Personally, I think you’re better off reading a book and managing your finances on your own but I’m not going to argue with someone who wants to save now. If your portfolio is small, or you need someone to hold your hand, that’s okay, just be aware that there are questions to ask your financial advisor.

Ask the right questions

What’s your title/education ?

This may be hard to believe but there is no formal credentials required to call oneself a financial planner. That’s right, you could put financial planner on your business card right now, and it would totally be legal. That being said you still want to ask if your advisor has any professional designations, and what training they have.

What experience do you have?

We’ve already established that education and titles are irrelevant so experience is a bit more important. Find out how long your advisor has been working, and what companies they’ve worked for. Have they worked with clients that are in similar situations to you? If this is their first job or they recently changed careers, maybe they aren’t the right fit for you.

What are you licensed to sell?

As you can imagine someone who is only licensed to sell insurance products will push you hard on insurance. If they’re only licensed to sell mutual funds, then of course they’re going to sell you those. You want to make sure that your advisor is able to offer you a wide range of products, and can explain the pros and cons of each.

How do you get compensated?

I keep hating on bank salespeople, but to be fair banks, employ qualified financial planners that provide great service and advice. You want to find out how many clients they have, and what their average client size is. Ask them if their compensation is on an ongoing basis, or do they make up front commissions?

Advisors at the retail level usually get paid a straight salary or on an hourly rate; their main goal is to make a sale and move onto the next customer. If you’re going to purchase mutual funds through your bank, you might as well do it through one of their financial planners so at least you can get real advice.

What are the fees I’m paying?

All products carry a fee which is referred to the management expense ratio (MER), you want to find out exactly how much this MER is. Mutual funds average about 2-3% which doesn’t sound like a lot, but that’s a lot of money when you compound it over 30 years. You should also find out if there are any fees to be paid if you decide to pull out your funds early, this is referred to as a deferred sales charge.

What’s your approach to financial planning?

This is one of those questions to ask your financial advisor where you’ll probably not be satisfied with the answer. Retail advisors don’t specialize in taxation, insurance, investments, or anything really– they’re pretty much selling you whatever is popular at the moment. That being said, you still want to ask if the advisor is able to advise a plan, and how they plan to implement it.

What is your decision making process with my investments?

When working with someone at the retail level, you want to know how they are coming up with their recommendations, so ask. Do they have access tools, or do they make their decisions based on what the research team recommends? Are the funds all actively managed? Are there lower cost options? The reality is, you’re going to have limited choices.

Final word

If you haven’t figured it out by now, advisors with banks and investment firms tend to have limited knowledge– they don’t have a required fiduciary duty. Financial planners however have an implied fiduciary duty so if given the choice, use their services. Regardless of who you decide to work with, the key is to start saving now and do your due diligence.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container] ]]> https://www.moneywehave.com/questions-to-ask-your-financial-advisor/feed/ 5 https://www.moneywehave.com/how-i-got-my-deferred-sales-charges-waived/ https://www.moneywehave.com/how-i-got-my-deferred-sales-charges-waived/#comments Mon, 10 Feb 2014 05:00:00 +0000 https://www.moneywehave.com/?p=104 A while back I wrote Signs your advisor doesn’t know anything.  This was a controversial post as some of the things I brought up didn’t sit well for some readers, but I will say this; the same points that I brought up is ultimately what helped me avoid paying deferred sales charges (DSC).

This is not a post about how to avoid paying your DSC fees, but rather a story of how I got mine waived.  I honestly felt my advisor was taking advantage of me so I looked at my records to build my case.

Help from a stranger

I have openly admitted that my biggest fault was not doing my due diligence; I took what my advisor told me for his word.  I honestly believed he was looking out for me and wanted to work with me.  For a while I was happy until one day a random stranger on a message board advised me to look into my management expense ratios (MER) and DSC fees.

For those unfamiliar with an MER, it’s a percentage that is subtracted from your account regardless of your returns for the year.  An MER averages 2-2.5% which may not sound like a lot, but over the course of your lifetime it can add up to quite a bit.  A DSC gives the advisor a fat 5% commission right off the top but as the investor you are charged a percentage of your portfolio if you decide to pull out your funds early.  Check out Preet Baerjee’s new book  Stop Over-Thinking Your Money! The five simple  rules of financial success for more info on fee structures with mutual funds.

Before this message board stranger mentioned MER’s and DSC’s I had never even heard of them before.  As you can imagine I was shocked when I found out what I was really paying.  My advisor told me he was being compensated by a minimal amount, which is technically true, but not once did he ever tell me that his commission was a fraction of the MER I would be paying no matter what.  I should note that he legally didn’t have to tell me that he would be getting a higher commission by putting me in certain funds.

I found out that all the funds I was in were back loaded and if I wanted out I would be charged a DSC fee of about 5%.  My heart sank at the thought of losing that much money.  Not once was I ever told about this back end fee.

My advisor wasn’t looking out for me

For a while I was ready to eat the loss.  I felt that taking the loss was worth it to cut my ties with my advisor.  Also I couldn’t understand why I was put into back loaded funds when I had made it clear I might need my cash for a possible home purchase in the near future.  The money I was investing need to be safe.

I decided to ask my advisor this, perhaps he had a legit explanation and maybe there was something I was missing.  His response was if I was not happy with my results he could switch my funds to something with more risk.

Okay this answer made no sense, I was asking about fees and misrepresentation and he answered with something completely irrelevant.  There were plenty of earlier signs of his incompetence but it was clear he wasn’t interested in salvaging our relationship.  This would be the last time I would speak to my advisor.

I was convinced that my advisor was lining his pockets with my funds.  Now this was a serious accusation so I needed proof and the proof was in the details.

Preparing my case

I went back and found all the prepared statements my advisor had given me since we first met.  After our original meeting he presented me a plan in writing that clearly stated I was planning on buying a home.

Curious, if he knew I was planning on buying a home soon why put me in a fund that a) was heavily weighted in equities b) had a back end fee.  If he was looking out for my best interests it would have made more sense to put me in a fund that was more weighted towards fixed income and had no fees.  Sure this was my RRSP and it was long term, but again it was clear in writing that I might be taking advantage of the home buyers plan.

Since my advisor was no longer speaking with me I contacted his manager and explained the situation, right away he agreed that it made no sense that I was in a back end funds.  He was also disappointed to hear that MER’s and DSC’s were not properly disclosed.  He promised me he would look into it and asked me to send in any supporting documents I had.

I decided to check my old e-mails to see what I could find.  A quick search in my e-mail revealed more evidence that supported my suspicions.  It also gave me evidence to show that my advisor was pushing products that didn’t quite fit my profile.

Making my claim

I forwarded all these e-mails to the manager and he promised me he would get back to me shortly.  After a week he contacted me and said all the evidence I provided supported my claims and the firm would waive all DSC fees as long as I agreed to sign a waiver that I would not be seeking further compensation.  Considering I was ready to pay the fees just to be rid of this company I was more than happy to accept their settlement.

A message board stranger, research, and good bookkeeping are the reasons I was able to get my fees waived.

A few months after I had left the firm I had found out that my advisor was let go.  Turns out the internal investigation revealed that he had made some very questionable investments for other clients, all of which seemed to maximize his commissions.  I indirectly was the whistleblower.

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This post has been slightly modified from its original version which first appeared at canajunfinances.com a popular Canadian personal finance blog

Image courtesy: Drew Coffman via StockPholio.com