Are investment advisers worth it? What advisers offer, minimum investments and more

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If you’ve ever gone looking for investment advice – and if you’re reading this story, that counts – you may have wondered: Do I need actual professional advice from an investment adviser? The media is full of ads touting the advantages of the personal touch when it comes to investing, and just as many saying you can do it yourself with this app or that online service. So, do you really need an investment adviser? And what exactly do they do? Read on.

Do I really need an investment adviser?

There are tons of DIY investing options, including apps with robo-advisers, that can take your stats, ask a few questions and plug all that into an algorithm that spits out suggestions or even makes investments for you. For some, that’s perfect, but for others who aren’t so confident about putting their life’s savings into the hands of a computer, it’s not.

This isn’t the only reason to engage with an actual person: If you don’t know much about investing (or technology), if you find the process boring or stressful, if you don’t have time to do your own research about investment products or if you don’t trust yourself not to act hastily when the market is volatile, then an investment adviser is likely a good fit for you. “Working with an adviser is a personal choice, and really depends on your objectives, knowledge and needs,” says Ilana Kelemen, spokesperson for the Canadian Securities Administrators (CSA).

What does an investment adviser do?

You are not alone if a list of similar-sounding fancy accreditations – investment manager, financial consultant, financial planner, stockbroker and money manager, to name just a few – have you a bit muddled as to who exactly does what with your money. Individuals can use one or many of these designations, assuming they have all the proper credentials.

At its most basic, while a stockbroker deals mainly in stock market investments, an investment adviser gives advice about a wide range of investments (including stocks, bonds, exchange-traded funds, mutual funds, etc.), while taking a broad look at your finances and your personal circumstances. “This includes working with you to set investment goals, to understand your risk tolerance, build an investment plan, and then design a portfolio, choose suitable investments, and track your progress – adjusting it all as your life and needs change,” Ms. Kelemen says.

Alexandra Horwood, portfolio manager and investment adviser at Richardson Wealth Ltd., calls this holistic wealth management. It’s not just about investments “but all of my client’s finances,” she says. Before she provides any investment advice, Ms. Horwood gathers all the financial information that relates to her client’s financial health and well-being. This includes but isn’t limited to income, insurance, tax returns and charitable donations.

What does an investment adviser not do?

If the above seems broad or vague, it can be helpful to define the profession by the services they don’t provide. While they can (and should) ask about most anything and everything relating to money, they can’t give their professional opinions on any fields but their own. “Investment advisers cannot give insurance recommendations, tax advice or legal advice,” says Elie Nour, investment adviser and portfolio manager at Nour Private Wealth Inc., “unless they’re also a licensed accountant or lawyer, of course.” (But do you want a doctor who’s also a dentist? Probably not, see below.)

How do you know an investment adviser is legit?

A quick caveat to keep in mind: “There’s a bit of an ongoing problem in this industry where people use various titles without proper accreditation,” cautions Mr. Nour. You can and should check those accreditations at the Investment Industry Regulatory Organization of Canada (IIROC), which requires all Canadian investment firms and individual investment advisers to register. (You can look up any person or business on IIROC’s site, and they also have a very handy glossary of financial terms and certifications.) There’s a ton of possible overlap, and no doubt many professionals have knowledge of specific services without the official accreditation to perform them. Why does that matter much? Mr. Nour puts it this way: “I know how to change lightbulbs at home, but it doesn’t make me a certified electrician.”

Even if you do find your would-be investment adviser has a long list of accreditations to their name, dig deeper, Ms. Kelemen says. “You can check their licensing status, types of securities they can sell, and disciplinary history.” For your convenience, the CSA owns and operates aretheyregistered.ca to help Canadians protect themselves and choose wisely.

Do I need a minimum amount to invest to work with an adviser?

The short answer is no, there are no minimum amounts required by law to work with an investment adviser, notes Ms. Keleman. “However, some investment advisers and firms require a certain amount to take someone on as a client.” Mr. Nour’s firm, for example, works on a case-by-case basis, usually with a minimum amount of $100,000, though the amount he usually works with is $1-million or more.

Someone without that kind of money handy, but still some cash to invest, is not entirely out of luck thanks to the banks’ in-house advisers. “I’d recommend that person first go to the financial planners at their bank branch for investment advice,” Ms. Horwood says. They’re a good place to start, and they provide basic investing advice, typically offering more services as the wealth and assets you hold with them increase. Or you can look for an independent adviser willing to work with your budget. Like most of us, investment advisers like to work their way up to bigger clients and join bigger firms with more resources to manage (and corresponding higher fees), but certainly there are people out there willing to work with smaller accounts. “If I was young and green,” says Mr. Nour, “I might happily take your $5,000 and work with it.”

How do I find, and choose, an investment adviser?

