Do you need a financial advisor?
This is a question that many Canadians are wondering.
With the rise of online brokerages, low-cost ETFs, and free financial education resources, more Canadians than ever are managing their investments by themselves—and often achieving better results than those who rely on traditional advisors. In fact, for most people, being self-directed is not only possible but also much more cost-effective and empowering.
Here is someone’s actual experience.
“My last experience with a financial advisor was awful. I went into my bank and wanted to put money into my RRSP. The bank teller told me I needed to talk to a financial advisor, so they set up a meeting with one for me. I then had a brief chat with the financial advisor, who told me about the various mutual funds I could put my money into. At no point did they mention other options that I could choose to invest in within my RRSP, like stocks, ETFs, etc., it was all about buying into high-fee mutual funds. At the time, I knew a little bit about fees (much less than I do now), so I chose one with pretty good historical performance and moderate fees.
Then I got my yearly report back, and guess what, that mutual fund lost me money and still charged me that high fee. It was right then that I realized how high fees were taking too much of my money for no reason. In years when the market was up, I was giving away a good portion of my returns to fees, and in the years it pulled back, those fees increased my losses.”
Here is the thing: financial advisors in Canada, particularly those working at banks or mutual fund dealers, often get strong financial incentives and pressures to sell mutual funds, which often have embedded commissions or trailing fees. While there is no universal, industry-wide regulatory requirement mandating formal sales quotas for mutual funds, many firms set expectations for sales for their advisors as part of their compensation structure. These targets can influence advisors to recommend high-fee mutual funds (like in my case) that generate commissions or ongoing trailer fees, which benefit both the advisor and their employer, but in turn unnecessarily reduce my market or investment returns.
Check out the image below to see what I am talking about, to see the effect fees can have on your portfolio. This chart shows what would have happened to your portfolio value if you were 100% invested in the S&P/TSX composite between 2002-2023 and what effect various fees would have had.
As you can see, the higher the fees, the worse effect it has on your wealth.
In this example, the return during 2002-2023 for the S&P/TSX composite index was not great, but even if you were invested in something that had much better returns during this time, high fees would still have a similar, serious and lasting negative impact on the growth of your wealth.
The Traditional Role of a Financial Advisor
Financial advisors in Canada are regulated professionals who must meet education standards and register with provincial or territorial regulators. Their job is to help you plan for your financial goals, whether that’s retirement, saving for a home, or investing for your children’s education. While they can be helpful to encourage you to invest regularly and take a patient long-term view with your investments, the traditional advisor model also often comes with high fees and, in many cases, a strong incentive to sell you products that may benefit them more than you.
That is because many advisors are compensated through commissions or “trailing fees” on mutual funds, which means they are inclined to steer clients toward higher-fee products that generate ongoing income for themselves, even if lower-cost alternatives like ETFs are available. These fees can quietly eat away at your investment returns over time and can make a huge difference to the growth of your wealth.
The High Cost of Mutual Funds in Canada
Unfortunately, Canada still has some of the highest mutual fund fees in the world, with many funds charging annual management expense ratios (MERs) of 2% or more. These fees may seem small, but over the decades, they can reduce your nest egg by tens or even hundreds of thousands of dollars. If you lose 2% of your investments to fees each year, and that happens every year for 30 or 40 years, pretty soon a large portion of your investments will have been eaten up by fees. Once you are aware that financial advisors, especially those at larger banks or representing mutual fund providers, may be incentivized to recommend these expensive mutual funds, you can look for lower cost options to ensure you keep more of your returns for your future.
Why Most Canadians Don’t Need a Financial Advisor
1. Self-Directed Investing is Easier Than Ever
With the advent of user-friendly online brokerages and robo-advisors, Canadians can easily buy and manage diversified portfolios of low-cost ETFs and stocks. These platforms often provide educational resources, portfolio-building tools, and even automatic rebalancing. You don’t need to be a financial expert to get started—just a willingness to learn the basics.
2. You Can Save Thousands in Fees
By avoiding high-fee mutual funds and the commissions that come with them, you keep more of your money working for you. Low-cost ETFs, for example, often have MERs under 0.2%, compared to 2% or more for many mutual funds. Over time, keeping this difference ‘every year’ can add up to a significant boost in your investment returns and wealth accumulation.
Low cost ETFs and self directed investing are readily available and have never been easier for the average investor.
3. Information is Readily Available
There’s never been more free, high-quality financial information available to Canadians. From government websites to independent blogs and YouTube channels, you can learn how to build a diversified portfolio, minimize taxes, and plan for retirement—all without paying an advisor.
You just need to spend a little time to become educated and disciplined about investing and building your wealth smartly.
When You Might Want a Financial Advisor
While most Canadians can go self-directed, there are situations where professional advice is valuable. If your finances are complex, such as owning a business, dealing with a large inheritance, or navigating divorce, an advisor with a fiduciary duty can help you optimize your plan. Ideally, choose a fee-only advisor and not one compensated by selling you products with high fees embedded.
How to Be a Successful Self-Directed Investor
Start with the basics: Learn about asset allocation, risk tolerance, and the power of compounding.
Choose a reputable online brokerage: Look for low fees and easy-to-use platforms.
Invest in low-cost, diversified ETFs: These track the market and keep costs down and can be the core of your long term investing portfolio.
If you take a smaller portion to also buy individual stocks, do your research and limit your risk.
Review your plan annually: Make adjustments as your life and goals change.
The Bottom Line
For most Canadians, a financial advisor is no longer a necessity if they become educated about investing, are disciplined about saving/ investing, utilize the newer lower cost options and then take a thoughtful long-term approach.
By taking a self-directed approach, Canadians (like you) can avoid these high fees, stay in control of your money, and achieve your financial goals. A good choice is Questrade as they charge $0 commission for their trades and no account fees. Click here to open your new account and get $50 when you do so.
If you do seek advice from an advisor, you should find someone who provides complete transparency on their fees and the impact of those fees on your wealth accumulation over time. Then you can make an informed decision on how much you are really paying for that advice and whether it is worth it.
Remember, it’s your money.
Disclaimer:
This article is for informational and educational purposes only and does not constitute financial advice. Always do your own research and consult a qualified financial professional before making investment decisions.
