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An insider's guide to choosing a financial adviser

Can clients be at fault if they're not happy with their investment adviser?

Veteran adviser Betty Tomsett says people aren't putting enough effort into the search for an adviser, and this is leading to disappointing relationships.

"The client needs to step up," said Ms. Tomsett, director of wealth management at Richardson GMP Ltd., and an investment adviser since 1986. "This generation has been spoiled – we've had people doing things for us all our lives. We're happy to delegate but we're not willing to step up and be proactive where we need to."

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What follows is Ms. Tomsett's insider guide for people who want a methodical approach to interviewing a prospective adviser. "These questions are about as probing as you can get without the adviser kicking you out the door," she said.

Find prospects to interview

It's often said that the best way to find a good adviser is to ask friends, family and business contacts to refer someone they use and like. Ms. Tomsett refines this advice a little. "Go not to your best friends, but to people who have done well financially, who you admire and who are in the same financial bracket as you. You don't want to end up with an adviser who only deals with high-net-worth clients."

Set the interview dynamics

Two key points to start – the meeting must be face to face, and you should meet with the adviser and not his or her associates or assistants. High-powered advisers may have marketing assistants or a business development person. That's fine, but you're hiring the adviser, not the support staff.

The interview is as much about watching as listening, Ms. Tomsett said. "When you have a face-to-face meeting, you get to look at a smirk on the face, whether they roll their eyes, whether they're watching the clock. You're looking to see if the adviser is answering everything straight on, if there's no rush and the body language is open and professional."

Come prepared by bringing your financial statements. "The meeting might go quite well – you don't want to be prevented from asking specific questions because you don't have your personal details."

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A question to get out of the way early is how large the adviser's client base is. The total dollar value and number of accounts are less relevant than the number of households the adviser is working with, Ms. Tomsett said. Watch out for advisers with hundreds of households – they may have trouble finding time to discuss volatile markets like we're seeing now with each of their clients.

If the adviser you're talking to uses a team approach, get the background on the team members and find out who'll you'll be speaking to when you call in with questions.

Suss out the qualifications

Start with the basics: How long have you been a licensed adviser, what professional designations have you earned, and what do those designations mean? Not surprisingly, Ms. Tomsett favours the adviser with enough experience to have seen a few up-and-down market cycles.

For a more thorough look at your adviser's experience, ask to see his or her résumé. Look for relevant work experience as, say, an accountant or business owner. "This information helps you put their whole professional acumen into context," Ms. Tomsett said. "You want them to be street smart."

By all means ask for references, but recognize that an adviser is only going to give out names of people who he or she is comfortable with and have done well. Why bother with references, then?

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"What you're doing is sending a message to the adviser – I'm not afraid of you, you're accountable to me and I will decide. It's more a matter of the profile of yourself that you're presenting to your adviser. You're saying, I'm not a pushover here."

Some final questions: What's your current opinion of the market, the economy, the Canadian dollar? "See if you get an educated answer coming back," Mr. Tomsett said.

Determine the business model

Find out if the adviser specializes in a particular market segment, say high-net-worth families, and ask how you would fit in. Next, ask whether the adviser is restricted in any way in choosing investments for client accounts. Get some specifics on the adviser's investment approach by looking at what components would be found in the typical client's account.

Ms. Tomsett also suggests asking the adviser how his or her client portfolios did in the 2008-09 stock market selloff. "No answer is not a good sign," she said. "If they're honest, they're going to say something like, the market was down 35 per cent, my portfolios were down 20 per cent."

Another good question is, what are you doing for your clients right now? It's a chance to see how the adviser is following through on his her view of the market.

Clarify communications

Tell the adviser up front how big your account is. "Don't be afraid to say, I realize this isn't a half-million dollar account; is this in any way going to determine the level of communications I get from you?"

A yes answer is okay. "You want honesty. You don't want someone who hides behind a façade of a service that isn't going to be provided."

Next, ask how often are account reviews are done, and what form they take. Large accounts should receive quarterly or semi-annual reviews in person, while smaller accounts may get annual reviews plus periodic phone calls.

All firms send out monthly or quarterly account statements, but not all show personalized rates of return over multiyear periods. If your adviser's firm is in this group, ask for upgraded information.

Ascertain fees and services

In most cases, an adviser will be compensated through either fees and commissions on the sale of investments, or through a fee set as a percentage of the value of the client's account. Mr. Tomsett said there are pluses and minuses to each compensation model. What matters is how articulate the adviser is in explaining the model he or she has chosen.

Whether the adviser is paid through commissions or a percentage fee, ask what services you'll receive. Possible examples include retirement planning, insurance products, philanthropy, succession planning advice for business owners and help with budgeting.

If you have specific needs, ask if your adviser's firm has in-house experts who can help. "We've talked so far about how to interview the adviser," Ms. Tomsett said. "This is kind of where you have to interview the firm. The adviser is to a large degree only as good as the firm."

Close the meeting

You're under no obligation to make a decision at the end of the interview, so tell the adviser you want to go home and think about it. Feel free to call with more questions.

Decision Time

Six questions to ask yourself after interviewing an adviser:

  1. Is the adviser going to keep in touch with me?
  2. Do I have confidence in the adviser’s ability to guide my investments?
  3. Do I believe the adviser is well informed about markets and economic events?
  4. Will the relationship be professional and one of mutual respect?
  5. Is the adviser qualified and experienced?
  6. Does the adviser have access to the depth of services I need now and in the future?

Follow me on Facebook. I'm at Rob Carrick – Personal Finance.

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998. Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More

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