Finding someone to help you with investment goals is pretty straightforward. But to make the relationship work, you’re going to have to contribute to the discussion and ask tough questions like: how do you get paid?
Making wise investment decisions isn’t something that comes naturally to most people. In fact, a lot of people shy away from the most important decisions.
Sometimes they don’t know who to turn to for advice and are fearful that the markets are stacked against them. And time goes by, nothing gets done and people get even more fearful because they know that they aren’t financially ready for retirement.
That sort of defeatist attitude can be dealt with by making one major decision: to go out and recruit someone to help them along.
Getting access to a financial adviser is fairly straightforward. The big banks have brokerage arms and their own mutual fund products. An investor looking for more variety can hire a fee- only advisor, who would charge a flat fee or a percentage of the portfolio.
Those lucky enough to have at least $500,000 to invest will have access, to more personalized service with fees that are more negotiable.
But before going shopping, advisers suggest that the best thing to do is to take a good look in the mirror.
“People have to educate themselves,” said John O’Connell, CEO of Davis Rea Inc., an investment firm based in Toronto.
“If people aren’t happy and they’re complaining and not making money, they have no one to blame but themselves because they haven’t put any …effort into it. It’s their money – (they have to) take some responsibility for it.”
He noted that the Internet is full of good basic information and advice for investors – and it’s free. Besides this website (www.financialpipeline.com), investors can find a wealth of information on the Ontario Securities Commission website (www.osc.gov.on.ca/en/Investors_cbyi_index.htm) and news websites including financialpost.com and Marketwatch.
O’Connell also pointed to financial TV channels like Business News Network for investment tips from the pros in the business.
“You can go onto BNN, sit there and look and say, I think that guy is a smart guy and you can call them up and ask them, talk to them.”
At the same time, O’Connell allows that the investment industry itself has done a lacklustre job in promoting investor education.
Nonetheless, it’s important to realize that the client can’t expect the adviser to do all the heavy lifting in the relationship.
And even before the two parties get down to discussing goals, a serious conversation has to take place.
“One of the first things is to understand how these people get paid,” said Adrian Mastracci, a fee-based adviser at KCM Wealth Management in Vancouver.
Sure, you might think that a rude question but Mastracci said that “if it comes off as rude, get up and walk away.”
How the adviser gets paid is important because, as O’Connell puts it, “the bottom line is they’re operating under incredible conflicts of interest.”
He said a good example would be when “you walk into a bank branch and they only recommend their own funds – that’s the most fundamental one.”
This also creates issues on the research side because that data is also being produced in-house.
Mastracci said that there are two way fee-based managers like himself get paid.
“We do the percentage of the ongoing portfolio and that usually means somebody says to me, Adrian, here is my entire portfolio, look after it for me, so that’s the ongoing fee.”
That can often be one per cent of the portfolio.
“And then there is a flat fee for one time projects.”
Once the discussion about getting paid is over, it’s time to discuss goals – and again, the client will have to make a meaningful contribution to the discussion.
“I would like to see the client come in with a list of questions,” said Mastracci.
“They generally don’t do that. They probably spend more time looking after research for a dishwasher than their financial adviser.”
So to get around that, Mastracci has his own questions.
“I start with where are you going? How long do you think it will take to go there? What do you want when you get there? What about the family and are there any pressures in the family. If they get tired of my questions, I know I’m hitting home.”