Just the other day, a long-time client of mine and a good friend called me up and said 'He wanted to meet me, and discuss a few things'.
I thought this was a normal request, so we met and started talking. He had just been to a 'Free Investment Seminar' organised by a "well-known investment guru" from Canada, who's apparently a big promoter of 'DIY (Do -it-yourself) Investing'.
There were three other speakers in this seminar, including one from a robo-advisory investment firm. Robo advisors are the new craze globally, where artificial intelligence and machine learning "supposedly negate the need for a financial advisor".
This Canadian "investment guru" then started bashing all the 'expensive savings and investment options in Dubai', and started talking about the benefits and virtues of 'DIY investing', and 'ETFs (Exchanged traded funds that track global indices').
He also showed the effect of the costs involved when a financial advisor is used, and the savings when 'You do it yourself'.
The client was ready to stop / surrender all his existing savings plans, investments (at a loss), and put all his money into low-cost ETFs after listening to this investment guru, and I said (in my mind of course) - 'Here we go again'...
I had heard this same thing many times from various people I met, including clients who had attended his seminars, or visited his website.
Don't get me wrong. There is nothing wrong in using low-cost ETFs, index funds and what have you. In fact I promote the same in many of my website articles, my meetings with clients, and my email newsletters as well.
What pissed me off was, this 'Canadian Investment guru', was against employing the services of a financial advisor'. I honestly consider this investment guru to be a well-meaning idiot, because he cannot differentiate between DIY investing and 'What a financial advisor does for his clients'.
Some people are confident that they can manage their investments themselves, DIY (Do-it-Yourself) platforms are for these people. But if you need help in making the right investment decisions, a 'Managed investment platform' managed by a qualified financial advisor (who represents you), is right for you.
While, the right charging structure and investing without lock-in structures are important, a good financial advisor provides you the following services:
I could go on and on, but a good financial advisor who represents you will also give you advice on 'other investments', that you may do outside of his services, e.g. real estate investments, etc...
I agree with him on the point of avoiding expensive savings plans (especially ones with longer terms), and heavy surrender penalties, but most investors don't have 50 to 75 thousand US Dollars to start a lump sum investment, which is required on good investment platforms as a minimum starting amount.
Currently the cheapest way to accumulate that initial USD 50 - 70 thousand dollars is to start a 5-year savings plan with Investors Trust - Evolution. Read my review of this savings plan here.
Short of asking you for an explicit fee for the above-mentioned services, the financial advisor can only charge you the assets under management fee of 1% per annum or take a commission on the savings plan. What's wrong with that?
This fee has got very little to do just with investment advice (especially in Dubai, where no expat want's to pay an explicit fee to financial advisors for their financial planning advice).
Good financial advisors will generally charge you 1% per annum of the amount they manage for you in an investment, ideally with no lock-in structure or surrender penalties, as long as they manage the portfolio for you. ...and this portfolio can still be in low-cost ETFs.
The alternative he preached was to buy low-cost ETFs on DIY platforms, and pay very low transaction fees or annual charges (typically upto 0.35% p.a.) only to the platform, not the advisor.
This is the dumbest thing I have heard. It's like saying to a patient that he can google his medical condition, symptoms, and treatment, and get the medicine from the pharmacy himself. This is why I call these kind of investment gurus well-meaning idiots.
To apply an analogy, why does anyone need a doctor at all? Just eat Vegan food, exercise 2 hours a day, quit smoking, drinking, and you will live till a 100 years of age. Right?.
How many people actually do that to stay healthy? They still need the advice and consultation of a doctor to get well. Why don't they just google the symptoms and go to the pharmacy to solve their medical problems themselves?
All I have to say is 'Quality of Advice' counts as well. Choose your financial advisor carefully. Go through referrals from your friends, colleagues and relatives.
If all else fails, research your choice of financial advisor, see what he/she has to say on their website. Look for client testimonials, reviews from existing / past clients, Linkedin profile, experience, qualifications, etc...
But for your own sake, don't listen to 'Investment Gurus' and make decisions that affect your money in the heat of the moment'.
The guy is obviously there to get paid for his talk, not for charity.
Rant over - LOL !!!
Amit is an Independent Financial Advisor, based in Dubai since 1997. He is part of the prestigious ‘Million Dollar Round Table’ (MDRT), which is an elite club of the best financial advisors worldwide. He has authored the ‘6-Step Financial Success Guide’, and the book ‘Creating, Preserving, Distributing Wealth’. He helps business owners and professionals ‘Create A Second Income’ through investments.