This week, on Investor Clinic in the Globe & Mail a reader asked – Why am I paying an advisor to manage my dividend portfolio? John Heinzl offered a very thoughtful reply and brief analysis. Here’s the situation, a widow has inherited a portfolio – after I received a $3-million inheritance seven years ago, he invested the money in dividend growth stocks – primarily banks, utilities, telecoms and pipelines – and the portfolio’s value has grown to more than $6-million. Her husband was paying a modest $6,000 in fees. A new broker is looking to charge $30,000 annually to potentially keep that dividend growth portfolio on auto pilot. Is that necessary, paying an advisor to count your dividends?
Here’s the link to the post (paywall) in the Globe.
Why are you paying an advisor?
The above post is perhaps the most relevant question that Canadians need to ask themselves – why am I paying an advisor? In Beat The Bank Larry Bates points out that fees are wealth destroyers. Over time they can consume over half of your investment wealth.
Contemporary investment products, largely thanks to ETFs, make it as simple as can be to hold a global well-diversified managed portfolio with rock bottom fees. With an all-in-one asset allocation ETF portfolio you could cut your fees by 90% or so.
An advisor (typically and mostly) will not offer any value on portfolio management. Of course how they can add value is by way of financial and estate planning, tax efficiency, investor behaviour, and more. That said, with some research you might be able learn the financial planning ropes. And you don’t need a full-time advisor for that. To ensure that you don’t have an advisor in your pocket every trading day of the week, you can access a fee-for-service financial planner.
And as per the Globe & Mail article and that Canadian dividend growth portfolio, it likely doesn’t make sense to hire someone to manage your simple stock portfolio. This week I posted on our U.S. and Canadian stock portfolio. Our Canadian holdings are likely very similar to the portfolio in the Globe post – financials, telcos, pipelines and utility stocks.
From that Globe post …
Also, the adviser my husband was using retired, and the new adviser has dramatically increased the fees to about $30,000 annually (0.5 per cent of the assets), up from $6,000. The previous fee seemed reasonable, since my husband made all the decisions and did virtually no trading. My son, who has more investing experience than I do, says he doesn’t know why we are paying $30,000 to basically “park” our money.
Paying $30,000 to reinvest your dividends?
I’ll answer that – no thank you. On an hourly rate, that broker might be earning more than Elon Musk, the richest guy (not) on the planet. Of course, it’s more than worth it to move the stocks to a discount brokerage and learn how to watch the dividends roll in and then press that buy button to reinvest.
While it’s not for everyone, doing the work to learn the investment and financial basics is one of the most rewarding things you can do in life. Just ask Mark at My Own Advisor – who runs the appropriately-named blog. Follow me on Twitter and you’ll find a community of Canadian self-directed investors who are happy to help by way of real-life portfolio demonstrations and also by way of presenting ongoing information (education) and guidance.
You’ll discover that investinging “ain’t rocket surgery” to use one of my favourite but mangled sayings.
Need advice and portfolio management?
If you want much lower fees and advice you might consider a Canadian Robo Advisor. You’ll find that they are not very ‘Robo’. Yes you can chat with real humans. At Justwealth you’ll have your own portfolio manager with financial planning also available.
Just wealth is also a wonderful option for managed RESP accounts in Canada.
There is no need for Canadians to pay high fees to invest in poor performing mutual funds that usually comes attached to no advice, or poor advice.
Of course, that is the mission of Cut The Crap Investing. Break free, build more wealth.
The Sunday Reads
Let’s kick things off with the week in review thanks to Dividend Hawk. That’s a great wrap in what was an ‘exciting’ week in the markets.
At MoneySense, Kyle Prevost is Making Sense of the Markets.
Topics: The Taiwanese company that could bring the world to its knees, positive U.S. earnings news, Canadian vs U.S. markets, and the rewards for investors that usually follow bear markets.
At My Own Advisor, Mark asks if a 1.09% withdrawal rate replaces the 4% safe withdrawal rule? I’d suggest that a retiree might still enjoy a generous spend rate moving forward, but they have to be prepared for changes in economic environments. It might take an all-weather portfolio approach. And they might have to be flexible with a variable withdrawal rate – spend less in times of ongoing market stress. That’s akin to putting guardrails on your retirement portfolio and total spending plan.
And sure, you can spend more when the markets are rockin’.
Also on the retirement front, Fritz at The Retirement Manifesto is escaping from cubical hell.
And FiPhysician is wondering, should you rebalance after retirement.
When will this be over?
On Findependence Hub – when will this be over? That’s in reference to the stock and bond market corrections, of course. That is well-explored space on this blog.
In that post you’ll find more charts and tables that frame the current bear market, from a historical context.
I am a broken record (think Nickelback and the need to break certain records) on this front. What stocks and ETFs are you buying? Assets are going on sale. Including bonds (see below).
Banker on Fire looks at four key questions for today’s market .
And on the strangeness of the times bad news is good news. At least this week.
Stocks go up over time, but they can experience brutal setbacks that make you question everything you once thought to be true. The key to harvesting that long-term return is patience, a strong stomach, and proper risk management, which can vary wildly from investor to investor.
Michael Lebowitz at RIA offered up a very good post.
Yes there is an alternative. Goodbuy TINA
Of course TINA stands for the main stock investment there of the past several years.
Michael says, well now there’s BAAA
If you want to mange the risks to bonds, you can use shorter-term bonds and funds. That said, the bonds with the most inverse relationship to falling stocks will be longer dated bonds such as (TLT). They carry greater price risk, but greater price reward when the inverse relationship between stocks and bonds returns – and it will. We just don’t know the timing. Market history suggests that bonds will be there to do their thing in a recession.
At Tawcan, Bob presents what he’s doing in this bear beet red market. Great post. I’m not surprised to read that Bob will keep on keepin’ on. He’s keeping it simple and dollar cost averaging – buying on a regular schedule. If you have the risk tolerance follow Bob – his blog and his approach.
Dividends rising in the Fall
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Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free.
Here’s Canada’s top-performing Robo Advisor, Justwealth.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
RETIREMENT FUNDING PLANNING
The self-directed investor might consider the service provided by Mark Seed from My Own Advisor. He runs Cashflows & Portfolios where they will provide options for that optimal retirement funding strategy. That service is provided for a very reasonable fee. Once again, Cut The Crap Investing readers will receive 15% off until October 31, 2022.
If you do head to Cashflow & Portfolios, be sure to tell them Cut The Crap Investing sent ya.
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.0%. You’ll find some higher rates on GICs, recently updated and increased to 3-4%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $50 to $70 every month! And that’s on everyday spending. There are no fees with …
Last month we received $75 in cashback cash. We are spending too much, ha.
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