1. How do you know if your Financial Advisor is doing a good job?
- You hear from him/her on a regular basis. It may be written communication such as a newsletter or email, a phone call or a meeting. When you reach out, you are responded to promptly.
- You are listened to and feel “heard”. Your concerns are addressed and your questions are answered without jargon or confusion.
- He or she doesn’t try and talk you into more risk when what you really want is security. Instead, he or she helps you choose the appropriate amount of risk based on your goals, income needs, age and comfort level.
- You know what you are paying and what services you are receiving for the fee.
- You have a comprehensive financial plan so you can see how the investments fit into the big picture.
- Your portfolio is growing at an acceptable rate to you. (See question #5 below)
2. What does discretionary mean?
Discretionary means that the Portfolio Manager has the discretion to place trades without contacting clients first to gain approval.
3. Are all advisors discretionary licensed?
No. To become discretionary licensed and earn the title of Portfolio Manager the following criteria must be met:
- Must have a minimum number of Assets Under Management.
- Must be an experienced Investment Advisor.
- Have successfully completed the educational courses to earn the designation of Chartered Investment Manager (CIM).
- Have a clean record with the Investment Regulatory Committee that enforces Investment Advisor’s conduct (IIROC).
- Have made a formal application which has to be approved by the Branch , Regional and National Managers of RBC Dominion Securities and by IIROC.
4. What are the benefits of working with a discretionary Portfolio Manager?
- We eliminate the decision making for you so you can focus on the multitude of other decisions you have to make in a day!
- We are closely monitoring the market and can capitalize on opportunities and make changes quickly and efficiently across all accounts at once.
- There is a strong risk management focus. A Portfolio Risk Advisor in Toronto monitors trading activity and ensures that all discretionary risk management guidelines are adhered to.
- Your portfolio is rebalanced quarterly. A very difficult and time consuming task for non-discretionary advisors.
5. What kind of return can I expect for my portfolio?
On average, historical equity returns have fallen in the 7-10% range whereas fixed income returns 3-5%. Therefore the greater the equity weight in the portfolio, the closer you will be to the 7-10% average range. Conversely, the lower the equity weight, the closer you will be to the 3-5% average return. Assuming a balanced portfolio of 55% equity and 45% fixed income and cash, the historical return from January 1990 to December 2019 was 8%. Given the low interest rate environment we are now in, the long term forecast (5 to 10 year horizon, before fees) is 5.1%.
6. What questions should I ask when interviewing a potential advisor?
- What do you charge for your services? Can you give me a complete breakdown of your fees?
- What services can I expect for your fee?
- How long have you been managing money?
- How much money do you manage?
- How often do you rebalance portfolios?
- Can you explain your investment process?
- Will I be involved in investment decisions?
- How often will I hear from you?
- Do you have a minimum portfolio?
- What are your credentials?
7. What questions should I be prepared to answer when a potential advisor is considering taking me on as a client?
- Do you want to be involved in the selection of investments?
- Are you a buy and hold investor?
- How often do you want to hear from your advisor?
- What did you like/dislike about your previous advisor?
- How much money do you have to invest?
- To reduce portfolio fees, which are based on a percentage of holdings, would you be willing to consolidate all of your investment accounts with a single institution? If not, why not?
- What services are you looking for?
- What are you currently paying in investment management fees?
- What is your current overall asset allocation?
- What do you expect your portfolio to return?