single country, but it would seem to get quite complicated and expensive to do so for an ETF tracking a region. And of course, there is the
problem of just how sound the hedging is.
4. Broadly based index ETFs seem ideal for passive investing and passive management of the ETFs. Sector EFTs certainly look attractive for someone interested in more active management of their portfolio, especially if they use a discount broker, but that isn’t passive investing.
Still, are there sector ETFs that might, possibly paired with uncorrelated sector ETFs, that would be suitable for a passive portfolio? What are the pros and cons of the various sector ETFs and how might they be paired?
5. I think diversification, if properly done, is ideal for any portfolio since the ups and downs will tend to moderate the swings in portfolio value. But how much is too little and too much ?
I see a few model ETF portfolios with around 6 or so ETFs, but sometimes there is a comment about them being suitable for portfolios in the mid-six figures. I can certainly understand that to have proper diversification that some minimum number of ETFs should be included in some specific proportions, but what is a reasonable upper limit on the number of ETFs?
If 6 is the minimum for proper diversification (but is it?), then perhaps 12 is the upper limit, no matter the size of the portfolio; anything more than that might not produce better results and might require buying something just to meet a magic number.
6. Along the line of question 5, how about a discussion of some model portfolios for various sizes of portfolios for people in various stages of their lives? I’ve seen some suggested portfolios but I haven’t seen much that says why the assets have been allotted the way they were and why specific ETFs were chosen. Along with this, it would be nice to see something on the pros and cons of various ETFs for various investment goals.
7. Along with diversification by type of ETF, I’d appreciate some discussion on diversification within asset type. For equities, the type of ETF needs to be considered, e.g., broadly based, value, growth, sector, foreign, etc., as well as how much to allot to each. Some of the same considerations apply to fixed income ETFs, but I wonder if non-Canadian fixed income ETFs have a place in most portfolios ?
Unless hedged, there is the exchange risk. But hedging has a cost. And governments can manipulate their interest rates. I wonder if in the end, sticking with Canadian fixed income isn’t the safest and least complicated. However, BMO InvestorLine’s model ETF portfolio for the most
risk adverse desiring income has 28% Canadian fixed income but 38% US.
What do I know? But with the US either in a recession or nearing one, the government lowering interest rates and the US dollar not strengthening, I do not understand the rationale for including so much, or even any, US fixed income.
If I already had some US fixed income, holding on might be a wise idea because lowering interest rates should boost my holdings and the risk would be the exchange rate, which would
only likely change in my favour, but I’m not sure that this is the time to buy and not in such a large proportion.
The topic of self-managing investments, even using ETFs, really requires a book, not just a few columns.
Mark Yamada
May 8 2008
Wow RF, lots of good questions!
Our firm, PUR Investing Inc. specializes in building all ETF portfolios for individuals using sophisticated institutional methodologies. I will try to respond.
1. You are correct about new ETFs. There are 697 available to North American investors today and about 400 in registration. There are two broad categories that have emerged with the potential of confusing consumers. The purely passive indexes (to which you refer) and those with “embedded” strategies. The latter include the so-called “fundamental” indexes first associated with Rob Arnott and more recently the active indexes of Invesco. Here is a simple rule if you are looking to build a pure index portfolio: look at the fees. Any ETF with an MER over 0.45% likely has embedded strategies. There are exceptions with some international ETFs but avoiding higher costs is a pretty good guideline anytime.
2. Most ETF sponsors fully replicate their indexes. This is good news for you because they are completely transparent which allows arbitrageurs to keep the value of the ETF close to the value of the underlying securities. The exceptions include the “enhanced” and “bear” ETFs that go up or down by a multiple of index movement daily. These “leveraged” ETFs usually replicate about 85% of the index and have swap arrangements with dealers for the balance of the exposure (enhanced) or swaps (bear). Is it possible that the sponsors would hold ABCP in an ETF? I suppose anything is possible, but those kinds of instruments make arbitraging the ETF with the value of the underlying securities very difficult, so are usually avoided.
3. Currency hedging is expensive. Full stop. Over time, in theory, it is all supposed to even out. That’s a hard story to tell someone who invested unhedged in USD assets with Canadian liabilities over the last few years though!
4. Sector ETFs offer tremendous flexibility for actively managing risk. We have found some persistent relationships that allow us to go long some sectors and short others (all using S&P 500 sector ETFs with short alternatives). But we have lots of historical data and some sophisticated algorithms to guide us. I wouldn’t recommend folks try this at home. However, going long a broad-based ETF and shorting a sector you hate, is a fairly effective way of reducing risk.
