Top 5 Tips for Better Financial Advice

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February 24, 2017 – Too often, people think of good financial advice as something that generates strong investment returns and little else. While generating a suitable return is certainly desirable, there are a number of other considerations that might be less obvious to some people, but every bit as important. Here’s a quick look at a few of them:

Suitability: It is vitally important that your portfolio matches your circumstances. To test this, think of the “three Ts: your time horizon, temperament, and tax situation. Good advisors are careful to take these important considerations into account. Not everyone can handle the volatility associated with a significant position in dividend-paying stocks, for instance. The income paid might be higher than other alternatives, and more tax effective, too… but what if you can’t tolerate the fluctuation?

Client Interest: It sounds obvious that your advisor should make recommendations that are in your best interest, but the regulatory rule only requires that recommendations be suitable (see above). Stated differently, as long as recommendations are “suitable” (i.e. not obviously inappropriate), then they are good enough. In contrast, portfolio managers are required to uphold higher standards (i.e. a “fiduciary standard”) when managing money on a discretionary basis.

Cost: There has been a lot written lately about the cost of advice, since new statements are finally showing investors how much they are paying for advice – annually and in dollar (not percentage) terms. While this is a clear step forward, it still does not address the question of product cost. The importance of cost is absolutely critical – and one of the few things investors can reliably control. As such, it is critical that advisors look for cost-effective products to recommend to their clients.

Potential Advisor Bias: Two important reports were released in 2015 (Brondesbury in the spring; Cumming in the autumn) that showed beyond any reasonable doubt that advisors paid through embedded commissions favour those products that pay them. They are also less likely to recommend other products that might be cheaper or otherwise more suitable (see all three items above).

Additional Services: Does the person offering investment advice help with other related matters, too? Can he or she assist in offering tips on how to minimize taxes, for instance? Will she run projections (using reasonable assumptions) to see if you’ll meet your retirement goals? Many advisors take a holistic approach to advice and do more than some people think. It pays to shop around and look for services that match your needs.

There’s a lot to look for in seeking out a good financial advisor. Being a successful investor is really just one of the more obvious considerations. My recommendation is that people take a more comprehensive approach to managing both their assets and their affairs. Many of the items referenced above can make a huge difference in peoples’ lives, yet a number of people don’t even think to consider them when looking for an advisor.

John De Goey, CFP, CIM, FELLOW OF FPSC is a Portfolio Manager with iA Securities (iAS) and the author of The Professional Financial Advisor IV. The views expressed are not necessarily shared by iAS.

Read CARP’s petition to reduce high investment fees and The Cost of Advice is Hard to Verify in Advance.