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How trustworthy is your financial adviser?

With all of the media attention surrounding disgraced financial advisers on both sides of the border recently, you'd be crazy if you weren't looking at your own adviser more critically than usual.

But while it's easy to blame crooked advisers for the scams they pull, it's harder to admit that investors shoulder some of that blame. Like all relationships, the one with your adviser takes effort from both parties to ensure your investments are safe and productive.

Even if you don't understand your investments as well as your adviser does, you have to have an "awareness and appreciation of what is happening with your portfolio," Tom Hamza, president of the nonprofit Investor Education Fund. Otherwise, you may not find out you're being bilked out of your retirement savings until it's too late.

Keep informed
Hamza says even though the average investor isn't interested in "all the stats," you should at least have regular reports indicating the overall status of your finances. "It should be clear from your statements how you are doing relative to your financial objective and risk profile."

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Statements should "verify that the money invested is going to a legitimate third party like a bank and should include key information such as street address (not a post office box), list all investments and their activity over a period of time," according to guidelines provided by Advocis, the Financial Advisers Association of Canada.

Reflect changes
As your life changes -- a child's wedding or education, a job change or income loss, the death of a spouse -- you need to revisit your financial plan and discuss changes with your adviser.

So, in addition to regular written updates, investors should schedule an annual meeting with their financial adviser to update him about their lives and any changes in their priorities.

"You should see your financial adviser making suggestions that match up with what you want," says Tamara Smith, marketing vice president with the Financial Planners Standards Council. "The plan should be working for you, and you should be asking lots of questions of your adviser and reviewing things with your adviser."

Avoid blind trust
Trust is a key factor in relationships between investors and advisers, but experts caution that such trust shouldn't be blind. "Investors need to become educated enough to practise due diligence where their money is concerned," says Smith.

"One of the biggest red flags to look for is if there is a lot of turnover or buying and selling that seems to be excessive. Also, if you have established that you have a low-risk profile and your adviser seems to be pushing a product that doesn't fit with that level of risk, you should be concerned."

(continued on next page)
-- Posted: Aug. 26, 2009
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