For the last two months, we’ve been going over a set of questions that investors should consider asking a potential new advisor when they’re thinking of making a move from their current one. Studies show that about 10% of investors are currently preparing to make that switch. It’s a big move and one that shouldn’t be taken lightly and certainly not rushed.

To that end, here are some of the questions we’ve offered, followed by potential answers:

General background

Tell me about yourself. How long have you been a financial advisor?

It’s a tough business and you’re looking for someone with the ability to work through market ups and downs. Look for an advisor with a minimum of five years’ experience at a reputable firm.

What did you do before you became a financial advisor? What made you decide to pursue this as a career?

An advisor’s passion for working with people and their money is key. Listen carefully to their motives and their vocabulary will tell you how focused they are on their clients’ interests ahead of theirs.

What kind of qualifications do you have? Tell me more about those qualifications. What do you typically do each year to stay current?

A committed advisor is continually upgrading their skills through complementary studies and continuing education requirements. Every advisor must have, at the very minimum, successfully completed the Canadian Securities Course followed by the Conduct and practices Handbook Course. Thereafter, expect to hear the names of several other courses such as Wealth Management Essentials, Investment Management Techniques, Portfolio Management Techniques, and Derivatives Fundamentals Course.

General approach

Do you typically complete financial plans for clients like me? What would be covered in this plan? What would the process be to develop this plan?

Expect an extended answer to this question that focuses on what you want. In Quebec, only a financial planner registered with the Institut québecois de planification financière can offer and charge you for a plan. It’s a detailed process that may take several weeks and typically provides a roadmap for your financial future, including investment projections based on your objectives, ideas on handling risk and protection with insurance, and future cash flow needs. A good, solid plan is invaluable because it helps investors stay on track.

Investment philosophy and your portfolio

What’s your investment philosophy and process? In your experience, how is this different from other advisors?

Here you’re looking for how your money will be invested, both inside and outside a registered plan. Preferably the answer is balanced, that is, giving information from which you can learn without technical jargon. It’s important you understand and like what you hear because a disciplined approach will help you through tough times. If you prefer low risk and conservative returns, then you won’t be thrilled hearing about high returns involving risk. Finally, there’s nothing worse than getting a rattled answer when markets are crumbling and everyone’s losing their heads.

The advisor’s approach to investing doesn’t need to be entirely unique. It must, however, suit and convince you that the advisor is capable of doing what they say they will do (integrity).

What kind of changes would you recommend in my current portfolio? Tell me more about your reasons for these changes. Which of my current holdings would you suggest we retain?

Any changes should reflect what you’ve told the advisor you’re looking for. An example is enough growth to support a retirement in 20 years, or ways to help finance a child’s education, or how to consolidate and reduce debt. Equally important for changes are the reasons for keeping securities. Do the reasons make sense to you and how much would they cost?

Communication

How often do you typically meet with clients like me? How long do those meetings last? What do you cover in those meetings?

Besides regular month end statements, you should hear about annual face-to-face meetings and at least two such meetings during your first year. If you’re the kind of person who prefers daily e-mails and regular phone calls, make sure to mention this as some advisors with set service schedules may not accommodate your request.

Compensation

What would my annual fee be if we worked together, including fees charged by money managers?

You’re looking for a list of all fees, even the ones you don’t see. For example, mutual funds pay trailer fees to advisors for servicing clients. The advisor should be clear about what they are. You should see a fee schedule in order to compare it with the competition. Are the fees deductible and negotiable and will you receive a list of all fees paid at the end of the year? Especially important is to understand how and when the fees are calculated.

You’re looking for transparency in the answer to this and all of the above questions. Next month we will deal with the answers to the second set of questions. In the meantime, we’d love to hear your story about finding your advisor and how it’s working out. Please send your e-mail to ptria@3macs.com, or write us at MacDougall, MacDougall & MacTier Inc., 1010 de la Gauchetiere Ouest, Montreal, H3B 4J1.

Adena Franz is a Vice President and Portfolio Manager at MacDougall MacDougall & MacTier Inc. She can be reached at 514-394-3771. The information contained in this article is for general information purposes only. It does not account for specific investment objectives or the financial situation of any person reading it. Opinions expressed are those of the author and do not necessarily represent the opinions of MacDougall, MacDougall & MacTier Inc. Investors should seek professional advice regarding the appropriateness of investing in any securities discussed or recommended here and should recognize that statements regarding future prospects may not be realized.

MacDougall, MacDougall & MacTier Inc.
The Franz Group
1010 de la Gauchetiere Ouest, Suite 2000
Montreal, Quebec H3B 4J1
www.3macs.com

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