The Art of Evaluating Your Advisor

03/19/2012 10:15 am EST


Rob Carrick

Columnist, The Globe and Mail

Veteran wealth manager Betty Tomsett believes it’s a good idea to periodically check out the quality of the person who is guiding your financial assets, writes Rob Carrick, reporter and columnist for The Globe and Mail.

A veteran investment advisor’s take on her peers is that one-quarter aren’t doing the job right.

"75% of the people in the industry are well educated, professional in their manner and in the services they offer," Betty Tomsett said. "It’s the other 25% of the industry that just drives me crazy."

What’s the problem? "The service levels, the experience, and the knowledge," said Tomsett, director of wealth management at Richardson GMP, and an advisor since 1986.

In my column last October, Tomsett offered a blunt insider’s take on how to interview a prospective advisor. Here, she offers her views on how to tell if your advisor is one of the good ones or not.

Tomsett suggests asking these questions:

1. Does my advisor keep in touch with me?
Ideally, there should be a full review of your portfolio at least once a year, with additional contact depending on market conditions.

"In a bull market, advisors can be a little less frequent in their communications because things are going well," she said. "When markets become more challenging, then greater communication is required."

Tomsett’s advice to clients who haven’t heard from their advisors in more than a year: Call to set up an appointment.

"Some clients are hesitant to get on the phone to arrange a meeting," she said. "They feel that the responsibility is on the advisor to arrange it, which it is. But in markets like we’re seeing today, advisors can get caught up in the day-to-day events. The important thing is that the meeting happens."

If you’re wondering how to phrase your meeting request, Tomsett suggests the direct approach. For example, you might say you’re feeling uncomfortable about your investments and want a meeting to review them.

2. Do I believe my advisor is well informed about the markets and economic events?
Before the next meeting with your advisor, prepare some questions designed to generate a discussion of market conditions.

"Ask the advisor, how are you feeling about the markets or what’s generating the changes in the market? Whatever the advisor says, it gives some insight into the depth of knowledge that they have."

A more practical approach is to say you’re going to be renewing your mortgage soon—where does your advisor see interest rates going? Grade your advisor’s answers by how clear, thorough, and well reasoned they are.

Also, note whether the advisor wallows in technical jargon or offers a wishy-washy view that suggests he or she doesn’t know enough to take a strong position.

3. Do I have confidence in my advisor’s ability to guide my investments?
The performance of your investments is a major consideration, but Tomsett warns that clients have to be realistic. If the stock market is down 15% and your diversified portfolio fell 2%, then your advisor has done well enough.

Another issue to examine is whether your advisor revisits your risk profile from time to time. Bear markets have a way of waking investors to the realization that they’re not as tolerant of risk as they thought they were several years ago, when the markets were steadily rising.

One indicator that an advisor is doing a thorough job is if he or she insists on drawing up an investment policy statement for you. These statements formalize a client’s risk profile and investment objectives, and Tomsett said they are becoming standard for new accounts.

4. Is the relationship with my advisor professional, and one of mutual respect?
Let’s start with the meetings you have with your advisor. Are you being rushed, or is your advisor showing an interest in you by asking questions?

"Probing questions suggest [an advisor] cares, that they respect the relationship and that they want to ensure the client is comfortable and happy," Tomsett said. The meeting should be with your advisor and not one of his or her associates.

Tomsett’s acid test for a client’s compatibility with an advisor: "After you’ve had a conversation with your advisor, do you feel good when you get off the phone? If you don’t, you have to ask yourself what you’re uncomfortable with. Were you not being heard? Was the advisor in any way being dismissive?"

You may come out of the process of evaluating your advisor thinking you’re in a good situation. If not, you must choose between trying to fix the relationship or ending it and finding another advisor.

If you’re not ready to give up and you believe your grievances to be fair and realistic, then schedule a meeting with your advisor to raise your concerns. "It’s important to go face to face with the advisor," Tomsett said. "If the advisor doesn’t know, he can’t fix it."

If you’re feeling intimidated, she suggests bringing a spouse or friend for moral support and drafting an informal script laying out what you want to say. A second-best approach is to send an e-mail that lays out your concerns.

However you reach out to your advisor, indicate that you feel the relationship isn’t working and then cite examples. Wrap up by asking your advisor what can be done to repair things.

Tomsett said there are two possible outcomes from a discussion like this—your advisor may work with you to improve things, or she may politely suggest you find another advisor who is better suited to your needs. Yes, advisors do sometimes fire their clients.

Prefer to just end the relationship with your advisor rather than trying to work things out? It’s actually quite painless. Just find a new advisor and ask to have your account transferred. "The old advisor does know the account is being closed out, but there’s no involvement needed by the client."