Advice on how to find a good adviser

By Helen Burnett
Globe Investor magazine online, March 19, 2008

When it comes to managing investments, many people may prefer working with a financial adviser because of factors like time or self-discipline.

But a survey late last year by Ipsos Reid on behalf of investorED.ca and the Investor Education Fund noted that although six in 10 Ontarians have investments, 40 per cent of theoe investors don’t have a financial adviser.

And of those who have investments and an adviser, 25 per cent say that they don't ask many questions of their advisers, citing a lack of confidence or knowledge, and 13 per cent speak with their adviser or broker about their portfolio less than once a year or never.

While financial advisers can help investors achieve balance, Gail Bebee, author of No Hype – The Straight Goods on Investing Your Money (www.nohypeinvesting.com), says there are several tips for other industry outsiders to consider when working with an adviser, as well as some points to keep in mind if you decide to go it alone.

What are your expectations?

Choosing an adviser is like shopping for a major purchase, says Ms. Bebee, and if you decide to select one, you need to establish up front what you expect your adviser to do for you.

“You need to really decide what you need, write down a list of questions," she says. "Talk to friends and look at the Advocis website, which is the trade association for the financial planners."

Interviewing a planner is also a good idea, to see if he or she fits what you’re after, she adds.

Ideally, Ms. Bebee says, she looks for advisers with at least five years of experience, and finds an accounting designation useful in an adviser, in terms of advice on special tax treatment for dividends or some of the more sophisticated tax treatments available, or an insurance designation for investors who might also be looking for an annuity.

“You’ve really got to pick the adviser for your particular needs. There are a lot of designations out there besides the very basic one of meeting the securities commission requirements,” she says.

Negotiate with your adviser

After you pick an adviser, Ms. Bebee suggests you negotiate your business agreement, fees and expectations upfront, such as requesting that he or she develop an investment plan for you, make recommendations on specific investments you should buy and sell, provide periodic education and call you when there are big, unexpected movements in the stock market, for example.

“When it was announced that Bell was going to be sold off, any adviser worth his or her salt should have had some kind of communication out to their client saying, 'Here it is, here’s what’s happening, here’s what we’re going to do now,'” she says. “If you don’t get that, then that’s a sign of an adviser who’s really not taking care of their clients.”

Ideally, advisers should be contacting clients periodically and meeting with them quarterly, she says. An adviser can also add some value if he or she has software to provide clients with their actual annual return rate, says Ms. Bebee.

Be familiar with remuneration

Some mutual funds offer trailer fees to advisers, which is part of their compensation, says Ms. Bebee, and some investors may not be aware of this.

“From my experience, previously when I had a financial adviser, I was never aware of that,” she says. “With some honesty in how they’re compensated, then you can have, I think, a better relationship with the financial adviser, and so you know how much they’re receiving.”

In Ms. Bebee’s opinion, paying upfront or a fee for independent advice, rather than based on a percentage, is the best approach.

Know yourself as an investor

For those who might be considering managing their own portfolios, it is essential to know that this is something you will be interested in doing on an ongoing basis, she says.

“Are you really going to stick to it, keep current on the economy, investing, what your stocks, bonds, mutual funds -- whatever you buy -- are doing,” she says.

Part of this is having the self-discipline to review and decide if you’re going to buy or sell and do it when you should.

“That’s where financial advisers can help people, especially people who are procrastinators or people who get busy doing other stuff,” she says.

One role of an adviser in a lot of cases is to balance to make sure you don’t end up with too much of one particular kind of asset in your portfolio, because you’ve had a great run on something, she says.

When you are acting as your own adviser, you may also be tempted to trade too much, says Ms. Bebee, and it’s best to focus on a specific investment plan. In terms of stocks, it is also essential to know how the buying and selling system works, and some discount brokers run seminars in this regard, she notes.

Special to The Globe and Mail