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Choosing the right investment advisor starts with knowing yourself

by Wayne Cheveldayoff, 2004-03-11

Choosing the right investment advisor can mean the difference between having a successful, profitable portfolio and a string of unfortunate disappointments.

Investment advisors are not all alike and choosing one is somewhat similar to buying a vehicle in that what you drive depends on your needs and preferences.

It’s really the same with getting investment advice. It works best if you first determine what you need and then find the advisor that’s right for you. In other words, why buy a truck when what you really need is a compact car?

Finding the right advisor means shopping around and interviewing at least three from different firms.

If you already have an advisor, you should periodically do a reality check to make sure his or her approach still fits your needs. It’s advisable every few years to interview two or three other advisors to assess their suitability versus what you already have. As you change and your portfolio grows, it may be advisable to switch.

“Know yourself” was at the top of the list of tips for finding an investment advisor published recently by the Canadian Securities Administrators, a council of 13 securities regulators of Canada’s provinces and territories. A copy of the CSA brochure, ‘Choosing Your Advisors’, is available on the CSA website at

While this call for introspection was defined as understanding your financial goals and risk tolerance, it applies equally to knowing how much you want to be involved in the investment process.

If, for instance, you judge yourself as not having the knowledge, time or inclination to be involved in picking stocks, you don’t want an advisor who focuses on this and calls you up frequently to get your approval to buy or sell a particular stock.

On the other hand, if you do want to be more involved in picking securities, an advisor who offers only mutual funds and GICs is not going to be satisfactory, as you would need an advisor who can trade stocks and bonds as well.

Some just starting out with investing may not have a good grasp of their needs. This is where seeing several advisors would help. By doing some reading and going into meetings with advisors and asking all kinds of questions, the right path will emerge.

Among the questions should be: How do you see us working together? What would be a typical portfolio for your clients with the amount of assets I have? How often would we meet to review it? What securities can you offer? Are you able to offer mutual funds from all the different fund companies? What approach do you take on compensation? What kind of information do you have on ways to save income taxes?

It would be wise to educate yourself on the different commission systems employed by advisors. Learn all you can so that you can properly assess what is being proposed.

Also, be cautious if an advisor suggests you borrow money to invest. It could work out if you are lucky, but the motivation for this advice may have more to do with the commissions that will be earned by the advisor.

Before widespread access to the Internet, advisors could dazzle investors with printouts showing how much their assets could grow to, assuming a certain rate of return. However, this kind of information is widely accessible now using planning tools on financial websites.

You don’t need an advisor for this kind of number crunching. Rather, the true value of an advisor rests with portfolio management – making sure your assets grow as much as possible over time within your risk parameters and time horizon.

Once you decide on the type of advisor you need, how do you know – taking the vehicle analogy a step further – you won’t end up with a ‘lemon’?

This can be handled in several different ways. In your search for an advisor, you could ask friends and workplace colleagues for those they would strongly recommend. But use this as a starting point. Don’t feel obligated to go with one of these if it doesn’t feel right.

If you know the type of financial firm you want to deal with, you could call up the branch manager and ask for his or her recommendation of who would be suitable for your specific situation. You may also want to ask for someone who has at least three years of experience and has not had any accusations of wrongdoing, disciplinary charges or law suits. Getting someone with experience is no guarantee of success but it lowers the chances of getting bad or inappropriate advice.

The larger firms are usually pretty demanding of their advisors and make sure they comply with rules and standards. If the investment firm is small, you may want to confirm with provincial regulators that the advisor is registered to practice and is in good standing or that there are no disciplinary charges against them.

You should also inquire about courses taken and certifications. Anyone can call themselves an investment advisor. But there is a better chance that someone with a Certified Financial Planner designation or who has passed the Professional Financial Planning Course will be more knowledgeable and less likely to make mistakes.

In all cases, you should ask for three references from among existing clients. If the advisor has a good relationship with his or her clients, this shouldn’t difficult for them to arrange. If the advisor can’t or won’t provide references, it is a warning flag.

Financial firms tell their advisors that ‘trust’ is extremely important in winning and keeping clients. Make sure any advisor you have or choose deserves your trust.

Wayne Cheveldayoff is a former investment advisor and professional financial planner. He is currently specializing in financial communications and investor relations at Wertheim + Co. in Toronto. His columns are archived at and he can be contacted at

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©2004 Wayne Cheveldayoff