7 important questions
Choosing an investment advisor is one of the most important financial decisions you will ever make. Before entering into any partnership, ask the following questions, and make sure you are comfortable with the answers.
1. How are you accredited or registered?
Ask your prospective advisor how they are registered, and the range of services, products and advice they are qualified to provide. The investment firm they are employed by should be a member of the Investment Industry Regulatory Organization of Canada (IIROC), which regulates all investment dealers in Canada. IIROC monitors and enforces rules regarding the proficiency, business and financial conduct of these firms and their advisors.
Is he/she registered as an Investment Advisor or Portfolio Manager? Or both? A Portfolio Manager designation requires more rigorous study and higher industry qualifications. A Portfolio Manager will manage your portfolio on a discretionary basis, following a set of rules outlined in your Investment Policy Statement. A discretionary solution saves you time and allows you to focus on those things that matter the most to you (whether it's running your business, focusing on your family or travelling in your retirement).
2. How are you compensated?
Many advisors are paid by commission for the products they recommend, while others receive a salary or a flat annual fee. Find out how your advisor is compensated, how much the services will cost, what choices you have to pay them and what can you expect to receive in return.
3. What is your experience?
Your advisor should be forthcoming about their direct industry experience, professional qualifications, memberships and education. Does she/he have the depth and breadth of experience to see your investments through all types of market environments? Has she/he gone through tough bear markets and good bull markets? This leads to the next question, what clients do they serve? Does she/he work with clients with similar complex needs like yours? Does she/he have the experience and resources to help you get the best and unbiased solutions possible?
4. What clients do you serve?
Ask whether your potential advisor specializes in any particular client group, such as business owners/entrepreneurs, medical professionals or retirees? Do they work with families on their multi-generational wealth planning? Ask what portfolio sizes they manage (and determine if your portfolio is about that same level? Someone managing money at the mass market level may not be the right advisor for a high net worth family).
5. What kinds of products and services can you provide?
Ask if your advisor is limited to certain investments: proprietory products offered by their firm, GICs or mutual funds or if you can draw on a greater range of investment products. Make sure you ask about your advisor's access to investment research, portfolio strategy teams (locally and globally) and risk management groups. Find out if your advisor focuses on investment solutions only or can also provide additional services that may help you achieve your financial goals such as financial planning, tax planning retirement planning and estate planning services.
6. How will you help me reach my goals?
Your advisor should ask you to outline what you hope to gain - for example, preserving income, building wealth, retiring comfortably, - and can guide you if your expectations are unrealistic. Your advisor may also draw on value-added services such as financial, tax, or estates planning to ensure that your ongoing wealth needs (in addition to investments) are in sync with the rest of your affairs.
Also, it is critical to have a written Investment Policy Statement and a written financial plan with your advisor. These documents require a thorough understanding of your wealth and your investor profile (tolerance for risk) so that your plan reflects your unique objectives and more importantly, gives you the confidence to act in your own long-term best interests, knowing you have a plan in place.
Ask about your advisor's investment process, and how they create and manage your portfolio. Is each portfolio custom-crafted or is the advisor following a set of established models? Is your advisor making the final investment decisions and if so, how does she/he do that? Confirm that you are comfortable with this process.
7. What kind of service will I receive?
Your advisor should clarify at the outset the level of service you can expect. This includes how often you will meet to review your progress; how often your advisor will update you on portfolio performance; and what sort of contact and communication you can expect from your advisory team.
Will you be dealing directly with the advisor or the advisor's assistant/associate? Is your advisor too busy to answer your calls/emails? How quickly should you expect a callback? Ask how many clients they serve.
As you search for the right advisor, please don't hesitate to ask any questions that help you feel more confident in the management of your wealth.