D&S: Throwing darts at a stock table

It’s right there in the newspaper for all to see: Building your own financial plan is easy, and almost nobody needs an advisor. Right? Think again.

Our annual Dollars & Sense survey shows that those who do all their investing through Do-It-Yourself (DIY) accounts, with no advisor consultation, are nearly three times more likely to have little or no confidence in their investments, when compared to those who do all their investing through an advisor.

Almost 20% of DIY respondents reported little or no confidence in their investments, while a mere 7% in the advisor-only group expressed the same doubts.

Slice and dice

Looking at the numbers by gender, women in the DIY group are more than 6 times more likely to express little or no confidence in their investments than women in the advisor-only group, with 25% and 4% in each category, respectively.

Men in the DIY group seem to claim more confidence, with only 11% saying they had serious worries. The same number of men in the advisor-only group expressed a lack of confidence.

Splicing the data by age, two groups stand out: 22% of DIY investors in the 18-34 category reported very low confidence, while only 5% of advisor-only respondents in the same age bracket had serious worries. In the 35-44 category, 23% in the DIY group expressed little or no confidence, while 10% in the advisor-only group said the same.

Do-it-yourselfers in the 45-54, 55-64, and 65+ categories are a little less likely to have major worries, with 14%, 12%, and 11% respectively. Across the board, these figures are cut roughly in half for respondents with advisors.

Major disparities in confidence between the DIY and advisor groups are visible when the data is sliced up by education level. A whopping 35% of do-it-yourselfers with less than a high school education have little or no confidence in their investments. The number drops drastically when an advisor is thrown into the mix: only 9% of those in the advisor group have major worries their investments will turn out well.

The numbers for the remaining groups in the education category are fairly high and quite consistent across the board: 19% of those with high school, 15% of those with post-secondary, and 17% of university graduates in the DIY group reported little or no confidence in their investments. Again the numbers drop significantly—by about two thirds—for those with advisors.

Looking at the data by region, DIY investors in Quebec and the Atlantic provinces are far and away the most worried. In the Atlantic provinces, 32% of do-it-yourselfers reported very low levels of confidence, while only 10% of those with advisors were as worried. In Quebec, more than 26% said they had little or no confidence their investments would turn out well. On the other hand, only 9% of Quebeckers with advisors expressed the same lack of confidence.

British Columbians are next in line, with 17% of the province’s DIY investors registering a major lack of confidence. Only 9% of B.C.’s advisor-only investors have serious doubts about their investments doing well.

Twelve percent of do-it-yourselfers in Saskatchewan and Manitoba expressed little to no confidence, while only 3% in the advisor group had the same worries. In Ontario, the numbers were 15% and 3%.

Albertan do-it-yourselfers proved least likely to have serious concerns, with only 9% expressing a major lack of confidence. Five percent in the advisor-only group had similar worries.

Men are from Mars

Kathleen Peace, a certified financial planner at Bennett March, IPC Investment Corp. in Toronto, says do-it-yourselfers often have little reason to be confident. “They don’t have a sound plan, they’re not diversified, and they probably have a higher churn rate and higher costs.”

“Do- it-yourselfers overall have less confidence because they’re dealing with the flavor of the month investments. They’re focusing on short-term returns and are consumed by the vicious cycle of investment media,” she says.

Investors who work with advisors are generally in for the long haul, which provides a sense of stability and consistency. “And overall you’re going to have better tax efficiency and lower transaction costs, because you’re not going to be trading all over the place, and you have someone looking at your overall tax picture. Having your bases covered gives you more confidence,” Peace explains.

She pulls no punches when it comes to the gender figures. “As a rule men are overconfident. They find it a lot easier to toot their own horns than women do,” she says.

Women, moreover, have a much easier time admitting they don’t know what they’re doing. “It’s just like asking for directions—men don’t like doing it. Women are more likely to ask for help, and once they get it they feel empowered. I think that just reflects the emotional difference between men and women,” Peace says.

Peace also suggests an interesting explanation for the very low confidence of do-it-yourselfers in the younger age bracket. Many start becoming at least broadly aware of financial matters in the 18-24 range. So people currently in this age group were welcomed to the wonderful world of finance with the alarming spectacle of the worst market conditions since the great depression.

“If that’s your first major exposure to the markets, it’s a kind of formative experience that really affects your confidence in the long run. By contrast, the older folks will say, ‘That was horrible, but it will turn around.’”