Always keep in mind that the term ‘advisor’ has no precise legal meaning, so, depending on the context, it might be a bank branch employee, an advisor with a full service broker, or an advisor that works for a private banking or independent investment counselling firm. Just like in any of your small business endeavours, do your homework before you choose your advisor, and read through some of the following tips so that you know what to watch out for along the way.
Can the Advisor Sell a Range of Products?
Before you decide on your advisor, make sure you clarify exactly what products she or he is qualified to sell. As an investor, you will probably want an advisor who is savvy in the full range of investment opportunities, but some can only legally sell one type of product (such as mutual funds). Additionally, watch out for advisors who only sell products that are promoted by her or his employer, as they may not be fully objective.
Is the Advisor Charging Fees Upfront?
Sometimes financial planners will propose the waving of upfront fees, with the proviso that you allow them to continuously manage your portfolio. In the long run, this can get pricey, so it’s recommended that you pay the fees upfront for the advice, and then continue to manage your investments yourself using a discount broker.
Is the Advisor Overly Confident?
Although it’s a good sign to have a financial advisor that is confident, beware if they are too confident. If you interview an advisor who claims she or he can pick stocks that will beat the market, or claims to be able to predict future markets, be sceptical. You want an advisor who is confident, but not arrogant.
Does the Advisor Promise Suspiciously High Returns?
The basic principle when it comes to buying shares is that the returns are always closely related to the risk. If an advisor is promising you above-market returns that seem too good to be true, then undisclosed risks may be involved. Don’t hesitate to check to see that both the advisor and the employer are registered with regulatory authorities.
Can You Trust the Advisor?
After having the initial interview with your potential financial advisor, you should feel that she or he is not only competent, but also trustworthy. Just like in any businesses, trust is the backbone of a client-advisor relationship, so always go with your gut feeling and check out the advisor’s background. If the advisor has repeatedly changed firms, or has been involved in disciplinary proceedings, then keep looking.
How Will the Advisor be Compensated?
Compensation is one of the most common points of contention between clients and their advisors, so you can get an idea of what your future relationship may be like by discussing the money up front. An advisor should be able to clearly explain how she or he will be paid, either from your account or a third party, without it feeling like you’re pulling teeth. Remember that financial advice is never free, so you shouldn’t be paying for advice you don’t need.
It may seem like a lot of work to choose the right financial advisor, but you will be well rewarded when you are buying shares and watching them grow!