Working with an advisor and self-directed investing

2020 OSC Investor Experience Research Study

Read the full report: 2020 OSC Investor Experience Research Study.
Read the research summary: COVID-19 and the Investor Experience.

When it comes to investing, some Canadians prefer to do it themselves and others prefer working with an advisor. There are potential benefits, risks and costs for either option.

The reasons investors choose the do-it-yourself (DIY) option, also called self-directed investing, vary from individual to individual. The 2020 OSC Investor Experience Research Study identified several recurring themes among the 23% of surveyed investors who invest on their own. The majority indicated that one of the reasons that they manage their own investments is because they enjoy doing it.

Considerations as to whether to be a DIY investor include whether you will enjoy it, whether you have the time to monitor and manage your own investments, and if you have the financial knowledge to choose your own investments.

If you decide to work with an advisor, you should ask about the fees that the person might charge and the types of services to expect. Keeping fees low is important, but it shouldn’t be the only factor you consider when assessing an advisor.

Factors to Consider

1. Investments and Stress

According to the study, the majority of Canadian investors who used an advisor were grateful to have someone in their corner during the market volatilityVolatility The rate at which the price of a security increases or decreases for a given set of returns. A stock price that changes quickly and by a lot is more volatile. Volatility can be measured using standard deviation and beta.+ read full definition and economic uncertainty of the COVID-19 pandemic. Approximately three out of four investors surveyed reported having an important discussion with their advisor, portfolio managerPortfolio manager An investment professional who manages your investment portfolio. For example, they buy, sell and monitor investments that fit their clients’ goals and tolerance for risk.+ read full definition or robo-advisorRobo-advisor A business that offers professional money management services to investors over the internet. See also, Online Investment Advisor.+ read full definition during these challenging times. Moreover, of these investors who communicated with their advisors, two in five reported that it was their advisors who had initiated contact with them, whether by email, phone or text.

These communications are especially important during times of severe economic and market stress. When you are stressed, you are more likely to make reactionary decisions that could impede your ability to generate portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition returns and achieve your long-term financial goals. These actions can include panic selling at the market bottom, for example, which can effectively lock in losses without positioning you for a recovery. According to the OSC Investor Experience Research Study, investors who did not who work with an advisor were more likely to have sold off investments during the early stages of the pandemic as were those with lower financial knowledge as measured by five questions asked during the survey. It is reassuring to note that most investors (85%), whether advised or not, did not sell any investments during the market volatility early in the pandemic (February and March 2020).

2. Investment Goals

Nearly all (95%) of surveyed investors with advisors report their advisors asked about their investment goals, risk tolerance and the length of time they plan to invest. These questions are the foundation of a strong investment plan. When you are managing your own portfolio, you will have to ensure yourself that you develop your own investment plan before beginning to invest.

At times of extreme market volatility, an advisor may be able to help you keep focused on your pre-established goals and can reassess your investments in light of any new financial or personal circumstances.

Research Study findings

    • Over half of all investors surveyed for the study who work with an advisor rely on an advisor as the primary information source before buying and selling an investment.
    • Investors who work with an advisor tend to have more conservative portfolios.

3. Satisfaction with the Investor Experience

Despite the extreme market volatility during the early days of the pandemic, the vast majority of investors surveyed (81%) reported that the advice they received from their advisor during the early days of the pandemic as positive. In general, both advised and DIY investors found that they are satisfied with their investing experience (75% of investors with advisors and 72% of DIY investors).

One way of assessing whether you should get an advisor or go it alone is to closely examine what you can expect in an advisor relationship. You can also learn more about how to find an advisor or assess the performance of your existing one.

Key Point

Deciding whether you are someone who will invest on their own or through an advisor is an important early step in your investment plan. Start by learning more about what an advisor does and what you can expect as a client or what is involved in researching your own investments and creating your own investment plan.

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