6. Diversification is an interesting topic. We use risk budgeting to engineer optimal portfolios. That means we concentrate on risk diversification rather than asset diversification. The point is that broadly based ETFs are already well diversified. Uncorrelated risk between different asset classes is good but not the whole answer. An example are some hedge fund strategies that appear to offer uncorrelated returns but their risk is hidden. They often offer a modest premium in annual return but have a larger exposure to a catastrophic loss ! (If you want to embarass a hedge fund manager ask them what the skewness and kurtosis is for their fund or accuse them of having “fat tails” then be prepared to run!) We build portfolios with about 6 ETFs for clients with up to $150,000. There are risk diversification benefits to add more but costs are very important to us. As portfolios get larger (over $500,000), it is possible to introduce more including some used in active strategies.
6. PUR Investing’s use of risk budgeting means that every portfolio is a “target date” portfolio. The risk of the portfolio is optimized daily (not traded daily) to the investor’s investing time horizon. The portfolio automatically gets less risky as the horizon approaches.
7. Diversification by style is active management. Your earlier comments suggested that you wanted to avoid this. Your comment about USD fixed income is related to the exchange rate risk question.
Here are a few simple guidelines that hopefully will help and not confuse:
A) If you live in Canada and expect to spend $CDN, your portfolio should have mostly Canadian dollar assets. Unless there is a huge interest rate spread in the US, stay in Canada for fixed income.
B) Look to the liquidity of the underlying holdings in an ETF. Some smaller sector ETFs may have some illiquid holdings that may jeopardize liquidity in a crisis. Most ETFs are very liquid despite low trading volumes because of the creation/redemption function, but stick with the larger ones to sleep at night.
C) One never knows what the future returns of various ETFs are going to be, but you know their costs(MERs). Avoid the high cost ones even if they sound sexy and enticing.
D) People buy equities to participate in the long term growth of an economy. Broadly based ETFs give you that exposure but you should hang onto them for the long term and don’t be spooked by short term shocks.
E) Finally, when markets are down and so are your ETFs, smile. You can take comfort in knowing that you are paying much lower fees than those poor schmucks who are stuck in median fee mutual funds. Over 25 years, if you stay the course, you will save more than 1% annually over those poor slobs and will be able to afford 9 more years of retirement income. That will make you very popular with the “chicks” in the seniors’ bars!
Four Pillars
May 9 2008
Music to my ears!
I would suggest that the Canadian Business couch potato articles are the best resource for most Canadians to learn how to invest for themselves.
Mike
brad
May 9 2008
The time horizon is key here. I think managing your investments for retirement is a very different kettle of fish than managing shorter-term investments.
I am very comfortable managing my own investments for retirement, because so much research has shown that the “set it and forget it” approach of putting your money in index funds and leaving it there is the most effective long-term strategy.
As retirement approaches, though, you’re no longer investing for the long term and you have to start getting smart about volatility, keeping ahead of inflation while reducing investment risk, and other more complex issues. That’s the point at which expert advice can come in handy.
In my case I’d probably consult a few books and still do it myself, but I could see where some people would rather pay to have someone advise them during this period.
As for short-term investing for income during your working years, which involves paying a lot more attention to what your investments are doing and where the market is going, I would probably hire an adviser for that. But that’s only because I have other things I’d rather do with my time than manage my investments.
Tony de Thomasis
May 9 2008
While indexing is simple, it still does have many challenges.
One of the main advantages of indexing is fees – that extra 1% or 2% a year in fee savings is so important in the long term. We both agree on that.
Then why isn’t getting an extra 1% or 2% extra return above the traditional indices just as important a factor? Why are lower fees of, say, 1% more important than an extra 1% return?
I will assume that most people who might be interested in a couch potato type of investment program are i) either novice investors or ii) investors who have had poor returns buying regular funds or stocks.
For (i), make sure that they understand the risk or standard deviation of an index portfolio. If they don’t, they will not keep it to get the advantages of the markets working for them.
Also, the original Couch Potato portfolio did not take into account the global real estate REITs index funds that are now available. Nor did the original Couch Potato have anything in emerging markets. Today, the emerging markets like Russia, India, China and Brazil are not as emerging as in, say, 1998.
Also, structuring the proper risk profile is critical, because the S&P 500 can have a very low rate of return over some 10-year or 12-year rolling periods. Would investors stay invested for such a long period for such a poor return if they were not properly diversified?
For (ii), these investors require more knowledge to be convinced of what is a good index portfolio, because whatever they have been doing has not worked (if it did, they would not go to indexing).
They need to be told about value vs growth index funds, small cap vs large cap index funds, short term bonds vs long term bonds, REITs, emerging markets, rebalancing, etc.
