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To make the right financial decisions, investors expect sound, independent advice. So how do they know if they’re getting it? Everything starts with relationship building and ensuring an advisor comprehends their client’s core goals, objectives, risk tolerance and time horizon, says Grant Bunker, an investment counsellor at Mawer Investment Management.
“It has to go beyond a conversation about the products they’re going to use. More importantly, it’s about, ‘Do you understand what’s fundamentally important to me, to my family and to my financial future?’ Independence means an advisor is free from conflict and will act in the best interests of their clients.”
The best advisors get to know their clients well, but investors should probe as well. These are five areas to explore.
1. How is the advisor compensated?
Clients shouldn’t be shy about asking how financial advisors get paid. Some charge hourly or flat service fees for financial plans and ongoing investment management. Others take a percentage based on the total assets they manage. Some get paid a commission by the fund company when they invest clients’ money. And still others charge by the transaction when they buy or sell investments.
Fees can affect portfolio returns. So it’s important to understand what the fees mean, and for an advisor to be transparent about them. Whatever the fees, clients should feel that they’re receiving value in the form of the right advice. “What am I getting for the fees I’m paying?” says Mr. Bunker.
And no matter how they get paid, he says investment professionals are expected to give unbiased information to their client.
2. What are the advisor’s qualifications?
Depending on the type of expertise and services being provided, professionals can have a range of investment, planning and specialized designations, or a number of titles.
Certain affiliations can mean the need to uphold high standards of care, like having a fiduciary duty to clients. That’s a legal obligation, and can stand out. “As an investment counsellor with a Portfolio Management License we are required to always put the interests of our clients first,” says Mr. Bunker.
Beyond credentials, qualifications also include the individual’s work background, how many years they’ve been in business, and how they’ve previously handled bear and bull markets.
“These professionals should be more than happy to have these in-depth conversations,” says Mr. Bunker. “You want an advisor and firm that has weathered a number of storms and experienced different market conditions.”
Ask for references too, even if a recommendation came from friends or family. What are the advisor’s current clients saying about what it’s like to work with them?
3. What is their investment philosophy?
Advisors will have different ways of selecting investments. It’s valuable to know whether they’re limited in their choices, if they favour investments in areas that you would rather avoid, and if they take a more active or passive approach to investing.
“The investment philosophy should be clear, understandable, transparent and free from any industry jargon,” says Mr. Bunker.
It should also be aligned with a client’s short- and long-term goals and risk tolerance. The latter is a significant part of any investing plan, so clients should feel that they can speak openly about their comfort levels.
“If you can’t talk about risk with your investment advisor, that’s a huge red flag,” he says.
4. How will they communicate?
It’s important for an advisor to establish what the client can expect, e.g. when will reviews and updates take place, how will communications happen (in person, by video, email, phone), and what’s the turnaround time when clients reach out.
“At Mawer, we strive to meet with all of our clients as frequently as they need and in the manner that they choose. Communication should not only be proactive but relevant to a client’s situation,” Mr. Bunker says.
5. Will wealth services be holistic?
An investor’s needs evolve over time and different life stages. Therefore, another consideration is having an advisor who has the requisite skills for the moment.
Certain areas require a deeper level of expertise, like intergenerational wealth transfers and estate planning. It can also be helpful to have advisor who can support clients beyond financial or retirement plans, by tapping into legal or tax experts, for example.
Another part of any good investment professional’s job is to manage their client’s expectations and reactions. Money is emotional. When markets are up or down, that has a visceral impact on many clients. They might respond with feelings instead of logic. As an objective, independent voice, the advisor should be able to tell the client what they need to hear at the moment.
“The advisor should be able to balance the behavioural part of finance with the mathematical part,” says Mr. Bunker. “I definitely want to see the math. But you should also be able to tell me how you’re going to help me profit, save me from myself when I’m fearful, and protect me when others are greedy so I don’t follow too far down that path.”
There’s a lot of ground to cover when seeking an investment professional. Mr. Bunker suggests creating a checklist to ensure you’re asking the right questions, so that you explore what comprises independent advice and ensure you get it. “You want to make sure your expectations are being met and that you’re making the right move,” he says.
Advertising feature produced by Globe Content Studio with Mawer Investment Management. The Globe’s editorial department was not involved.