In Defense of Planners: Don’t Buy The Anti-Financial-Planning Rhetoric

There’s been a lot written recently that seems to suggest, sometimes quite forcefully, that if you make use of a financial planner or advisor (for the purpose of this article, I’m going to stick with financial planners specifically) you’re basically not very bright. 

A great example was recently published by Perpetual Money Machine that takes a very common, but incorrect, approach to this opinion, to wit: a financial planner can’t possibly provide market-beating returns, so they are a waste of money.

On the face of it, that seems like a logical argument. But every time I see it being made, I can’t help but think it’s based on a fundamental lack of understanding as to what a planner actually does.

Financial Planning Is Largely Not About Investments

The stereotypical view of financial planning is that planners sit in an office all day, staring at multiple screens full of market information, and pounding buy and sell orders into their trading platform. The reality couldn’t be further from the truth.

Here’s the truth: for many planners, investment management is maybe 15-30% of their workload.

Planners know that consistently beating the market is virtually impossible. Study after study has shown it to be true. None of us were born yesterday. We know this. 

Most planners simply take a sound and prudent approach to determining an appropriate investment mix, then they invest your assets accordingly, generating returns that are as closely aligned to the appropriate benchmarks as possible. There is nothing here that is earth shattering in the slightest. In reality, a do-it-yourselfer can often achieve similar results themselves without much effort.

So What Value Do Planners Add, Exactly?

For good financial planners, the majority of their time is spent on the vital issues that are coincidental to the investment plan. They look holistically at a family’s financial arrangements and ensure there is a cohesive strategy that encompases:

  • retirement planning,
  • retirement income planning,
  • tax planning,
  • debt management,
  • insurance coverage,
  • estate planning,
  • business succession planning,
  • pension benefit optimization, and many other aspects of good financial management.

In contrast, many writers who choose to dismiss planners as unnecessary would suggest that successful financial management can be broken down into a few overly-simplified sound bites such as: “spend less than you earn”, “use a tax advantaged account” and “buy ETFs”.

All of those statements are true enough in themselves. But seriously, if the world were that simple, we’d all be millionaires.

Why Sound Bites Don’t Make For An Effective Plan

Let’s look at just one aspect of that simplified advice: “use a tax advantaged account”. I can’t speak for the United States, but here in Canada we have many tax advantaged accounts: TFSAs, RRSPs, RRIFs, LIRAs, RESPs, RDSPs, LIFs, DPSPs, IPPs, and more. Now, which one would you like to use? Do you know the rules and restrictions for each? What about the tax consequences for contributions and withdrawals? Which are applicable to your own personal situation? How do the different account types work together to provide retirement income? 

Sure, you could start cracking open the books and maybe figure it out for yourself. But how much time will that take, and is it something you even really want to know about?

And that’s just one aspect. What about commuting a defined-benefit pension from a former employer? Is it right for you? How much return would you need to make to equal the benefit over your lifetime?

What about your estate plan? How will your loved ones be protected if something were to happen to you? How will the tax consequences be handled by your executor and heirs? How much insurance do you need, and what kind?

The reason I highlight all this isn’t to suggest investors are dumb. It’s to point out that we live in a complicated world, that is full of risks, and is hard to navigate. The level of complication involved in even simple things, such as generating retirement income, can be found in articles such as this one, on Cut The Crap Investing.

Most financial planners, even after being in the business full-time for 20 or 30 years, are still learning new things. Is it realistic to think you can match that level of knowledge just by reading a couple of books or blogs?

A Planner Helps You Make Good Decisions

One of the most unfortunate aspects of articles that malign planners is the disdain shown for what is referred to as “emotional support”, or something similar. The thinking generally goes that: a) stock markets always rise over the long term; so b) there is no point engaging in risk mitigation; and c) you should just buy a whole-market equity ETF and don’t worry about it!

That is fantastic advice for over-confident, 30-something, FIRE bloggers. It is horrible advice for the real world. In the real world, a planner who applied that advice across the board would lose their license and be sued into the next century. Why is that?

In the real world, investors are doctors and lawyers and plumbers and hairdressers and electricians and even marine biologists. They have different goals, different beliefs, different circumstances, different family situations, and yes, different tolerances for risk. As such, they require different investments.

Risk tolerance is a core fundamental tenet of professional financial management. And acknowledging and investing appropriately for a client’s risk tolerance is a legal and moral obligation for professional planners. And this means that not everyone is going to get that 100% stock ETF. Why is that?

It’s because the biggest damage done to a portfolio is when an investor gets in over their head, takes on too much risk, gets panicked by a significant correction, and pulls their money from the market at or near the bottom. I can tell you right now, in the real world, this happens over and over again.

Yes, your balanced portfolio won’t earn quite as much as a 100% stock portfolio during the good times. But it will more than pay for itself if the reduced volatility gives you the confidence you need to hang on during the rough patches.

In total, a good planner will encourage you to save more, avoid costly mistakes, invest appropriately and guard against emotional reactions that could be detrimental to your long-term best interests.

Sometimes Doing It Yourself Is Going The Wrong Way

True Story: How To Blow Your Financial Brains Out In One Easy Step

In 2009, I was working as a financial planner in a small community, where the local Investor’s Group representative was the big guy in town. He had the biggest book of clients and did well for himself. Now, I’m no fan of Investor’s Group, their products are expensive and some of their advisors are ‘iffy’ at best (just my opinion), so don’t take this story as a ringing endorsement of their service.

