Why Canadian Investors don’t trust Financial Advisors anymore

In 2017, CBC published a story about Mike Black who said he felt "completely betrayed" after trusting RBC financial advisors to manage his life savings, earning well below market returns and paying over $30,000 in fees over 6 years.

Over the last decade, there have been countless stories like Mike and many Canadians have had enough of financial advisors that all too often prioritize revenue and fees over their financial needs.

With the advent of the internet many Canadians are dropping the advisor and doing their own research. In 2021, 43% of Canadians surveyed said they have never used a financial advisor and 25% said they were planning to or are seriously considering ditching their advisor.

What are financial advisors?

According to the Government of Canada website, a financial advisor is “a general term that can be applied to anybody who helps you manage your money. This could include an employee of your financial institution, a stock broker or an insurance agent.”

The term “financial advisor” is used broadly and doesn’t always mean that a person has specific qualifications, expertise or certifications. In fact, outside of Quebec, anyone can call themselves a “financial advisor” or “financial planner.”

Why Canadians don’t trust financial advisors anymore

Unfortunately, gone are the days of big banks putting in the work to get to know their clients on a personal level and build long lasting relationships (unless you’re a multi-millionaire) and as a result, many Canadians are losing trust. Here are two key reasons why:

1. Glorified salespeople

Did you know most financial professionals in Canada are licensed as salespeople with no fiduciary duty to their clients? In a report by the Small Investor Protection Association, they stated that 121,000 people are registered as financial professionals in Canada, but a majority of them are registered as dealing representatives — salespeople licensed to sell financial investments. Only about 4,000 of these registered financial professionals have a fiduciary duty, which is a legal obligation to act in the client's best interest.

As a result, the advisors core job is sales. A former investment manager with RBC said it best: “The game today is to earn clients' trust, and never let them know that you are actually a commissioned salesperson.”

As mentioned, we’ve seen case after case of Canadians experiencing the repercussions of blindly trusting financial advisors just because they work at reputable big banks and have fancy titles.

2. They’re expensive

Unsurprisingly if you’ve read this far, financial advisory is not free and often has a ton of fees - both upfront and hidden. Most common are management fees, baked into the mutual funds that the advisors push on you.

A 2021 Wealth Management Consumer Survey showed that 55% of investors believe they could do a better job of investing themselves by making decisions that yield better returns net of advisory fees. This is reflected in the fact that the number of new DIY brokerage accounts in Canada rose by 159% (over 2.3 million+ accounts) in 2020.

What Canadian investors are doing instead

In absence of financial advisors, some Canadians have turned to Robo-advisors like Wealthsimple while others have invested in building their own financial literacy, and taken their investments into their own hands. With the advent of the internet, it is easier than ever to find information but it’s still important to be cautious, not all information is created equal.

That’s why we built Blossom - a community exclusively for Canadian investors to share investing knowledge, backed up by verified portfolios and trades. If you want to become a better investor, there’s no better place to do so than Blossom!

Not sure where to start? Check out our last blog post on the most popular 2022 stocks among Canadian Investors.

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