With the advent of the ability to research and purchase financial investments online the need to use an investment banker or have a direct relationship with a broker has passed. (I am referring to Equity and Fixed Income investing in this post)

This post explores the two main options you have when selecting investments and making trades – that is adviser/broker or self serve (DYI).

Doing it on your Own

In the interest of full disclosure I will start by sharing that my wife and I manage our own investments and that is my bias.

Intuitively no one is better positioned to make risk based decisions than those impacted if the risk event occurs.  This is generally not a true statement for investment portfolios managed by a third party.

Along those same lines, when you are investing you are basically making a purchase.  That is shares, bonds, ETF’s, Mutual Funds, or Guaranteed Investment Certificates (most personal investments fall into one of these categories ) .  Would you let someone else decide what clothes you should wear, or car you should drive and buy it for you?   Some probably do listen to the advise of a fashionista or a car salesmen (Personally I am too self centered for that)  but most likely you make the ultimate purchase decision.

Caveat (Beware)

Investment purchases are most successful when researched.  There are a number of main styles of investing (value, marketing timing, day trading) and each is best practiced from a strong knowledge base.  That is not to say you cannot and would not be lucky, just the chance of success is higher when based on a careful consideration of pro’s/con’s, risks and future forecasts.   If you cannot do the research, than I would not suggest the DYI approach.

Using and Investment Adviser/ Broker

The number one item to understand fully when employing a third party to assist with your investing is just that –  this person is being employed by you and there will be compensation for them providing this service.

This is a really important point because there are lots of ways advisers get paid and the majority of them are not transparent.  Also there can be duplication of fees, maybe it does not sound ethical but hey, if you are willing to pay there is always someone willing to take your money.

I am not going into this in great detail but an example of one of the popular hidden fees is leading or trailing commissions on mutual funds.  The adviser that sells the funds makes his money from a commission from the fund, you don’t pay him directly,  so it looks free but really it’s far from it.   The double dip part of this scheme is you pay the funds management fee (what they charge you for running the fund) and you end up paying (in some way even if not directly) the funds salespersons commission.

Without getting into great detail using an investment adviser and purchasing a mutual fund or and ETF puzzles me a little too because the contents of these funds is not dictated by the investment adviser but by the fund manager.   So what value is the investment adviser telling you to buy the fund (probably the one they get the most commission on anyway – oh cynical me).

If you are not able to do the research (for whatever reason) using an adviser is probably the best viable option, however, I would strongly suggest that you make sure you fully understand how they are being compensated (face it no one works for free) and always make sure you are the one that makes the final purchase/sale decision even if you don’t do the research.  Trust no one but yourself.