Investing is easy—until it's not: The benefits of a real-life advisor

Technology has broadened the appeal of do-it-yourself investing, with analyst reports, data and market updates just a click away. Robo-advisors are available that can help you choose a diversified portfolio quickly and at a relatively low cost. While “no advice" and “advice lite" models have grown in popularity due to their cost, there are several areas where retaining a real-life, human advisor can make a real difference.

Helping you through volatile periods

Investing is relatively easy when stock markets go through extended periods of relative calm, times when most portfolios move up. It's during these times when the well-known principles of investing, such as diversifying across a mix of stocks, bonds and cash equivalents (or mutual funds and exchange traded funds that hold these securities), may seem unnecessary.

However, these periods inevitably give way to increased volatility, when stocks sell off broadly and investors see their gains reduced. These are times when the value of advice stands out. Advisors can't predict future performance, but they are committed to having a deep understanding of their clients and this understanding allows them to construct diversified portfolios that balance clients' need for investment gains (to achieve their financial goals) with their tolerance for risk. Research shows that investors who use advisors achieve higher levels of wealth compared to those without advisors.

According to the Investment Funds Institute of Canada, investor sentiment plays a big role in the amount of money that flows into or out of investments. And this sentiment-driven pattern tends to be counterproductive.

Specifically, when markets are peaking, some investors “buy high" by putting more money into equity investments. As volatility picks up, they get spooked and "sell low." After markets correct, these same investors are typically sidelined, missing out on the "buy low" moments. There were net flows out of mutual funds from mid-2008 to 2012, even as markets were rising. Anything that can reduce this “buy high, sell low" movement, is a big help.

Helping you navigate and choose account types

As you grow your investment assets, you become more familiar with the various types of accounts. Some of the most popular being non-registered investment accounts, registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), registered education savings plans (RESPs) and tax-free savings accounts (TFSAs).

As a do-it-yourself investor, you will be responsible for keeping track of the benefits of each account type, the unique planning opportunities that each provide and their nuances (deadlines, taxes, withdrawals and contribution room). While these are not necessarily difficult things to learn about, they do require extra organization. Certainly, this is an area where an advisor can help.

Helping you with tax efficiency

Different assets are taxed at different rates, lower-income family members often have lower tax rates, and certain structures (such as trusts) can be useful in estate planning. These distinct areas of investing and financial planning become more valuable as your assets grow.

Tax legislation also keeps changing, so it's important to be aware of the impact of each choice, particularly if you're an incorporated physician. A financial advisor can work with your tax and estate specialists who can help you with the more complex strategies.

Your advisor can help you achieve your desired asset mix, while keeping an eye on tax effectiveness. For example, highly taxed assets — such as bonds — are better placed in deferred-tax accounts like RRSPs or tax-free accounts like TFSAs. Taxable accounts are better suited for assets that generate capital gains or Canadian dividends, which are taxed at lower rates than interest is. Of course, tax treatment is only one factor in selecting an investment.

Helping your family plan together

Frequently, partners will have different visions, goals and tolerances for investment risk. An advisor can help get families on the same financial page — uncover what's really important, stimulate financial conversation between partners and coordinate and manage investments.

Providing choice, quality and low-cost solutions

Through the MD Financial Suite, MD Financial Management offers a mix of investing services for a variety of preferences: online brokerage services for DIY investors through MD Direct Trade™; low-cost, simple online investing through MD ExO® Direct; comprehensive investment and financial planning through MD Plus™ and MD Private Investment Counsel for those with even more complex financial situations.

Having access to the full spectrum of services, you can invest the way you want with MD — whether that's DIY, with an MD Advisor*, or both. MD is here to help you choose the services that best suit your needs.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec).

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.

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