Most Canadians have a financial adviser. And while the number of people working with one is slowly falling, 61 per cent of the population still chooses to entrust their money to a professional.
Hiring someone to manage your investments has big benefits, especially for people who don’t have any interest in doing it themselves. It’s tempting to leave the investment decisions up to your adviser without really understanding what they are doing with your money – but that’s a huge mistake.
As a client, you need to have a real relationship with your adviser so you can ask all the questions you have and get all the information you need to understand how your money is invested. That might sound like a cliché, but it’s not. Your investments are simply too important for you to not understand them.
The job of a financial adviser is to invest your money in a way that’s appropriate for you. This means having the right mix of cash, fixed income and equities and ensuring that your investments have the right level of risk – not too much, not too little. That’s because you need to make sure you can meet financial goals like having enough for retirement or paying for your kids’ education.
Let’s face it: Financial advisers are human and sometimes they get it wrong. If you are paying attention and asking questions, you stand a better chance of avoiding this travesty.
Here are three signs that your financial adviser isn’t providing the service you need.
You don’t understand everything they are saying
There is a lot of lingo in the financial world, but a good financial adviser will avoid using too much of it. There’s no point in having a conversation with your adviser if you don’t understand what they are saying. To avoid looking ignorant – or from sheer exhaustion – you might not ask for clarification. Instead, you nod your head and stay quiet. Not only does the lingo cause confusion and a lack of understanding, it can also be intimidating, giving the impression that the financial world is too complex for everyday people to understand. (This is simply not true.) A conversation with your adviser should leave you feeling informed, empowered and confident. Expect clarity from your adviser – not confusing rhetoric
When you ask questions, they get defensive
An easy client is one who doesn’t ask questions. But being an easy client isn’t good for you. It’s your money that is being invested, so ask all the questions you want. Ask why you are invested in the mutual funds that your adviser has chosen for you. Question your individual stock holdings. Ask about the thought process behind your portfolio and how they make their decisions. Have them explain how your performance compares to the broader market. Ask them to clearly explain the fees you are paying and how much commission they are receiving. Quiz them on ways you can lower your fees. These are important questions, and your adviser should be keen to answer them. If they get defensive, you have a problem.
You haven’t had a conversation with them about your life in many years
When you first started working with you adviser, they probably asked you plenty of questions about your personal situation, your lifestyle and your goals. They used this information to create an investment profile, which informs what kinds of investments they suggest for you. Over time, though, things change. You get older, your kids grow up, your retirement goals are altered. Maybe you got an inheritance, got sick or had grandchildren. These life changes mean your investments may have to change. Your adviser should be having a conversation with you about once a year to check in. Not only should they ask about any life changes, they should also ask how you are feeling about the performance and volatility of your investments. If you are anxious about falling stock markets and it’s keeping you up at night, maybe you need to dial back your stock market exposure and invest more conservatively. Or if you aren’t happy with your returns, maybe you need to take on more volatility.
Some people wait years – decades even – to start looking closely at their investments and their relationship with their financial adviser. Sadly, this sometimes means they’ve invested in a suboptimal portfolio for years, to the detriment of their retirement. Don’t let this happen to you.
Anita Bruinsma is a Toronto-based financial coach and a parent of two teenage boys. You can find her at Clarity Personal Finance.
