Nine out of 10 members of the Canadian Medical Association have financial advisors1, and benefit from a wide range of planning services and professional investment management. At the same time, some physicians want to handle all their own investment decisions by investing through an online broker. They go without advice because they are comfortable researching stocks and are interested in businesses and economics.
Is there a middle ground? Possibly. One strategy is to use your advisor for the vast majority of your investments, and to set aside a small amount to invest using an online brokerage account.
For example, imagine that you have been following a particular gene-therapy company and you wish you could invest in it. You could have 95% of your investments with an MD Financial Management MD PlusTM account or MD Private Investment Counsel (both advisor-based services) because they diversify your investments and provide you with numerous planning benefits.
And then, with 5% allocated to an MD Direct TradeTM account, you would be able to manage a small amount yourself. This maintains your benefits of receiving ongoing advice, but it also lets you make some decisions directly. Many investors may want to use an online brokerage account to learn about buying stocks.
What is an online brokerage account?
Sometimes called “direct investing,” an online brokerage account enables you to buy and sell securities yourself. You make your own decisions, without advice. There is a learning curve to trading—for example, you might have to look up the stock symbol of the security you want to invest in.
And there are settings you can make to fine-tune your trades, such as specifying a price at which you will buy or simply buying at the market’s current value. Investors pay a fee for their buy-and-sell transactions, as opposed to paying ongoing management fees for mutual funds or exchange-traded funds (ETFs).
Becoming more investment-savvy takes time
One of the main advantages of setting up a small online brokerage account is that it can teach you more about investing. You may learn more about stock symbols and you will be able to set up “watchlists” to track stocks. Direct trading platforms typically have resources such as analyst reports and market and economic updates. On the downside, managing your online account takes time and can be a distraction, especially when holdings go down. And when you sell holdings, you might let the money sit in cash for too long, which can create a drag on your returns over time.
Getting started is simple
Setting up and funding a new account is straightforward, especially with advances in technology enabling online set-up. Your main decision will be choosing which type of account to open, such as an investment account, a tax-free savings account (TFSA) or a registered retirement savings plan (RRSP). Since you will not be getting advice on your online brokerage account, it will be up to you to ensure you are not exceeding contribution limits if you choose a TFSA or RRSP. As you become familiar with the online brokerage site, you may want to set up a demo account, where you can create a portfolio of stocks and manage it without actually having money in it. This is a great way to gain experience in making trades.
Questions to consider before proceeding
As you consider whether it is worthwhile to open an online brokerage account, here are some questions to consider:
- Do you have time?
- Do you have the patience to learn what you don’t yet know?
- Do you have knowledgeable friends or family members you can turn to if you get stuck?
If you answer “yes” to these questions, find out more about MD Direct TradeTM.
Why advice still matters: structure and support
There is no doubt that investing costs are substantially lower with an online brokerage versus working with an advisor. Advisors have to get paid. At the same time, the track record of non-advised investors isn’t great. According to a survey of 3,610 Canadian households, participants using a financial advisor accumulated substantially more assets (173% more over 15 years) than comparable non-advised participants did.2 Researchers concluded that this difference is explained by higher savings rates and a higher allocation of non-cash investments—disciplined behaviours acquired through financial advice.
When you roll together the reasons for the assets of advised households outgrowing those of their matched, non-advised counterparts, it comes down to this: advisors help investors overcome inertia. Advisors will encourage you to increase your savings and to hold less cash. So, advisors get you to fund RRSPs, TFSAs and, if you have kids, registered education savings plans (RESPs). These are future-oriented behaviours that most people would delay or avoid.
Perhaps the most important reason for maintaining your advisor relationship is that it gives you someone to call when you have questions. If your life circumstances change or you have investment concerns, it can be reassuring to talk to someone who works full time at investing and financial planning.
MD focuses on quality, service and low cost
Through our MD Financial Suite, MD offers investing services for a variety of preferences: online brokerage through MD Direct TradeTM; low-cost, simple online investing through MD ExO® Direct; and comprehensive investment and financial planning through the MD PlusTM account and MD Private Investment Counsel. We know the world is changing, and we’ve changed, too. We are available to help you choose the services that best suit your needs.