Measures Every Investor Should Take Before Investing or Selecting and Advisor

Disclaimer: The advice offered in this column is intended for informational purposes only. Use of the column is not intended to replace or substitute for any financial, legal, or other professional advice

Navigating the markets and investing can be very complex and many people find that they don’t have the time, confidence or knowledge to effectively invest on their own.

While you should realize that they don’t work for free, it is important to understand the fees and costs associated with their service to be able to detect possible conflicts of interests if fees start to rack up too much or if something else seems off.  Here are some sample questions you might consider asking:

The terms “financial planner” and “financial advisor” are sometimes used broadly; in fact, anyone can call themselves a “financial planner” or “advisor.” What sets some apart is their education and training, and the qualifications that they hold. For the purposes of this article, we will use the term “advisor” to mean a financial professional with training and expertise that is recognized within the financial sector.

The financial professional you select is very important for several reasons. You’ll want to investigate thoroughly before doing business with a financial professional or firm that has a history of complaints or problems with regulators. Also, you should know that if your financial professional or his or her firm goes out of business or declares bankruptcy, you might not be able to recover your money—even if an arbitrator or a court rules in your favor.

Choosing the right advisor depends on the kind of help you are looking for.  Different advisors offer different products and services, and their professional designations can provide an indication of their qualifications and expertise.   Don’t be afraid to meet with several potential advisors before choosing one. To make the most of your meeting, draw up a list of questions you want to ask. Bring a pen and paper to the meetings and be sure to take detailed notes.

It doesn’t matter if you are a beginner or have been investing for many years, it’s never too early or too late to start asking questions. It’s almost impossible to ask a dumb question about how you are investing your money. Don’t feel intimidated. Remember, it’s your money at stake. You are paying for the assistance of a financial professional.

A good financial professional will welcome your questions, no matter how basic. Financial professionals know that an educated client is an asset, not a liability. They would rather answer your questions before you invest, than confront your anger and confusion later.  Taking notes will also help you establish what was said later.  Should anything go wrong this will prove invaluable.

You should note that although using an advisor with a reputable financial institution goes a long way – this won’t in and of itself protect you from fraud.  There have been high profile cases of investors defrauded by advisors from reputable firms and banks.

The first and perhaps most important factor you need to consider is whether or not the advisor is registered.

Registration helps protect investors because securities regulators will only register firms and individuals if they are properly qualified. Firms and individuals are registered by category—each category has different education and experience requirements, and permits different activities.

By law, sellers of mutual funds, stocks and bonds must complete training and be registered with a provincial or territorial regulator. You can check that the advisor or firm you are considering is registered, and you can find out what kind of registration they hold. Simply visit the Canadian Securities Administrators (CSA) website and use the National Registrant Search. It includes the names of all individuals and firms registered in Canada, with the exception of those registered with the Ontario Securities Commission (OSC). To find out whether an individual or firm is registered in Ontario, use the OSC’s Check registration resource.  You should also look for a firm that will submit to a ruling from the Ombudsman for Banking Services and Investments (OBSI), you can check participating firms.  Should anything happen, OBSI can recommend compensation for losses up to $350,000, though most recommendations are for much smaller amounts..  There is certainly no guarantee that this will happen and restitution in these cases is rare by all accounts.  You can contact OBSI at their toll free number: 1.888.451.4519 or via their website:

You can check whether an advisor or firm has been subject to disciplinary action in the past by visiting the following websites:

Investment Industry Regulatory Organization of Canada (IIROC)

Research the background, qualifications and disciplinary information on advisors at IIROC-regulated firms by generating an IIROC Advisor Report.

Disciplinary Records For Firms are available via IIROC and you should definitely check there to see if there are any records for the advisor or firm you are considering.  Look here for individual disciplinary records: CSA Disciplined Persons List.

If an advisor is licensed primarily to sell mutual funds, the Mutual Fund Dealers Association of Canada (MFDA) is the self regulating body. You can search for current and past disciplinary hearings.

Ask your advisor about their background

You want someone who is qualified and has the right experience to give you the help you need. Ask questions like:

• What are your educational and professional qualifications?

• How long has your firm been in business?

• How long have you been with the firm?

• How long have you worked in the industry?

• What professional associations do you belong to?

