Sounding off on financial advisers

You’re working with a financial adviser, but you think the investment recommendations are not suitable for you.

“Look at my portfolio,” you say. “I haven’t made money in years. In fact, I’d have been better off on my own.”

Do-it-yourself investing can be a worthwhile hobby if you’re retired and you enjoy following the markets. But most people prefer using the expertise of a dedicated financial adviser.

So, how can you find the right investment help? And how can you complain effectively if you’re unhappy with your portfolio’s performance?

Here are some tips I’ve developed on hiring a financial adviser and getting redress if the relationship goes off track.

When shopping around for advice, interview several people. Ask for referrals from friends and family members whose financial situation is similar to yours. Then, sit down with each of the advisers and talk frankly about how they do business. Here are some questions to ask:

• How long have you been in this business? How many ups and downs in the market have you experienced?

• What are your credentials? What do your financial designations men to me? How are you upgrading your education?

• How many firms have you worked for? Have you or your firm been subject to disciplinary actions in the past few years?

• What do you sell? What product licences do you have?

• Who are your clients? What kind of incomes do they have and what size of portfolios? Can you give me references or provide names of clients I can interview?

• Do you do a financial plan before recommending any investments? Do you charge for a financial plan? Can I see a sample plan?

• What’s your investment philosophy? Do you have an area of expertise?

• What’s your view of risk? How do you assess my risk tolerance and my comfort with riskier investments? Do you have a questionnaire? How do you try to preserve capital?

• How are you paid? Do you charge commissions on products you sell? Do you charge annual fees? What do you charge for looking after my RRSP or RRIF?

• Which mutual funds do you sell? Can I buy or hold bank-sponsored funds? What about funds from smaller, independently-owned firms, such as Phillips Hager & North?

• Does your firm have its own family of mutual funds? Do you get paid more when you sell these funds? How many fund groups do you follow?

• Who’s on your team? Can I meet your assistants? Can I meet your boss? Who’s your backup when you’re away? Who will handle my portfolio if you retire or leave the firm?

• How often will we talk? Will you call me on a regular basis? Will you tell me if there’s bad news about my portfolio? Do you have an after-hours number? How quickly will you respond to my calls and emails?

• How often will we meet? Can we sit down together at least once a year? Where will the meetings be held? Do I have to go to your office?

• How often does your firm send out statements? If I don’t understand my statements, will you go through them with me?

• Will you show me the original cost and the current market value of my investments? Will you show me an annual percentage rate of return on my entire portfolio?

• What benchmarks will you use to evaluate the performance of my investment portfolio? Will you explain why I’m leading or lagging my benchmarks?

• How are my investments protected if the firm goes under? Is there an industry fund that will provide compensation? How much is the coverage?

• Which people at your firm deal with complaints? Do you have an internal ombudsman? Is there an industry-level ombudsman who will review my complaint? Who regulates your firm?

Once you choose an adviser, you can ask to get all the information confirmed in writing. An adviser has a legal responsibility to complete a form that correctly describes your investment objectives, knowledge, experience and risk profile.

You should be consulted on the account application form, which the industry calls a “know-your-client form.” Get a copy and keep it on file. Ask your adviser to update it when your situation changes (if you retire, for example). This little-known document will come in handy if the relationship runs aground. You can use it to support a claim that the adviser’s recommended investments weren’t suitable for you. Meanwhile, the adviser may use the account application form to show your investments were indeed suitable. If the document says you’re an experienced and informed investor with a high risk tolerance, you won’t have much of a case. So, make sure it’s filled out properly.

Once you start working with an adviser, keep a record of all your communications. Don’t rely on your memory. If there’s a dispute, the adviser will produce written notes. You should have them, too.

The Canadian Securities Administrators has a form that investors can use: When Your Broker Calls, Take Notes ( It asks about the reasons for a recommendation, the risks and the written information supplied before you make a decision. You should ask, “How does this meet my investment objectives?”
In another useful CSA publication, Take Time to Know Your Adviser Before Investing, you’re told to ask why the adviser is recommending a particular stock or mutual fund. How much is he or she earning in commissions? Is there an ulterior motive?

An adviser shouldn’t try to pressure you into making an investment decision. “If they do, walk out of the room or hang up the phone,” say the regulators. “No reputable adviser would engage in high-pressure sales tactics.”

Be skeptical if someone tells you there’s no written information about the investment. “It’s a sure sign there’s something about the investment they don’t want you to know,” say the regulators. And be wary if you’re told of an opportunity to earn uncommonly high returns because high returns usually mean high risk.

Always insist on your right to ask questions. The answers should be in plain language, without unnecessary jargon. You’re paying for an adviser’s services and that includes explanations you can understand.

Don’t be afraid to ask how you’re doing. Are you on track to meet your goals? If not, what can you do to catch up? The adviser’s role is to help you decide on objectives and how to achieve them.

If you’re unhappy, tell your adviser. Tell his or her supervisor, as well. If you’re demanding compensation, complain in writing and show evidence to support your claims. Keep escalating your complaint to a higher level within the firm.

If the firm says no, you can go to the Ombudsman for Banking Services and Investments (, an independent complaint adjudication service that costs you nothing and deals with disputes of up to $350,000. It’s faster and easier than going to court.

A final word of advice: speak up when your investments don’t meet your expectations. Waiting too long to complain can hurt you. The adviser’s firm can argue you did nothing to mitigate your losses. So, if you lose more money than anticipated, you should be on the phone to your adviser.