Tips on
improving your advisor search
Those
investors who prefer the guidance of a knowledgeable advisor should follow
certain steps and ask certain questions. Working with an advisor doesn’t mean
following advice blindly. Rather it means finding somebody whose motivations
and knowledge you trust implicitly. That may be more descriptive of your
“dream” advisor. Finding such an individual is no easy task; and while I don’t
have all the answers, I hope to provide some insight into things you can do to
find that person.
This is a
critical first step. Before you know what type of advisor to look for, you have
to know what you need. The scope of financial advice is so broad. Hence, you’ll
do yourself a favour by first looking at your own situation to find out what
your need are. You don’t have to get too deep here. Simply put down on paper
the very things that concern you.
For
instance, if you’re concerned more with issues surrounding prudent retirement
planning and how to incorporate your pension plan with your savings, a
retirement planning expert is what you want.
If, on the
other hand, you’re an entrepreneur who has estate concerns, an accountant,
lawyer, or some other professional well-versed in taxes, trusts, and insurance
may be what you need.
A good way
to find a suitable advisor is to ask others. If you ask friends and
acquaintances, they should be trustworthy, have a similar net worth as you, and
ideally be pretty sharp with matters of money. If they’re happy with their
advisor, it doesn’t guarantee happiness for you, but it’s a much better start
than flipping through the yellow pages.
Alternately,
try asking an accountant or lawyer that you know for their opinion. Even if
they provide you with tax or estate planning services, a financial advisor
specializing in investment issues may still be required. Make sure you’re fully
aware if any referral fee arrangement exists between the professional referring
you, and the advisor, in addition to details of such an arrangement.
Any
recommendations you get from your local banker should be taken with a huge
grain of salt. Banks have their own full service brokerage subsidiaries (i.e.
TD Evergreen is owned by TD Bank). Hence, whenever a bank client requests or
requires services beyond the bank branch’s capability, they are required to
refer you to their own brokerage subsidiary.
The
Internet has a few good resources for screening advisors. Financial planning
associations do offer search engines to find member advisors in your area of
choice. The Financial Planning Standards Council – the organization that
licenses the Certified Financial Planner, or CFP, designation – offers a search
tool (http://www.cfp-ca.org/plannersdirectory.shtml)
for consumers. FPSC’s database contains only CFP licensees that have entered
their profile. For instance, I hold the designation but have never submitted my
profile so my name won’t show up; but most do and will. You can filter by
location and type of remuneration.
The
Canadian Association of Financial Planners (CAFP) has a slightly better web
search function (http://www.cafp.org/search/).
It only searches among its members, but further allows filters for areas of
specialization and professional designations (CFP or RFP).
By this
time, you should have a shortlist of a couple of names of advisors, so it’s
time to set up an introductory appointment with your shortlist of candidates.
Nearly everyone offers a free introductory meeting of 30 to 60 minutes. During
this first meeting, there are certain questions you should ask. The FPSC has a
list of ten questions to ask (http://www.cfp-ca.org/for_consumers/10_Questions.html)
a financial planner. Similarly, the CAFP has a list of questions (http://www.cafp.org/choose3.html)
to ask. While those questions should cover most things, there are a couple of
other items worthy of mention.
Anybody who
lists a dozen areas of specialization is probably full of baloney. You should
expect your advisor to have a solid, basic knowledge of all areas of financial
planning, but don’t expect more than one to three true areas of specialty.
Also, any advisor who says his services are “free” is probably full of
something else.
References
provided by an advisor may simply be a few of the advisor’s happiest and best
clients. Take the references, but be skeptical.
Finally,
ask to see a sample written plan. Whether it’s a plan focused on investment
recommendations or a comprehensive financial plan, any advisor who ordinarily
provides written plans to clients will have a generic sample handy.
Any advisor
worth your time should be candid with you regarding her method of compensation
and potential conflicts of interest. Check the sample written plan for a
disclosure of compensation section. This should lay out all of the relevant
details that pertain to that particular case. With mutual funds, the
recommended portfolio’s blended management expense ratio (MER) should be noted
– ideally in percentage and dollar terms. For insurance products being sold, a
disclosure on the commissions generated should also be clearly disclosed.
I have
worked with several quality advisors across Canada over the years. Also, having
been in a full time advisory role myself at one time, I understand both sides
(advisor and client) of this challenge. Many readers have e-mailed me asking
for advisor referrals. While my natural bias is to those individuals at my
employer, I also know (and am more than happy to refer) high quality advisors
at competing firms. My referrals don’t always fit, but they’re one more
resource you have.
Finding
your ideal financial or investment advisor is no easy task. Most advisors with
whom I’ve worked closely are competent and ethical professionals. Many others,
however, don’t deserve such kind words. This week’s article doesn’t provide all
the answers, but I hope it helps you get smarter at looking for your dream
advisor.
Some would
draw an analogy between searching for the right advisor and dating. As they
say, you must kiss a lot of frogs to find a prince.
Next
week: Good online resources for the
do-it-yourself investor.
Dan Hallett, B.Comm., CFP, CFA is Senior
Investment Analyst with Sterling Mutuals Inc. He can be reached at dhallett@sterlingmutuals.com Sterling Mutuals Inc. is registered as a
mutual fund dealer in Ontario, British Columbia, and Manitoba.