How to Choose a Financial Advisor

No Hype Book Cover Excerpted from No Hype – The Straight Goods on Investing Your Money By Gail BebeeISBN: 978-0-9784455-0-8
Publisher: The Ganneth CompanyAll the investing basics for Canadians from a savvy financial industry outsider
Gail Bebee photo Gail Bebee is Canada’s Independent Voice on Personal Finance. She is a personal finance writer, teacher and speaker. You can contact her at; her website is


If you are like the average Canadian, you want and need help with your investments. Your challenge is to find the right hired help, a financial advisor who suits your personal circumstances.

In the marketplace, most financial services companies offer individual investors a bundled package of investment advice and investment transaction services. Whether or not you opt for one of these bundles, you need to think of these two services separately in order to make the best investment decisions for your personal situation.

Entire books have been written on how to choose a financial advisor. In my opinion, this is overkill since there are only a few choices for obtaining advice. You can be your own financial advisor, i.e., hire yourself. You can hire a financial advisor who does not sell financial products and is paid by charging the client a fee for service. You can hire a financial advisor who is associated with a stockbroker, bank, deposit broker, insurance company or mutual fund company that sells financial products. Finally, you can use a financial advisor for part of your portfolio and be your own advisor for the remainder.

Choosing a financial advisor is a bit like committing to a marriage. You want to get it right because divorce is painful. To help you avoid the pain, use the following guide to select the financial advisor who is right for you.

1.    Decide how much time and effort you are honestly committed to spending to:
•    become knowledgeable about investing,
•    keep current on financial matters and the stock market, and
•    set up and maintain your investing portfolio.
Be brutally honest with yourself. Will you really dedicate the time to become sufficiently knowledgeable about financial matters to be your own financial advisor? Do you have the time to keep current on investing issues? Do you have the personal discipline to monitor your investments on an ongoing basis, reach decisions to buy or sell investments and then act on these decisions?
If you are a disciplined person who will spend the necessary time, then being your own financial advisor is an option. If you decide that you do need help, then use the following guide to select the financial advisor who is right for you.

2.    Decide how much money you have to invest now and estimate how much additional money you will be investing over the next few years. You’ll need to know these numbers because some financial advisors only accept clients with a certain minimum amount of money to invest.

3.    If you don’t have a complete financial plan that covers all aspects of your personal finances, consider completing one before proceeding with the selection of a financial advisor for your investments. For this task, I recommend using a professional financial planner such as a person who holds the Certified Financial Planner (CFP) designation.

4.    Write down what you expect a financial advisor to do for you. Typical expectations for a financial advisor might include some or all of the items listed here:
•    Provide a written overall investment strategy that includes realistic projected return rates and meets your particular needs and objectives.
•    Provide specific investment recommendations (purchase and sale) consistent with your investment strategy and the reasons for the recommendation, including the risks and benefits.
•    Answer any questions about investing and provide ongoing education about investing.
•    Provide advice on the tax implications of different types of investments available and the investments he/she recommends.
•    Provide referrals to other professionals, such as an insurance agent or tax accountant, where appropriate to meet your investing needs.
•    Be easily accessible by telephone.
•    Call monthly with an update.
•    Meet quarterly to review your investments.
•    Contact you promptly if current events (e.g., stock market crash, a sudden sizeable rise in interest rates) have a major impact on your investments.
•    Conduct the purchase and sale of investments in a timely manner at the best available price.
•    Provide clear, understandable and complete written statements of your investments and return rates.
•    Disclose all costs, commissions and fees.

5.    Make a list of questions for a potential financial advisor. Here are some examples of the questions you should ask.
•    What are your qualifications? Look for:
–       a financial designation or designations that fit your specific needs;
–       several years of experience as a financial advisor;
–       knowledgeable in tax laws, as tax plays a major role in the success of your investments;
–       a license to sell at least mutual funds and fixed income products like GICs, as well as any other types of investments of interest to you;
–       a commitment to ongoing education and upgrading.

•    Who else is on your team? Who is your backup if you’re not in the office?
•    How long has your firm been in business? Is the firm a member of an investor protection insurance fund?
•    Does your firm sell investments as well as provide advice? If so, what products are offered?
•    What is your investment philosophy?
•    Do you personally buy and sell financial products for clients? If so, what products are you qualified to sell and what products do you typically recommend?
•    Do you prepare an investment plan for each of your clients based on each client’s personal situation?
•    How often will we talk and/or meet? Where will our meetings be held?
•    How quickly will you respond if I call or email you?
•    How are you paid? What fees does your firm charge for account administration?
•    What research, newsletters, etc., do you and your firm provide to clients? Do you hold educational seminars for clients?
•    What kind of account statements do you provide, and how frequently?
•    How will I know how well my investments are performing? What performance benchmarks do you use?
•    Do you provide statements with the original cost, current market value and return rate of each investment? Will you provide me with an annual return rate for my overall portfolio?
•    What is your firm’s procedure for handling client complaints?

6.    Develop a list of potential advisors. Here are some ways to identify candidates.
•    Canvass your family, friends and business associates to get the names of advisors they would recommend.
•    Find out what financial advisors are available at the bank where you have your account.
•    Consult the “find an advisor” section of the web site of professional financial advisor organizations.
•    Scan the financial media (business sections of newspapers, financial web sites, magazines, etc.) for articles referencing or written by financial advisors.

7.    Sift through the leads you have amassed and make a short list of two or three advisors. Use the questions you have drafted to assist in selecting the candidates.

8.    Interview all the advisors on your short list. Ask each candidate the same questions and take notes on how each one answers.

9.    Take some time to reflect on the interviews and review your interview notes before selecting the best candidate.

10.    Perform your due diligence. Confirm that the chosen advisor and his/her firm have the qualifications and provide the services they have indicated that they offer.

11.    Contact the chosen advisor, indicate your interest in hiring him/her and arrange a meeting to further discuss and finalize your relationship.
Request that the advisor provide a written agreement, usually called an investment policy statement, detailing the terms you have agreed upon. The agreement should cover such things as:
•    the level of risk you are willing to take,
•    the target asset allocation, allowable range in each asset class and process for maintaining the targeted allocation,
•    the range of the expected return rate of your portfolio,
•    any investment restrictions,
•    all fees and when they are charged,
•    frequency and nature of contact with the advisor, and
•    reporting on the performance of your investments including benchmarks used for comparison.

12.    After six months with the new advisor, review the advisor’s performance and decide if he/she has met your expectations. If you are not satisfied, do not hesitate to change advisors. The new advisor should take care of the paperwork required to transfer your account.

Gail Bebee

Gail Bebee is a personal finance speaker, teacher and writer dedicated to improving the financial literacy of Canadians and helping people to better manage their money. As an industry outsider, she is not limited by financial industry hype and delivers the straight goods on the often-confusing world of personal finance.