Finding the Right Financial Advisor

July 18, 2011

By Heather Compton & Dennis Blas

The Importance of Money Mentors

Financial AdvisorThe latest TD Waterhouse “Canadians and Retirement Report” reconfirms what many earlier surveys have found – Canadians who are getting help and support from financial advisors feel more confident about their retirement savings and overall financial outlook.

Patricia Lovett-Reid, senior vice-president, TD Waterhouse states “The good news is that Canadians are not only aware of the need to plan, but they’re taking the right steps to get there.”

Cynics are bound to point out that these studies are invariably sponsored by the advisory firms that offer the advice. That’s true enough…but from my own years in the investment business I saw for myself the comfort and confidence clients gained from having someone in the ‘know’ direct, monitor and confirm their progress or gently steer them back on track when they moved off course.

Do Your Research to Find the Right Financial Advisor

So if “advised clients” feel more comfortable and are more confident – how then does one find a competent advisor?

First be prepared to do some research. I swear most people spend more time researching the features they want in their high definition television than they do interviewing the people who will watch over the family fortune.

Investment products are available everywhere, you can do your own research and purchase them through discount brokerages, stop in at your bank branch or go on-line plus any number of investment salespeople will be happy to take your money. Buying investments isn’t the challenge – it’s finding someone who marries that purchase to a plan, with the plan preceding the purchase.

Speak My Language!

The key to being an “advised client” is an advisor who focuses on building relationships and providing “whole picture” advice. That means a financial plan that they can communicate to you – in plain language. If you didn’t understand a word your advisor said in your last meeting you have the wrong advisor.

It’s important they understand your situation and goals, and recommend investments that fit those goals, while regularly monitoring the plan to keep you engaged and on track. Monitoring includes clearly and regularly reporting your investment returns. If the advisor you are considering leads the conversation with an investment pitch, pick up your purse or hang on to your wallet and run.

No Free Lunches

The challenge – understanding your needs takes time and likely more than one conversation before you will leave the family fortune in their hands and if you have a bigger wallet an advisor is better rewarded than investing that time with someone in a lower snack bracket. I know – it’s not polite to talk that way. Some advisors will charge clients for the planning process and some provide it as part of their service offering. Inquire upfront, first that they offer planning services, second the cost; and third, do they have a minimum size account they will accept?

And while we are doing the asking, how are they paid on any products they will sell you to put the plan in place? Will you need to sell any of your present holdings or can you transfer them “in kind”? Is there a fee to transfer your accounts to them and are they prepared to cover those fees? How often will they be in touch with you? Face to face? How do they report investment returns? How often will you receive a statement? How many clients do they manage and what is their average account size?

I don’t want to be just one among a cast of thousands, nor do I wish to be their smallest or their biggest account. Have them describe their typical clients.

Often financial writers who haven’t been active in the investment business tell readers to hire a “fee for service” financial planner and pay for the planning, and then go to someone else who can enact the plan.  It’s a nice idea but there aren’t many planners earning their living strictly from creating plans who truly operate at arms-length from those enacting the plan.

Advisors generally earn the bulk of their income from the investment side, not the planning side. Planning is what brings the clients to the door.

Financial Advisor Qualifications

Shop for an advisor with some “alphabet soup”, in other words a professional designation related to the industry after their name. Frankly the particular alphabet soup isn’t as important as the fact they have some – it shows they have invested and continue to invest in their own education and professionalism. Ask what their designation means to you.

Ask friends, family and co-workers who they deal with and if they are happy with their experience. Especially ask those whose financial savvy you admire. Take investment courses offered in your community, you’ll be a more informed consumer plus they are regularly taught by local investment professionals looking to expand their client base. That lets you try before you buy!

Pick the Right Advisor For You

Advisors come in several flavours – some may be insurance-industry licensed (LLQP Life License Qualification Program), some are licensed under the MFDA (Mutual Funds Dealers Association), others are licensed by IIROC (Investment Industry Regulatory Organization of Canada ). Their licensing determines what products they are licensed to sell and that will tell you something about their investment biases and their training.

Oh yes – do ask how long they have been in the industry. Even rookies need to learn but I would really rather they were practising with someone else’s money!

About the Authors: Heather Compton has presented seminars on financial and retirement lifestyle issues for over 30 years. She retired as Vice President and Senior Investment Advisor with a major financial services company. Heather and husband Dennis Blas co-present retirement seminars for a variety of corporate clients and are the co-authors of Retirement Rocks! Canadian Boomers Invest in Life. You can find their book online or in independent bookstores. See more of their advice at Retirement Rocks.

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