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How to find the right financial adviser for you

Chances are when you bought your home, you visited more than one open house. After all, it was a substantial investment, and it needed to suit your purpose.

While it was a major decision, the fact is it isn't likely to be the biggest decision you'll make when it comes to your financial well-being. The most important decision would be selecting the person that could best help you manage your finances and reach your retirement goals.

Think about it. The average house in Canada costs about $200,000. But financial experts say you'll need at least that much and likely triple that amount socked away for retirement.

That's why it's important to shop around when looking for a financial adviser, and take the time to find the right person for you. That is sometimes easier said than done because of the dizzying array of experts out there with a range of credentials.

"It's actually one of the issues we hear over and over again: retail investors saying they know they need to get some advice but not knowing where to turn to and not knowing what to do to find a good financial adviser," says Terri Williams, president of the Investor Education Fund (IEF), in Toronto.

The IEF is an independent organization funded by penalties leveled by the Ontario Securities Commission. Its mandate is to develop investor education programs. To help investors better understand the quagmire of finding a suitable financial adviser, the IEF has produced an online tutorial that walks investors through the process.

"One of the problems is that no one broker is suitable for every investor," says Stan Buell, president of the Small Investor Protection Association, a nonprofit organization committed to fair practice in the investment industry. "When selecting a financial adviser, you really have to do a little bit of homework and understand how the industry works, understand the risks involved…then go out and find somebody you can communicate with."

Know what your goal is
Before embarking on the search, Williams says it's imperative to understand what you want to accomplish. Do you need a financial plan or are you looking for someone to help invest your money? Do you want to invest in government bonds or mutual funds? The answers to these questions have a big impact on the type of adviser you need.

That's because under current regulations, advisers must be licensed to sell certain products. But across the country, with the exception of Quebec, someone simply holding himself out as a financial adviser doesn't need to be licensed to offer advice, warns Glorianne Stromberg, a lawyer and financial commentator in Toronto. That's why it's important to pay attention to credentials.

There are a number of different investment designations, each of which brings something to the table; some advisers may hold multiple designations. Here are some of the main types of advisers:

Canadian Investment Management (CIM): Commonly referred to as a broker, this designation, granted by the Canadian Securities Institute, means the holder is trained to provide advice on structuring a stock portfolio.

Certified Financial Planner (CFP): This designation is granted by the Financial Planners Standards Council. A person with a CFP can provide financial planning and help you coordinate your banking, estate, insurance, investment and tax affairs. She may or may not be able to sell you investment products.

Chartered Life Underwriter (CLU): This person is trained in life and health insurance products.

Chartered Financial Consultant (CH.F.C.): This person has advanced expertise in wealth accumulation and retirement planning.

Investment counsel/Portfolio manager: These people manage money on a discretionary basis and usually require a minimum level of assets of about $100,000. You can find out more about them at the Investment Counsel Association of Canada.

Mutual fund representative: Someone who is licensed to sell mutual funds.

Chartered Accountant (CA): An expert in accounting, auditing and tax planning.

Estate lawyer: Someone who provides assistance in setting up family trusts, wills and estate litigation and planning.

In many ways, maintaining your financial health is similar to maintaining your physical health, so there will be times when you need the expertise of multiple advisers. For example, a CFP might create a financial plan for you, but you'll need a broker or mutual fund representative to help you execute it.

Ask for and follow up on references
So where do you find these people? Word of mouth is still best, says Rick Johnson, director of practice advisory at Advocis, a national organization for financial advisers. "The Yellow Pages is not necessarily a good way of doing it," says Johnson. He suggests that you ask your friends, relatives, professional contacts or work colleagues for referrals.

Professional organizations can also help. For example, Advocis has a search tool on its Web site that allows you to search for certain types of advisers in your region.

If you're simply interested in buying mutual funds, most fund companies can direct you to representatives who are licensed to sell their funds. Most fund firms have their own Web site and provide information on working with an adviser. For a list of mutual fund dealers, check out the Mutual Fund Dealers Association of Canada.

If you want a stockbroker, the Investment Dealers Association of Canada provides a list of licensed investment dealers at its Web site.

Canvass the various sources and draw up a list of at least three names of potential advisers, and then take the time to interview them. Communication is key to a successful relationship. Make sure you understand what they can and can't do for you.

Ask things like: How do you see us working together? What's your expertise? What's your investment style? How often and in what manner will I be contacted? What type of investments will you recommend and why? How have those investments performed?

One of the most important things to ask is how the adviser is remunerated. Will it be based on commission for undertaking transactions or will he be paid a fee based on managing your assets? You should also ask for and follow up with client references.

To narrow down your selection, check out the adviser's credentials with the association she belongs to (as listed above) and see if there are any complaints filed against the adviser or discipline taken. The Investment Dealers Association is the national, self-governing body that oversees brokerage firms and their employees. The Mutual Fund Dealers Association oversees mutual fund dealers and their employees. Lawyers and accountants are self-regulated at the provincial level, while the Financial Planning Standards Council oversees the CFP designation here in Canada, but it is not a self-governing body so it can't discipline members.

While designations are helpful, Stromberg says they "don't necessarily mean that the person really is able to provide the services that they hold themselves out as providing." It's simply a starting point. That's why it's important to educate yourself, shop around, do your homework and ask lots of questions. After all, it's your money at risk and no one cares more about it than you do.

Jim Middlemiss is a freelance writer and lawyer based in Toronto. He's a frequent contributor to National Post, Investment Executive and Wall Street & Technology.

-- Posted: July 23, 2004
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