Do Financial Advisors Lock Out Investors?
A recent study by FAIR Canada has revealed that investors who work with financial advisors are less interested in investing compared to those who choose to invest on their own. The research indicates that investing is considered a “low interest” activity for individuals with advisors, while do-it-yourself (DIY) investors are more engaged. Many Canadians prefer to leave the complexities of investing to their advisors, allowing them to focus on work, family, and leisure activities.
However, this does not mean that individuals with advisors are indifferent to the fate of their money. They recognize the importance of investing but often lack a comprehensive understanding of the process or are unable or unwilling to fully engage with it. Jean-Paul Bureaud, the Executive Director of FAIR Canada, warns that many investors are entrusting their future to investment advisors without asking the right questions. The survey found that investors struggle to grasp the recommended investment products and often fail to fully comprehend the type of advisor they are dealing with, as well as how the advisor is compensated.
Lack of Understanding and Trust in Financial Advisors
According to the survey, a lack of understanding contributes to the overall disinterest in investing among individuals with advisors. Many respondents were unsure about the costs involved and how these impact their investments. Confusion also arises from multiple account types, such as registered retirement savings plans (RRSPs), Tax-Free Savings Accounts (TSFAs), guaranteed investment certificates (GICs), mutual funds, and stocks. Despite recognizing the importance of advisors’ professional qualifications, many investors do not fully comprehend the expertise associated with these credentials. However, they tend to believe that advisors with higher levels of achievement are better equipped to manage their investments.
The survey revealed that despite the limited interest in investment activity, most respondents expressed a strong level of trust in their advisors. Many investors choose advisors based on personal connections or put their trust in financial institutions. However, those who experienced frequent investment gains reported higher levels of trust in their advisors. Regular communication with an advisor is also crucial, and the absence of such communication may lead investors to seek assistance elsewhere.
The Rise of DIY Investing
On the other hand, self-directed investors, also known as DIY investors, tend to have more confidence in their own knowledge of investing. Due to their high level of interest in taking charge of their investments, they actively seek to learn more about available products and opportunities, and invest more time in the process. Younger participants, in particular, are utilizing DIY investing platforms to educate themselves about investing.
However, many DIY investors still lack a clear understanding of fees associated with these platforms, with only a few indicating a strong comprehension of how these platforms generate their earnings. Bureaud highlights the risks and vulnerability of blindly trusting financial advisors and advocates for better education and preparation of Canadians when it comes to investing.
Overall, this study highlights the contrasting levels of interest and engagement in investing between individuals who work with financial advisors and those who choose the DIY approach. It underscores the need for education and transparency in the investment industry to ensure that investors make well-informed decisions and achieve their financial goals.
Analyst comment
Negative news: The study reveals that investors who work with financial advisors are less interested in investing compared to DIY investors. These investors often have limited understanding and struggle to comprehend the products recommended to them and the type of advisors they are dealing with. Lack of understanding and trust in financial advisors, as well as confusion regarding fees and different types of accounts, contribute to this issue. However, most investors still express strong levels of trust in their advisors. The rise of DIY investing shows that investors are becoming more confident in their own knowledge but still lack understanding of fees. Overall, the news highlights the need for better education and transparency in the investment industry. In the market, this news may lead to a shift towards DIY investing platforms and increased demand for education and transparency. Financial advisors may need to improve their communication and clarification of fees to retain clients.
