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The management fees charged by investment advisors are a strong incentive for investors to manage their mutual fund portfolios themselves. Is this a good idea for you?

La Presse Affaires recently covered the findings of a survey, which showed that investors who used an investment advisor to manage their mutual funds saw higher medium- and long-term returns.

The study was carried out by Claude Montmarquette, a professor at Université de Montréal and CEO of the Center for Interuniversity Research and Analysis of Organizations (CIRANO).

A noticeable difference after four years

According to the article, using the services of an investment advisor can have a positive impact on the value of a portfolio after four years. After five to seven years, the value of a portfolio managed by a specialist will be 58% higher than one that is not managed by an advisor. After seven to 15 years, the value will be twice that of a portfolio for an investor without an investment advisor.


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Explanation

There are many reasons that explain the gap between the performances of an investor who is advised and one who isn’t. First, as the article states, investment advisors encourage their clients to invest more, which grows the total value of their portfolio. Secondly, an advisor can ensure that an investor’s portfolio is sufficiently diversified, and therefore better protected against market fluctuations. Finally, an advisor can be very useful in preventing investors from making decisions when panicked or emotional, which is sure-fire way to make poor decisions.

Unfortunately, the study did not take into account the costs associated with using an investment advisor.

Edited on 22 December 2016