Recently, I asked a select group of Canadian investors to describe in their own words their personal experiences making the switch and share the lessons they learned along the way. Their answers can help you determine if a similar change is right for you.
This article is the first in a three-part series and describes authentic investor experiences with former advisors prior to the switch. In part two, investors will discuss their experiences with the account transfer process, while part three will reveal the level of satisfaction after switching to cheaper investing and valuable tips for those considering doing the same.
I believe the following summary is instructive, but it is not a scientific study. And while any investor can benefit from learning the basics, switching to cheaper investing isn’t necessarily right for everyone. You ultimately have to decide what is best for you.
Some switched to cheaper investing a few years ago, while others are only now making the switch. Several said they wish they’d done it sooner, but as one investor noted, low-cost options have only become widely available in recent years. Given the fear of the unknown, other investors hesitated for years.
Most investors switched to do-it-yourself investing through online brokers, buying stocks and bonds directly or using low-cost index ETFs, including “all-in-one” ETFs. Others moved to robo-advisors, while some found cheaper advisors or cheaper mutual fund providers. Some investors did quite a bit of research before selecting new investment firms, while others switched to a brand name they knew and trusted. One couple thought DIY investing was too much work.
Some complemented DIY or robo-investment by partnering with a fee-for-service advisor to develop a long-term financial/retirement plan.
The decision to switch to cheap investing
I believe the vast majority of consultants are good people, and some of them do a great job for their clients. But far too many people are trapped in a sales culture based on expensive products. Here are some notes on the effect and impact of making the switch:
“After my advisor left, I was transferred to the next advisor who, among other things, put me in investment funds with deferred sales costs [DSC] without informing me. Shortly after that, he also stopped.”
“I wrote a letter to my advisor requesting a full explanation of the charges. I found that my average cost was 2.04%, and I knew then and there that I had to try and find a way to invest that would be more profitable for me. My advisor wasn’t too happy about the fact that I wanted to transfer my money and that was it.”
“Our advisor suggested a higher risk portfolio of 100% equities. However, customers had to have $100,000 or more to join ‘The Plan’. After we [signed on]I started looking at the statements and couldn’t believe the fees were in the 3.5% range. When I showed our advisor the math, he told me they didn’t think about bills in terms of fees – we needed to focus on growth, the quick action of the fund managers to buy stocks that fell short of their expectations, and expertise of the managers. It came down to smoke and mirrors.”
This post Switch to cheaper investing
was original published at “https://www.moneysense.ca/save/investing/switching-to-lower-cost-investing/”