- Questrade’s marketing is right to attack Advisors who provide little to no service in for exchange compensation meant to compensate the Advisor for financial advice.
- Questrade’s marketing wrongly fails to acknowledge the fact that advisors can have a net positive impact in excess of fees charged.
- Questrade’s 30% richer promise is both a promise they cannot realistically make and at the same time one they are failing miserably at delivering.
There’s one company in Canada that financial advisors almost universally hate: Questrade. It’s no mystery as to why; after all, Questrade has – for years – focused its marketing efforts on ads attacking the advisory industry, questioning our value and above all else, our cost.
While I’ve never been one to shy away from general criticism of various aspects of the industry, Questrade's ads don't so much call into question the value of the financial advice industry, but to dismiss the idea that the advice industry provides any value at all.
(In fairness, some of their ads are bang-on in calling out several negative norms that characterize the industry – but in others, their viewpoint has been borderline nonsensical. In particular, the Questrade claim that Questrade users can “retire up to 30 percent wealthier” than those who use a full-service advisor amount to nothing more than straw-man marketing spin.
Point One: There’s Room For Everyone
Before I get to my deep dive into the Questrade marketing story, first things first: I’m not threatened by roboadvisors or discount brokers. In fact, I have worked with and recommended both conduits of financial advice and service.
Why? Well, to start, I don’t think all consumers are the same. As Michael Kitces points out, some people want to do everything themselves (DIYers), others want to do things themselves but with coaching (Validators), and many want things done for them (Delegators).
All too often the DIY contingent – both investors and suppliers – tries to convince everyone that they should all follow the same DIY drumbeat. (Whether that’s their honest belief free of other motivations, or they’re selling something – even if it’s just a book – that benefits from an increase in DIYers.)
Meanwhile, on the other side of the spectrum, many advisors believe everyone should want the service they specifically provide because, well, in their view, both parties benefit from it.
The reality is that there are some people who are just unwilling to pay for or hand over control of their wealth management, and there are also those who choose to pay for services because they want help managing their investments or have complex planning needs that they want expert help with.
Neither approach is wrong. People who use laundry services are not worse or better than those who launder their clothing themselves. So no, I don’t begrudge that there are people out there who want to DIY their finances. More power to them!
Secondly, sometimes clients really want to speculate. My practice is focused on long-term planning and if someone wants to take $10,000 and day-trade Tesla, they are better off going to a discount broker.
Third, I have – on countless occasions – praised robos for making investing more accessible and easy for investors who only have small amounts to invest. Let’s face it, it’s pretty remarkable that you can open an account, be directed to a modern-portfolio-theory-designed portfolio matched to your risk tolerance, and rebalanced as needed, starting with just a single dollar.
Finally, my focus is on comprehensive planning for complex client cases, not just investing. So technically, I am not even in competition with Questrade, nor have I ever lost a client to them.
So when I take issue with Questrade, it’s not because I feel threatened, it’s because I see the “holier-than-thou” stance in their marketing as simply self-serving – if not outright deceptive.
Point Two: Approach With Caution
DIY platforms are not without their perils. Investors don’t know what they don’t know (in the words of Donald Rumsfeld, “the unknown unknowns”) and, as a result, they likely can’t adequately recognize their planning needs or opportunities the way a good planner can.
DIYer’s investing practices can also be problematic. I have encountered very few DIYers who execute their portfolio strategy soundly by first identifying their risk tolerance, then adhering to modern portfolio theory and finally, properly diversifying. I have not once come across a DIYer who tested their risk tolerance and then bought VBAL or a similar one-ticket portfolio that meets their risk profile, or even implemented a properly diversified multi-asset portfolio.
Instead, I tend to encounter DIY portfolios that are all equity, rampant with stock-picking, featuring massive home-country bias, and exhibiting no clear risk thesis. While I’m sure properly run DIY portfolios are out there, I’ve maybe seen a few, at best, in my career.
All too often, people confuse speculation and investing. While the two practices might use the same platforms, and even the same tools, the concepts and results are as different as night and day. Think I’m exaggerating? Take a look at most-traded stocks at Wealthsimple Trade since the beginning of 2020: cannabis, oil, and distressed securities like Air Canada.
The end result: in times of volatility, it doesn’t take much for people to blow themselves up. Reddit’s Personal Finance Canada is riddled with stories of people who have ruined their lives day trading. Let’s get real: These people would have been better off paying even a large fee if it meant avoiding the outcome they ended up with.
