Advice for small investors

Got less than $100,000 saved? Here’s what you need to know

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Q: I’m looking for a financial advisor in Edmonton. I only have about $60,000 to invest—the person I originally wanted would only accept over $100,000. I find it hard to tell who is reliable. I like to be an active investor and would prefer online access to my accounts to check/change/buy myself. Otherwise I know what my goals are but don’t necessarily know much on research of products and companies.

—Melissa

A: The most comprehensive investment advice generally goes to the investors with the most to invest, by virtue of the asset-based compensation models that dominate the Canadian marketplace. The reason is simple—the more you have to invest, the more you pay in fees. And the more time your advisor has for you because the more profitable you are.

It doesn’t necessarily mean the investors with the big bucks get the best investment advice. It just means they get the most attention.

Many investment advisors or companies have minimums. It makes sense because there are overhead costs in any business and if you can’t run your business effectively, it just doesn’t work. There are lots of unnecessary overhead costs in the investment industry (in my opinion) that drive prices higher. So investors with under $100,000 often have few good options when looking for an advisor.

As far as who is reliable, it really doesn’t matter which firm you choose. There are bound to be exceptional advisors at expensive mutual fund companies and terrible advisors at prominent, low-cost money management firms. It really boils down to the individual in many circumstances. I have my own short-list that I refer to depending on a client’s profile.

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You’re looking for an active approach to investing. There is significant academic research that suggests a passive approach may be better than an active one, especially when it comes to retail investors paying high investment product fees. It can also be difficult to access really good, truly active investment management for many investors and in particular those with less to invest.

Online access is going to be a feature of most investment accounts these days. So that shouldn’t be a tough box to check off.

If you’re looking to check, change and buy your own investments, I think you might be hard-pressed to find an advisor. There are traditional, transactional stock brokers who charge a commission to help advise you on individual transactions. The problem is they are getting fewer and further between. The industry is moving towards a fee-based and often discretionary approach to investing where you may not be part of the decision-making process.

If you want to do things like check, change and buy yourself, you may need to be a do-it-yourself investor. Some discount brokerages provide light advice via telephone through a call centre, so that is an option. Their online research tools can be quite good for DIY investors, alongside third-party websites like Morningstar.

To be honest, I think the likelihood of success—defined as beating the markets—is quite low for DIY investing. I think you’re more likely to have a better return on your time from actively divesting. That is, actively monitoring your spending and budgeting. Because that’s something you can definitely only do yourself.

Failing that, you might consider low-cost mutual fund companies like Mawer, Jarislowsky Fraser, Steadyhand and Tangerine. Investors with well under your $60,000 nest egg can use these four firms. You can actively pick your funds and allocations, while they actively pick the individual investments in the underlying funds on a low-cost, low-overhead basis. If you want to be a stock picker on your own, I’d be much more inclined to build an ETF portfolio than one with individual stocks. But we all have our own investment biases.

Ask a Planner: Leave your question for Jason Heath »

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

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