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DIY investing vs. hiring a professional: Which is right for you?

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Satisfaction with self-directed brokerages has increased significantly, with the overall satisfaction score rising by 33 points to 631 (out of 1,000) in 2024, according to a J.D. Power survey.

This trend suggests a growing approval of DIY investing in Canada, but that doesn’t necessarily mean it’s right for you. Let’s go over all the reasons why you would choose DIY investing or when you should go with a professional advisor.

Understanding DIY investing

DIY investing allows you to manage your investments without professional help, offering flexibility and potentially lower costs. It requires knowledge, discipline, and the right tools and technical knowledge.

DIY investing involves selecting and managing investments such as stocks, bonds, mutual funds or exchange-traded funds (ETFs) on your own. You’ll generally spend some time researching and selecting assets, monitoring performance and rebalancing portfolios. DIY investors tend to use discount brokerages to buy and sell securities.

DIY investors often stay updated with market trends and economic indicators. While it can be cost-effective, it can require a lot of time and effort.

Pros and cons of DIY investing

Pros:

  • Cost savings: Lower fees as there are no professional management charges.
  • Control: Complete control over investment choices and strategies.
  • Flexibility: Ability to adjust portfolios quickly based on market changes.

Cons:

  • Complexity: Requires a strong grasp of investment principles.
  • Time-consuming: Ongoing research and portfolio management are needed.
  • Risk: Potential for poor investment decisions due to lack of expertise.

Hiring a professional advisor or planner

Financial advisors and planners offer guidance on a variety of investment decisions and financial plans. As a former financial advisor, I helped many clients set and achieve financial goals, create budgets and manage investments.

Advisors typically start by assessing the client’s current financial situation and risk tolerance. Advisors will often monitor investments and suggest adjustments based on market conditions and personal financial changes.

Financial advisor fees in Canada can vary widely. Several common fee structures exist, such as commission-based, fee-only and fee-based.

Commission-based: Advisors earn a commission from the financial products they sell. While this can align interests, it may also lead to potential conflicts of interest.

Fee-only: Clients pay a flat fee or hourly rate for services, which generally leads to unbiased advice. This structure is transparent but can be a bit pricey.

Fee-based: This can be structured in many ways, but the most common is a fee based on the percentage of your assets under management (AUM).

Pros and cons of hiring a financial advisor

Pros:

  • Expert guidance: Advisors offer specialized knowledge and personalized financial plans.
  • Advanced tools: They have access to sophisticated financial analysis tools.
  • Emotional discipline: Advisors help maintain a long-term perspective and avoid emotional decisions.
  • Time-saving: They manage investments, saving you time and effort.

Cons:

  • Higher costs: Advisors charge fees that can potentially impact overall returns.
  • Conflicts of interest: Some may have incentives to sell specific products.
  • Less control: You delegate some investment decisions to the advisor.
  • Varied quality: The quality of advice can differ significantly between advisors.

Value of financial advice

Canadian investors have a high level of trust and satisfaction in their financial advisors. This 2022 report by IFIC notes that a recent study by the Institute of Certified Financial Planners found that 97 per cent of Canadian investors trust their financial advisor.

The same survey highlighted that 80 per cent of mutual fund investors and 73 per cent of ETF investors believe they get better returns with a financial advisor.

The same IFIC report mentions that a significant portion of advised investors (53 per cent) have less than $100,000 in investable assets. This goes to show that financial advice is accessible even to those with smaller portfolios​.

Final thoughts

Deciding between DIY investing and hiring a professional advisor can be challenging for Canadians. It’s important to weigh the pros and cons of each approach to see what is best for you.

DIY investing offers cost savings, control and flexibility, but requires significant time, effort and knowledge. On the other hand, financial advisors provide expert guidance, emotional discipline and comprehensive financial planning, but come with higher costs and potential conflicts of interest.

Ultimately, the best choice depends on your financial knowledge, time availability and comfort with managing your investments, as well as whether you want to have the peace of mind of hiring someone to help.

Once your investment strategy is in place, you can focus on other important financial planning aspects, such as determining how much money you need to retire in Canada.

Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on Blueprint Financial.

Do you have a question, tip or story idea about personal finance? Please email us at dotcom@bellmedia.ca.

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