Set Expectations: Choosing an Advisor

The level of service varies with each financial service provider. Starting the search process by first setting your expectations helps you to quickly eliminate those providers who aren’t a good fit. Be aware that a significant percentage of financial service providers are in the business of selling products. Many providers may have a bias toward their own (commission-based) products.

In your search for the right financial service provider to meet your needs, you want to interview a cross-section of financial planners. Here are a few guidelines to make your research more productive.

1. Write Out What You Want

  • The type of advice (such as advice on investments)
  • The amount of advice (such as help with seeing the bigger picture by developing a master plan for you)
  • The services you want (such as tax advice and completion of your income tax and benefit return)
  • The products you need (such as life insurance and critical illness coverage)

2. Define Your Expectations

  • Do you want an ongoing relationship or a one-off consultation?
  • Do you want a comprehensive financial plan or a modular one, focusing on one component only (such as investments)?
  • Do you want to complete a financial plan first before receiving investment advice and recommendations?
  • Do you want your advisor to work at increasing your level of knowledge?
  • Do you want to be involved in investment decisions or give your advisor discretion over your account?

3. Your Responsibilities

  • Communicate openly and honestly. Depending on the service, a full disclosure of your personal situation may or may not be necessary. However, if you hold back pertinent information and are not honest about your level of experience, knowledge or finances, the old saying “garbage in, garbage out” may apply.
  • Ask questions and stay involved.
  • Understand what you are buying, including any insurance or investment products.
  • Walk away if any investment sounds too good to be true.

Choosing a Financial Services Provider

Once your expectations are defined, your next task is to develop a list of questions to ask. Choose questions that address each of the following categories:

  • Services available
  • Areas of expertise
  • Qualifications and experience (such as., service provider and his/her team)
  • Due diligence
  • Implementation methods (such as mutual fund portfolios versus individual stock and bond portfolios)
  • Organizational structure (such as independent dealer/broker versus portfolio managers)
  • Service expectations

Develop a list of potential providers to interview, using the following resources:

Interview two or three providers for each area of need you have identified.

  • When different types of providers exist, consider interviewing different business models. For example:
    • By compensation: fee-based, fee-only, salary, commission, sales fees or a combination of commissions and fees
    • By investment model: mutual funds, portfolio management or a self-directed brokerage portfolio of stocks and bonds
    • By organizational structure: independent dealer/broker, fund company representative or investment and wealth management
  • Once you have selected one provider from your shortlist, then:
    • Arrange a data-gathering meeting to discuss your personal financial situation in detail.
    • Sign a letter of engagement outlining the services to be provided, fees to be charged, etc.
    • If appropriate, complete an investment policy statement outlining the details of your investment needs, risk capacity and tolerance, suggested portfolio, implementation steps and review process
    • Complete the discovery and initial planning process: review recommendations, fees/commissions and action steps
    • Do a “gut check”: Are you comfortable and confident implementing the recommendations? If yes, open accounts, sign contracts and move forward
    • Arrange for a follow-up meeting to assess progress
    • If the service being provided is ongoing, meet at least annually or whenever a significant life event occurs