Ask your advisor how he/she is paid

Advisors  are paid by commission, a flat fee, or a combination of these methods. If an adviser is paid by salary, the cost of their advice is built into the products you buy. Many advisers are paid a commission for every product they sell. Other advisers charge a flat fee based on an hourly rate or a percentage of the assets in your account.  Find out how the adviser is paid, how much their services will cost you and what services you’ll get for your money.  While you should realize that they don’t work for free, it is important to understand the fees and costs associated with their service to be able to detect possible conflict of interests if fees start to rack up to much or if something else seems off.  Here are some sample questions you might consider asking:

• How do you get paid? By commission? Amount of assets you manage? Another method?

• Do I have any choices on how to pay you? Should I pay you by the transaction? Or a flat fee regardless of how many transactions I have?

• Do you make more if I buy this stock (or bond, or mutual fund) rather than another? If you weren’t making extra money, would your recommendation be the same?

• You’ve told me what it costs me to buy this stock (or bond, or mutual fund); how much will I receive if I sell it today?

• Where do you send my order to be executed? Can we get a better price if we send it to another market?

• If your financial professional changes firms, ask: Did they pay you to change firms? Do you get anything for bringing me along?

Ask your advisor what kind of products they offer, who their clients are what kind of services you can expect from them

Not all advisers offer the same products and services or have the same expertise. Some specialize in certain kinds of investments. Others can offer you a wide range of investments and services.

An advisor’s job is to help you work toward your financial goals. It will help if the advisor has a good track record with clients like you— people with similar backgrounds and goals. Ask the adviser to describe their typical client.  Also ask for references from clients who have been working with the adviser for a while.

You should get certain information about the services you can expect upfront.  Ask questions like:

• How often will we meet to review my financial plan?

• How will you update me on the performance of my investments?

• How quickly will my phone calls and e-mails be returned? Will they be returned by you or by support staff?

What should your advisor ask you?

The advisor should ask about your financial goals and investment objectives. Are you mainly looking for safety, income or long-term growth? Are you saving for something specific, like retirement? The advisor will also ask about your financial situation, investment knowledge and experience, and risk tolerance.

Risk management is a critical issue in all investing, but especially in leveraged investments such as futures. To help you manage risk exposure smartly and make the most of your participation in the commodities markets, there are important questions a broker should ask before investing your money or advising you on how to invest.

Your broker may ask you about your overall net worth and the value of your investment portfolio.  While this may seem intrusive it will help them determine the degree of risk their decisions will impose on you.   They will also need to know about what your expectations and goals for the money, about the level of risk of your other investments if applicable.  It is important for them to know if you need to maintain a certain amount of liquidity or if you are capitalized enough to allow market action.

Your broker also needs to know if you’re capitalized well enough to be able to allow market action, not personal financial circumstances, to determine the timing of your market moves.

This information may seem personal, but it helps the advisor make the best recommendations for you. Make sure the advisor asks for this information and gives you a copy. You should also let your advisor know whenever your personal or financial situation changes so they can update this information.

Self-Regulatory Organizations and Industry Group Listings:

Advisors belong to professional groups in their industry. The following industry groups can be good places to start searching.

Group name and website


Financial Planning Standards Council (FPSC) Develops, enforces and promotes standards for financial planning in Canada.
Advocis (Financial Advisors Association of Canada) Information on designations of financial advisors.
Investment Industry Regulatory Organization of Canada (IIROC) National self-regulatory organization that oversees all investment dealers in Canada. List of IIROC-regulated firms.
Mutual Fund Dealers Association of Canada (MFDA) National self-regulatory organization and representative of firms that sell mutual funds in Canada.
Portfolio Management Association of Canada (PMAC) (formerly the Investment Counsel Association of Canada) Representative of investment counsellors and portfolio managers in Canada.

Investing on your own and Getting Help with Your Complains

Investing on your own may be an option if you are confident about your investing knowledge and have the time to follow developments in the financial market. If you are new to investing, it is probably better to work with an advisor.

Joint Standing Committee on Retail Investor Issues

The Joint Standing Committee on Retail Investor Issues (JSC) is made up of the Investment Industry Regulatory Organization of Canada, Mutual Fund Dealers Association of Canada, Ombudsman for Banking Services and Investments, and the Ontario Securities Commission. The committee focuses on matters relating to retail investors, such as enhancing investor education, promoting greater transparency of investment products offered for sale to retail investors, and otherwise strengthening the effectiveness of retail investor protections.