How do I invest? It is a simple enough question that has a broad and varied answer. No matter their station in life, every investor has asked that very same question at some stage of their financial journey.Typically, financial literacy starts with our very first part-time or first full-time regular salaried position. With hopes (and some sage advice from a trusted family member or friend!), some of this paycheque will make its way into a savings account at a local Bank or Trust Company. Inevitably you will find yourself in conversation with a cohort who has just “made a lot of money” investing in “technology stocks.” Your natural question, of course, will be, how can I get in on that? This natural inclination to pursue fruitful investment opportunities can lead to an inspiring and worthwhile life as an investor. Herein begins the crucial time in your life that you begin the transformation from the practice of savings to the practice of investing.

There is an overwhelming number of opportunities available to investors, from do-it-yourself options through to full-service brokerages and Family Offices like ourselves’ with many other possibilities between those two extremes. The option that best suits you will be based on several things like your knowledge of investing, products available to you, risk tolerance, and emotional control. This article will break down the options available and review what they offer to clients.

Do It Yourself
Let’s first look at the do it yourself option, which includes products or services like Wealthsimple, Questrade, Scotia iTrade, and RBC Direct Investing, to name a few. The newer entrants to the market are names like Wealthsimple and Nest Wealth, which use technology and design to provide a sleek investment experience. Increasingly they have motivated the industry to embrace technology to make a better experience for clients.

All these platforms have a couple of common traits:

These do-it-yourself options are great for investors who have a very high level of investment knowledge with excellent emotional control who want to manage their own money. You need to understand the risks of the investments you are purchasing, how the investments will react in times of crises, and how to diversify your investments properly. It would help if you also had the emotional control to manage your finances objectively.Many investors start with the do it yourself model because they are attracted to the low costs offered. This generally leads to investors picking the “stocks of the day” and following trends. Ultimately, these investors do not reach their goals and lose more money than they are making. Investing is one of the only things where the professionals play against the amateurs, and 9 times out of 10, the professionals win.

Robo Advisors
This is the newest investment platform available for investors. These platforms have made investing more broadly accessible to the investing public and have helped broaden the discussion on financial literacy in Canada.

Essentially they offer the opportunity to invest in a portfolio of assets. You start by filling out an investment questionnaire with a Robo advice platform to assess your risk tolerance. Once your risk tolerance has been identified, it will give you an asset allocation. The asset allocation generally utilizes exchange-traded funds (ETF’s) that are managed by a partner organization. There is a management fee charged by the Robo platform to determine and administer the asset allocation. You may or may not get a service representative to help guide you with your investing.

They also help investors build a more diversified asset allocation based on their questionnaire answers. Robo advisors help with the emotional side of investing, ensuring that investors do not sell or invest at the wrong time due to their emotional reaction to what’s happening in the markets.

The downfalls of Robo Advisors are varied;

If you are looking for a low-cost alternative for your introduction to investing, this could be an option. Typically though, the asset allocation’s returns lag, and you cannot purchase outside investments like that Shopify stock your friend will not stop talking about.Bank Branch Offerings
Before Smart Phones, Online Banking, or e-Transfers, most banking was done in person within the bank branch setting. If you wanted to open an investment account, perhaps an RRSP, a TFSA or, a non-registered account, you were referred to the in-branch financial advisor. They would then work with you to help build a portfolio of the bank’s products, primarily mutual funds. Today, this service still exists, but the referral system to the branch financial advisor is typically through your banker when you apply for a product with the bank like a mortgage or credit card.

Most Canadians utilize this service to help manage their wealth. The banks have a large banking footprint, which has allowed them to cross-sell into investing. The mutual funds offered by the advisors are typically all in-house products managed by the wealth management division of the bank. This does not mean, though, that the products will be branded as such. For instance, RBC offers PH&N Fund, and Bank of Nova Scotia owns Dynamic, and Guardian is Bank of Montreal’s offering. This means that it is the customer’s responsibility to make sure that they are receiving proper advice, transparency, and diversification.

The bank branch offering is an easy way to introduce investing through the bank’s products. Typically, though, they are not overly sophisticated and come with very high costs. Customers should review all fund facts before purchasing any product to ensure that they are aware of all costs and how their investment dollar is spent.

Brokerage Advisors
Brokerage advisors are generally not in bank branches but brokerage branches associated with a large financial institution. The big five Canadian banks and insurance companies dominate the space currently. You may or may not be referred to a brokerage advisor once your bank branch investment account reaches a certain threshold. They will offer a wider product offering vs. the bank branch. For example, they can purchase individual stocks, options, ETFs, and hedge funds provided they have the appropriate licensing. Many brokerage advisors will advertise their independence but generally have a bias towards in-house products as the banks put pressure on their brokerage advisors to promote those products.

Depending on the type of advisor you work with, they may charge more for their services vs. the bank branch. This charge’s general benefit is better and more customized service, potentially from a team of individuals. The brokerage advisor could also be discretionarily licensed, meaning they can act as fiduciary on your behalf.

This is an important distinction with a discretionary manager as legally; they must act in your best interest. While the other investment options are well-regulated and the expectation is that investment advisors will act in your best interest at all times, a discretionary manager is held to a much higher standard and duty of care in their fiduciary capacity. Consumers should make sure they review and interview the advisors they look to work with to ensure they are aware of potential conflicts of interest and hidden costs.

Family Offices
Family Offices are typically independent discretionary wealth managers. They are either single-family (work with just one family group) or multi-family (offering their services to a select group of families). They provide the most sophisticated and expansive investing options, allowing pre-IPO investments, limited partnerships, and private equity. There is always a team involved in the investing process, and they will have additional advice capacities like insurance, tax, business and family succession planning, philanthropic giving options, etc. Some brokerage advisors may offer these services, but it is typically through another bank-owned channel and not via independent experts.

Family Offices will also work with the whole family to ensure proper risk mitigation and tax efficiency. A family’s financial planning decision-making could greatly impact the children and grandchildren from a tax and wealth perspective. Generally, the Family Office will work with all generations and their experts to ensure that all wishes are communicated and planned appropriately. This involves a high level of complexity from an investment and business standpoint and an emotional and trust standpoint. Family dynamics are complicated, and issues need to be addressed at all planning levels to ensure proper wealth transitions.

Family Offices generally guide the younger generations inheriting wealth to help them understand the responsibility and consequences of this wealth. Inheriting the cottage is great, but it may exclude you from first-time homebuyer tax benefits.

There are various cost structures associated with working with a Family Office due to each relationship’s complexities. The customer should review all service costs and look for conflicts of interest. Typically, a Family Office will not have in-house products but search for the best investment products to meet their client’s needs. As most Family Offices are discretionary managers, they have a legal obligation to ensure they meet the highest client service and product appropriateness levels.