Do You Need An Adviser?

By: Pete
Date posted: 11.15.2011 (11:18 am) | Write a Comment  (0 Comments)

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One of the main questions that any investor would ask himself or herself before seriously considering building their own ETF portfolio is the following:

“Can I really ditch my investment adviser?”

There are obviously a lot of things to consider before taking such a decision. It’s important to take into consideration what the adviser is currently doing for you to start. Does he help with fiscal aspects, manage your portfolio, liquidity, your other banking needs, etc?

If you are starting off and have few assets, you do not have major needs for all of those other services. Additionally, you will not have a complex portfolio to manage which limits the risk, work and involvement to start off with. In such a case, I think that trying on your own can work just fine.

For those already working with advisers, you might be getting more services and will probably not want to take a significant amount to start off with. I doubt that starting managing $200-300K or more would be the best way to go ahead.

Why Would You Ditch Your IA?

One important problem with having an IA is that they have inherent conflicts of interest. What do I mean? For example, why would your IA buy an ETF that charges 0.50% per year in charges when he can buy one that has 1.30% fees with part of the difference being paid out to him through commissions? There are many levels of conflicts of interest but the bottom line is that they do not always act in your interest. I guess it’s normal since they must get paid somehow but I do wish they’d be more transparent about those added fees and how they add up over time.

How To Get Started If You Have An Adviser

I think one way to get this done would be to keep your current assets as is. However, additional investments would stopped being sent to the account managed by your adviser. Start building your own on the side, composed of ETF’s following the detailed steps from our blog. You can get a structured step by step by subscribing to our free newsletter. I would do that until you reach $20-30K in your portfolio. Once that is achieved, you can start comparing what is being done in your managed portfolio to what you are doing in the one you manage. Don’t only compare the returns, look at the asset allocation, the volatility, etc. Of course, you will find that it is convenient to have the flexibility in your own portfolio to change allocations, add or take out money, etc.

Over Time

Later on, if you become comfortable with managing your own portfolio, you can keep growing the size of that portfolio and you will then have a choice to make. You can determine if the pros of managing your own money outweigh the cons. Remember, it’s not a black or white decision!!! You can have both although you’ll need more assets to justify doing that. Why? The best investment advisers will not sign up a client that has $50K in savings.

Should You Tell Your IA?

There is no doubt that almost any IA will discourage you from managing funds on your own. Why? There are so many reasons but they come down to these 2 main ones:

It’s Not In Their Interest: A growing portion of investors are doing it on their own and it’s certainly not good news for IA’s. They earn less if they have less assets under management.

They Might Not Understand The Strategy: If they are telling you that it will take up too much of your time, be too costly, etc, they probably do not understand what all of this is about. Thanks to our systematic strategies, it becomes very easy and does not eat up much time at all.

In the end, it might be worth it to have an IA working for you but like everything else, you need to be sure that the services that you are paying for are worth the price. I would not ditch your IA right away but simply keep him on, see how things go now that you have a basis for comparisons.

What are your thoughts on having an investment adviser? What benefits do they bring you?


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