Managing Your Money

Why Rock the Boat?

I remember an occasion years ago when a lady I had recently met with was facing a very delicate situation. She was about to have a very difficult conversation with her long time financial consultant/friend. She had decided to change advisors. Now, this financial advisor of hers was not just some lady at the bank who she saw once a year. She was a close friend who often came over for dinner parties as well as being their long time financial advisor. The advisor hadn’t done a bad job managing their accounts but had missed a few important things along the way and lacked the necessary skills to guide them with their tax and financial planning needs. She was obviously concerned about the advisor/friend, and her reaction to this decision. However, she knew she had to put her family’s interests first. This was somewhat of an unusual situation compared to most, where standard instruction forms are simply sent between institutions to move accounts, often with little or no communication between the old advisor and client. She put much thought and analysis into her decision, and 20 years later she’s still a happy client of mine.

It’s easy to get stuck in a comfort zone when it comes to your financial advisor. Things seem to be rolling along nicely, and your portfolio values keep going in the right direction, so why bother even looking around? Why rock the boat? What if the grass isn’t greener on the other side?

We’ve been in an economic and market environment where it’s not difficult to make money. We’re 10 years into a bull market (i.e. rising stock market). Will it keep going up? Maybe for a little longer, but I would be starting to look at a defensive strategy at this point to secure the gains that are there. So what strategy do you or your advisor have in place to protect against the downside? It’s often after a crash or in a recession that clients start looking for a new advisor. But isn’t it kind of late at that point? Losing money is often the trigger that has people looking at all the things they wished their advisor would do. Whether it be better tax planning, better or safer investment options, or just generally better strategies.

Don’t wait to lose money to take stock of your current situation, current advisor, and current investment strategy. If you’re very confident that all is good with your current situation, great. Carry on. If you’re not fully confident, take the opportunity to get some second opinions, and I don’t just mean with one person. Meet with a few advisors from different firms, including at least one independent, or non-bank owned firm. Your gut feeling will tell you a lot after the first meeting, but also look at the details. You might simply get some good questions or alternative investment options with which to go back to your current advisor. You might ask them, “Someone told me that I should look into these investments. What is your opinion on them?” Let them share their opinion with you, and ask “do you offer these investments? What is the cost?” And ask if the advisor gets compensated differently based on the type of investment.

Fees/costs shouldn’t be the main decision maker when it comes to investing. Like anything else, you often get what you pay for. But understanding the cost to you and/or compensation to the advisor can sometimes shed light on why some advisors push certain products over others. Clarity of investment fees and advisor compensation has long been an issue in the financial industry. This is why the regulators stepped in, in 2014 and have been implementing CRM2 (Client Relationship Model 2). It requires every financial institution to report to clients their costs and performance on an annual basis. Unfortunately, the system is not yet fine-tuned, and as of now, not all types of fees/costs have to be reported. This, in my opinion, defeats the purpose, but I guess they’re making steps in the right direction.

It’s also important to figure out what you’re looking for in a financial advisor. Are you simply looking for a stockbroker who will focus only on the investments? Or are you looking for a Wealth Advisor/Financial Planner who will not only manage your investments, but also who looks at the big picture and guides you on tax planning, retirement planning, estate planning, etc.? Being clear about what you’re looking for can help save you time and ensure you’re putting your interests first. It also ensures that you are getting what you pay for. Recently, I met someone who was dealing with a stockbroker, only getting investment advice, and paying a 1.2% advisory fee. For the same fee, in some cases, they could get investment advice as well as tax strategies, retirement planning, and so forth. Know what you’re paying and know what you’re getting.

There are all kinds of reasons to not “rock the boat”. It’s easier to do nothing, or you’re busy and don’t have time to do the leg work. Maybe you don’t want to hurt anyone’s feelings or you’re not really sure if your current advisor is doing a good job. Taking inventory of your current situation, or getting a second opinion, does take some effort, but hopefully it will pay off, either by giving you the confidence that you’re already in good hands, or re-directing you down a better financial path. While it’s often a financial trigger that sets-off the search for a new advisor, the underlying reason usually comes down to the relationship. For more on this, see my article “Can I ask a stupid question? Truth and Clarity in Financial Advice”.

Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with over 22 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or [email protected].

The opinions expressed in this article are the opinions of Lynn MacNeil and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson GMP Limited, Member Canadian Investor Protection Fund.

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