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(Bill Grimshaw)
(Bill Grimshaw)

Investing

Do your legwork before hiring an adviser Add to ...

There's a kind of investment risk that is statistically very rare, but crushing if it happens to you.

It's called adviser risk and, thanks to coverage of the scheme allegedly perpetrated by Montreal financial adviser Earl Jones, we have a horrifying view of what it means. As much as $30-million to $50-million belonging to Mr. Jones's clients, many of them seniors, has allegedly disappeared. Some victims are looking at having to sell their homes, while others have had to rely on food banks to get by.

I've been writing about personal finance and investing for more than a decade and I can tell you with confidence that there's no justification for regarding all advisers as potential thieves. Some advisers are sterling professionals, some are just sellers of investments and a few are out to make money for themselves, first and foremost. In all but the rarest of cases, you will not see your savings disappear if you're their client.

And yet, the Jones case reminds us that adviser risk has to be addressed. For that, you need to do a background check on anyone providing you with investment advice.

Your goal: Know about your adviser, know about his or her firm and know what investments they're allowed to sell by regulators.

Start by talking to the adviser about her background, training and credentials. Do not be fooled by generic, meaningless titles like wealth adviser or financial consultant. What you're looking for are serious professional designations such as Certified Financial Planner (CFP), Registered Financial Planner (RFP), Canadian Investment Manager (CIM) or the premium Chartered Financial Analyst (CFA). For an explanation of what all the major designations mean, set your web browser to theglobeandmail.com/news/opinions/columnists/rob-carrick and check out my Portfolio Strategy column posted on June 2.

A defining characteristic of the con artist is the ability to fool people. That's why your next step should be to verify an adviser's legitimacy on your own.

You can do this part of your background check on the Internet or by phone. Start with your provincial securities commission, where you'll check to make sure an adviser is properly registered.

In Ontario, for example, anyone selling securities or who advises on investments must be registered with regulators.

To check this, go to the "registrant search" page on the Ontario Securities Commission website and type in an adviser's last name.

If the adviser is registered with the OSC, her name will come up along with that of her firm. Next, click on the adviser's name to find out whether she's a mutual fund dealer, selling just mutual funds to clients, or if she's an investment dealer and can sell stocks, bonds and exchange-traded funds as well.

Other categories include limited market dealer, which usually refers to the sale of products like hedge funds to high-net-worth individuals, and portfolio manager/investment counsel, which means investment management for higher net worth individuals.

You can also run a search on the adviser's firm. For both the firm and the individual adviser, you should be able to find out if any terms and conditions have been applied to their registration.

To see if an adviser has been disciplined by regulators, check the websites of provincial securities regulators as well as the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada, which covers fund dealers.

If you're not sure which of these organizations regulates your adviser and her firm, check them all.

For investors who are dealing with one of the 17,500 advisers who hold a CFP, one additional way to verify credentials is to check with the Financial Planners Standards Council, which administers the CFP designation. The FPSC website has a search engine that allows users to find out if an adviser is in good standing with the organization.

A final catch-all measure to check up on an adviser is to run a Google search. You never know what you'll find when you do this - notices from regulators concerning the adviser, or maybe examples of her offering intelligent quotes to the media.

When conducting a background check, be especially wary of advisers who do not work with an established firm.

And, no, Mr. Jones and his firm were not registered with Quebec's investment regulatory body, L'Autorité des marchés financiers, or IIROC.

None of the allegations against Mr. Jones have been proved in court.

CHECKLIST

Here are some resources to help you check on the background of an investment adviser.

To ensure an adviser is properly registered check with provincial securities commissions;

On the Web: securities-administrators.ca/investortools.aspx?id=90

To check to see if an adviser has been disciplined by regulators, check with provincial securities commissions, the Investment Industry Regulatory Organization of Canada, the Mutual Fund Dealers Association of Canada.

On the Web: securities-administrators.ca/investortools.aspx?id=90

www.iiroc.ca/English/Investors/MembInfoService/DisciplinarySearch/Pages/default.aspx

mfda.ca/enforcement/hearingscurrent.html

mfda.ca/enforcement/hearingscomplete.html

To check to see if a financial planner with a CFP designation is in good standing check with the Financial Planners Standards Council.

On the Web: fpsccanada.org/good_standing

To check to see if an adviser's firm is supervised by regulators, check with IIROC or the MFDA.

On the Web: mfda.ca/members/members.html

www.iiroc.ca/English/About/OurRole/Pages/DealersWeRegulate.aspx

Follow on Twitter: @rcarrick

 

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