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Originally Posted by Slava
I deal with retail and am totally biased because I'm an advisor. I definitely see your points as well. I use passive strategies and active in my practice for clients, so I obviously see the value in both. I just find that for the 'average guy' he has no idea about any of this and as a result they could learn it themselves or pay someone to handle it. This applies to a lot of things in life.
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I suppose the truth is somewhere in the middle of the active vs. passive debate. That's the conclusion we've come to anyways, it really depends on the asset class. So it makes sense that you use both and could hopefully take active advantage of some of the inefficiencies that you see in the market in a sustained, long-term way. I have seen very, very few retail mutual funds that make any kind of sense. If you go to an institutional class pooled fund where you're paying 30 bps for the same fund, that makes more sense. But obviously that is not how it works in our system.
I've just seen some of the portfolios that "advisors" put together for retail clients before (ie. my family and friends) and am appalled. There are retail products out there that have a 2% trailing commission to the advisor, plus 2.5% MER, plus trading and admin costs baked in. And the fees aren't immediately apparent. That's almost 5% off the top, in an environment where interest rates are at historic lows due to ZIRP and equity markets are starting to look full value. Obviously I am quoting an extreme case here. I realize and hope that's becoming less and less the norm which is great, and in large part it's due to the emerging of passive strategies that are accessible to the public via ETFs which are forcing banks, fund companies and advisors to lower fees and increase transparency.
Another thing I would point out is that the qualifications for selling investment advice in Canada are appallingly low. Look at any job posting for an "investment advisor" from any major bank and many advisory companies. They want the applicant to be licensed to sell mutual funds in Canada, and they want the applicant to have sales experience and a willingness to cold call. I repeat that the qualifications required to become licensed in our country are very simplistic. It makes it doubly difficult that in retail most clients don't know the difference between qualifications and designations and don't even know the questions to ask.
Now I'm certainly not looking to demean advisors themselves. Just like any industry, there are many people who have their clients interests at heart and many others who are looking to take care of themselves. So I just want to make that clear. And if somebody finds a good advisor, hopefully such as yourself (which you seem to be), the extra costs can be well worth it for the average guy as you say. Many people don't have the time or the desire to deal with it at all. I just wish the whole industry was more transparent and that there weren't so many conflicts of interest.
Anyways I hope for those following this thread I have provided something worth thinking about, as you contribute to your RRSP, and am happy to continue to discuss with anyone or with Slava if ppl find value in that. Actually investing in your registered accounts is extremely important and doesn't seem to get as much attention as the tax/financial planning aspect. I don't want to come across as knowing all the answers because I don't and these are all just my opinions. Others could have totally valid opposite views.