An interview with a wealth manager: Five questions to ask your advisor and the answers you want (or don’t want) to hear

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Published: February 5, 2024

Your financial advisor is a bit like your family doctor, only instead of helping you achieve good physical health for a long, happy life, a financial advisor helps you ensure financial fitness for the long term.
As with looking for a good physician, it helps when seeking a financial advisor to ask a few questions to see if they’re the right fit.
Here are five questions to determine if a financial professional, along with the answers you likely want—or don’t want—to hear.

 

What are your qualifications?

Anyone can call themselves a ‘financial advisor’ but professional designations and licensing separate the wheat from the chaff. First and foremost, ask about registration. To provide investment advice in Canada, you must be registered with a provincial or self-regulatory organization. Previously, investment advisors were mandated to be registered with the Mutual Fund Dealers Association of Canada (MFDA), the Investment Industry Regulatory Organization of Canada (IIROC), or as a Portfolio Manager (PM) with a provincial securities regulator under the Canadian Securities Association (CSA), while holding either the Chartered Financial Analyst (CFA) or Chartered Investment Manager (CIM) designations. However, it is worth noting that in 2023, the IIROC and MFDA amalgamated and re-emerged as the Canadian Investment Regulatory Organization (CIRO). Some advisors are also Certified Financial Planners (CFP), a widely recognized designation focused on financial planning, not investing specifically. What you don’t want to hear is that an individual is not registered or lacks certifications like those cited above.

 

What services can you provide?

Professionals in the industry can offer a variety of services. CFPs typically provide retirement planning services, while investment advisors provide advice regarding stocks, bonds and funds. Portfolio Managers offer proactive investment management of a portfolio of stocks, bonds and other assets. Yet, unlike other investment advisors, who must confer with clients before buying or selling an investment on their behalf, Portfolio Managers offer discretionary investment management. What we’ve found is this leads to more active rebalancing and allocations as the PM doesn’t need to seek instructions from clients, which can be very time-consuming and intrusive to the client. They are able to buy and sell securities in a portfolio that follows the documented instructions laid out in the Investment Policy Statement (IPS). Portfolio management is considered the gold standard for investment services, given these advisors have a fiduciary duty. In contrast, other investment managers are held to a less stringent legal standard where investments they recommend must be suitable for clients’ needs. PMs are legally bound to act in the best interest of their clients and provide transparency around fees, commissions, and any conflicts of interest. So what answer do you not want to hear to the question: ‘What services can you provide?’ Offering access to strategies that sound like get-rich-quick schemes offering high returns over short periods with little risk should have you running for the exits.

 

What is your track record?

This question is often more important for professionals providing investment advice and portfolio management. Most advisors run similar strategies for clients based on time horizons to goals like retirement, and so they should be able to show you a track record of a portfolio they’ve managed that aligns closely with your needs. Some PMs and advisors may select stocks and bonds, among other individual securities for portfolios, but many now use managed solutions— ETFs, funds and fund of funds–with long track records of performance. What you want to see is a performance history extending beyond two years. The longer the performance history you can see, the better sense you have of how their advice holds up in good markets and, more importantly, bad ones. Again, you do not want to hear from an advisor an answer that creates fog to the point where you are unsure of the true picture of their investment prowess, be it over two years or more than a decade. Additionally, it’s important to understand how they manage investment risk alongside generating return performance.

 

Can you provide client references?

It can be helpful to get the perspective of clients who have worked with an advisor, and good advisors should have references on hand for you to contact. These individuals may provide insight about how an advisor may serve your needs. Although not foolproof, references offer an extra layer of assurance when you’re close to finding an advisor you like. Obviously, an advisor who is reluctant to provide references or who has none to offer may be a professional to think twice about giving your money. Ask about the client experience as well as the performance, as both matter equally.

 

What value-added services can you provide?

While many investment advisors offer just that–investment advice–they should typically provide so much more. That’s particularly true for those advisors providing portfolios that are “managed solutions”—like all-in-one fund of funds—in which their investment duties are vetting and recommending that fund-based solution. These professionals should also offer other financial, tax and estate planning services. Although they may not be experts in each field, they should be able to build, for example, a retirement plan and an investment portfolio that addresses other concerns like tax efficiency and estate plans. Where they’re unable to provide expertise, they should have relationships with trusted professionals, like a lawyer for estate needs, that they can recommend. Of course, one answer to the aforementioned question you don’t want to hear is that the advisor can only address one aspect of your financial needs. Today’s advisors should indeed be multifaceted in the assistance they can provide.

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