Besting online sites, discount brokerages

Investment and insurance products are now commodities. If we try to compete on cost we will lose because there will always be a cheaper alternative. However, we can compete on another level that an online site or brokerage cannot – we can compete with personalized advice.

Here are a few examples.

Retirement Planning:

There are plenty of online retirement calculators. They’re a great starting point, but they’re all based on numerous inputs and assumptions. A simple misinterpretation of what is being asked can turn a $100,000 retirement shortfall into a $400,000 surplus with just one click. An advisor knows the difference between a “real” and “nominal” rate of return and won’t assume you can consistently earn 10% on your investments.

Online calculators will ask you how much you need in retirement, but have you ever retired before? As a starting point, an experienced advisor already has many retired clients and will compare your lifestyle to the lifestyles of other retired clients to confirm that what you think you need is what you really need. Then she’ll role up her sleeves and work through a cashflow budget to ensure your projection is truly personalized.

There’s a mathematical calculation that can tell you the breakeven point for when to take CPP, but I’ve yet to see a calculator that will take your tax situation, life expectancy and other income into account before telling you when to take CPP.

Investments:

An armchair investor blogger might tell you to invest in a Canadian stock ETF instead of a Canadian mutual fund because it will save you 1%/year, which will make a big difference over 30 years. But what if markets drop 40%? Your mutual fund is probably down 42% but at least your ETF is only down 41% right? Perhaps the bigger question was why a 75 year old had everything invested in the market in the first place. An advisor would ensure that wouldn’t happen.

The research provided by an online brokerage database will find you a bond yielding 5% and a stock with a dividend yield of 5%. You’re a tax smart investor so you know the dividend is more efficient but an advisor could have explained in a comprehensive financial plan that the grossed up dividend amount is used to calculate your OAS clawback. A return of capital corporate class bond fund could have given you income and your OAS.

Insurance:

Companies selling insurance online can tell you if one policy is cheaper than the other. However do they disclose if the cheapest policy is renewable and convertible or whether the insurer offers preferred rates for healthy individuals?

Most critical illness insurance policies cover the big three risks (cancer, heart attack, and stroke) but beyond that it can vary. Some products offer a loss of independence rider and others can be converted to long term care insurance at 65 without medical underwriting. An advisor creating a lifelong plan for you will make sure these features are built into your policy as they can protect your wealth and give you more healthcare options as you age.

Will a website remind you to reduce your coverage when your kids move out or increase your coverage when you have a baby? An advisor can, and should you ever need to make a claim, your advisor will take personal responsibility for submitting your claim and helping you through all the papers.

Ongoing review:

The biggest investment decision you will have to make is asset allocation. Online questionnaire can help you establish the original allocation, but how will it be monitored on an ongoing basis? Will you remember to take some profits off the table when times are good and will you have the stomach to buy stocks when the markets are down 30%? Had people even just trimmed their profits from Nortel, or more recently RIM, they probably could have gotten a good part of their capital back, but that takes discipline. Discipline to stick to your investment policy statement is one of the biggest services advisors provide.

When you log into your online brokerage account it will tell you your balance is currently $173,000. The bigger question is what your balance should be to ensure you are on track. Our Client Dashboard™ tells clients where they are, where they should be, and what they can do to get back on track if they have fallen behind. It’s a practical tool that will increase your odds of retiring on time, and you can’t get it online.

When we ask most do-it-yourself (DIY) investors their average rate of return over the last 10 years, the results are something most of us would be jealous of. But often they can’t produce documentation showing the rate of return, so the claims may be more of an estimate. Full service brokerage firms have systems that can show you what you’ve invested, what you’ve taken out, what it’s worth today, and what that means in terms of an accurate rate of return. More importantly, we can advise you if your rate of return is allowing you to be on target with your retirement plan.

It’s up to us to educate our clients and herein lays our opportunity to compete. There’ll always be a cheaper alternative so when the playing field isn’t fair, simply change the playing field and compete with quality financial advice only available through a professional.

Mathieu Paradis, B.Comm., CFP, CLU, FMA is co-founder of AdvisorPractice.com which offers advisors practical solutions to transition to a financial planning practice and offers a 12-week training program. He is a financial advisor and offers his clients comprehensive life goals financial plans.