Questions to ask before investing

IF you have a financial advisor, he or she has a professional responsibility to provide advice suitable for your personal and financial situation.

However, even though the investment and related professions (like accounting) can punish members who break the rules, and courts can order damages, you should still take an "investor beware" approach.

In one recent case, the Investment Industry Regulatory Organization of Canada concluded an advisor "made unsuitable investment recommendations for a married couple aged 60 and 57 respectively in January, 2007.

They wanted to be semi-retired in a few years."

However, within three months of transferring their investments to the advisor, the accounts changed from a balanced portfolio to one consisting entirely of speculative high-risk securities.

"The [advisor's] investment strategy and trading pattern were not suitable for [the couple] as they had limited investment knowledge, a low risk tolerance, little understanding of the risks involved, low income and could not afford to sustain any significant decline in the value of their investments as they were nearing retirement," ruled IIROC.

"They invested $290,000 with the [advisor] which represented their entire retirement and life savings, and as a result of the decline in the accounts, neither of them will be able to retire as planned."

The problem is we all want to make money, and so tend to focus on only the profit possibilities - even if an advisor does point out the risks. Before you make any major investment choices, ask for answers in writing to the following questions: . Is 100 per cent of my/our investment guaranteed and if so, by whom? How long would it take to get back the money?

. Is the yield/increase in value of the investment guaranteed and if so, by whom? . What factors could contribute to the growth of the investment?

. What factors could contribute to a decline in the value of the investment?

. How does this investment match my/our personal and financial situation and objectives?

Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected].