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Questions to Ask When Selecting a Financial Advisor
In a past decision, the Ontario Securities Commission (OSC) found that
well-known Canadian financial author and broadcaster Brian Costello
contravened the Ontario Securities Act by failing to become registered
as an advisor prior to recommending investments. The OSC also ruled that
"his failure to make full, complete and conspicuous disclosure of his
many conflicts of interest was contrary to the public interest."
Costello earned money recommending real estate partnerships and other
high risk investments to consumers who subsequently lost thousands in
life savings.
Canadians who rely on investment advice from highly visible,
media-acknowledged "expert advisors" have been misled in the past and
will continue to be so since these "credentials" do not guarantee
unbiased information. This recent public scandal makes those attempting
to sort out RRSPs, REITs and other real estate and financial investments
painfully aware of their vulnerability.
Real estate professionals work in agency relationships with clients and,
therefore, owe consumers a complex set of fiduciary duties that put the
client's interests first. This is not the case for most financial
advisors. The majority of financial advisors are paid by their employer
- either by salary, commission or both - to sell that company's services
or products. This bias is reflected in the advice they provide. Given a
choice, consumers should seek out and pay for financial advice from an
independent advisor.
Consumers who do not hire fee-for-service financial advisors can reduce
the impact of this bias by using a small network or circle of financial
contacts instead of relying on one source of information. Differing
points of view will help investors get a clear picture of a service or
product, relative to their needs and goals.
The following exercise from my personal strategic planning book, The
Actionbook: Financial Strategies for Your Future, will get you started on your financial network.
Actionsheet© - Questions to ask when selecting a financial advisor
These questions will assist you in preparing for and assessing an
interview with a potential advisor. You may want to tape-record some
meetings and go over the material again to be sure you really understand
what to expect from a specific professional.
Why do I trust this advisor?
Do I have real grounds for trusting the advisor or does he or she merely
seem like a pleasant person? How much am I relying on the company's
marketing-driven image instead of facts?
What are his/her advisory credentials?
What types of biases or preferences will this person's education and
experience bring?
What code of ethics does the advisor work under?
May I have a copy? Any comments from the professional association about
the advisor or the company?
What does the advisor have to gain from working with me?
Have I received full written disclosure of all the fees, benefits and
compensation that the advisor will receive, directly or indirectly, if I
become a client?
Will the advisor have sufficient time for me?
Am I typical of the advisor's client base? Who will actually handle my
file? How will we keep in touch?
How will he/she keep up to date with financial matters and
with my situation? What does he or she do now to update professionally?
Are the references relevant?
Do these people have similar needs to mine? Do they understand enough
about finances to provide knowledgeable references?
Do we have the same expectations?
Are we compatible? Do the advisor's approach, attitude and skills
complement mine? Is the advisor's definition of success for me the same
as mine? What compromises will I be making in this relationship? Who
will be responsible for staying a step ahead rather than jumping on
financial bandwagons?
Copyright 2003 PJ Wade. Reprinted from "The Actionbook: Financial
Strategies for Your Future" (The Catalyst). All rights reserved.
Written by PJ Wade
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