Click here to watch our latest Quarterly Market Update with Peter Watson.

Will technology or investment advisers best serve your needs

Will technology or investment advisers best serve your needs

September 11, 2014

Is there a point in time when you can fire your investment advisor and use technology to assist you with managing your own financial planning and investments?

Technology is less expensive than employing an investment advisor. There is also a wide range of tools available to use.

Other industries around the world have attempted to change how items are purchased and new technological developments have assisted in that transformation.

There is a global trend to automate the delivery of goods and services to consumers. Why should it be different within the financial services industry?

Most industries have pressure to be “commoditized”. This means the customer decides to purchase something based on price. Other factors can be considered but the largest determining factor is price.

Many of our past columns in the Oakville Beaver discussed investment fees. Everything from fees being too high, not fair, not transparent and the potential conflict of interest between the investor and advisor.

Should the fee discussion continue with the notion of replacing your advisor with low cost computer programs and internet access to endless data allowing you to manage your own finances?

This is an ongoing conversation within the industry. Particularly on behalf of clients with fewer assets. For these clients there is not enough investment fee revenue to support the full service advice of a qualified financial planner or investment advisor.

The lower end of the market does need financial guidance and technology could help. The issue isn’t if it is better to have a real person helping you. There isn’t a good business model for this to happen.

To some extent purchasing mutual funds through the outdated Deferred Sales Charge method where a large up-front commission is paid to the advisor can be one solution for clients with smaller assets.

This method of remuneration, however, will likely decline as better disclosure is required to be given to an investor before a purchase decision is made.

The only certainty is that technology will become increasingly more useful and efficient. The on-going question is whether it assists your paid financial advisor with doing a better job or allows you to go it alone.

There is evidence that investors have better results when using an investment advisor. This topic will be covered during the next few months as a result of research by a professor and researcher at the Ivey School of Business at the University of Western Ontario.

There is also much evidence indicating that not all investment advisors do a good job for their clients. In that case those advisors are not worth the fees they earn.

An argument for using an advisor is that the world is not that simple. In finance as well as real life there is often not a clear right or wrong way to do something.

Judgment plays a part. It is better to get this from a qualified professional who understands you and is clearly working with your best interest at heart.

When the financial world began crumbling in 2008 and 2009 would you have been better served having an advisor encourage you to stick to your long-term plan and not panic and sell investments at a loss? Could a machine have told you the same thing?

The financial industry will evolve and ultimately individual investors will be better served. Technology will play its role. Regulatory requirements of full disclosure of fees, conflicts of interest and investment performance will continue.

There will be fewer investment advisors a decade from now. Improved disclosure will make it harder for less skilled advisors to justify their continued existence. A more informed client will be more demanding.

The more progressive advisors will continue to use technological advancements so they can spend more time working directly with clients and less time with what can be done by technology. Increased efficiencies will result in better advisors taking on more clients.

Better technology does also provide you with better tools to fire your investment advisor.

There are many changes in the financial services industry. It puts pressure on investment advisors to do a better job and ensure you are able to select the best advisor or make the decision to self-manage your own investments.