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money talk

When you ask prospective portfolio managers for references, follow through and check them out, recommends Brian Smith, vice-president and portfolio manager at Fit Private Investment Counsel Inc. in Toronto.Matthew Sherwood/The Globe and Mail

Thinking of investing your hard-earned money with a wealth manager? Here are some tips to help you make the most of this relationship.

Do your due diligence

Getting good results from managed investments starts with the right wealth manager. As a first step in choosing a manager, check the fundamentals, such as credentials and registration, with the appropriate regulatory bodies, says Brian Smith, vice-president and portfolio manager at Fit Private Investment Counsel Inc. in Toronto.

To do due diligence on a portfolio manager, Mr. Smith recommends investors visit the website of their province's securities commission. These sites identify investment managers or advisers who are registered, and therefore authorized, to provide investment advice and sell securities and mutual funds in the province.

They also list companies, managers, advisers and companies who have been disciplined by the industry's regulatory body or are on a warning list. The latter is typically a compilation of companies or individuals who have been reported as soliciting investments without having the appropriate registration in place.

It's also a good idea to ask a prospective wealth manager for references and to actually follow through with these reference checks.

Find the right fit

Craig Ellis, head of portfolio management and private investment management at HSBC Bank Canada, says investors need to make sure they feel comfortable with the person they're looking to entrust with their money. That's why they need to pay close attention during their first meeting with a prospective wealth manager.

"Sometimes advisers do a bit too much talking," says Mr. Ellis, who is based in Toronto. "Look for a manager who asks a lot of open-ended questions and who really takes the time to understand your objectives and your level of risk tolerance."

Chemistry is critical in a wealth management relationship, Mr. Ellis says.

"After you've looked at an adviser's level of education and experience, it really comes down to a personal connection because this is a relationship that is based on confidence and trust," he says. "The best wealth management relationships are, ultimately, the ones where the client has placed a level of confidence in the adviser."

John Nicola, chairman and CEO of Nicola Wealth Management in Vancouver, says it's also important to make sure a wealth management firm can invest in a way that's compatible with an investor's personal values. For instance, Mr. Nicola says, his company has clients who don't want their money invested in fast-food or cigarette companies.

"For these clients, we make a list of companies that we know meet their criteria, and then we ask them to approve the list," he says. "They can't get into our pooled funds because those funds include one or two names that are not acceptable to them, but we can customize their portfolio to reconcile with their social responsibility-related goals."

Wealth managers often need to work with a client's lawyer and accountant; find a manager who works well with other professionals, Mr. Smith adds.

Make sure there's a clear plan

Mr. Nicola says a wealth management strategy needs to include a comprehensive financial plan that includes an up-to-date picture of the client's net worth, a current estate plan, an idea of what retirement will look like for the investor, and cash-flow projections.

This plan should be as detailed as possible, Mr. Nicola says. His company, for instance, creates a will diagram that outlines how a client's estate will be divided and how much taxes will need to be paid out of the estate.

This financial plan, which should be updated once a year, should drive investment decisions, Mr. Nicola says. "The investment plan needs to support the financial plan – not the other way around."

Investors can help ensure this financial plan is as complete and accurate as possible by providing their wealth manager with information in a timely manner, Mr. Nicola says. Significant life changes – such as a divorce or an unplanned decision to take early retirement – should immediately trigger a phone call or e-mail to their wealth manager, he says.

Do your bit

While wealth management relationships allow clients to take a more hands-off approach to investing, they still need to do their part to ensure their financial plan is on track, the experts say.

"In our meetings with clients, we'll often come away with a list of things that we need to do and that the client needs to do, like set up a TFSA (tax-free savings account), or contact their lawyer to have their will reviewed and updated," Mr. Nicola says. "It's important that the client do the things on their action list."

Investment and wealth managers typically send their clients quarterly and annual statements. Some also provide online access to accounts.

Investors should take the time to read their statements and to get in touch with their manager with any questions they may have, says Francis D'Andrade, a vice-president who works with Mr. Smith at Fit Private Investment Counsel.

"You should always feel comfortable about asking your portfolio manager questions," he says. "If you're not, then you probably don't have the right manager."

Take a long-term view

Effective wealth management is, in general, based on a long-term approach to investing. Mr. Ellis says it's important for investors to stay the course.

"The reality is we have a very low-interest environment today and some investments are not overly attractive from a return standpoint," he says. "That's why it's important to have an adviser who can keep you focused on the long-term plan and where you're heading."

Having chosen to work with a wealth manager, investors need to give their manager the "flexibility and space to help them," Mr. Ellis says.

"Sometimes the client can be their own worst enemy in the sense that they get emotionally tied to their investments," he says. "A good adviser can really help during these trying times."

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