There is more to answering the question of how good an adviser is than citing investment returns.
There’s financial planning, including debt, retirement, taxes and estate matters. And that means not just creating the plan, but following it in a way that gives you the comfort of knowing your financial future is well looked after. Another way advisers add value is by being a sounding board on general financial questions, while still another is providing an assurance of financial continuity for your spouse and family if you die.
But let’s get real. Of course, performance matters. Your financial plan is your road map, while your portfolio is the vehicle that gets you to your destination. This brings us to a question from a reader who says his adviser has produced an average 3.6 per cent annual return over the past 20 years or so. This reader is dissatisfied and says he doesn’t know whether to fire his adviser and take his high six-figure portfolio elsewhere.
No details were provided about this individual’s investing goals or tolerance for stock market ups and downs, so let’s assume a traditional balanced portfolio of 60 per cent stocks and 40 per cent bonds.
A handy benchmark for 60-40 portfolios is an asset allocation exchange-traded fund that follows this portfolio mix. Since its inception almost 17 years ago, the iShares Core Balanced ETF Portfolio (XBAL-T) has produced total returns averaging 5 per cent after fees each year. That seems a reasonable benchmark for a balanced portfolio and, in that light, a 3.6 per cent return does seem disappointing. It might be acceptable for a 40-60 mix of stocks and bonds, though.
This reader says his portfolio is at least partly invested in pooled funds, which is usually a fancy term for in-house mutual funds. On top of the cost for these funds is a 1 per cent advice fee. It’s conceivable this investor could be paying between one and two percentage points or more in fees to make returns of 3.6 per cent on average. That seems expensive.
But, again, there’s more than returns to consider. Specifically, is there a financial plan and, if the answer is yes, is 3.6 per cent enough to help this client achieve his goals? The status quo might be fine in such a situation, but it’s hard to imagine that’s the right conclusion here. Clients who feel their finances are well in hand don’t ask for thoughts on firing an adviser.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
BCE Inc. (BCE-T) The telecom’s bombshell announcement on Thursday that it will terminate 4,800 positions was a dismal development that coincided with a steep drop in quarterly profits at the telecom giant. But for investors, the biggest source of concern was the company’s miserly dividend hike. Even though the stock price has done little in recent years, and dividend growth is slowing, David Berman believes the bullish case for BCE is still alive.
The Rundown
The all-stock portfolio is having a moment
In investing circles, the all-stock portfolio is having a moment. The idea is that putting one’s entire retirement account in a diversified basket of stocks is likely to generate higher returns while also doing a better job of preserving capital. This is sacrilege to the financial establishment. Splitting one’s assets between stocks and bonds is a foundational concept in investing for retirement. Tim Shufelt explains why many investors may not want to join the bandwagon even though an all-equity portfolio is likely the most profitable long-term option.
As S&P 500 breaches 5,000, its valuation hits lofty levels as well
As the S&P 500 continues to hit fresh milestones with a first-ever break above the 5,000 level, its valuation is reaching new heights as well. Is it in danger of an imminent pullback? Lewis Krauskopf of Reuters explores the topic.
Is ESG investing counterproductive?
Alongside waning investor interest, new research suggests that ESG investing may not be doing as much good as had been hoped. Benjamin Felix reports that rather than avoiding brown firms altogether, tilting – holding brown firms which have taken corrective action – may be more effective at accomplishing the goals of sustainable investing.
Bitcoin surges in biggest weekly rally in four months
Bitcoin rose 5 per cent on Friday to one-month highs, powered by what analysts said was a flurry of buying ahead of April’s halving event and as recent outflows from exchange-traded funds slowed. Many traders are hopeful the latest move is just a hint of more gains to come.
Is China now an ‘alternative’ investment?
An engine of world growth for 20 years, the largest consumer of commodities and world’s number two economy has somehow slipped into “alternative investment” buckets for many global investors, reports Reuters columnist Jamie McGeever.
Others (for subscribers)
Globe Analysis: Why the final stretch of the inflation fight is perilous
The highest-yielding stocks on the TSX, plus risk data
Number Cruncher: 17 U.S. stocks that may benefit from eventual easing in interest rates
Number Cruncher: Eight active ETFs with long-tenured managers
Monica Rizk: Bullish on Granite Construction
Nancy Woods: Here’s why you should make your RIF withdrawal at the beginning of the year
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Globe Advisor
Why this advisor has been buying Colgate and trimming Novo Nordisk
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What’s up in the days ahead
John Heinzl explores the hidden risks of high-yielding products, while Ian McGugan looks at the woeful returns of woke investing.
Rain check on those rate-cut bets? World market themes for the week ahead
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
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Compiled by Globe Investor Staff