Nearly half of Canadians who invest through advisors are shopping for new talent.
According to the 2023 Ernst and Young Global Wealth Research Report, 45 per cent of surveyed people said they were looking for better portfolio managers – a 24 per cent increase since 2021.
The waning confidence in professional management is likely linked to how well advisors navigated the market turmoil caused by the pandemic. As the lockdowns took hold in 2020, investment firms reported an influx of new clients. A survey commissioned by Manulife Investment Management at the time showed 63 per cent of respondents were looking for an advisor, compared with half in the year before COVID.
If your new year’s resolution is to review your investment advisor, or if you are in the market for one, here are four ways to tell if they are earning their fees.
1. HOW DO YOUR RETURNS COMPARE WITH THE BROADER MARKET
2023 was a good year for the two main asset classes that make up a balanced investment portfolio: stocks and fixed income.
The U.S. stock benchmark S&P 500 advanced by 25 per cent, the Canadian stock benchmark TSX Composite returned over eight per cent, and guaranteed investment certificates (GICs) paid yields as high as five per cent.
Your portfolio should reflect those stellar performances if it is properly diversified among asset classes, major sectors and geographic regions.
Inversely, properly diversified portfolios would likely have shown losses in 2022 when stock markets fell and yields were much lower. It’s long-term gains you are looking for.
If your returns are consistently out of whack with broader markets, ask questions. Lagging portfolio performance might be attributed to specific misunderstandings relating to your risk tolerance or return goals.
2. HOW MUCH OF A BITE ARE FEES TAKING?
A portfolio that consistently underperforms the broad markets could be weighed down by excessive fees.
Professional management costs money. The only way for most Canadians to access professional management and diversification is through mutual funds, which charge an annual fee based on a percentage of the amount invested.
Depending on the fund, those fees can top three per cent, which can shrink a return of five per cent to two per cent.
Returns dwindle further when other fees such as loads and commissions are piled on.
A good advisor knows the best funds for the buck, but should also find ways to minimize fees over time by shifting assets to lower cost exchange traded funds (ETFs) or investing directly in equity markets.
There are other ways advisors are compensated that could cost less, including flat fees.
Fee rates should fall as the portfolio grows and the dollar amount increases. High net worth investors generally strive for total fees under one per cent of the amount invested.
3. IS THERE A STRATEGY FOR KEEPING MORE TAX DOLLARS INVESTED?
Part of an advisor’s job is to ensure your savings are invested in a tax-efficient manner. Keeping more of your tax dollars to compound in your portfolio is a risk free way to boost returns.
If too much money grows in a registered retirement savings plan (RRSP), for example, investments could reach a point where withdrawals will be fully taxed at a high marginal rate. Eventually, minimum withdrawals will be mandatory, putting government benefits like old age security (OAS) in jeopardy.
Before it gets to that point, an advisor should strategically channel savings into tax-efficient vehicles such as RRSPs, tax free savings accounts (TFSAs), income splitting tools like spousal RRSPs and even non registered investment accounts.
4. DOES YOUR ADVISOR EVEN KNOW YOU?
Do you only hear from your advisor when RRSP season rolls along? Portfolio management is a year-long event and regular communication is essential.
Your advisor should be in touch with you by phone or email, or at the very least a regular newsletter explaining any market-moving situation and assuring you your investments are well positioned for what comes next.
In addition, a good advisor should know your retirement goals, tolerance for risk and personal circumstances that impact your finances.
They should also know your big financial picture: debt levels, home equity, workplace pension plans and other major assets and liabilities.
If any of these points ring true, it’s time for a chat – or a change.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
