As more and more North Americans embark on retirement and others save for it there are questions you want to ask your advisor to be proactive and be empowered especially when it comes to your money.

You want to protect yourself and ask specific questions to the people who currently advise you on the management of your investment portfolio.

1. How are they being compensated? Most investors don’t realize that the majority of advisors in Canada are paid by investment firms to sell their particular financial product(s). The result is many advisors push/sell products with the highest commission particularly mutual funds. The investor would be none the wiser because these fees are embedded into the mutual fund’s net value. As well, the advisor is paid for the duration of the length the investor holds this product.

Suggestion: look for advisors that charge a flat fee and purchase funds that do not have an embedded trailer fee and sales charge, whether upfront or deferred. This way their interests are more aligned with yours.

2. Are they selling near-term performance? Another downside to a commission-based compensation structure is that advisors will focus on what is easiest to sell and that often means those funds with the strongest recent performance. Companies often have hundreds of mutual funds within their choices but tend to focus on the ‘home runs’ or ones with the strongest performance.

3. Are they offering near-term predictions? Investors are often comforted by near-term predictions. Consequently advisors will often seek out economists, market strategists and stock analysts who provide positive near-term forecasts. The problem is that no one, including experts, can predict near-term moves in the market.

4. What are they doing to manage risks? Trying to beat the market means taking on more risk and in the long run can cause more harm than good to your portfolio. To determine overall risk of your portfolio, ask your advisor for the historical standard deviation and then divide it into specific return generated less a risk-free rate such as the current 90-day T-bill rate. This will provide a good indication of how much return was achieved per unit of risk taken.

Also ask what is being done to manage the risk in your portfolio. Look for more specific strategies than just asset allocation and diversification. This is where your advisor can be useful in spending time protecting your portfolio against near-term risks while investing for long-term gains.

5. How have they positioned your portfolio in the past?Keep a logbook of your portfolio and periodically review the timing of your purchases and sales of the underlying investments with your advisor. Doing so allows you to identify how diversified your portfolio is, but importantly, determine what your advisor is actually doing to manage your money.

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2 Responses to “5 questions to ask your advisor… article by Martin Pelletier, National Post, May 13, 2014”

  1. karen on July 13th, 2014 12:24 pm

    wonderful site–bang on

  2. Sandra on July 17th, 2014 10:01 pm



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