Top 5 Myths About Traditional Investment Advisors

By Nest Wealth on 15/07/2017Article 6 Minute Read

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A must read for those just getting starting investing or considering making the switch from traditional to robo advisor (or vice versa!).

From you get what you pay for to advisors offer more service, here are the top 5 myths about why you should invest with a traditional advisor instead of a robo advisor.

Look, there are perfectly valid reasons to choose to invest your money with a traditional advisor… Some people get value from the high fees they pay, and that’s great!

But for so many of us it doesn’t make sense—we’d be paying a premium for a service we’re either not getting or not using.  

So for those might be just getting starting investing, or considering making the switch from traditional to robo advisor (or vice versa), this is a must read to help you make your best choice.

Here’s the top 5 reasons people say you should invest your money with a traditional advisor instead of a robo advisor, and why they’re wrong.

1. You get what you pay for.

This is hands down the most popular myth we hear tossed out when it comes to why people should invest their money with a traditional advisor or wealth management company. It’s used to justify the high price tag that comes from working with them—“That’s the fee associated with good advice.”

Seems like a reasonable argument, right? 


Sure, for many things we buy this philosophy serves us well. It’s why we shell out for legal advice and don’t expect a gourmet dining experience at Burger King. 

But when it comes to investing in the stock market? There’s no proven relationship between the fees you pay and the quality of advice you receive. Or the size of your returns.

Actually, it’s been shown time and time again there’s an inverse correlation between fees and performance. Not only does paying more not guarantee you higher returns, it’s more than likely to result in less wealth accumulated over time.

Yup. You and your bottom line are better off with a simple portfolio of low-cost, diversified funds.

2. When the market takes a downturn, and it will, you’ll want the support of an experienced advisor to guide you through it. 

Market downturns are inevitable and definitely can be an emotional experience—between the dramatic headlines and everyone shouting, “Do this! No do that!” it feels like a madhouse.

Advisors can be eager to point this out. It’s going to suck and we’re the seasoned professionals who know how to handle it, sort of thing. They’ll say this is where the benefit of active portfolio management comes in. That they have the insight and tools required to react to these market shifts appropriately. 

Except the best strategy would be to not react at all.

A market downturn is precisely the time when you don’t want to be making big moves or timing stocks. As we’ve talked about there’s no crystal ball they have access to that you don’t. No one can predict what’s going to happen next. 

That’s why having a plan is so important and the the only thing you need to do to survive the next bear market. No madhouses for you! 

3. It’s performance after fees that matters.

The argument here is that the fees you pay to have someone manage your investments—say 2.5%—doesn’t matter, only the performance after fees does. 

They’ll say paying 2.5% in fees doesn’t matter if you’re making a higher than average return of 10%.

Math aside (and there’s so much math we could get into here) this argument assumes advisors pursuing an active investment approach know how to consistently get you that higher than average 10% return, which as we’ve seen in points 1 and 2… they don’t. 

Fees matter. And the high performance to justify the high fees just isn’t there. 

(In case you’re new to our blog, Canadians pay the highest investment fees in the developed world. We conducted a study that showed how next to buying a house, investment fees are the average Canadian households single largest lifetime expense.)

4. People who use advisors are wealthier. 

Maybe, but that’s not why they’re wealthier.

As financial author and teacher John Robertson writes in his book, Value of Simple, if this is true it’s because people who have money are more likely to go to an advisor than because advisors are actually making people wealthy. 

He uses the example of a private jet—people who use them are more likely to be wealthier, but that’s not because taking private jets is somehow making them wealthy. Right?

You’ve got to look at correlation versus causation when you hear an argument like this one. Many advisors require you to have a minimum net worth to even work with them, meaning you had to be a millionaire before you met them. They didn’t make you a millionaire. 

And the times are changing! Many studies now show high net worth individuals use online investment tools more than other investors. We’ve even shared that the average Nest Wealth clients has $170,000 invested with us, which busts the the myth that robo advisors are only for people just getting started in the stock market. 

5. Advisors offer more service.  

This can be true in some cases but definitely not always. Most people with advisors pay a premium for a service they’re either not getting or not using. 

‘More service’ usually means one of two things…

First, people use it to mean financial planning advice beyond their investments. However what happens far too often is financial advisors focus solely on investment advice (which could be biased) and don’t provide their clients with a true financial plan—one that incorporates estate, tax, and insurance planning. 

Second, people use it to mean accessibility. They think advisors are more accessible and like the idea that they’re able to meet in person. But how often do people actually do that? And are they truly getting value from those interactions?

If you want and are getting both of these services, great. That’s good value for money! But if like so many of us you’re not? It’s time to make a change

If a full financial plan is what you’re after, you might be better off investing in low-cost funds yourself (John Robertson’s Value of Simple course is great if you want to learn) or through a robo advisor like Nest Wealth and hiring a fee-only financial planner to give you the unbiased specialized advice you need.

If you’re looking for accessibility, then you should know we have an entire customer experience team that’s always available by phone, chat, and email to answer any questions you have about your investments. 

We just won’t take you out golfing, but with the money you’ll save on fees you’ll be able to take some pretty epic golf trips of your own…