Indexing is just not about saving fees – it is much more.
bylo
May 9 2008
> why isn’t getting an extra 1% or 2% extra return above the traditional indices just as important a factor?
Can you guarantee that you can achieve an extra 1% or 2% returns over a simple, low-cost portfolio of broad-based index funds? (After tax?)
Is it possible that the strategies that could get that extra 2% could instead underperform by 2% or even more? Perhaps many investors, especially novice ones, don’t want to take that sort of risk. Perhaps, if they get into regular habits of spending less than they earn and investing the difference, they don’t need to take on that risk either.
Perhaps index investing is a whole lot easier than the financial industry would like us to believe.
MFN
May 9 2008
Right on Bylo!
Tony, you are right about 1-2% of extra return. But costs are a certainty, returns are not. Professional portfolio managers can’t seem to get that extra return with any consistency over time so if you can, you are onto something.
Rob in Madrid
May 10 2008
One of the biggest problems, I think, for DIY investors just starting out is knowing where to begin. The second is where to find good READABLE information (anyone who’s tried to read Benjamin Graham’s books will understand that one). There are literally hundreds of books and newsletters out there.
The two best resources I’ve found are Canadian Money Saver (www.canadianmoneysaver.ca) and The Dividend Guy blog (www.thedividendguyblog.com)
Both are simple, conservative and very easy to understand. If you’re an active or aggressive investor, you’ll find them a bit on the slow, boring side, but if you’re the average Canadian simply interested in where to park your RRSP funds, these resources will be invaluable.
Onus Consulting Group
May 13 2008
Of all my criticisms of the retail investment industry, I’ll always hold out hope that the financial advisor profession will evolve in a noble manner. However, Ms. Roseman, you’re totally dead on: It’s really not that hard to be a do-it-yourselfer.
The challenges, I believe, lie in comprehensive financial planning — not just picking investments, but financial, estate and tax planning…among other things. When Cary List, President and CEO of the FPSC (responsible for administering and enforcing the CFP designation), presented the results of surveys done recently, it undermined a great deal of respect I had for the CFP designation.
One of the survey’s conclusions was that 40% of CFPs do a full financial plan for “most” of their clients (a number that has been declining through the years). 40%? Not even for all of their clients…but most? I wrote a blog entry conveying my disappointment at Mr. List’s reaction to such a conclusion. He said that it was “okay” and insinuated this downward trend was something we had to live with.
To hear such a defeatist conclusion coming out of the President of a body that is supposed to represent excellence in financial planning is a little upsetting. If people aren’t getting full financial plans done for them after hiring a Certified Financial Planner, why shouldn’t they be doing it themselves?
Source:
http://www.investmentexecutive.com/client/en/News/DetailNews.asp?Id=44474&cat=158&IdSection=158&PageMem=&nbNews=.
Original Blog entry (May 5,2008):
It’s okay that Certified Financial Planners don’t always give full financial plans?
The Investment Executive, Canada’s newspaper for financial advisors, published interesting results completed recently for the Financial Planners Standards Council. The Financial Planners Standards Council administer and enforce the ethical standards of the Certified Financial Planner designation. I thought I’d share some of the results (my commentary is in italics below):
Of those surveyed:
70% have used a financial planner
Less than 10% used the services beyond investments that a planner can provide (ie estate planning, insurance, tax advice, etc.), although a majority of them are aware that these services exist.
In 2006, 59% of CFPs provided financial planning to over half of their clients, which was a drop from 71% in 2004.
97% of CFPs do full financial plans for at least some of their clients, while only 40% do so for “most” (that number was 13% higher four years ago).
The conclusions presented today by Cary List, president and CEO of the FPSC, at the annual conference for the Canadian Institute of Financial Planners (CIFPs):
Financial planners are still in the sales profession, as far as people are concerned. Furthermore, comprehensive financial planning is not so much a priority of the Canadian public. It’s the perceived lack of need [not lack of trust] that is the reason for this. Therefore, there has been a significant downward trend in CFPs administering financial plans to their client base.
The article actually presented 8% as the percentage of those surveyed who don’t pursue comprehensive financial planning due to a lack of trust. Instead, it concluded that the “perceived” lack of need is the reason that clients don’t get this service done for them. The question I feel that should have been broached at the conference is what can be done to change this.
Obviously, comprehensive financial planning is far better than hiring somebody to just sell investments. Are CFPs doing enough to present the full package? Intuitively, you go to a doctor, and they set the dynamics of the check-up. You go to a lawyer, and they give you their take of how your case should be pursued.
