What Your Advisor Really Thinks of You

01/16/2012 12:00 pm EST

Focus: MONEY MANAGEMENT

Rob Carrick

Columnist, The Globe and Mail

Not all professionals feel comfortable providing the blunt, hard-nosed feedback to their client investors that Rob Carrick of The Globe and Mail rounds up below from some of Canada's most highly regarded asset managers.

Here's some tough love from your investment advisor: You're not saving enough, you're not engaged enough in your finances, and you're too in love with your losing investments.

Those are a few of the responses submitted by people in and around the advisory community when asked to provide some blunt, hard-nosed feedback to investors. Ever wonder what advisors are really thinking? Then read on.

Warren MacKenzie, president and CEO of Weigh House Investor Services:

Low returns are a fact of life. Sick of bonds and term deposits with yields of 2% and stocks markets that keep clawing back your gains?

MacKenzie has no good news for you. He's been reading books such as This Time Is Different: Eight Centuries of Financial Folly, by Carmen Reinhart and Kenneth Rogoff, and he's come to the conclusion that standard estimates of 7% or 8% rates of return for a diversified portfolio are out of touch.

"When I meet with clients to do annual reviews, I'm redoing their plans at 4% returns," he said.

MacKenzie believes Europe's economic and financial problems are going to weigh on global stocks markets, and that interest rates will remain low. He sees 3.5% as an attainable return from a diversified portfolio of bonds or bond funds, including government, corporate, and high-yield bonds, over the next five to eight years.

And he thinks 7.5% is attainable in Canadian stocks over the next seven years or so, but only for those who can tolerate big ups and downs.

Ellen Bessner, a lawyer at Cassels Brock & Blackwell LLP who defends advisors and investment firms:

Your advisor does not control the market.

Bessner believes too many investors have an unrealistic view of what their advisor is supposed to do for them. They see the advisor's job as mainly to make money, and they expect to have success in all kinds of market conditions.

"Both of those assumptions are wrong," she said. "Advisors don't have control over the market, and while they will do their best to make you money, there is no guarantee."

Here's Bessner's job description for advisors: "To look at your personal financial situation and pick suitable investments, given that situation. And to make sure you're diversified appropriately."

Nancy Woods, investment advisor with RBC Dominion Securities:

No one bats 1.000 in investing.

Mistakes will be made in the selection of investments, Wood said. "Out of ten stocks, I expect five to keep up with the market or be average, two or three to be stars, and two or three to be dogs. Hopefully, the stars will outweigh the dogs."

A related bit of blunt advice from Woods is to stop coddling your losing investments. Keep money-losers only if you can answer yes to questions such as:

  • Is it playing the part in your portfolio that you originally intended?

  • Is it paying you a dividend to make holding onto it worthwhile?

  • Is there sign of a recovery?

  • Is there no opportunity elsewhere to put those assets to better use?

Up Next: Marc Lamontagne, founding partner at Ryan Lamontagne Inc. in Ottawa... |pagebreak|

Marc Lamontagne, founding partner at Ryan Lamontagne Inc. in Ottawa:

Don't fall prey to bag lady syndrome.

Lamontagne has encountered a small group of wealthy retirees who suffer from what he calls "bag lady syndrome," or the fear of ending up with nothing.

"Some retired clients will repeatedly ask me if they will run out of money even if they have over $1 million in investable assets. This leads them to living below their means. They will spend the interest on their investments, but never the capital."

Jim Yih, an Edmonton-based financial educator who runs financial programs in the workplace and is the author of the Retire Happy blog:

You're not pulling your weight, Mrs. Client.

This advice is aimed at investors who have zero interest in looking after their money and want an advisor to do it all for them. Yih said that only by getting involved and working with your advisor will you get the best possible results.

"People think that if they hire an advisor, that it will all be taken care of," Yih said. "That is so far from the truth. Even if you hire an advisor, you have to be engaged. You have to be involved. You have to take care of your money. The tough love is, you have to work at it."

Yih acknowledges the contrariness of what he's saying—most people see having an advisor as a way to make it easier to manage their financial affairs. "Here, I'm saying, you know what, it won't be easier."

Anne Huntley, a certified financial planner with Generations Financial Solutions in Waterloo, Ont.:

I'm scared you're not saving enough, and that you'll freak out when I tell you.

Ms. Huntley mentioned in an e-mail that she recently suggested a middle-aged client crank up the dollar amount of her regular investment contributions. The client had thought she was in financial shape for retirement based on how much she was already investing, and she became upset.

"I find it very difficult to get across to clients to invest monthly and/or invest enough for retirement," she wrote. "[But] that is the chance I'll have to take, as I am less frightened about upsetting clients now versus in the future, when most of them do start retirement and find they don't have enough and potentially point the finger at me."

Marie Robinson, financial coach, Fresh Take Investor Education Inc. in Salt Spring Island, B.C.:

Stop ignoring the cost of investing.

Rather than selling investments, Robinson works as a coach or mentor to help people get control of their finances. One common feature among her clientele is a lack of understanding about the cost of investing and having an advisor.

"When you query them, people do recognize that somebody somewhere has to be getting paid," she said. "But there's a component of people out there who have absolutely no understanding of what they're paying."

Don't purchase an advisor's services or investing products without knowing what the cost will be, she recommends. "Would you buy a new car without asking the price and attempting to negotiate a better deal? No difference here."