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Mar 24 2011

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Another Financial Advisor Doing The Right Thing





Long ago, before I started teaching, I flirted with the idea of working as a financial advisor. 

And I’ll admit, even after taking my first teaching job, I still considered it, from time to time.

But the more I looked into it, the more I realized that I couldn’t do it.

It didn’t have anything to do with the ‘excessive’ training involved.  After all, you can sell mutual funds in Canada or the U.S. with less than 3 weeks of related training under your belt.

Adding up the academic time (not including the mandatory time required, working at a brokerage before getting certified) it takes  a certified financial planner less academic study time than a single full time university semester.  Few people realize that.

I didn’t take the financial advisory route because it didn’t seem fair at the time.  The more I learned about the industry, the more I realized that most advisors will move their clients towards products that profit the firm (or themselves) at their investors’ expense.  For starters, they typically buy actively managed mutual funds for their clients:

  1. These underperform index funds over the long term
  2. They are less tax efficient
  3. Nobody can pick winning actively managed funds ahead of time
  4. Some advisors choose funds that charge sales loads (to buy) or deferred load costs (to sell).  Noted finance writer, William Bernstein, suggests that these shouldn’t be legal.
  5. Other advisors charge additional “wrap fees” which cost clients an additional annual expense of up to 1.75% per year.

There are advisors doing it out of greed, while others simply don’t know that they’re serving a bigger master than they realize.  The financial service industry encourages the sales of expensive products because they’re the most profitable…for the industry.

Dan Bartolotti, at The Canadian Couch Potato,  just published a fabulous interview with Rick Ferri.  A money manager with his CFA designation (significantly more substantial—in terms of education– than what most financial planners have) he realized, early in his career, that he was fleecing investors when selling traditional actively managed mutual funds.

His eventual journey led him to create a low cost, indexing option for American investors.




He had to form a new company, Portfolio Solutions, to pull it off (in 1999) and he serves as an inspiration to many.  There is goodness in the world of financial planning, thanks, in part to people like Mr. Ferri.

If you’re American, and you’d like a link to three noble investment advisory services that will build portfolios of indexes, here they are:

 I’m always looking to build the list.  So please pass on names of firms charging 0.4% or less, to build indexed accounts for clients in the U.S.

Over time, I’ll build an honor roll of investment advisors who are doing the right thing.

 





About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

Permanent link to this article: http://andrewhallam.com/2011/03/another-financial-advisor-doing-the-right-thing/

8 comments

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  1. avatar
    DIY Investor

    Thanks for including me on your list and the mention. I recommend Ferri as well. His website is very well done.

    You might also want to look at http://www.evansonasset.com/index.cfm .

    I have to admit that when I started I thought I had come up with something new. I knew that pension funds, college endowments etc. were going the low cost, indexed route but didn't know that the same services were available for individuals. It is possible to be in the business and not realize that there are low cost, better performing alternatives out there.

  2. avatar
    Canadian Couch Potat

    Thanks for the mention, Andrew. It's still quite difficult to get good quality, reasonably priced advice if you have a portfolio under $100,000. The reality is that most advisors simply can't make a living serving small clients for a few hundred dollars a year. Doing it yourself remains a good option for small investors, though they still need to put some time into acquiring the knowledge.

    Keep up the good work.

    Dan

  3. avatar
    Jean

    Andrew, I wish this the type of information from your blog had made it my way 5/10/15 years ago, but, at least, I found my way to Assetbuilder with time still on my side. Glad you're making these more low cost options known to so many others.

    Just want to provide more complete information on Assetbuilder's fees. They start at .45 % (with the current minimum investment of $50,000) and gradually decline with the increase in assets. So, the .40% occurs at $600,000 +, .30% occurs at $1million, and, eventually, they get down to .20% if you're fortunate enough to accumulate $20 million or more. You can see the full range at http://assetbuilder.com/investing/assetbuilder_fe

  4. avatar
    My Own Advisor

    Great post and kudos to Robert and others who are REALLY in the business of financial advising.

  5. avatar
    Bhaskar Naik

    Is there a company in Canada similar to Assetbuilder et al?

    1. avatar
      Andrew Hallam

      Hey Bhaskar,

      As far as I know, there's nothing like Assetbuilder in Canada. But of course, you can similate similar portfolios with exchange traded funds. It's just a bit more work, because you have to make the purchases, rather than a company compiling the ETFs for you. I'm surprised that nobody in Canada (to my knowledge) has started a company similar to Assetbuilder though.

  6. avatar
    Kirk Mitchell

    Do you have a list of reputable advisors working in Asia that I could seek out? I have not been able to find anyone yet in Shanghai willing to work on a fee basis. My plan is to set up an account with DB Vickers in Singapore in the spring, but would like to work with an advisor before then.

    Kirk

  7. avatar
    Andrew Hallam

    Hi Kirk,

    I'm sorry but I don't have such a list. I would be very surprised if there were anyone in Asia doing this. It takes a rare bird to set up this kind of business. People generally go into finance to make money, not change the world.

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