When Choosing a Financial Advisor, Ask the Right Questions
How do you choose a financial advisor? Like most people, you probably are busy with your work and family, and may not have the time or expertise needed to thoroughly understand the investment world.
So how do you choose the right financial advisor? You can start by asking the right questions. Here are a few to consider:
- Have you worked with people in my situation? As an investor, you have your own special set of characteristics: level of assets, stage of life, long-term goals, etc. Before you sign up to work with a financial advisor, you need to make sure he or she is comfortable working with someone like you.
- What are your credentials? Inquire about a prospective advisor's qualifications. Make sure anyone you might work with has all the necessary securities licenses.
- Are you or the firm you represent affiliated with regulatory organizations? Ask whether the advisor or the firm he or she represents is regulated. For example, any firm or advisor who is a member of the Investment Industry Regulatory Organization of Canada (IIROC) would need to comply with rules that protect client assets if a firm becomes insolvent.
- What is your investment philosophy? Just like investors, financial advisors have different investment philosophies. Some might be naturally more aggressive, while others are more conservative. But the ideal advisor can provide you with guidance based on your risk tolerance and investment preferences.
- How will you communicate with me? Make sure your financial advisor will communicate regularly with you. Find out when you'll receive statements and how often you'll meet in person to review your portfolio. Will your financial advisor call with suggestions and recommendations? Are you free to contact him or her at any time? Remember, you're entrusting this person with your financial future – so you have a right to always expect open, honest and frequent communications.
- What sort of resources can you draw upon? Find out if a prospective investment professional has access to quality research and technical expertise in key areas, such as investments, insurance and estate planning. In some cases, a financial advisor may be able to bring in added expertise through a relationship with another professional, such as a lawyer or accountant.
- How are you paid? Investment professionals can be paid through fees, commissions, percentage of assets under management or even a combination of these. You need to know, right from the start, how your financial advisor is being compensated.
- Can you provide me with references? A lot of people are too shy to ask for references. However, a reputable financial advisor will be happy to give you some names of people you can call. Of course, you shouldn't expect a financial professional to provide you with the specifics of other clients' financial transactions. But you should be free to ask about a financial advisor's style, responsiveness, etc.
Your association with a financial advisor is one of the most important business relationships you'll ever have. Making the right choice today can pay off into the future.
Member – Canadian Investor Protection Fund