Dan Richards is president of Strategic Imperatives. He is a faculty member in the MBA program at the Rotman School at the University of Toronto. He also hosts a weekly conference call called Monday Morning Jump Start, which is about strategies for financial advisors. Advisors can see it GlobeAdvisor.com. He can be reached at richards@getkeepclients.com
Even in the face of chaotic markets and disappointing performance over the past nine months, most investors are hanging in with their financial advisers.
In a recent Ipsos Reid survey, 87 per cent of Canadians said their current adviser will be their primary adviser a year from now. Most recognize that even the best managers didn't foresee last fall's financial meltdown and that almost everyone is in the same boat.
Of course, that's not universal. Some investors are rethinking the relationship with their adviser, while others are responding to invitations to a "second opinion" on their portfolio. Some investors are questioning whether they want to work with an adviser at all and are considering switching to a discount broker.
Working with the right adviser can have a huge effect on achieving your long-term financial goal. It's a decision that shouldn't be rushed. Some investors select the first adviser they speak to or make a decision based on an adviser's glitzy office - and later regretted the choice.
When looking for an adviser, most investors begin by asking people they know for suggestions. While a referral from someone you trust increases the odds things will work out, just because an adviser is a good fit for a friend doesn't mean he or she will be right for you.
Selecting an adviser is like any important decision. First impressions matter, but to tilt the odds of getting this right, you need to first identify the key things you're looking for (ideally in writing) and compare what you hear with that list before deciding.
There's nothing wrong with telling an adviser you'd like to sit down for a couple of in-depth discussions before making a decision.
During these meetings, you have two goals. The first is to get a sense of whether this a good fit. To help you do that you can draw from a list of 25 questions based on recent conversations with investors and advisers.
For example, here are some questions focusing on the past 12 months: How did you suggest positioning portfolios like mine going into the beginning of last year? What kinds of changes have you recommended to clients in my situation since last fall? What kind of advice are you providing to clients like me today? How are you managing risk amid recent uncertainty? In general terms, would you share what you held in your own portfolio going into last fall and what your portfolio looks like today? What are the most important lessons you've learned from the past year's events?
The second component in making the decision is getting a reading on chemistry. Are you comfortable talking to this financial adviser? Does he really listen to your answers and appear truly interested in your situation? Does he talk in plain English? Do you like him as a person and feel you could be absolutely open with him? Do you feel that you would have confidence in his advice?
Remember, it's not only you making an assessment; in these initial meetings discerning advisers are also evaluating you and often have tough questions of their own. Today, it's not only investors who have choices as to who to work with: The best advisers can pick and choose their clients.
Among the issues advisers look at when talking to potential clients: Are you serious about entering a relationship with an adviser and sticking to your plan - or will every recommendation be looked at with suspicion, with frequent calls about investment ideas from your brother-in-law, friends or a TV oracle? What's your history of staying the course when there are bumps in the market? Will you make panicked calls about going to cash every time the market drops a bit?
How realistic are you about the level of risk required to achieve the returns you're looking for? Do you have the emotional equilibrium to deal with volatility? When things go wrong, is there a tendency to look for someone to blame? Will you fly off the handle?
Do you switch advisers every time there's a downturn? A trail of past advisers or history of complaints is a huge red flag - nobody wants a malcontent as a client.
As in any relationship, the key to success is good communication and open dialogue. Selecting an adviser that's right for you means investing the time upfront so that both you and the adviser can ask good questions - and really listen to the answers. The time spent doing this may be one of the best investments you'll make in your financial future.
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Special to The Globe and Mail