Organizing your personal finances and launching an investment plan are daunting tasks.
Those starting out may feel intimidated by a lack of knowledge, or by the fact that they don’t have a lot to save or invest. Mainstream advisers aren’t that interested in beginners for that very reason: small sums don’t generate much in fees. And calling someone twice your age to make an appointment makes them feel like they’re back in the principal’s office.
That’s why the Internet is such a great leveler for people used to spending a lot of on their phones, computers or tablets. When it comes to investing, that means learning can be done and choices can be made at the user’s own speed, without the pressure and quick decisions of a face-to-face meeting.
This has led to a rise of automated investing services, or robo-advisors, who take advantage of the online preference and combine that fact with low fees. The answers to online questionnaires build a framework for goals and risk tolerance. A computer program then chooses a portfolio of investments — usually mutual funds or Exchange Traded Funds (ETFs) — that are automatically adjusted over time.
I asked advisors at two GTA firms what questions younger clients should ask of real-life advisers before making a commitment. Here’s what they said:
Dave Nugent, chief investment officer, WealthSimple.com:
Ask how many clients they manage and the average account size. If you are much smaller, then the average chances are you won’t get much service.
Ask them to describe their investment philosophy. If you don’t understand it, it’s a bad fit. If (the explanation) starts to drift, red flag.
Ensure the adviser is registered with regulators.
Understand the level of service you need. Most young people have relatively simple situations that may not require a full-time adviser. The adviser better be able to quantify the fee in terms of hours spent on your file.
(It’s a red flag) if they can’t explain clearly and simply the fees they charge.
If they promise any type of returns: red flag. Returns are never guaranteed; don’t fall for it. If its too good to be true, it is.
Pramod Udiaver, CEO of Invisor.ca:
Do they work with clients that may be similar to you? Check their registration at the Canadian Securities Administration (CSA).
Ask if the adviser has a “fiduciary obligation” to act in the best interest of the client. If not, you may simply be dealing with a salesperson.
How they get paid is key. If you are not paying a fee directly, he or she may be compensated through commissions embedded within the Fund Management Expense Ratios (MERs). You need to understand the conflicts of interest.
Ask: Where are the assets held? Typically, they are held at a firm that specializes in custodial services. This way, they are covered under the Canadian Investor Protection Fund for up to $1 million per account.
Who are the firm’s principals? And understand their backgrounds. For example, if the adviser is part of a mutual fund company, there may be a greater incentive to sell a proprietary product rather than select the best product for you.
Only pay for what you need. If you have simple questions, get simple answers.