Wednesday, November 14, 2012

I distrust my local paper for financial guidance.

The local paper claimed the senior investment advisor had a track record of dedication and excellence. He confessed to the reporter than the year had been challenging but his strategy had bucked the trend. While the TSX  was down 10.4 percent year to date, the advisor's investments were only down 1.5 percent over the same period.

We help clients get through difficult financial periods, he claimed.

He was, of course, snowing the reporter. Comparing his portfolio to the TSX is not a reasonable comparison. He needed to compare his record to a true standard, a benchmark.

The benchmark beat the advisor by 5.55%.

I'm an income oriented investor. For this reason I look for a benchmark designed to track a portfolio with an income bent. One designed for retirees like me. I discovered that over the same period a respected income benchmark was up not down. The annualized return was 4.04 percent.

I like this benchmark. I believe the Financial Post also uses it, or one similar to it, from the same source. I'm sure the senior investment advisor is familiar with this benchmark and I'm sure he makes no reference to it on purpose. His portfolio failed to perform as well as a benchmark.

I have a personal benchmark: The TD Monthly Income fund. I know, it is not a true benchmark. But, it is a balanced fund designed to provide income. It suffers trading costs and other expenses that a benchmark avoids. If I can beat TDB622, I feel like a success.

As you can see, the financial advisor interviewed by The London Free Press also failed to beat this pseudo benchmark. TDF622, unlike the advisor, was in the black.

The fund's return was 1.9% better than the advisor's.

Financial advisors are also sales people. It's too bad our reporter wasn't more than a reporter, being a stenographer doesn't count.

Addendum: I didn't give the advisor's name as this is truly a good person. They give a lot of financial support to local charities, for instance. They do a good job, an honest job and they keep their clients happy. But nothing in the article indicates that they are  much more than an expensive babysitter for your portfolio. If you don't need a financial babysitter, you probably don't need this advisor.

1 comment:

  1. I will speak up a little, not to protect the advisor or certainly not to excuse his performance, but to educate a little bit.

    I believe this advisor (or at least what you are comparing) would make him actual an investment advisor. Let me explain. A financial advisor will typically add more value than just invest your holdings, they may offer a retirement planning, estate planning, insurance planning, tax planning, etc... I have no way of knowing whether this advisor does this? I have stated on many occasions, we have been able to add significant value (in some cases as much as 500%) to clients net worth that have taken our advice. We now document it, show clients the added value we bring, for them to measure... and yes I am extremely fee conscience, our balanced portfolio comes in at about 2%.

    If he is just talking about managing money than I would consider him more of an investment advisor.

    I also agree with you that he should be comparing his portfolio versus a relevant benchmark. The challenge may be that the article is targeted at the general public and that encompasses many, many benchmarks. We certainly show clients a relevant benchmark and have performed relatively well. In fact at the Morningstar awards, out of the categories we had almost 80% of our recommended funds either place as winners or finalist in their category.

    By the way you TDMI was a finalist for best balanced fund and still one of our favourites.