Wealth manager questions the often-quoted 7% return
A number that is frequently quoted by financial advisors has been questioned in a new report.
According to a survey by Hennick Wealth Managers, Canadian investors are often promised returns of 7% or better by their FA and most investors are happy with that.
But investment advisor Adam Hennick says most FAs do not beat the market – especially given the kind of volatility seen in recent months which challenged returns for investors and Canadian investment plans.
“Almost everyone who comes to me from another advisor or who I discuss finances with consistently says they are getting a 7% return … and 7% is well known as a safe number in the industry," said Hennick. "It's simply not possible that so many advisors are beating the market at the same magical rate."
The survey shows that 49% of Canadian investors said that their advisor had told them or showed them their rate of return but that only 38% have checked for themselves; 13% don’t check.
While 28% of investors ask for quarterly updates, 26% said they only check their returns annually, 19% every six months. Just 11% ask for monthly updates from their FA.
What if investors don’t get 7%?
"Maybe Canadian investors are too comfortable," added Hennick. "It's your money, you should ask more questions about how much you are earning and be completely comfortable that you fully understand the answer."
His comments tally with those of several experts who say that investors should ensure they are asking the right questions when investing in hedge funds.
Hennick said that 7% is a safe number because it doesn’t seem too much or too little to be quoting.
And if investors don’t get 7%, few would change FA; 65% said that was not very likely or not likely at all.
"Not everyone is going to get a 7% or better return and high returns take time and the right advisor," added Hennick. "The point is to make sure you are getting what you think you are whether that return is good, bad or ugly."
The survey also found that 55% of investors believe that their investments are doing the same as those held by their friends and family, 24% think they are doing better, and 21% think they are doing worse.