Needless to say, I prefer robos to discount brokers – just because the ability to damage yourself is so much more limited.
Point Three: Common Ground
Let’s be clear, I’m also not giving all advisors a blanket “pass.” There are far too many out there with few or even no qualifications, providing no service beyond picking random mutual funds, ignoring Modern Portfolio Theory, providing no advice or support, and not contacting their clients, all while collecting Deferred Sales Charges and trailers. For that matter, there are entire firms that have created structures and incentives to promote exactly what those advisors are providing. As far as I am concerned, for investors with those advisors: PLEASE move to a roboadvisor or get REAL advice from a qualified advisor.
As I said earlier, Questrade has been right to call out that segment of the advisor body in their ads (just like we all should).
In one such radio ad, we hear a client telling their advisor the client is moving to Questrade for the savings, only to have the advisor reply that the client will lose access to the advisor’s expertise – only to be met with the client’s sharp retort, “you mean this 15-minute meeting, once a year?” Checkmate, and applause.
Here’s another Questrade ad that should resonate for anyone who has ever worked with a bank advisor, buying that bank’s mutual funds.
Other Questrade ads have poked fun at advisors for not creating or having access to modern, internet-based tools. As someone who hosts a podcast on Fintech, I (once again) agree that the industry, on the whole, has been embarrassingly late to the digital realm and the fault lies not just on dealerships and employers, but also on advisors themselves for not driving and demanding change or even paying for it themselves where possible.
Lastly, they almost universally question fees paid to advisors, and nothing gets advisors more up in arms than this. Here Questrade is, in my opinion, only partially right. First: yes, higher fees are correlated with lower returns so absolutely this must be taken into consideration. But at the same time, the advisor (portrayed above) who offered 15 minutes of “expertise” per year is one who is highly unlikely to be worth paying. So yes, those fees are “wasted.”
Point Four: The Other Side Of The Fee Argument
Where the fee argument falls on its face is the painting of all advisors with the same broad brush of providing little to nothing for the money they charge.
And this argument makes some sense. Questrade picked their goalposts in order to allow them to score. After all, if the game is “pick an investment,” then the act of “investing” is basically a commodity – and the lowest price wins.
This first of several straw-man arguments is, however, simply not the full picture.
While many advisors fall into this category (investment-pickers who don’t offer any real advice – or value), the rest of us actually do something to earn our fees.
While I can provide countless examples from my own practice showing how I've saved clients a virtual fortune in tax, prevented them from blowing themselves up with risky, ill-advised investments (bitcoin, anyone?), advised them in the complex sale of their business, or guided them through countless life events (divorce, remarriage, adoption, death, birth, career transitions, business succession, blended families – you name it), let me instead turn to the evidence.
There is a growing body of published research that points to how an advisor adds value well in excess of the fees they charge. Vanguard’s Advisor Alpha, Envestnest’s Capital Sigma, Morningstar’s Gamma, and Cirano’s Gamma – and those aren’t all of them – all differ in their views about just how advisors can add value to their client’s portfolio, but they all peg it as positive and as high as 3 percent per year.
At the same time, just about all acknowledge that the ROI on certain aspects of a planner’s advice is almost impossible to quantify.
After all, how do you measure the value, both quantitatively and qualitatively, of ensuring that a client is adequately insured and their risk is managed, or that their wills are up to date, or that someone who hates their job can securely retire early?
Now I will add that in my own view, some of the claims in these studies (and others) don’t stand up to much scrutiny. I have openly criticized some of the assumptions, as have others – see Derek Tharp’s post “Can We Trust Research On The Use And Benefits Of Financial Advisors?” But whether the real value of an advisor is 1.5 or 3 percent on average, the key point is that it’s positive – which Questrade outright fails to acknowledge. After all, if there is a positive ROI to an advisor’s fee, their straw-man comparison gets blown over.
Point Five: From Questionable . . . To Nonsense
While I’ve said that many of Questrade’s ads, and the questions they raise, are valid, some of their ads and the portrayal of their ads leave me less than amused.
Here are just a few examples:
“We can’t wait another year”
Yes, I am sure you just tapped your tablet
four times to instantly pinpoint the long-term savings as “more than $100,000.” Clearly the Questrade fee comparison calculator is open on your tablet at all times! Moreover, this approach falls into the classic (and timeworn) “let's just pick a big number to shock people” approach to marketing.
