Editor’s Note:   This marks the first installment of a three-part series outlining practical survival tips for investor protection.  The series is guest-authored by John Hollander, he is a lawyer with Doucet McBride LLP and he specializes in Personal Injury, Financial Loss Recovery and Wills and Estates.

 
Consumers have to save a little money to get ahead and to retire. As they do so, consumers often realize that they don’t know what to do with the money that they have saved.

Most consumers have a relationship with their bank or credit union. They have chequing accounts, credit cards, and possibly an RRSP. Maybe all of the accounts are with the same institution. Maybe they are spread among more than one. Many consumers receive very little financial advice with respect to investments. Each February, they may go to the wicket at their bank and arrange to “buy an RSP” (whatever that means). They get a receipt, claim a deduction on their income tax return, and pay less taxes result (or think they do). For many consumers, this is all the financial planning they conduct over the course of the year. The next year, they repeat the process without knowing whether they did the right thing the previous year.

The fact is that consumers need more financial advice than this. They have to choose between paying down debt, such as their mortgage, credit cards or car loans, and making financial investments, such as mutual funds and some forms of life insurance. Who is there that can help consumers figure out what is available and what it is that they need? Who can help consumers make these decisions?

Enter the financial advisor. There are two key characteristics of a good financial advisor.

• The first is that the advisor must be a professional. This involves training, expertise, and access to a broad range of good products that clients might need.
  
• The second is that the advisor must get along with the client. This requires that the advisor spend the time and make the effort to get to know the client, to establish a relationship and to maintain that relationship. It also requires a personal compatibility that will be different from person to person.

Example

A client calls the local Trendy Investment Centre office, answering an ad on TV that promised professional and professional service. The client books of appointment for the next day. At the office, the client is asked to wait for the next investment executive. After a 30 minute wait, the client is shown into a small interview room, only to wait another 15 minutes.

A young man wearing jeans and a T-shirt walks in, identifies himself and starts to explain the Trendy Investment Centre investment philosophy. He praises their unique mutual funds, available only to Trendy Investment Centre customers. After 10 minutes of the sales pitch, the young man asks whether the client wants to sign up.

The client gets up and leaves, politely saying that the experience is not what the client was looking for.

Discussion

This is definitely not the way professionals act. The meeting was all about selling the client on a generic product touted by the Trendy Investment Centre dealership. The meeting was not about the client, but was about generating profits for the young man and his employer. The client was absolutely right to leave at the first opportunity.

Tip

If the financial advisor spends more time talking about him or herself than getting to know the client, that is a warning bell. Advisors should be more interested in the client and less interested in making the sales pitch.

Tip

If the financial advisor touts a single type of product, the chances are that is the product which makes the advisor the most commission. Clients can expect a range of products and services from which to pick the best for them. They should hear both the pros and cons about everything offered. And there are always cons.

Additional Reading – If you’re planning to select a new advisor or selecting an advisor for the first time you might also read:

• Where Investment Advisors are Concerned, Do Credentials Equal Credibility?
• Measures to take when selecting an advisor (what questions should you ask? what background research should you perform?)
• Protect yourself by learning about the top broker scams
  

New Resource you Might Consider Browsing:

•  The Ontario Securities Commission says it uses some of the money it collects from fining companies who abuse the system to provide financial information to consumers and though not all the resources will be of use, you can be sure that the information is reliable.  The main page is: http://GetSmarterAboutMoney.ca, to see a list the ressources that will be most interesting to older Canadians, click here. The site includes tools like retirement cash flow calculators and a guide that helps you determine weather to rend or own after retirement.