The Evidence-Based Investor

Video: The problem you face as an investor — and why your adviser may be part of it

Posted by Robin Powell on September 2, 2015

I’m expecting this video to get a few backs up. Though that’s not the intention, I make no apologies for it.

To cut to the chase, the financial advice profession is no longer fit for purpose. I call it profession; in fact the word industry would be more appropriate. Because advisers — or most of them — are just another part of a global investing industry that adds layer on layer of costs for the investor. It’s those costs, compounded over time, that all too often stop people achieving their investment goals.

Many advisers see their primary role as picking funds, and when those funds stop performing as they’d hoped, switching their clients’ money into different funds. They feel this on-going process of fund selection — some might call it churning — gives their jobs meaning; it gives them status; and, in the days of commission, it used to earn them a comfortable living.

But, in most countries, commission is a thing of the past, or at least soon will be. Consumers are becoming increasingly aware of what they’re paying to invest, and the value (or lack of it) they’re receiving in return. They’re also learning about the evidence that star fund managers are almost impossible to identify in advance, that persistent outperformance is extremely rare and that the high-fee, actively managed funds that advisers have traditionally recommended are actually best avoided.

Advisers do have a crucial part to play, but it has nothing to do with guessing which way the markets are heading or trying to spot the next Warren Buffett. As my fellow commentator The Investor at Monevator puts it, investors need a plan, not predictions or platitudes.

This isn’t meant as a diatribe against advisers. Most are professional, work hard and mean well. They think that what they’re doing is what their clients want and need. For older advisers in particular, it’s very hard to acknowledge that the way you’ve always done things is fundamentally flawed.

But financial advice is changing, and advisers who don’t change with it are going to find their value proposition harder and harder to justify. As Paul Armson explains in this video, they’re either part of the problem or part of the solution; they either work for you or they’re part of the goo!

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Robin Powell

A journalist and broadcaster, Robin Powell is a campaigner for positive change in the investing industry. He runs a communications company for the evidence-based investing sector called Regis Media.

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