The quest for the perfect advisor
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.
Assess your needs
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.
Ask for a referral
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.
Search the web
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 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 . It only searches among its members, but further allows filters for areas of specialization and professional designations (CFP or RFP).
Get a short list and start interviewing
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 a financial planner. Similarly, the CAFP has a list of questions 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 sceptical.
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 (MAR) 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, CFA, CFP is the President of Dan Hallett & Associates Inc. in Windsor Ontario. DH&A is registered as Investment Counsel in Ontario and provides independent investment research to financial advisors. He can be reached at firstname.lastname@example.org
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