The Right Steps to a Financial Advisor

Veteran wealth manager Betty Tomsett says clients bear some responsibility if they’re not happy with the relationship, writes Rob Carrick, reporter and columnist for The Globe and Mail.

Can clients be at fault if they’re not happy with their investment advisor?

Veteran advisor Betty Tomsett says people aren’t putting enough effort into the search for an advisor, and this is leading to disappointing relationships.

"The client needs to step up," said Tomsett, director of wealth management at Richardson GMP Ltd., and an investment advisor since 1986. "This generation has been spoiled—we’ve had people doing things for us all our lives. We’re happy to delegate, but we’re not willing to step up and be proactive where we need to."

What follows is Tomsett’s insider guide for people who want a methodical approach to interviewing a prospective advisor. "These questions are about as probing as you can get without the advisor kicking you out the door," she said.

Find Prospects to Interview
It’s often said that the best way to find a good advisor is to ask friends, family and business contacts to refer someone they use and like. Tomsett refines this advice a little.

"Go not to your best friends, but to people who have done well financially, who you admire and who are in the same financial bracket as you. You don’t want to end up with an advisor who only deals with high-net-worth clients," she says.

Set the Interview Dynamics
Two key points to start—the meeting must be face to face, and you should meet with the advisor and not his or her associates or assistants.

High-powered advisors may have marketing assistants or a business development person. That’s fine, but you’re hiring the advisor, not the support staff.

The interview is as much about watching as listening, Tomsett said. "When you have a face-to-face meeting, you get to look at a smirk on the face, whether they roll their eyes, whether they’re watching the clock. You’re looking to see if the advisor is answering everything straight on, if there’s no rush and the body language is open and professional."

Come prepared by bringing your financial statements. "The meeting might go quite well—you don’t want to be prevented from asking specific questions because you don’t have your personal details."

A question to get out of the way early is how large the advisor’s client base is. The total dollar value and number of accounts are less relevant than the number of households the advisor is working with, Tomsett said. Watch out for advisors with hundreds of households—they may have trouble finding time to discuss volatile markets like we’re seeing now with each of their clients.

If the advisor you’re talking to uses a team approach, get the background on the team members and find out who’ll you’ll be speaking to when you call in with questions.

Suss Out the Qualifications
Start with the basics: How long have you been a licensed advisor, what professional designations have you earned, and what do those designations mean?

Not surprisingly, Tomsett favors the advisor with enough experience to have seen a few up-and-down market cycles. For a more thorough look at your advisor’s experience, ask to see his or her résumé. Look for relevant work experience as, say, an accountant or business owner.

"This information helps you put their whole professional acumen into context," Tomsett said. "You want them to be street smart."

By all means ask for references, but recognize that an advisor is only going to give out names of people who he or she is comfortable with and have done well. Why bother with references, then?

"What you’re doing is sending a message to the advisor—I’m not afraid of you, you’re accountable to me, and I will decide. It’s more a matter of the profile of yourself that you’re presenting to your advisor. You’re saying, I’m not a pushover here."

Some final questions: What’s your current opinion of the market, the economy, the dollar? "See if you get an educated answer coming back," Tomsett said.

NEXT: Determine the Business Model

Determine the Business Model
Find out if the advisor specializes in a particular market segment, say high-net-worth families, and ask how you would fit in.

Next, ask whether the advisor is restricted in any way in choosing investments for client accounts. Get some specifics on the advisor’s investment approach by looking at what components would be found in the typical client’s account.

Tomsett also suggests asking the advisor how his or her client portfolios did in the 2008-2009 stock-market sell-off.

"No answer is not a good sign," she said. "If they’re honest, they’re going to say something like, the market was down 35%, my portfolios were down 20%."

Another good question is, what are you doing for your clients right now? It’s a chance to see how the advisor is following through on his her view of the market.

Clarify Communications
Tell the advisor up front how big your account is.

"Don’t be afraid to say, I realize this isn’t a half-million dollar account; is this in any way going to determine the level of communications I get from you?" says Tomsett.

A yes answer is okay. "You want honesty. You don’t want someone who hides behind a façade of a service that isn’t going to be provided."

Next, ask how often are account reviews are done, and what form they take. Large accounts should receive quarterly or semi-annual reviews in person, while smaller accounts may get annual reviews plus periodic phone calls.

All firms send out monthly or quarterly account statements, but not all show personalized rates of return over multi-year periods. If your advisor’s firm is in this group, ask for upgraded information.

Ascertain Fees and Services
In most cases, an advisor will be compensated through either fees and commissions on the sale of investments, or through a fee set as a percentage of the value of the client’s account.

Tomsett said there are pluses and minuses to each compensation model. What matters is how articulate the advisor is in explaining the model he or she has chosen.

Whether the advisor is paid through commissions or a percentage fee, ask what services you’ll receive. Possible examples include retirement planning, insurance products, philanthropy, succession-planning advice for business owners, and help with budgeting.

If you have specific needs, ask if your advisor’s firm has in-house experts who can help.

"We’ve talked so far about how to interview the advisor," Tomsett said. "This is kind of where you have to interview the firm. The advisor is to a large degree only as good as the firm."

Close the Meeting
You’re under no obligation to make a decision at the end of the interview, so tell the advisor you want to go home and think about it. Feel free to call with more questions.

Decision Time
Now, ask yourself these six questions after interviewing a potential advisor:

• Is the advisor going to keep in touch with me?
• Do I have confidence in the advisor’s ability to guide my investments?
• Do I believe the advisor is well informed about markets and economic events?
• Will the relationship be professional and one of mutual respect?
• Is the advisor qualified and experienced?
• Does the advisor have access to the depth of services I need now and in the future?