The Canadian Capitalist’s recent Friday roundup pointed to an article by Rob Carrick in the Globe and Mail about choosing an investment advisor. The conclusion is that a good advisor has the following 4 attributes:
1. Is comfortable speaking about fees and commissions.
2. Communicates clearly in everyday language.
3. Asks detailed question about clients’ situations.
4. Makes time for clients.
These make sense, but they aren’t enough to avoid being taken in by a good salesman. The article acknowledges this saying that people “have to be at least a little involved in the running of their portfolios.”
The problem I have at this point is that if you are knowledgeable enough to be involved in the running of your portfolio, then you probably know enough to pick a few ETFs yourself and forget the advisor. For the more complex financial planning activities (that many advisors don’t really do), investors can pay a fee-based advisor by the hour periodically.
In my limited experience of listening to people talk about their financial advisors, they tend to pick them based on rapport. Of course, rapport is important, but should you really hand over all your money to someone just because he or she knows how to act friendly?
Given the various low-cost index ETFs that exist today, mapping out your own financial plan isn’t very difficult. People who can’t handle this on their own are forced to take the risky path of trying to find a trustworthy financial advisor. I fear that the list of four desirable attributes of a financial advisor won’t be enough help.