How (not) to choose a financial advisor

Last week a friend of mine asked me for help with his portfolio. His portfolio hadn’t made any money in eight years and he hasn’t made RRSP contributions for the past two years because he’s been so unhappy with the performance. He’s already switched advisors once (in 2008). Right now he’s feeling stuck and wondering what to do next.

A look at the portfolio reveals that the fees are high (MERs of about 2.75%) and he has an over-weighting in small cap mutual funds – both of which have dragged down his performance. But perhaps what’s more revealing is how he came to choose his current advisor.

He told me: “We knew each other when we were 18 year old boys. He left for university in his 20s like I did, and ended up as a RR, eventually settling with his current firm. He had a local radio show in our home town – I even went on it from time to time thinking even if I don’t get any returns, at least it will be good for my business – but this really has not panned out.”

Now, he’s a close enough friend I can tell him that’s a pretty poor reason for choosing an advisor. But he’s not alone. So very often people choose advisors on the basis of personal relationships, a referral from a friend or ‘gut instinct’ from an initial meeting. Of course we all want to deal with people we know, like and trust. That’s important. But it’s not enough. You’ve got to be clinical in your approach if you want to find a competent and professional advisor who is a good match for you . A couple of years ago I wrote a piece for our website on 10 Criteria for Choosing an Investment Advisor. My friend’s story reminded me to share it again.

Leave Your Response