Where To Start?

Many studies have been done proving the relative merits of using a financial advisor. These studies all indicate that people who use an advisor generally have portfolios that outperform those who don't. Some of the reasons given for this is that the advisor is more educated in the field of finance, and that people who invest on their own generally don't stick to the original plan they have put in place and tend to follow the fads. Following the fads can be dangerous, as you are usually one step behind the next new trend - or you forget sound asset allocation principles. A third party working with you can usually assist in taking the emotion out of investment decisions. This will also assist in the 'sleep factor' attached to your investment portfolio.

That might all make sense, but the next part in the equation is choosing your advisor. One of the best sources is generally a referral from a friend or relative whom you trust. Most books on investment advice include a chapter on selecting your advisor. All the references I have read include the following points:

• Interview a variety of people. This is a key point, and it allows you to determine most of the information needed to answer the following items.
• The person you work with must be able to communicate with you. Do they use jargon or industry terms that go over your head? Can this person explain the investments to you so that you have an understanding of what is being recommended?
• Is the person a member of a professional association? This membership usually requires errors and omissions (E&O) insurance as well as imposing a code of ethics that governs practice and conduct. The Canadian Association of Financial Planners (CFP) is one such organziation.
• What is the background and certification of the advisor? Does your potential advisor have experience in the variety of areas usually needed to be considered a financial planner (these areas include taxation, insurance and estate planning in addition to the more common investment advise)? Is the person licensed to deal with investments, and what type of licensing does the person have (mutual funds only, insurance or full securities license)? Does the person have a professional designation in financial planning?

This might sound a little daunting, but many have found it worth the effort.

Carol Tichelman, CFP, is with Partners In Planning Financial Services in Chilliwack, British Columbia.