A simple way to start is by getting a referral. “Always ask your family and friends first,” Ms. Horwood says. “Look to your social circle or colleagues for people who you admire and whose opinion you respect.” If they’re comfortable sharing the person’s name or – even better – making a quick introduction, then a friend-of-a-friend is far more likely to take you on as a client. Even investment advisers with unreachable so-called minimums can and do make exceptions all the time.

Recommended or not, do not forget to check their credentials as discussed above. “A referral is an excellent place to start,” Mr. Nour says, “but it’s by no means a guarantee.” Make sure you look them up and read their reviews. When and if you do connect, be sure to ask for additional references and specifics about their performances.

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Before you get there, however, begin with a quick introductory phone call. “Have an open chat with them about their experience and investment philosophies,” Ms. Kelemen says. Here, look for an alignment of interests and values. “For example, if you’re concerned with ESG issues, ask the adviser if they understand your philosophy and have the knowledge to assist you.” Someone who thinks environmental, social and governance issues are a passing fad, for example, is not a fit and never will be.

If your values match and all basic requirements are met, you should promptly meet in person. “A first meeting with an investment adviser is interesting because you’re both interviewing each other,” Ms. Horwood says. “This will be a two-way street, ideally a long relationship that lasts for 10 or 20 or 30 years, so you have to know you match.”

How do you know you’re a good fit?

During this meeting, be sure to ask about their general approach, how often they’ll be in communication and the method by which they stay in touch to make sure everyone’s expectations are aligned. “I have clients who I call every time I buy or sell a stock on their behalf because they want to hear how and why I think it’s a good investment,” Mr. Nour says. “And I have other clients that don’t want this, so we agree on the extra leeway and I’ll invest on their behalf.” Both strategies work because expectations were agreed upon in advance.

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That said, people and situations change. “The client-investment adviser relationship is ongoing, and investment needs when you were looking for an adviser may not be the same five or 10 years later,” Ms. Kelemen says. A good professional fit also includes revisiting expectations, keeping lines of communication open and tweaking strategies as necessary.

If all goes well over the years, you’ll probably become something like friends with your adviser. This is not a bad thing, within reason. “I’m friends with most of my clients, but first and foremost it’s a professional relationship where I have to deliver,” Mr. Nour says. Like most every other person you’ve ever worked with, says Ms. Horwood, “it would be great if you actually like the person, but remember that trust is more important than friendship.”

How do investment advisers get paid?

Investment advisers usually get paid in one of two ways: “fee-only” or “fee-based” (a fancy way of saying no-commission or commission-based, respectively).

Fee-only advisers

First and foremost, a “fee-only” adviser is being paid directly by one source and one source alone: You, the client. The most straightforward “fee-only” bill is an old-fashioned hourly rate, like you’d pay your lawyer or accountant, and depending on their experience, they’ll likely charge something in the same range (a few hundred dollars per hour). Fee-only advisers are also known as advice-only advisers, and some work on flat fees you agree to up front.

Another common fee-only way to pay your adviser is with a percentage of assets under management (AUM). “We charge a 1 per cent annual cost that’s deducted on a monthly basis,” Ms. Horwood says. “That covers everything we do, and a portion or all of our cost is tax deductible.” The largest benefit of a fee-only adviser is that you know exactly what you’re paying (and how much they’re making) and can be almost certain their advice is unbiased and transparent.

Fee-based advisers

“Fee-based” advisers (sometimes called commission-based advisers) are compensated from both the client and additional sources, namely commission from product sales. The client likely still pays basic fees, though they’re often less than the fee-only fees because the difference can be made up with commissions. Provided you trust your adviser to ultimately act in your best interest instead of theirs, the largest benefit of a fee-based adviser is that they have additional personal incentives to make your portfolio perform its best.

Fiduciaries

One thing to note is that portfolio managers are “fiduciaries,” meaning they have a legal obligation to put the client’s interests first, while fee-based advisers typically follow a “suitability” rule, which means they agree to recommend only investments suitable to their client’s risk profile.

And the adviser you see through your bank? Rest assured their fee is probably already baked into their annual salary. A bank has a minimum AUM amount of $250,000 before the adviser gets paid anything more, Mr. Nour says.

Investment adviser red flags: What to watch out for

There are a number of red flags in dealing with investment advisers, says Ms. Kelemen, and here are just a few: “If they don’t make you feel listened to, if they ignore or refuse your requests, if they don’t clearly and openly explain the risks associated with different investments and how they get paid, if they don’t ask for permission before taking action (unless they have discretionary authority), or if they don’t make regular account statements and written confirmation of any transactions they make for you,” she says. “All of those should raise concern about their competence and trustworthiness.”

Those are all demonstrative actions you can spot, but the way they make you feel is equally important. “Major red flags are if they act like they can predict the market with certainty, if they pressure you to invest, if they invest on your behalf outside of your risk tolerance or according to their mood of the moment,” Ms. Kelemen says. All of these are good reasons to reconsider your working relationship. Even if you have no particular reason at all, know that if you don’t trust your adviser, that’s all the red flag you need.

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