This 55-year-old man wonders if he should drop his advisor go DIY

I’m 55 and my advisor doesn’t think I should invest by myself

Should a middle-aged novice investor go his own way and adopt a low-fee DIY Couch Potato strategy?


Q. I am a 55-year-old man with a modest RRSP portfolio of about $225,000 invested mostly in mutual funds through a financial planner. I am paying annual management fees of about 2.5% annually on my portfolio. I am a conservative investor and my annual returns are about 3% to 4% after fees.

I am seriously considering moving my entire portfolio into exchange-traded funds (ETFs) to lessen the management fees and follow a plan similar to the MoneySense Couch Potato strategy, which requires minimum time commitment and management, as I am a novice investor. I have no pension plan and figure to use some of the equity of my mortgage-free home as retirement income when I eventually sell it.

When I proposed this scenario to my advisor he naturally didn’t agree, suggesting there were far too many ETF funds to pick from and saying I wouldn’t be able to manage it on my own. My question to you is, “Do you think an ETF balanced portfolio would produce more than what I am now getting in annual investment returns, and are they indeed manageable for a novice investor?

 Thank you in advance, Brian 

A. Thanks, Brian. You will not achieve financial success by simply switching from active management funds to ETF’s.  Sorry.  The question of active management (higher cost) and ETF (lower cost) has been discussed at length in other forums.  I think that instead of focusing on cost we should be focusing on value.

READ: Best ETFs 2018 – One-stop portfolios

Consumers can tell the difference between a Toyota and a BMW.  Some consumers will pay more for a BMW because they see the additional value, but some consumers won’t. But it’s not that simple when it comes to investment products. Consumers don’t have an easy time determining how much they are actually paying and whether they are getting value from 1) their advisor and 2) active management.

It may make more sense to first separate the parts of the MER, then evaluate.  If you are paying 2.5% total, then it is reasonable to suggest that 1.25% of that is fees for advisory services and 1.25% for active portfolio management. Has your advisor created a written comprehensive financial strategy encompassing tax strategies, investment allocation, retirement income planning, and risk management? If that answer is yes then in my humble opinion you are getting value for the advisory fees you are paying.

READ: Advisors don’t want to talk about cheaper alternatives

Also look at a few other things. Has the investment portfolio performed well vs. comparable benchmarks? Delivered reasonable returns while smoothing out volatility? If so, then paying 1.25% for active management may be worth the cost.  There are no right or wrong answers here. But maybe there is a halfway solution in which your advisor can switch to ETF’s or F-Series Mutual Funds while still charging an advisory fee to build and execute your financial plan and keep you on track.

There are lots of different advisor models out there in the marketplace now.  Try and find the right balance between value and cost. It will likely pay off in the end.