Unfortunately, the best tool for determining performance -- the brokerage statement -- is "notoriously awful." They prevent investors from figuring out how they have done." She says star advisers will have an investment policy in place that sets out your objectives clearly and will use it to build a portfolio geared to your needs.
A good adviser will set a benchmark against which his performance can be measured, says Warren MacKenzie, a principal in Second Opinion Investment Risk Consultants Inc., in Toronto, which provides an independent review of an investor's performance. "If you don't have a benchmark, how do you know (if your adviser is any good)?" asks MacKenzie.
If your adviser hasn't told you what the benchmark is, ask what it is and then see if you have done better, worse or the same. Goldin says if it's worse, "get the reasons why your portfolio hasn't performed as anticipated." There might be a legitimate reason -- for example, your adviser might have a large position in U.S. stocks that are doing well, but the rising Canadian dollar has negated your gains. Either way, it pays to find out.
Takes on too much risk
Your adviser should work with you to determine how much money you need to live on and design a portfolio to achieve that. Rodgers explains that it's not always about shooting the lights out. She had one charity whose portfolio manager consistently earned stellar returns on stocks, yet it later fired the manager. That's because the charity needed cash flow to pay its bills, not capital gains, so the manager wasn't doing the job he was hired to do, which was to reduce risk and improve returns on fixed income, she says.
Ignores your wishes
Doesn't change with the times
Also, if the adviser is pawning you off to his assistant or junior in the firm, it's a sign that she is "looking for bigger fish" and doesn't value your business, so you should leave.
At a minimum, your adviser should speak with you a couple of times a year, but once a quarter would be better. There should also be an annual review where you sit down with your adviser and review your portfolio's performance and update the adviser on any new developments in your financial objectives so she can modify your investing plan.
Thinks diversification is for
She adds that if you own seven Canadian equity mutual funds, you are over diversified. With funds, she says, you should ask your adviser to show you the similarity between them. If they hold the same companies, you aren't gaining anything. They should be diverse in management style (growth or value), investing style (small cap or large cap) and geography.
Don't just take your adviser's word, either -- use your annual review to "ask for statistical proof of what the adviser is telling you."
Before telling the adviser you are leaving, have a backup plan in place. Shop around for another adviser and make sure you are comfortable with that person and she is willing to take on your business before breaking the bad news to your current adviser. Otherwise, your investments could languish unattended.
The new firm can help facilitate the changeover and the forms you need to file to transfer RRPS and nonregistered accounts.
Jim Middlemiss is a freelance writer and lawyer based in Toronto. He's a frequent contributor to the National Post, Investment Executive and The Lawyers Weekly.
|-- Posted: May 8, 2006