Why your Investment Advisor do not meet your expectation ?

Investing is an essential component of any financial plan. For many investors, working with an investment advisor is an excellent way to navigate the complex financial landscape and make informed investment decisions. However, recent data shows that the vast majority of investment advisors are unable to beat their respective benchmarks. This raises the question of whether there is any value in investing with an advisor who practices active management.

Active management is an investment strategy where an advisor selects individual stocks or bonds with the goal of outperforming a benchmark index. This approach differs from passive management, where an investor seeks to match the performance of a benchmark by investing in a fund that tracks that index. While active management can be appealing, especially for investors seeking higher returns, the reality is that it is difficult for advisors to consistently beat the market.

According to research conducted by S&P Dow Jones Indices, the majority of active managers underperform their respective benchmarks over time. After five years, 84% of active managers failed to beat their benchmark. That number jumps to 90% after ten years, and 95% after twenty years. These statistics are concerning, especially for investors who pay a premium for active management.

Investment advisors who practice active management must overcome several challenges to outperform the market. Firstly, there are significant costs associated with trading individual stocks or bonds. These costs include commissions, taxes, and bid-a

sk spreads, which can eat into returns. Secondly, active managers must be able to consistently identify mispricings in the market and make timely trades to capitalize on these opportunities. This requires a high level of skill and market knowledge, and even the most experienced advisors can get it wrong.

Another factor that makes active management difficult is the inherent inefficiency of the market. While some stocks or bonds may be mispriced at any given time, the market is efficient enough that it is challenging to consistently identify these opportunities. This is particularly true for large-cap stocks, where the market is highly competitive and information is widely available.

While there are some successful ac

tive managers, they are few and far between. In most cases, investors who opt for active management end up paying higher fees without receiving commensurate returns. This is particularly true in Canada, where active management fees are among the highest in the world.

So, what does this mean for investors who are considering working with an investment advisor? Firstly, it is essential to be aware of the limitations of active management. Investors should ask their advisors about their investment strategy and track record and carefully consider the associated costs. Secondly, investors should consider a passive investment strate

gy, which seeks to match the performance of a benchmark index while minimizing costs. Passive management can be achieved through low-cost index funds or exchange-traded funds (ETFs), which have become increasingly popular in recent years.

In conclusion, the data shows that the majority of investment advisors are unable to beat their respective benchmarks. While active management can be appealing, especially for investors seeking higher returns, it is challenging to consistently outperform the market. Investors should be aware of the limitations of active management and carefully consider the associated costs before working with an advisor.

, through low-cost index funds or ETFs, can be an effective way to achieve market returns while minimizing costs.