This is a very common question and just like everyone’s financial situation, the answer is not yes or no for everyone.
Hiring a Financial Advisor, Investment Advisor, Financial Planner, or Portfolio Manager, can be a little confusing even just looking at the title. Essentially, all the above help you with your finances and help guide you to your financial goals. Each title does come with different capabilities but focusing on the title is putting the cart before the horse. The main question is do you need to hire someone to help with your finances?
The financial industry tries to promote financial accessibility for everyone; therefore, you do not need a financial advisor. But financial products, the different types of accounts, and just the financial system in general are very complex. The easiest way to think of this is to imagine you owned a restaurant, you have the option of running the business yourself or you have another option of hiring a manager to run the restaurant. You do not need a manager to run the restaurant, how hard could running a restaurant be? Take the order, make the food, smile, and have the customer pay the bill. You like food and they like food, interests are aligned. Unfortunately, restaurants are not that simple. Coming up with a business plan, staffing, timely ordering of food so it doesn’t go bad, marketing, efficiently pricing food, and most importantly time, and finances are no different.
In order to determine if you should or should not hire a Financial Advisor you should think of it from three different perspectives:
Do you have the expertise, experience, or capability to learn the financial system and its instruments? The financial industry is extremely large about $50trillion USD in equities and about $130 trillion USD in fixed income. Needless to say, there are many different options out there. You do not need to be a rocket scientist to understand enough to handle your own finances, but unlike many other industries, there are a lot more options. Understanding the financial system and securities is not hard, but it is definitely broad. There are many different rules to regulate everything which can also be cumbersome. Most people have the ability to learn enough to handle their own finances, but there is a definite learning curve.
This is usually a larger constraint than the expertise. People can learn finances, it’s not as difficult as becoming a doctor but the question is do you have the time? Do you have the time to review your investments and keep up to date about what is going on with the market and economy? Do you have the time to learn the broad landscape before you are able to execute a plan? Time is the most precious commodity we have, and you must determine if you can commit the time to handle this endeavour.
This is probably the number one reason to hire a Financial Advisor. Because this is where most people will benefit the greatest. Personal financial decisions are difficult not because of the complexity but because of the emotional attachment you have to them. This can be as simple as selling an investment when you probably should be buying it but also can be more complex than that. Will you be able to hold back from over-risking yourself? Will you be constantly under-risked when you should be more aggressive? These decisions are difficult when you are dealing with your own money because of natural human behavior.
Statistically, households with a Financial Advisor do perform better than those without one.
But that does not mean every household does better with a Financial Advisor, although most people would benefit from an advisor.
The financial markets are designed to be accessible to everyone, that is one of the goals of the financial industry. The ability to go it alone is right in front of you. If you lack the expertise, time, and discipline then it would be recommended you consider hiring a Financial Advisor. Just like every industry not all are created equally Financial Advisor, Investment Advisor, Financial Planner, and Portfolio Manager are all different titles to do the job and there are even more options than that. If you are looking to hire someone, take the time to meet with a few to find the right fit.
Justin, Konrad, and Merriel
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Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research
Disclaimer: This newsletter is solely the work of Justin Lim and Konrad Kopacz for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.
Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.
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