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In our plugged-in hyper-connected 24/7 lives, we’re inundated with investment “advice.” Which is worth precisely what you pay for it – nothing. And yet every day, I hear of unwary or gullible investors being seduced by sales pitches disguised as “news,” scams disguised as “investments,” and nonsense disguised as “advice” by those who shout the loudest or have the biggest TikTok following or the most outrageous come-on. You know the type: A thread or link in a post that reads, “How I make $1,000 an hour investing in the worst bear market in 30 years!” These are scams, pure and simple, designed to part you from your hard-earned money. So here’s my quick guide to avoiding the traps and pitfalls of our advice-saturated world.
All manner of investment advice, recommendations, suggestions, and pitches flood the business, financial, and social media channels without letup. That also includes the fast-disappearing standard broadcast channels and print media. Don’t forget tips from your best friend and conversations overheard in elevators or bistros. Ironically, you can get incredibly detailed information, analysis, review, and updates about any company, investment product, or vehicle with just a couple of simple online searches. Yet many investors fail to do so, preferring to heed the advice of some heavily tattooed “influencer.” And that explains why “get-rich-quick” schemes continue to thrive.
The rule: Use public channels for news, information, and research only. Never act on “advice” garnered from the public domain. And avoid “advice” delivered via social media like the plague.
Investment newsletters, advisories, and instant updates have long been a staple source of information for investors. These subscription-based services can, in fact, be very useful sources of investment ideas and knowledgeable commentary and analysis. Yes, there are lot of charlatans in the business whose real object in selling their advisory is to get you to sign up to some scheme or other – coins, gold, dodgy real estate, equally dodgy mines, dried “survival food,” or some such. But you’ll soon discover the real intention of these outfits when your inbox or mailbox is flooded with solicitations to buy into these peculiar “investments.”
The rule: By all means, subscribe to newsletters or advisories offered by reputable, credible advisors and analysts. There are lots of good ones out there, but you’ll have to do some research to separate the great from the garbage. Remember too that the advice you get will be non-personal – it won’t necessarily apply to you or fit into your portfolio precisely. Use such advice as a starting point for further research, and more discussion with your financial advisor.
This may seem to be the most straightforward, worry-free type of advice you can get. But here, too, there can be some pitfalls.
Investment funds. You’re buying “pre-packaged” advice in the form of an actively managed fund, so in that sense it’s not strictly personal advice. However, in the case of mutual funds or managed assets, you are paying (an often hefty) fee for this, which is stated as the fund’s management expense ratio (MER). Exchange-traded funds have lower MER’s but most are not actively managed, instead tracking some index of of underlying securities.
Stockbrokers. If you have a stockbroker, chances are you’ll get a steady stream of advice, recommendations, and research on investments to buy and sell. You’ll pay for this through commissions on each transaction. Stockbrokers are generally very knowledgeable about the market, the types of investments that are available, and their prices. However, stock brokerages are in the business of “distribution” – selling stocks, especially underwriting new issues. This can give rise to some conflict if your investment objectives are not aligned with the brokerage’s underwriting priorities. Stock brokers may or may not build portfolios that allocate assets according to your investment objectives, risk tolerance, and time horizon. That’s generally a lot of work, involving a good deal of client contact, and most brokers just can’t afford the time commitment for this kind of work.
Discount brokers. These online services, offered by most of the big banks and some independent brokerages offer pre-packaged portfolios that purport to meet your investment requirements – e.g., aggressive, defensive, balanced, etc. – which are determined through a questionnaire you fill out before you sign up. “Advice” in the form of research and newsletters and so on is generic. Human contact is limited to a call centre, where your questions are answered from a preset script. You’re pretty much on your own.
Financial planners and money managers. These experts will actually get to know you and your financial needs and objectives. They’re typically independent, and not tied to any particular investment product. (Always ask about this when meeting with a planner or money manager.) Here’s what they should do for you:
Financial planners and money managers are compensated on a fee-for-service basis or on the basis of a percentage of assets under management. In addition to determining whether the planner/manage is tied to a specific product line (e.g., a mutual fund company), nail down specifics on how and how much you’ll be paying for their service. Watch for “extras” like “transaction fees” or “administrative” costs or “performance bonuses” that may not be part of the base fee. Get it in writing. And deal with reputable firms.
The rule: Personal advice you pay for can come in a whole range of flavors and styles, from pitches to buy the latest hot new mining issue to carefully-built and prudently-managed financial and investment plans. So carefully weigh the cost versus the benefit of any type of paid advice before signing on the dotted line.
Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.
Notes and Disclaimer
Content copyright © 2022 by Robyn K. Thompson. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.
The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.
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