|Is It Time to Fire Your Advisor? |
October 16, 2009
The financial services industry takes a substantial amount of
criticism (much of it undeservingly) from many directions. The
vast majority of our industry is made up serious financial advisors
with their clients best interests at heart. These are the same
advisors I see at conferences and seminars where we pay our
way to learn as we are in a complex and changing information
In the autumn of 2008, the investing world was mostly caught
unaware as the U.S led mortgage and credit crisis spread around
the world, almost crippling our entire financial system. It
took a massive effort by governments around the world to avert
this crisis. As we all know now, every major world stock market
tumbled rapidly by about 35-50%.
What really disappointed me was when I watched TV or went to
the gym and heard stories about seniors whose RRSP/investment
portfolios were down by 50%.I was(and still am) quite shocked
by this. I said to the gentlemen in the gym that the only way
to be down 50% is to be fully invested in equities. There are
occasions where that type of aggressive portfolio might be inline
with the client’s risk tolerance/goals. Perhaps the client (and
his partner) has very good municipal/federal pensions and this
is “fun money”. They told their advisor that they have very
comfortable pensions, the home is paid off and they wish to
be more aggressive with this money. The gentlemen in the gym
assured me that this wasn’t the case. I said in that case your
advisor should be fired.
The big worry for clients is when to make the change. They
have just lost 40-50% and changing advisors isn’t without risk
either. The time to change is now when markets have staged a
pretty decent recovery. Your advisor (who lost 40-50%) shouldn’t
be “forgiven” for his/her error. Losing 50% means you need to
make 100% to get back to where you already were. We don’t work
hard to save our money, invest it over years just to break even.
You could do better investing in GIC”s.You don’t need a financial
advisor for this. You could lose 50% on your own. If you’re
paying for advice, make sure it’s decent to good advice you’re
receiving. You can get bad advice from your friends and neighbors.
A professional financial advisor must be held to a higher standard
that your friend/neighbor.
Ask a few friends and neighbors who they invest with. Are they
happy? Why are they happy with the advisor? Sit down with the
prospective new advisor(s) and look at his proposal. Do you
understand the investments? Make sure that it contains fixed
income so you don’t make the same mistake again. Mistakes of
that magnitude can take 5 years or more to recover from and
if you’re a senior, you might not have the time or the stress
tolerance to go through that type of loss again. Most seniors
should have between 25-75% fixed income to protect the principal
while it is being used to support your lifestyle in retirement.
The fixed income content may be on the lower end if you have
a great pension, your home is paid off and you can take the
volatility of the markets. If this latest downturn gave you
stress, caused you to think about working another year (or more)
to ensure your retirement income requirements, or you don’t
have a great pension other than this investment, you need to
be on higher end of the fixed income spectrum.
Going forward, if you decide on a portfolio that is weighted
50/50 and the markets continue advancing where over time the
fixed component becomes 35%, make sure the portfolio is re-balanced.
Some portfolio mutual funds do this automatically within certain
ranges and other investments require buys and sells to accomplish
this objective. Investment portfolios are not stagnant vehicles.
They need to be reworked after/during large corrections or movements
up to make sure they are still in the range that is comfortable
for the client.
Make your advisor accountable.
Generic Mutual Fund Disclaimer
Commissions, trailing commissions, management fees and expenses
all may be associated with mutual fund investments. Please read the
simplified prospectus before investing. Mutual funds are not
guaranteed and are not covered by the Canada Deposit Insurance
Corporation or by any other government deposit insurer. There can be
no assurances that the fund will be able to maintain its net asset
value per security at a constant amount or that the full amount of
your investment in the fund will be returned to you. Fund values
change frequently and past performance may not be repeated.
Personal Opinions & Recommendations Disclaimer
The foregoing is for general information purposes only and is the
opinion of the writer. This information is not intended to provide
specific personalized advice including, without limitation,
investment, financial, legal, accounting or tax advice. However,
please call the author to discuss your particular circumstances.