It’s hard not to notice the abundance of Questrade advertisements that ran all through this years’ Superbowl, or magnitude of similar ads playing at the start of many YouTube videos these days.
They market an online do-it-yourself investment platform under a discount fee structure.
These do-it-yourself platforms are sometimes referred to as discount brokers or robo-advisors. They have been around for quite some time, but some have recently flooded the market with advertising.
In this do-it-yourself platform you do your own research on investments, and management styles, economic, financial and tax needs etc and place your own trades. To do it well you need to have the desire and time to do it. It can be a fit for a certain percentage of the population who love to eat, live, breathe investment topics, but that is far from the majority of the population.
Let’s hit this head on. The angle in these ads is entirely based on fees. The goal is to create discontent in the mind of the investor and ultimately persuade investors move their investments to their online platform with the promise of lower fees/
You may wonder, as a financial planner, if this makes us worry that our clients may decide they would rather invest on their own?
Not really. Just as a law firm knows some people out there will forego the advice of a lawyer and opt to use a will writing kit, and an accounting practice knows some people out there will use turbo tax, we also know some people will be drawn to discount investment platforms. Law, accounting and financial practices all function to service individuals who need and want to work with a professional under an advice and service model.
We know the benefit of what we provide. Our very value proposition is professional service and advice to grow and preserve wealth and use strategies to help our clients keep as much of their money in their pockets as possible. These strategies go far beyond picking any investment or a mere two-dimensional fee comparison.
Our clients are investors looking for professionals to do the research, make timely recommendations, suggest investment strategies or portfolio adjustments when needed, and take tax efficiency into consideration. We are a full-service practice, the opposite of do-it-yourself online discount broker.
There is plenty of room for both discount models and professional service models to exist.
That being said, there IS something that does concern me about these ads in a broader sense. As financial professionals who have dedicated 28 years to the financial well-being of Canadians, and for me personally with the work I have done writing financial columns for over a decade now, in the spirit of financial literacy, my concern is that the ads themselves don’t tell the whole story.
These ads have painted an extremely limited perspective based solely on fees. Lower fees are the winner in these ads. And fees are important, don’t get me wrong, we too look for lower fees when searching out investment options for our clients. We search for growth potential at a reasonable price with well calculated and reasonable risks for our clients money. Searching for options with good fees for value are a part of our puzzle too. But it’s only one part. This is where I feel these ads fall short.
I’ve noticed some investment advice channels fighting back with facts. They aren’t taking out multi-million-dollar superbowl ads so much as simply letting their track records do the talking.
This morning I opened an email from one investment company that reads Questrade’s investment track record leaves a lot to be desired. Net of fees every Questrade portfolio has consistently underperformed in their fund category. Saying fees are important is one thing but don’t the actual investment results matter? Accompanying this was Morningstar data to prove the statement.
These underperformance claims aside, I'm not here to pick on Questrade or any other discount fee platform. The bigger message is we are missing one of the most important things for investors to understand.
Investments alone don’t tell the whole story. It’s the advice that surrounds the investment plan that takes the win. Advice on the consideration of tax strategies, efficiencies for flow of income and strategic placement of where your money should or shouldn’t go at any point in time, can make a huge difference. A difference that can dwarf any fee variance. This is where the more sophisticated value lies. Financial advice provides value in ways that cannot be illustrated on any investment statement.
I do understand there can be a certain satisfaction in getting a discount that may even go beyond logic. We all know the analogy of the person who spends $5 in gas to save 50 cents on a loaf of bread. Happy with their coupon savings they forget to look at the big picture. The same theory applies. It is easy to feel good about saving $100 in fees but not recognize you’ve missed a potential $1000 in savings or growth opportunities along the way because you didn’t realize strategy existed. It’s easy to miss the forest for the trees as they say.
Above and beyond fees, it’s easier than you think to fall prey to the next big investment tip that seems like a good idea at the time. We’ve seen people try to get in on the action of something that has become hyped up only to lose large portions of their retirement nest egg. We see the fallout later when they come to us for advice on how to recover. Caution is prudent in these areas, now more than ever.
I’m not here to say dealing with a full service Financial Planner is the only way to go for all investors. I know there are people out there who look at investing as a hobby and dedicate hours to their research, perhaps having missed a calling to be a financial advisor themselves. Discount brokers can be suited to these folks.
The majority of the population however will be far better off if they chose to utilize professional advice. You can’t make a decision with only one angle and that’s where I feel these ads fall short. In the spirit of financial literacy, we want people to recognize the limited nature of these advertisements so they can be educated to make the best decisions for themselves.
Image by Steve Buissinne from Pixabay
Stephanie Farrow, BA., CFP., Stephanie has over 27 years' experience in the financial services industry, a diploma in Financial Planning from the Canadian Institute of Financial Planning and Certified Financial Planner designation. Stephanie has been writing a financial column for local business magazine Elgin This Month/This Month in Elgin since 2010. Stephanie and her husband own Farrow Financial Services Inc. About our Farrow Financial Team.