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Putting experts to the test

Investors should question their advisers closely and pay attention to their fees, says Patricia Bowles of the B.C. Securities Commission.

Laura Leyshon for The Globe and Mail

FINANCIAL COUNSELLORS

Putting experts to the test

Advisers can't always keep investors in the black, but good communication skills can go a long way when markets plunge

Darcy Keith

A quick glance at your beaten-down RRSP portfolio this year may be all it takes to get the blood boiling. It can soon turn to a blame game. And the easiest target may well be the financial adviser who helped you get into this in the first place.

Truth is, it's been a tortuous year for those who dared to hold more than a smidgeon of equities in their portfolios. Advisers and planners were there mostly to calm nerves and counsel on how to capture a better tomorrow.

But not everyone has suffered equally. So how does your adviser stack up? For starters, if he or she has been in contact with you frequently this past year, that's a good sign.

"There's a lot of pain out there, and I think it's even more important you have an investment adviser who has good communication skills," says Patricia Bowles, director of communication and education at the B.C. Securities Commission in Vancouver.

"In the last three months if you've got an adviser who isn't phoning you or talking to you, [or] maybe they just sent you a weekly newsletter, that's not what they should be doing in tough times," Ms. Bowles says.

"They need to actually make a bigger effort and make sure you understand what they're doing with your investments, that you're comfortable with it, because they aren't promising great returns. And if they are, you should be bloody suspicious."

An adviser should know your personal circumstances and appetite for risk. Ideally, you shared an explicit discussion about how much you were prepared to lose, and your portfolio stayed on target.

An adviser's success in finding the investments that fit your goals, especially retirement goals, can be put to the test. Find out what your portfolio consists of, the returns on the various products, and determine an appropriate benchmark for each of them. (Your adviser should be able to help you dig this up, or turn to online sites such as www.globeinvestor.com.)

For example, for your North American blue-chip holdings, find out what they lost relative to the 35-per-cent to 40-per-cent declines seen in the main indexes in 2008. Also do a historical comparison for the past three to five years. When it comes to mutual funds, see how they've been performing relative to their peers.

"I think it's fair game for any investor to do their own analysis," Ms. Bowles says. "Then when you go in and talk to your adviser you can ask more pointed questions, like: 'This is what the index is doing and this is what my portfolio is doing. Why? You recommended this mutual fund but mine isn't doing well. Why?'."

Fees are also crucial. They have a large bearing on your returns and can help expose an adviser's potential hidden agendas. Find out how your adviser or planner is paid and how he or she may gain from any specific product.

"I would ask, 'What are the total present and future fees for this kind of investment? What are the commissions, the management fees, the administration fees, and are there any other?' In a lot of cases there are alternative products where they don't have to pay those fees," Ms. Bowles says.

Some portion of an adviser's compensation might be embedded in a fund's cost. For instance, an adviser might be collecting trailers - ongoing fees a mutual fund company pays to the adviser for making the sale and providing advice.

Be suspicious with advisers who aren't upfront about any of these. And be prepared to negotiate, especially after doing some comparison shopping. "People just don't feel strong enough or confident enough to do that, and they should - it's their money," Ms. Bowles says.

A growing trend has been fee-for-service advisers, in which clients pay a fee in exchange for advice or services rather than product commissions. Fees of about 1 per cent of your portfolio are common, but don't use that as a strict guide.

"Fee-for-service can range anywhere from 0.5 per cent to as much as 5 per cent, if not higher," says Taylor Train, chief operating officer for Advocis, a national financial planners' association. The important thing is to know the type and extent of services that you require, he says.

Cary List, president and chief executive officer of the Financial Planners Standards Council, cautions against automatically putting blame on an adviser for the past year's drubbing.

"It's sort of a mistake to jump to conclusions that my adviser should have been able to do better than he or she has in these times," Mr. Lists says, "rather than saying, Has my adviser been following up? Has he or she explained to me the implications of a downturn? And has the adviser come up with strategies that will help me overcome those hurdles and actually get through to achieving my goals?"

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