Sound advice is no accident
MONEY 301 Getting it requires investment on your part, sums up columnist Ellen Roseman
n a series of Money 301 columns
that began in June, we’ve put financial advisers under the microscope. We wanted to profile some dedicated and conscientious advisers — and inspire consumers to demand more. The idea came from a town hall meeting, organized last May by the Ontario Securities Commission. About 400 investors showed up, eager to tell stories about losing money through bad advice. We know it’s hard to find someone who has the right mix of expertise, empathy and enthusiasm. Most financial advisers are paid by commissions on the products they sell. Few advisers ask clients to pay their fees directly.
This means their advice may be tainted by self- interest and by a commission structure that favours one course of action over another.
Today, we’ll talk about lessons learned in this series — and what will come next in the weeks to come.
Lesson 1: Never hand over total responsibility to someone else. You can delegate, but not abdicate. No one can look after your savings as well as you can. Do your homework before hiring an adviser. Get referrals from friends and relatives. Once you have a few names, set up exploratory interviews. Ask if you can speak to other clients. Find out how the relationship will work. What services will be delivered? What type of investments or insurance will you buy? How frequently will you meet in person or
Italk on the phone? Take notes and, if you decide to proceed, get everything in writing. Otherwise, you have nothing to fall back on — no way to prove that service wasn’t delivered or commitments weren’t kept — if the relationship breaks down. ‰ Lesson 2: Never lose focus once you start working together. Read your statements. Ask the adviser to go through them with you if they’re not written in a way you can understand. Financial professionals should be able to speak to you in plain language. This is an essential skill.
Jargon may creep in at times — it’s inevitable — but you can always ask for translations. Question any decisions you don’t remember authorizing or you don’t consider sensible today. Don’t worry about being a pest. You pay for service, which includes understandable explanations, and you should get it.
‰ Lesson 3: Never stop demanding accountability. You hire an adviser so you can improve your financial health. That’s the point of the exercise. Don’t be afraid to ask, on a regular basis, questions such as these: How am I doing? Am I on track to achieving my goals? If I’m falling behind, what can I do to catch up? Be wary of someone who won’t help measure your progress or evades responsibility for setbacks.
You’re heading toward a destination you’ve pinned down in advance with your adviser. It’s a journey you take together. Financial practitioners are supposed to put your interests ahead of their own. It’s a fiduciary role they have under the law. So, don’t feel guilty asking about compensation — especially when the commissions are hidden or packaged with mutual fund fees.
Transparency about how they’re paid is part of the accountability you expect from advisers. This means they say where the money comes from, if not exact dollars and cents.
‰ Lesson 4: Never stay with an adviser in whom you’ve lost trust. Baring your finances and giving out confidential information puts you in a vulnerable position. You may start to feel a strong bond with your adviser. And you may be reluctant to switch, even if you’re getting poor service.
Will word get around that you’re talking to someone else? Will your adviser feel hurt if you defect? Always remember this is a business relationship, not a friendship. You need to stay detached.
If you’re socializing together, spending time with each other’s spouses and families, you may be getting too close. Don’t linger too long with someone you feel isn’t serving your interests.
In the coming weeks, we’ll look at financial advisers in a different light. What if you’re out of pocket and looking for redress? Unhappy customers face extraordinary roadblocks in airing grievances and getting them resolved. That was the conclusion reached by the Ontario Securities Commission after the investor town hall in May. Next week, a daughter’s fight to help her elderly mother recover from the Portus scandal. Reach Ellen Roseman at 416-945-8687; by fax at 416-865-3630; or at eroseman @ thestar.ca by email.