The six questions to ask your financial advisor

The six questions to ask your financial advisor

It never hurts to know a thing or two about cars before you drop your wheels off at mechanics. You don't need to know how to fix your car but having insight into what needs to be addressed can help ensure you're motoring away without paying for what you don't need. To a degree, the same can be said of financial management and knowing what to ask a financial advisor.

Finding the right financial advisor can be task unto itself but once you've identified what your money management goals are deciding who to speak with and what to ask about comes into focus. Nowadays, with things like low-fee online brokerages, tax-free savings accounts (TFSAs) and exchange-traded funds (ETFs), do-it-yourself investing has never been easier. But for the inexperienced, that doesn't mean you should step blindly into doing so.

"First and foremost, you should be looking for a partner to help you with identifying your goals and needs and then work towards a plan. The investment vehicle is the last part of that whole process," explains Arnold Zwaig, senior wealth advisor at ScotiaMcLeod in Montreal. "The first questions I would ask a potential advisor is, 'are you registered? What are you registered to sell? And how do I verify your registrations?'

"When I meet someone, I tell them how to check me out. We're hoping to build a longtime relationship and it needs to be built on a solid foundation."

Verify what you've been told

However, for those of us that aren't financially literate and in terms of wading through the myriad of acronyms for the various types of advisors, planners and consultants, identifying the right type of expert can prove cumbersome.

"In Quebec, the AMF (Autorité des marchés financiers) has a list of accredited professionals, as does the OSC (Ontario Securities Commission), in terms of what the acronyms represent," he says. "Just come straight out and ask your questions and then verify what you're told is truthful.

"It's quite easy with one phone call to your local regulator to get the information as to what the person in front of you is permitted to do and what their expertise is."

For other regions of Canada Advocis, the Financial Advisors Association of Canada, also provides consumers with tips on how to choose the right advisor or planner.

Kathryn Del Greco, vice-president and an investment advisor with TD Waterhouse Private Investment Advice in Toronto, agrees it's critical to understand what the advisor's background is.

"Find out what designations they have with regards to investment management and financial planning. You'll need to compare what their areas of expertise are to what it is you're looking for," she says. "You also want to ask if they're continuing their financial education. When was the last course or upgrade to their education that they've done? If someone has not continued to improve their knowledge then that to me would be red flag. There are always new things coming out. A good advisor should be constantly upgrading themselves."

Zwaig also says to consider what your assets are and determine what it is you're looking to invest.

"If you're looking to invest $10,000, your local bank will serve you very well," he says. "If you just inherited a half million dollars, I would think you might want to speak to your bank's full-service investment division."

An advisor's length of experience managing money is of equal importance, Del Greco adds.

"This should be very important to a client as it's the actual, practical experience of interacting with clients during all periods of time be it bear markets or bull markets," she says. "In some circumstances, that experience may be even more important than the actual academic background."

Moreover, Del Greco says it doesn't hurt to ask an advisor whether or not they've been fined by the industry or had any client complaints registered against them.

"I think that's a valid question … fining is more important because fining suggests it's been proven they've been culpable for whatever they've been charged with," she remarks. "And you might want to ask how often they lose a client and if so, what is the reason someone would leave?"

Find out how your advisor gets paid

Zwaig says it's important to understand how your financial advisor gets paid and that it should be absolutely clear from the get-go.

"I want people to know how I get paid," he says. "We're not sitting here for charity reasons; the banks are in business to make money. There are fees and different ways (for advisors) to get paid and it's a straightforward question to ask.

"There's been an evolution over the last 25 years to a more transparent way to pay for services but the client still needs to ask that question."

Del Greco says fee-based models have become more commonplace since it allows the advisor-client relationship to be more defined and it helps eliminate the perception that the motivation behind the sale of a security is simply to generate revenue.

"Financial advisors that charge management fees also has to offer a service model and prove their value-added expertise that'll justify to the client why that fee is being charged," she says. "The successful advisor today wants to work a client today as their chief financial officer. The client is the CEO but the advisor is the CFO, meaning they work within the framework of the client's household finances.

"That's when you can really see an advisor's talent, their accreditation and academic background really brings that value-added service forward."

A lot of people Tina Di Vito talks to admit they don't have a financial advisor. The head of BMO's Retirement Institute in Toronto suggests the main reason Canadians don't seek financial advice is because they don't feel they've got enough assets to work with.

"There's a bit of a myth out there that suggests you have to be a wealthy individual in order to have a financial advisor," she says. "In Canada, we're very fortunate that we can obtain financial advice from a variety of means. One of them of course is banks where financial advice is usually free."

For someone that's never had a financial advisor, she recommends it might be worthwhile to stick with your bank branch so long as you're comfortable with the advisor you're paired with.

As per Zwaig's and Del Greco's recommendations, the most important questions investors should ask of a financial advisor:

*What are you licensed to do and in what jurisdictions?

*What's your approach to financial planning and how will you help me reach my goals?

*From a service-level expectation, ask how often you'll hear from your advisor and whether or not you'll be dealing with other members of that advisor's team?

*What is your strategy for implementation and risk management?

*Have you been charged or fined by the industry for any wrongdoing?

*How are you compensated?