I have managed my own money for many years. I have a mix of Canadian and U.S. stocks and two exchange-traded funds in self-directed retirement accounts, and I am comfortable with my style. I am 15 years from retirement and mortgage-free.
The problem is that a friend has become a financial adviser and has made some overtures for my wife and I to become a client of his. Recently he sent me a direct invitation to meet for an informal "consultation." I would normally not be interested. I like my low-cost funds and investigating my own stocks. Is it worth giving him some or all of my business with the resulting higher fees in exchange for other services such as financial and retirement planning? I haven't used an adviser before and don't know what to expect or even if I should mix business and social friendships.
Reading your e-mail, I was reminded of one of my favourite investing quotes. It's from Tom Connolly of Kingston, who writes the Connolly Report investing newsletter: "You can invest for yourself. In fact, you must learn to invest for yourself … It's your money. You alone are motivated to manage it best."
Regular readers of this column know that I am a big fan of self-directed investing. Is it for everyone? No. Some people lack the time or inclination to manage their own money, or they have such complex tax or estate-planning issues that they require the services of a professional. For these people, using an adviser may make a lot of sense.
But for people who are willing to put in the time and effort to educate themselves, do-it-yourself investing has many benefits. There are no inherent conflicts of interest, as there are with commission-based advisers. The fees are dramatically lower, because you can choose the lowest-cost products that meet your objectives. And you have the satisfaction of taking control of your money rather than letting someone else – who may or may not have your best interests at heart – do it for you.
In your case, the desire to start a relationship is coming from the adviser, not you. You have not indicated that you are seeking advice. Rather, you have made it clear that you are comfortable looking after your own investments, and enjoy the process. I suspect that, if this invitation had come in the mail or from a stranger knocking on your door, you would have no trouble declining.
If the idea of turning down your friend makes you uncomfortable, remember that this person is a salesman and should be prepared for – and be able to handle – rejection. I understand that you don't want to jeopardize a friendship, but ask yourself this question: If you agreed to let this person manage your money and it didn't work out for whatever reason, how would your friendship be affected then? What if you had to fire this person as your adviser?
I meet a lot of people who end up with a particular adviser because that person is a family friend or relative. Some of these clients are unhappy with the service they're getting, but they are often reluctant to do anything out of guilt or fear of fracturing a relationship. You can avoid this possibility by politely declining the adviser's invitation to meet.
You might say something like: "Thank you for the offering to discuss our finances. I'm comfortable managing my own investments and I'm going to continue doing that, but good luck with your business."
To get a second opinion, I forwarded your question to Garth Rustand, a former broker who runs the Investors-Aid Co-operative of Canada. Here's what he had to say:
"I'd tell him to stay away. It's going to be nothing but trouble. The [adviser]is probably new in the business and that's where the pressure is coming from. He's going to have a small number of clients for the next three to four years, which means any of the clients he does have are going to be paying the freight."
"They get you in there and then it's constant birthday cards, the kids' birthday cards, they're constantly having coffee with you. They just stick their talons into you and it's really, really hard to get away because you feel so guilty."
Mr. Rustand said another danger of using a friend as an adviser is that the client may assume, because of the pre-existing relationship, that his money is being managed prudently, when that may not be the case.
"That can get the client into a lot of trouble, the lack of scrutiny. If he doesn't like it, it's going to be very difficult to extract himself from the relationship. There is just no advantage in it for him."
To your question about retirement and financial planning services, you have not articulated what you are looking for specifically. If you are seeking an independent and comprehensive assessment of your financial position to make sure you are on track to meet your goals, you should consider a fee-only financial planner who will charge an hourly rate or flat fee to draw up a detailed plan, without trying to sell you any financial products.