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Question regarding Investment Advisors.


nelis
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If an investment advisor uses a fee based model based on a percentage of assets under management that is "tailored" to an individuals needs.  How does one as a prospective client of such a service determine if the advisor is any good?  It appears to me that they don't have to publish any "rates of return" because the advice, in theory, is per person.  Nor do they need to publish what they've bought, sold, etc. 

 

Is it just a "shot in the dark" or do these professionals have to publish something so one can persuse to see if they know what they're doing?

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Unfortunately...shot in the dark, at least here in Canada.  Probably best to get a referral from a friend/colleague and that sure isn't a guarantee, just a good place to start.  If you get a good feeling from the advisor when you meet with them, it still doesn't really mean anything.  Remember, any references that he gives you are going to be good.  He/she is not going to give you the names of the last 3 clients that fired him/her.  I think good advisors are few and far between, especially if they primarily use mutual/pooled funds.  At the end of the day, the advisor is the only person who is assured to make money off the relationship...but at least I'm not cynical about the industry  :)

 

FFHWatcher

retired financial advisor/CFP. 

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If you are dealing with an advisor in Canada as opposed to a portfolio manager who can take discretion and can run pooled accounts you should simply ask to see how the advisor runs his own personal money. Many who are advising frankly are awful at managing money and security analysis. A few however are absolute gems they are ethical smart and worth every penny . If the advisor can show you decent market beating returns with his own capital for a decent period of time  it is likely you are dealing with someone who has figured out the investment game or alternatively is lucky either one is a valuable attribute if you need some help driving the bus. Finding a great advisor however is no simple task however be prepared to kiss a few frogs before you find your prince.

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Thanks for the thoughts!

 

One more query:

 

Does the number of total clients the "prospective adviser" have ring any alarm bells either way?  Too many, too few?

I'm gathering they probably set up one strategy for each type of individual (low risk, med risk, high rish) and apply that to his/her account so in effect they're not technically giving personal advice - so number of clients might only effect "face time"?

 

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There are so many conflicts in the advisory business.

Too few clients and the advisor doesn't make a living.

Too many clients and he can't keep up with all their needs but he makes a great living.

With many clients, let's say he wants to move from investment A to investment B.  In Canada, you pretty much have to see each client individually and get their authorization.  With hundreds of clients, that is simply not going to happen.  If you are low on the totem pole, you won't be seen first, if ever. 

 

I think a client can improve the overall experience and result.  As a client, I would drive that relationship.  I would set up quarterly or semi-annual regular meetings with the advisor to ensure your account is kept up to date. Do not leave it up to them to schedule appt. 

 

Ideally, I completely managed portfolio approach where you invest in a portfolio that makes the important asset allocation and specific investment decisions on your behalf.  The portfolio manager makes the trades without your specific authorization for each trade and simply reports to you quarterly or semi-annually.

 

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