“This could be life-changing”
Yes, 0.5% is a smaller number than 2 percent. Congratulations on basic math.
But here’s the problem: you are comparing an advised and a non-advised service offering. If, as described above, the advice was limited to a 15-minute conversation once per year, leave.
On the other hand, if the 1.5 percent spread represents the difference between comprehensive planning and investment-only services, we are not even comparing the same service offering anymore and it completely invalidates the argument. Here, Questrade seems to be relying on the fact that too few Canadians even know that a comprehensive planning arrangement is possible – instead relying on (and reinforcing) the idea that all advisors ever do is pick investments to stick into client’s accounts.
“You’re not still investing with mom and dad’s guy, are you?”
Let me get this straight. “The lower fees make a big difference.” Interesting. How long exactly have you been there and how much money do you have invested? I’m sure that 1.5% difference on your $50,000 is making a HUGE difference.
Yes! Fees matter, but any notable difference would require tracking the end-state of both your Questrade portfolio and the “if you had left your money where it was” portfolio. Unless they are identical, over a short period of time it’s quite literally anyone's guess if you would be better or worse off (and that’s only if we define “better off” solely as an investment outcome).
As for the “you’re not still investing with mom and dad’s guy, are you?” comment.
Let me give some examples of how this could go with my client base.
You mean the guy who:
- Has taken care of every aspect of my family’s financial future for over a decade?
- Met me at the hospital to help me with disability claim forms after my brother got into that terrible accident and told us to leave all the paperwork with him so he could handle it for us when we were too overwhelmed?
- Saved my parents six figures in taxes one year by picking up something everyone else had missed for years?
- Made sure they could securely retire in France without having to worry about market volatility?
- Helped me sell my company tax-free?
- Structured my financial plan and will to take care of my disabled child when I am gone?
You mean that guy? Yeah, I’m staying with “that guy” because what is your robo advisor or discount brokerage going to do for you to prepare for or handle ANY of that?!
While some of their ads raise valid questions, this one – in my view – is just outright insulting, insinuating that there’s nothing “mom and dad’s guy” (which is sexist, by the way) can do to justify their costs. And hey, it’s not “hip” and “cool” to make such a reductive argument; it’s actually embarrassing.
When the goalposts are drawn solely in the investment realm, Questrade, you have a point.
When you realize that investing only makes up one part of what comprehensive planners do, your advertising not only loses validity, but it comes off as deceitful – given that you (no doubt) understand this less-than-subtle difference.
I don’t buy for one minute that Questrade doesn’t realize the differences their advertising is failing to mention. In fact, I’ll go further: I think their advertising intentionally dismisses and leaves out “the rest of the story” and or self gain.
Point Six: Undeliverable Promises
The danger with having a value proposition based solely on price is that you are always at risk of being undercut, and that's exactly what’s now happened to Questrade.
When Wealthsimple launched Wealthsimple Trade, a zero-commission trading platform, suddenly Questrade lost the pricing high ground. After all, why pay between $4.99 and $9.99 per trade, when you could simply pay zero?
In fairness, Questrade does have one of the cheaper roboadvisors, with pricing starting at 25bps+ the cost of ETFs. However, they’re beat by Nest Wealth on high-net-worth accounts (above $480,000).
Interestingly enough, Questrade, the company that is “trying to save Canadians a fortune in fees,” doesn’t acknowledge their lack of competitiveness, at certain dollar ranges, versus their peers, in any of their advertising. Wealthsimple & Nest, perhaps a joint advertising campaign is in order?
Point Seven: How Much Richer?
Questrade Portfolios have made an interesting promise: one that tells people they can retire “up to 30 percent wealthier.” Sounds good, doesn’t it? I mean 30 percent more is, well, more. Way to go again on figuring out how numbers work.
Now let’s talk about reality. These claims use an assumption of a single-return number and then apply two different levels of fees. So they start with the same gross number, and then subtract out assumed fees.
Here’s the problem: In order to have the same assumed return, the portfolios would have to literally be identical. That’s because differences in allocation can have a pronounced impact on the variability of returns between portfolios.
For example, consider two all-equity portfolios made up of two different positions: Canadian Equity returning 6 percent, and US/International Equity returning 10 percent.
If Questrade were to take a 50/50 split between the two, their portfolio would gross 8 percent. If the portfolio they’re comparing against instead is made up of 100 percent US/international Equity, it can be expected to return 10 percent, or 2 percent more than Questrade, more than making up the fee differential.
