Getting a second opinion on your investment portfolio

Getting a second opinion on your investment portfolio

Truth is, you can only get it from someone who is licensed to sell the products you have

(Getty Images/Hero Images)

(Getty Images/Hero Images)

Q: We are self-directed investors, but do feel that having a second opinion would be valuable. So for a number of years we’ve been trying to obtain external investment advice. This has been surprisingly difficult. We have gone to a number of different types of services:

– Fee-based advice: Person looked at our accounts and thought it looked like we had a plan and thus thought we didn’t need him. He did however indicate interest in taking our investments over and charging a fee.

– Non fee-based advice: They proposed moving us into a new set of funds with associated higher MERs. Would have led to at least 1-1.5% more than we were paying now (our average MER is running around 1.1%). They did offer financial planning, etc. as part of that.

– Brokerage firm: Adviser wanted to move our funds into a non-discount brokerage account and charge an additional 1% on top of it.

We get it that these folks want to make a living but are quite at a loss that we can’t find a solution for our particular need.—Mike

A: First off, Mike, I feel it necessary to make a clarification regarding fee-based advisers. It is a common misconception, in my experience, that a “fee-based” adviser can provide advice for a fee.

Broadly speaking, a fee-based adviser tends to be an investment adviser who charges a fee as a percentage of your investments to manage them on an ongoing basis. It was a novel concept 10 years ago, but many advisers have made a transition from a transactional, commission-based fee structure to a fee-based model. The result is that a fee-based adviser is becoming more than the norm than the exception.

In other countries, commissions and transaction fees have been banned due to adviser abuses like churning of accounts and the lack of transparency, in favour of a fee-based model. It’s a shame, because I think a transactional account can allow an otherwise DIY investor to work with a professional for a reasonable price, instead of being forced to go at it on their own. But regulators need to balance flexibility with preventing unscrupulous advisers from taking advantage of uninformed investors.

A fee-based adviser is generally not someone that you can pay to get advice about your investment portfolio. They are someone that you can pay to manage your investment portfolio.

Also, keep in mind, terms like “fee-based” or “fee-only” are not regulated in this country. There’s nothing official about them.

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A fee-for-service or fee-only adviser is more likely to be someone that you can pay a flat or hourly fee to get advice–but not specific investment advice. These types of advisers typically provide advice related to financial, tax, estate and retirement planning, but they are restricted in the investment advice that they can provide. Generally that advice would be limited to high level things like asset allocation, tax planning and investment strategies–areas that are more black and white–and not necessarily the specific investment advice that you might be looking for in this case, Mike.

In order to provide advice on specific securities, someone must be registered with a securities regulator and work for a firm that is registered as well. Their registration may only cover insurance products, or perhaps only mutual funds, or may be more broad and include stocks and bonds. So even registered investment advisers may not be able to tell you the whole story–just what they are trained, educated and licensed to discuss with or sell to you.

The key is that if you want specific investment advice, you can only get it from someone who is licensed to sell you investments.

The Canadian financial industry has not found a way yet to allow a hybrid model. That is, to license individuals or companies to provide investment advice for an hourly or flat fee without managing investments on an ongoing basis.

There are still a reasonably small number of investors that manage their own investments in this country, but there is a large gap between $5 DIY trading fees and 3% mutual fund MERs. Unfortunately, there is no one person or company who is able to truly fill the gap for you, Mike.

Taxpayers can hire accountants to give them tax advice without handing over their tax refund. Homeowners can hire contractors to oversee a renovation without giving them a key to their house. Why can’t investors hire investment professionals to give investment advice without handing over their savings?

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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.