I had a gentleman come in around April of that year. It wasn’t too long after the Canadian market (the TSX) had bottomed out as part of the ongoing recession. This gentleman had been an Investor’s Group client for years, and had accumulated about $220,000 in retirement savings. Unfortunately, he got into reading some books, and talking to some buddies, and he decided he could do better on his own. So sometime in 2007 he moved all of his money from Investor’s Group to a discount brokerage, so he could manage it himself.

Long story short, by the time I met him, he had turned that $220,000 into $38,000. Now it’s true that the Canadian market lost something like 50% of its value from peak to trough during the recession. But this gentleman, through his trading, had lost 83%. That is the kind of loss that is, safe to say, largely unrecoverable.

The problem wasn’t so much what this gentleman bought, it was his timing. He bought the peaks and sold the troughs. He was overcome by the same “fear and greed” issues that affect all of us, and that good planners are trained to protect you from.

Another Example: How Would You Like A Nice, Big, Tax Penalty?

One of the great weaknesses of humans is that we have no way of knowing what we don’t know. As an example, there was a potential client I worked with not all that long ago. He had been very diligently investing in his TFSA (Tax Free Savings Account) every single year, and every single year he borrowed from his line of credit to make the investment, making interest-only payments every month to let the loan balance accumulate. Since he was in a very high marginal tax bracket, he also claimed the interest as a deduction on his tax return, every single year. For both himself and his wife.

Now, we’re going to ignore the wisdom of the borrowing to invest strategy. The real issue here is that, according to the Canada Revenue Agency, you can’t deduct interest expenses for an investment unless that investment has a reasonable prospect of earning taxable income. Given the investment was held in a non-taxable account, this investor opened himself up to an audit, back taxes, and potential tax penalties for claiming a deduction he was not entitled to.

All because he didn’t know what he didn’t know.

Anonymous Bloggers Shouldn’t Be Your Primary Source Of Advice

One of the reasons financial planners are so careful about the advice they give is that there is very real accountability for errors. A good planner will take the time to learn all about you, your circumstances, and your preferences. Then they will carefully craft a strategy that is appropriate for you. There are real consequences if they do the job poorly: they could lose their job, they could lose their license, they can be sued, and they can be fined by a regulatory body. So as a rule, planners are pretty careful about the advice they give and how they conduct themselves.

Compare that to taking advice from an anonymous blogger. Or any blogger. Even this blog. We don’t know you. We aren’t aware of your circumstances. We have no vested interest in your success. And we have ZERO accountability if we end up doing you real harm.

This especially applies to bloggers who choose to be totally anonymous. For all you know, you are taking investment advice from a 12-year-old blogging out of his grandma’s basement.

Blogs and magazines can be a great source of tips, investing ideas and general information. And many writers are doing excellent work in helping improve financial literacy. But no blog or magazine can give you a holistic assessment of your financial picture and tailor advice specifically for your individual needs.

It Turns Out, Clients Of Planners Actually Do Better

Despite what folks like Perpetual Money Machine may try to tell you, it turns out that investors with a financial advisor generally end up better off than those that go without advice.

The Investment Funds Institute of Canada released a study called The Value of Advice Report 2012. This study used data from Canada, the United States, and elsewhere, and concluded that, on the whole, households that utilized a financial advisor:

  • had higher household wealth, 
  • had higher retirement incomes; and 
  • made fewer investing errors, 

than households that relied entirely on themselves for financial management. And they determined that these improved outcomes were directly attributable to the advice received.

It’s Still Okay To Be A Do-It-Yourselfer

After all of the above, I am actually a huge believer in do-it-yourself investing. One thing that bloggers have right is that many planners are too expensive, and not good enough at what they do. Just like choosing a doctor or lawyer, take your time, ask around, and make sure you are engaging a competent professional.

At the end of the day, there are three main types of investors:

  • the do-it-yourselfers who will put in the considerable time and effort needed to do a great job of it,
  • the do-it-yourselfers who won’t put in the necessary time and effort, and will likely make costly mistakes; and
  • those that would rather focus their time and effort on family, career, business, community, or other pursuits, and prefer to pay someone to manage some or all of their financial life.

Issuing a blanket condemnation of an industry that makes that third option possible is completely nonsensical. It’s like condemning the automotive quick-lube business because everyone should know how to change their own oil.

If you feel like you need some guidance, ideally you’ll engage a fee-only planner who can give you advice on the full structuring of your financial affairs. And you’ll only pay for the advice you need. Nothing more, nothing less. If you are able to manage your own investments, and want to, don’t pay an investment management fee. It’s that simple.

As I mentioned, the act of choosing and maintaining your investments can be very simple. And in the coming weeks I’ll have an article out that will make it even more straightforward.

However, be humble enough to appreciate that you realistically may not know all of the other associated issues that are an integral part of good financial management. This is why checking in with an expert to identify gaps in the overall plan is a great idea. You just never know what you may be missing.

Important Disclaimer: the information above is for general informational purposes only and does not in any way constitute an offer for the purchase or sale of any security and is not intended to be considered comprehensive or personalized financial or investment advice. assumes no responsibility for the use or application of this information. Always consult a tax, investment, or other appropriate professional before adopting any new financial strategies.

Share this:

We'd love to hear from you! Give us your thoughts.