Many Canadians are not sure what to look for in a financial advisor and simply hope they have chosen to work with one of the better ones.
However, not all financial advisors are created equal so you need to be able to recognize some warning signs that will alert you to whether you are dealing with one who won't serve you well. Some of the most important red flags are:
They don't stay in regular contact.
As a client, you deserve to receive a certain level of service. I always say "you can't manage a client's wealth if you don't know who they are." This requires your financial advisor to stay in contact with you both by telephone and in person at a minimum of at least once a year, preferably more. Even if you don't follow the markets, it is important that you know how your portfolio has performed and also discuss any changes to your current finances or lifestyle as these may warrant making a change to your investments. If your advisor only seems to contact you to place a trade (and generate commission), it would be a red flag.
They confuse you by using a lot of financial jargon in your conversations.
A financial advisor needs to explain things to you in "your language" when reviewing your portfolio. If they aren't, it would be a red flag. Many advisors use jargon because they may not be knowledgeable about the subject so they use jargon to sound like they are. It can also be used in order to distract you from understanding something because they know that you are not going to like what they have to say, such as your performance was not good last year. If this is ever the case, never feel embarrassed to ask direct questions or for a more clear explanation in order to get the clarification and answers you need.
Increasing the risk in your portfolio more than what you are comfortable with.
If your financial advisor wants you to buy speculative stocks even though you have been invested in blue chip stocks, this would be a red flag. There should be an open discussion on what the motivation is for your advisor to change course and purchase investments you are unfamiliar with or unaccustomed to. These types of investments are only for sophisticated investors.
If a financial advisor only sells proprietary products.
This is most often seen at banks where many are only able to sell their firm's products, whether it be mutual funds or GICs. The advisor is required to be biased and cannot allow the client to have access to other options and diversification.
They are not transparent about fees.
This may be the biggest red flag as you deserve to know what you are paying for the service you are given. There are many high-cost mutual funds out there and, unless the advisor has disclosed the amount you are paying as well as what they are getting paid, I would recommend changing advisors or not working with them in the first place.
There are also many great financial advisors. It is important to do your due diligence before signing on with an advisor and ensure that you are well informed and are completely comfortable with your choice. A bad financial advisor can not only make you frustrated, but their lack of sophistication or service can potentially impact your returns as well.
Lori Pinkowski is a senior portfolio manager and senior vice-president, Private Client Group, at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Lori can answer any questions at 604-915-LORI or [email protected]. You can also listen to her every Monday morning on CKNW at 8:40 a.m.