It just seems natural to me that you go to a CERTIFIED Financial Planner, and you’ll be provided with a full financial plan. If for no other reason, then because it’s the profession and the professional that should dictate the standards, not an ‘out-of-the-loop’ public. Is it wrong to believe that it’s up to the Certified Financial Planner to set the pace for their service? Who will correct this perceived “lack of need?”
“Maybe that’s not such an awful thing,” List concludes, as people have come to respect the CFP for other reasons.
The article, itself ends with “…so List suggests perhaps it’s ‘okay’ that CFPs are not planning as much.” Now, this wasn’t a direct quote from Cary List, but the author’s interpretation of his remarks. That being said, quite frankly, I am a little concerned that Mr. List didn’t present this as a problem, commenting instead “Can we do something to reverse this trend or do we want to? Do we care?” and “…is this a trend that we just have to live with? Perhaps, maybe to some extent.”
I would, intuitively, think that he should believe that 100% of CFPs should be providing “full financial planning” and not be relegated to a role of just selling investments.
It is the standard that I’ve held the CFP to. As Onus Consulting Group has been indexing the advisor community and filtering out ones according to our stringent standards, it does disconcert me as we have held advisors with a CFP designation with a higher regard. This has a great deal to do with the great work of the Financial Planners Standards Council. To hear Mr. List speak in such a manner, I am a little concerned.
I always felt if I heard such statistics being concluded in a survey, I’d be hearing this remark from the President of the FPSC, but here it is coming out of my fingertips:
A downward trend in financial plans for the clients of CFPs? I think we can fix that.
Cary List
May 15 2008
In response to the entry from Onus Consulting Group that references coverage of my presentation at the CIFPs conference in Orlando last week, let me say that the profession of financial planning is indeed evolving in a noble manner, but it is still evolving.
My comments on the findings of several surveys conducted on behalf of FPSC, I hoped, would reveal just where the profession is in this evolution and that we must accept the realities of today to know how to work toward a future that continues to serve the best interests of Canadians.
Canadians do benefit from good comprehensive financial planning. However, they also benefit from the advice they ask for of a CFP professional, even when that advice is not in the context of full comprehensive financial planning.
In bull markets, many Canadians are not asking for comprehensive financial planning – this is a reality. The result has been that many CFP professionals are not providing comprehensive financial planning to as many of their clients as they were in the bear market years preceding.
The surveys show planners are doing less comprehensive financial planning, yes. The surveys also show that CFP professionals are giving financial planning advice to more clients in smaller chunks and relating to specific financial issues that their clients want addressed.
Are these professionals still serving their clients well, and better, because they bring to the engagement professional ethics and competence in financial planning? Yes, absolutely. And this is really what I was hoping to convey.
Of course, we would like to see planners doing more planning and more clients asking for it and understanding its full value – but it is important to face up to the reality that this kind of behavioural shift won’t happen overnight.
The good news is that there are CFP professionals out there, all of whom understand the big picture, who explain to their clients how all the pieces of their financial affairs fit together and who deliver competent and trustworthy financial advice to their clients in the smaller chunks they ask for. This is a dramatic leap forward in serving the needs of the Canadian public. It is no longer all about product.
The profession has evolved, and to move it along even further we must keep working collectively – educators, the media, governments, FPSC, professional associations and CFP professionals alike – to effect the kind of changes that Canadians will embrace, and that will enhance their financial well-being.
I’m pleased to see my comments provoked reaction. This is the kind of dialogue that I hope too will effect change that results in more clients seeking planning advice and more CFP professionals demonstrating its benefits.
Cary List
President & CEO
Financial Planners Standards Council
Brian Poncelet, CFP
May 17 2008
Hi Ellen,
The Toronto Star recently headlined a sad story about a couple who were murdered in Brampton. They had no life or mortgage insurance. Their two children not only lost their parents but are now financially strapped. If the parents had been killed in a car accident, it would not made the news but the kids would be in the same financial position.
Ellen, you have made some excellent points about costs etc. But even the most successful do it yourself investor faces the risk of spending his/her savings if there has been no planning to mitigate risk. This is called Risk Management, a topic few write about in the media.
In addition to death, risk come in many forms. Your house may burn down, you become disabled, your car stolen and so on. People who do their own investing in order to save money rob themselves of valuable advice that is offered by the financial planner.
A good planner does not simply take a client’s money for investments, but understands the client’s financial position, assets, liabilities, cash flow and goals. He/she offers solutions that work in concert with existing group benefits whose value is declining due to the rising average age in the work force and corporate needs to cut costs.
While attempting to educate the do-it-yourselfers in order to save money on investments, the risk management discussion is being neglected. Are these individuals picking up pennies in the middle of Yonge Street with no regard to oncoming traffic?
Regards,
Brian Poncelet, CFP