Choosing a financial adviser: 4 things to consider
Anyone can call themselves a financial adviser: Check credentials, confirm instructions in writing
The CBC's Go Public story about an Ontario couple who lost $80,000 after a mutual fund salesman copied their signatures to buy high-risk investments is a stark reminder that investors need to be diligent before choosing a financial adviser.
Here are four tips on how investors can choose their adviser wisely and best protect themselves.
1. Check credentials
Neil Gross, executive director of the Canadian Foundation for Advancement of Investor Rights, says to make sure you're dealing with an individual who is registered and regulated by a securities commission.
"A lot of people unfortunately get mixed up with unregulated individuals. And then if there's a problem, there are far fewer potential remedies for them," he said.
As well, you should consider doing a background check on your adviser to see if there are any outstanding complaints or complaints about the firm they are working for, says Toronto finance expert Bruce Sellery, author of The Moolala Guide to Rockin' your RRSP.
It's also not a bad idea to do a check even if you have had an adviser for a period of time.
Sellery recommended people choose someone with a certified financial planner or certified financial analyst designation.
"Anyone can call themselves a financial adviser. But they can't call themselves a CFP, so that counts for something," he said
At least with these designations, you know they’ll have a certain level of training and a certain standard that they’re held to, he said. The Money Smarts blog offers a number of links to check out advisers.
2. Always read what you sign
Read over all documents carefully and make sure you understand them, and if you don't understand them, seek out another source, Gross said.
"If you're dealing with an adviser who is legitimate, they will be able to explain things to you in a way you understand. If you find yourself getting more confused, then that's probably not the adviser for you," he said.
If you feel you're being rushed to sign documents and told it's all routine, that should raise some red flags, Gross said.
In the case of a forged signature, there's not a lot you can do to protect yourself, Gross said. But you should check your account statements that you receive in the mail as soon as they come in.
"Make sure there's nothing there that's a surprise to you. And if there is something that you don't recognize, that doesn't seem right, immediately notify the firm that you're dealing with, to make sure they clear up the problem," Gross said.
"And if they don't, then take the matter to the provincial regulators as quickly as you can."
3. Confirm instructions in writing
Investors should fill out the "know your client" form that will set out what you've told your adviser about your tolerance for risk and your investment objectives.
"You want to make sure those have been accurately recorded. You should be asking for a copy of that," Gross said.
But not all firms give out copies of those forms. Gross said you should send an email or letter to your adviser confirming the instructions you've given them.
"That will help protect you. If they know there's a letter like that out there, if they know there's an email like that out there, and you might have a copy of it, even if they are inclined to do something improper, they're going to be hesitant to do it when they know there's that piece of evidence out there that can be used later on."
4. Consider parking it in the bank
While some people just love to hate the big banks, those institutions may also be more risk averse and act quicker to avoid the bad public relations a story like this can generate, Sellery said.
"I use a reputable moving company partly because they're reputable, partly because if they're not, I'm going to go and make a really enormous stink. And you can do that with the big five banks and you can't do that with a company no one has ever heard of."
The couple who lost $80,000 had given their money from the sale of their house to their adviser to invest just for a few months, because they needed it to pay for a new home.
"The last place I would have told them to park their money is with their investment adviser. I would have said, 'Go to your bank and get a three-month guaranteed investment certificate because that is zero risk and insured," Sellery said.
Although the mutual fund could yield higher returns, in that situation, it would have been better to play it safe, Sellery suggested.
"You would never do that with money for a house. Never."