In Canada there are many people who go by the titles of Financial Advisor, or Financial Planner. What most people do not realize is that these titles are not regulated (with the exception of Financial Planner in Quebec). Anybody can use these titles without any educational or experience requirements.
What is regulated by the government is licensing to sell financial products, such as stocks, mutual funds and insurance.
For example, before you can sell mutual funds you must become licensed as a “Mutual Funds Salesperson” A registered mutual fund salesperson is legally obligated to ensure to products they sell you are suitable based on your investment objectives time frame and risk tolerance. They are not required to act as a fiduciary. A fiduciary has a duty to act primarily for the client’s benefit in matters connected with the undertaking and not for their own personal interest. In other words, there is no legal obligation to put your interests ahead of theirs. As long as the investment is suitable for you there is no need to inform you of lower fee alternatives, even if they know they are better for you.
Whether acting as a fiduciary is a legal requirement or not, I think we can all agree that we want to work with an advisor who put the interests of their clients ahead of there own. If this is not happening then you should be looking for a new advisor. Here are seven signs you financial advisor is putting there own interests ahead of yours.
1. You purchased a mutual fund from your advisor with a Deferred Sales Charge (DSC).
These funds can easily be spotted on your statements. Most will have DSC after the name. When an advisor sells you a fund with a DSC they get paid a healthy commission, usually 5% and in return you get locked into the fund for 7 years in most cases and are subject to a higher management expense ratio (MER) which will mean lower investment returns. Your advisor could sell you the same mutual fund with a low load, meaning lower commission for them and in return a lower MER and shorter locked in period for you. Another option is a front end load fund. The front end load fund will have no locked in period, the lowest MER of the three options and a negotiable commission paid up front. The fund companies do set a maximum amount the advisor can charge but there is no minimum so it can even be set to 0%. If you hold a DSC fund in your account ask your advisor why they choose that option over the others, and if he has a good answer please let me know, because I have not heard one yet.
2. The only time they call you is when they are trying to sell you something.
If the only time you hear from your advisor is in February when it is time to make your RRSP contribution, or they are trying to get you to buy a certain investment, then chances are that the advisor is more concerned with their income then your savings. This tells me that they are only interested in speaking with you if there is a chance that they will earn a commission and not really interested in your future.
3. They take days to return your calls.
Many people consider it a good sign if their advisor is too busy to answer the phone. This can be seen as a sign that they are a good advisor with many happy clients. To me it tells me one of two things. They have poor time management skills or they are a good salesperson and have taken on more clients then they can properly serve in an effort to make as much money as possible. An advisor who has the client’s best interests in mind will only take on as many clients as they can serve, even if it means turning away potential business.
4. They have changed companies more then once and got you to move your Investments when they changed.
It is possible that the advisor has good reasons for moving, but this is a common tactic used by many advisors in an effort to maximize their own income. When a new advisor moves funds over from the old company to the new one it usually generates a commission for them, and in most cases will create extra costs for you.
5. They have no financial education.
I am the first person to admit that having a bunch of letters after your name does not make you a good advisor, nor does it mean you are an ethical person. However, if an advisor has their client’s best interest in mind, I believe they should make some efforts to improve themselves though continuing education. If they are not willing to do this then I would look for someone who is. There are many financial designations out there. CFP, R.F.P., FCSI, CIM, FMA, Ch.F.C, R.F.P. This is by no means complete list but includes the most common designations.
6. They have not told you how they get paid.
Regardless of how your advisor gets compensated you as a client should be made aware of the compensation by your advisor. An honest advisor should be upfront about the fees you pay, the income they earn and should have nothing to hide. If they are making a recommendation they should let you know the different options which one they think is best, and if they get paid more for it then another option they should let you know why it is worth the extra cost. Your advisor should offer this information to you and not only mention it if asked.
7. You feel pressure to make decisions quickly.
If you are being told that you need to act right away or you are going to miss out on a great opportunity, chances are it is a line and nothing more. Purchasing investments can be a big decision and you should be encouraged to take some time to review your options before jumping into anything.
If any one of this situations applies to you, then you need to review the relationship you have with your advisor and consider looking for other options. If more then one applies I would start the search today.
Ryan Rohloff FMA, FCSI
http://www.atlasfinancialplanning.ca