Service Questions

Who are your typical clients?

Some do not place a heavy emphasis to this question.† In essence, an investor wants to know if they fit in as an advisorís typical client.† If an advisorís average client has an investment portfolio of $500,000 and is a comprised mostly of physicians and business professionals who trade stocks and mutual funds, and the investor seeking a financial advisor has investible assets of $60,000 with a goal of preserving capital by investing in bonds, the fit may not be appropriate.

How do you base investment recommendations?

An investor should understand how an advisor bases the recommendations provided on an account.† For instance, does the advisor take a passive or active approach to investment management?† Do †investment recommendations takes factors into consideration such as the economic and financial climate?, Is the advisor looking at the investorís stage in life investment objectives, level of investing experience, risk tolerance and time horizon?† An nvestor should understand whether the recommendation was based on an advisorís limited product offerings, licensing, or an investment companyís policies and procedures.

What types of guarantees do you provide?

Information on guarantees should be in the form of written communication.† In the majority of cases, investment returns are not guaranteed unless one invests into Guaranteed Investment Certificates (GICs), treasury bills, bonds held to maturity and other types of fixed income type investments.† Guarantees provided in the case of an issuers solvency or a firmís solvency is a different issue.† Investors should understand if their assets are protected by organizations such as CDIC (Canadian Deposit Insurance Corporation), Assuris, Canadian Investment Protection Fund (CIPF), Mutual Fund Dealers Association Investor Protection Corporation (MFDA IPC) or any other provincial organization.

Losses covered by trading in securities or bad investment choices are not covered by insurance.

What is the level of service I can expect?

Both the investor and advisor should agree to the level of service expected.† If an investor would like a portfolio update every month involving a meeting, and the advisor only provides annual or semi-annual meetings, then this potential relationship will not work.†

Investors should ask the potential financial advisor whether questions can be asked on an ongoing basis, and whether the advisor would be open to communicating via email or is communication only done on the phone or in person.† As well, investors should understand how statements are produced, what information is contained on the statements and how often are they created and delivered.

How do we measure performance at the end of the year?

This is an extremely difficult question for an investor to ask, and for an advisor to answer.†† However, performance measures should be in place to see how the advisor and the investments performed over a one year period.†

Some investors and advisors review performance based on a pre-determined expected rate of return.† This scenario presents problems.† For example, if it is determined that an expected annual rate of return on an equity portfolio is 8% per year, and the underlying stock market index is down by 20% and the return on the portfolio was 1%, how does one rate †the performance on this specific investment portfolio?

Here is an interesting alternative approach. Some advisors and professional money managers like to establish benchmarks that are tied to market indexes.† For example, an advisor may recommend that a performance measurement should be set at 4% above the stock market index, or 3% above the long term Government of Canada bond yield.

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