Advice more important than ever

As the deadline for RRSP contributions nears, Canadians are largely uncertain about how they should invest their retirement nest egg, according to a survey commissioned by BMO Financial Group.

The survey found 18% didn’t even know what investments they held, and a third said they didn’t know what should be in a successful investor’s portfolio.

Among those who have investments, nearly two thirds said they held a mix of equities, cash, fixed income investments and diversified mutual funds.

Whether that mix was in any way optimized is another question, as 58% of those that knew what they held said they were not on the right track.

“The first step in taking charge of your investments is to understand what type of investor you should be, and RRSP season is the perfect time to get started,” said Tina Di Vito, director of retirement strategies, BMO Financial Group. Developing an investor profile has been the cornerstone of the bank’s marketing strategy this year.

“Are you trying to accumulate wealth, preserve your wealth or generate income from your investments?” Di Vito asks. “Once you have the answer, it becomes much easier to sit down with a financial advisor and develop a financial plan that will address your needs.”

The good news for advisors is that nearly six in ten (57%) understand that consulting with an investment professional is the mark of a successful investor. That appreciation of advice may be reflected in the percentage of Canadians that reported they had a financial plan: 34%, up from 27% in last year’s survey.

Part of the reason investors appear nervous could stem from a common mistake: monitoring their portfolio too closely. The survey found that 63% thought they should check up on their investments at least once a week, if not daily. Such close scrutiny often leaves investors with a queasy feeling, as they witness every market gyration and may miss the longer term trends.

Luckily, even though they think they should monitor performance daily, they aren’t following through on such a strategy – 73% said they check in no more often than monthly.

“If you are following a well-defined strategy, you should be reviewing your investments at least once a year,” counsels Di Vito. “However, we recommend you also re-evaluate things as your personal situation changes. This could include major life changes such as getting married, having a child or purchasing a home.”

Of course, BMO is not alone in trumpeting the value of advice. All of the major banks have been aggressively pushing for a larger piece of the pie, and while they may have the edge in distribution, their praise for the industry can benefit non-bank advisors as well.

“This year, perhaps more than any other, there needs to be an emphasis on investment advice and making long-term investing a priority,” said Gillian Riley, senior vice-president and head of retail payments, deposits and lending at Scotiabank.

“Last minute contributors can take advantage of short-term investment options in order to park their money in an RRSP and get their tax receipt but they really should come back for a full retirement review.”

Whether the meeting takes place before or after the deadline, advisors should ask their clients to come in prepared to discuss their plans for 2010 at the same time. For those who are rushing to make the deadline, it might be time for a gentle reminder that pre-authorized contributions are a better option.

“It is never too early to start planning for next year’s RRSP season,” says Riley. “Saving regularly is one way to avoid the last minute rush next year and it provides an affordable way for Canadians to make their contributions while earning interest year-round.”

(02/23/10)