Choosing Your Advisor

On April 12, 1959 in a speech in Indianapolis, John F. Kennedy made the following statement:

"The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger - but recognize the opportunity."

The basic idea is that a moment of crisis presents two possible outcomes: either growth and positive change or regression and failure. Sounds like some pretty deep ancient wisdom, right?

Far be it from me to criticize someone like JFK, but many native Chinese speakers don’t see it that way (though some do), saying it’s only coincidental that “crisis” (wei ji) contains parts of the terms for “danger” (wei xian) and “opportunity” (ji huay). But then “wei” and “ji” each have a range of meanings that suggest “crisis” really is a combination of the two ideas, whether the wisdom we attach to the term was intended or not. And isn’t that even deeper?




So where are we on the "investment cycle" now? The only person who can answer that question is the one who looks at you in the mirror each morning. I would like to think that the denial, fear, desperation and panic stages are well past us. Capitulation, despondency and depression are now in our rear view mirrors too. Are we approaching hope, relief and optimism? Maybe over the coming months.

Markets are cyclical in nature (see 10 different blog postings in the past year) and so are the emotions of investors. The best investors (Warren Buffett and his ilk), liken a financial crisis to an 80% off sale at your favourite boutique which you can not, or will not normally shop in. Billions and perhaps trillions of dollars were there for the making if you were bold enough to buy at the bottom.

For the average investor, the chances of getting rich or losing it all are remote. When it comes to investing, 8% of your returns are determined by which fund and when you bought it. The other 92% of returns are determined by the types of funds and where the monies are invested. As I have often said, one of the most important roles for an advisor is to simply ensure you are invested according to your risk tolerance. People don't worry about the markets when things are going well - but when they head in the other direction, advisers change from providing advice to holding hands and acting as babysitters. I apologize if that analogy offends anyone. Perhaps the best analogy I ever heard was from a successful advisor at a conference in the US. He stated very plainly:

I manage investments portfolios and protect clients from themselves.

Advisers cannot afford the luxury of panicking. In uncertain times, people become frightened about the viability of their "commodities" - the things they buy and the jobs that they hold. The best advisers tend to disregard their own "commodity". They don't try to "sell"you something - people at the best of times hate getting sold something. What people want at all times is value creation - solutions that help them eliminate their dangers, capture their opportunities and reinforce their strengths.

The best analogy of a good trusted advisor? They act as the Chief Financial Officer (CFO) for their clients in their personal and/or corporate lives. Their work provides their clients the time to focus on what is truly important to them, both now and in the future.

The trusted advisor is usually busy, but always seems to be available to help a client no matter how trivial the matter. They have a plan for the future and share it with their clients. They are also honest with their clients - even at the risk of losing that client. Having a YES man/woman for an advisor is a ticket to financial ruin for many people. When you find that advisor, hold onto them with all of your strength. While the work they do for you adds a little something to their own bottom line, their effects on you and your family can be rewarding. I can put a price on many things - how do you put a price on confidence, satisfaction and piece of mind. What do I mean by that? Read this...

When we first met our advisor, we were living in a two bedroom apartment with our son and daughter, and sleeping on a pull out couch. We had high interest rate credit cards, car payments, all the usual debts. Our advisor started us on the right track, contributing to RRSP's, taking out life insurance and insurance for disability which we didn't think we needed. Within a couple years we bought our first home.

Whenever we needed him, he was there, guiding us along, even when it didn't pertain to his job. He helped our children get started with their homes, and gave us piece of mind. Last year, my husband had to take an early retirement due to a work related disability, and with the benefits of the disability insurance and the savings, we are now mortgage free and living in our dream home in New Brunswick.

Even in the face of chaotic markets and disappointing performance over the past nine months, most investors are hanging in with their financial advisers. In a recent Ipsos Reid survey, 87 per cent of Canadians said their current adviser will be their primary adviser a year from now. Most recognize that even the best managers didn't foresee last fall's financial meltdown and that almost everyone is in the same boat.

Of course, that's not universal. Some investors are rethinking the relationship with their adviser, while others are responding to invitations to a “second opinion” on their portfolio. Some investors are questioning whether they want to work with an adviser at all and are considering switching to a discount broker.

Working with the right adviser can have a huge effect on achieving your long-term financial goal. The wrong one can result in you looking like our friend at the left. It's a decision that shouldn't be rushed. Some investors select the first adviser they speak to or make a decision based on an adviser's glitzy office – and later regretted the choice. When looking for an adviser, most investors begin by asking people they know for suggestions. While a referral from someone you trust increases the odds things will work out, just because an adviser is a good fit for a friend doesn't mean he or she will be right for you.

Selecting an adviser is like any important decision. First impressions matter, but to tilt the odds of getting this right, you need to first identify the key things you're looking for (ideally in writing) and compare what you hear with that list before deciding. There's nothing wrong with telling an adviser you'd like to sit down for a couple of in-depth discussions before making a decision.

During these meetings, you have two goals. The first is to get a sense of whether this a good fit. For example, here are some questions focusing on the past 12 months: How did you suggest positioning portfolios like mine going into the beginning of last year? What kinds of changes have you recommended to clients in my situation since last fall? What kind of advice are you providing to clients like me today? How are you managing risk amid recent uncertainty? In general terms, would you share what you held in your own portfolio going into last fall and what your portfolio looks like today? What are the most important lessons you've learned from the past year's events?

The second component in making the decision is getting a reading on chemistry. Are you comfortable talking to this financial adviser? Does he really listen to your answers and appear truly interested in your situation? Does he talk in plain English? Do you like him as a person and feel you could be absolutely open with him? Do you feel that you would have confidence in his advice?

Remember, it's not only you making an assessment; in these initial meetings discerning advisers are also evaluating you and often have tough questions of their own. Today, it's not only investors who have choices as to who to work with: The best advisers can pick and choose their clients. Don't believe it? This video should be required viewing for all investors.

Stay Well and Pay It Forward.