This example was not meant to be a guideline for how to invest, just an example as to how differences in allocations can have big differences in results.
What’s more telling, however, is that this example is playing out in real life. Here are the five-year return numbers for the QuestWealth portfolios, their in-house robo advisor offering (on which their 30 percent claim is based), for the period ending April 30th, 2020:
Conservative (80% Bond/20% stock): +2.11%
Income (60% Bond/40% Stock): +2.53%
Balanced (40% Bond/60% Stock): +2.68%
Growth (20% Bond/ 80% Stock): +2.84%
Aggressive (100% Stock): +3.09%
Now let’s compare their performance to similar F-Class funds available in the Canadian market. Why F-class? Because F-Class funds have no embedded advisor compensation. If one is to make a true comparison of investment returns without the price of advice, one needs to compare apples to apples. In other words, the price of advice must be judged by the value provided by it’s cost, whether embedded in the product or charged separately.
I compared each portfolio to the corresponding category of mutual funds in Morningstar. However I only compared Questrade portfolios to F-class mutual funds with no embedded advisor compensation, thereby reflecting only the cost of portfolio management. Here’s how the Questrade portfolios measure up (based on Morningstar Data):
CONSERVATIVE: 56TH OUT OF 92
INCOME: 74TH OUT OF 151
BALANCED: 223RD OUT OF 355
GROWTH: 163RD OUT OF 236
AGGRESSIVE: 292ND OUT OF 395
Note to Questrade’s marketing department: your slogan should be changed to “You might retire with more or less money than the alternative, because really no one knows, because none of us can predict the future, BUT you will pay us less and also get no advice.” (Also: “Our managed portfolios are not in the top quartile for any of their categories, in fact four out of five are third quartile.”)
Point Eight: What The Argument Should Be About
Battling it out over cost is really a sign that you have little to no other value proposition, other than how low your fees are. In a world of absolute commodities, that is fine, but in the world of financial planning and advice it is actually detrimental to the consumer.
What's best for the consumer depends on that consumer’s needs:
You want to speculate: You’re best served by a zero-cost discount broker.
You want to invest in low-cost, single-ticket ETF portfolios: Again, a zero-cost discount brokerage is your best choice, using either Vanguard or iShares.
You want to make investing easy and you have no desire to DIY: Go to a robo.
You want to get advice on various, if not all, facets of your financial life: Go to an advisor.
Lost in all the DIY marketing and advisor cost bashing is the value of advice, which (as we noted earlier) is positive – and, more than that, is only responsible, on average, for less than half of the “over 2 percent fees” that the likes of Questrade keep quoting. (That is, the advisor’s fee is typically less than 1 percent, not “2 percent” as Questrade might lead you to believe.)
In fact, avoiding getting professional advice has its own cost, given all the things that can go wrong with one's financial life. Furthermore, on multiple occasions now I’ve seen DIY investors who are paralyzed by the terror of making the “wrong move,” but also cannot bring themselves to work with a professional capable of helping them – because everything they’ve read has focused on fees.
Vis-a-vis the Questrade ads, this cohort of people is legitimately worse off without an advisor – because instead of educating them on what real advice is and what its worth, the Questrade message is simply “hire an advisor and you’ll get hosed.”
Final Point: The High-Ground Fallacy
I understand that Questrade is trying to win business by stirring the pot.
The key problem I have is that their ads demonstrate a belief that they somehow occupy the moral high ground when the bottom line is: they don’t.
And the nonsense (and I used this word only because I’m not sure my compliance department would approved the alternate term, “BS”) in the above-noted ads only reinforces the idea that some of the presumed high ground is built on an edifice of logical fallacies, that in the case of clients who legitimately need help and would otherwise be open to it, might now not seek out said help due to the heightened aversion to cost created by said ads!
In the end, there is a place for the services of discount brokerages, just as there is a place for advice. The market should be as diverse as the needs of consumers.
My advice to Questrade brass, if they end up reading this: Cut the bull. Be honest. You want to target the advisors who are selling hamburgers marketed as steaks, go ahead.
But don’t go telling everyone that all steakhouses are only selling hamburgers. Cutting costs will get you so far, but in the long run when your only value proposition is price, you’re susceptible to being undercut – and losing the only value prop you have while simultaneously making your consumers averse to services that could make them better off.
30 percent wealthier, indeed!