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Getting the Right Financial Advice: Six Questions Clients Need to ask Their Advisors

By Robyn K. Thompson, CFP, CIM, FCSI
President, Castlemark Wealth Management Inc.

Over the past decade, a new regulatory regime called the Client Relationship Model (version two), or “CRM2,” and the greater fee transparency that it entails, has shaken up the financial advisory sector in a big way. Financial advisors are now required to disclose all fees as costs pertaining to client accounts. And for many advisors, especially those who had relied extensively on commissions and trailer fees, that has made for some uncomfortable client meetings. Under CRM2, advisors must clearly tell clients how much they’ve paid in trading commissions and fund trailer fees, as well as fees paid for administration and advice.

CRM2 does not require advisors to include costs embedded in individual products, such as management expense ratios (MERs) on mutual funds or exchange-traded funds (ETFs) – only commissions paid by such funds to advisors for selling their product. This has had an impact on the market (as fund companies phased out classes of funds that pay trailer fees), but it has also focused wealth management clients’ attention more on what value precisely they are getting for the fees they pay.

Many advisors have already adopted a completely transparent approach to fee and cost disclosure, but for many wealth management clients, the issue of what they pay and for what services remains a mystery. Indeed, many wonder if they are receiving advice appropriate to their circumstances.

So, here are six questions that financially literate clients of wealth management firms should ask to help determine if they are getting advice appropriate to their financial needs and circumstance for the fees they pay.

1. Does the advisor offer comprehensive financial planning? A competent advisor should gather necessary information at the outset to determine goals, needs and priorities, identify and evaluate strategies, submit recommendations, agree on action, responsibilities, and time frames, and finally monitor and evaluate ongoing implementation.

2. Does the advisor develop a written investment management strategy? A written personal financial strategy statement identifies the client’s target, asset allocation, investment objectives, risk tolerance, and outline the steps needed to implement the strategy. In addition, the advisory firm should assist clients with (or provide background services for) the myriad administrative details involved with managing investment accounts, including account opening forms, asset allocation and risk tolerance questionnaires and follow-up, portfolio evaluation reports, portfolio reviews, assisting in arranging for deposits and withdrawals, and meetings with the portfolio managers

3. Does the advisor provide an exhaustive portfolio-manager search? At my own firm, Castlemark Wealth Management, we routinely interview, conduct reviews of, negotiate with, and recommend third-party discretionary portfolio managers. We review each firm’s profile, history, ownership, and people through publicly available sources as well as our own private network. We extensively research a portfolio manager’s philosophy and style and drill down into a manager’s historical performance – something not always easily available for individual clients. We ensure clients receive top value for fees to portfolio managers, and we have always disclosed all fees fully on client statements. Perhaps most importantly, we continuously monitor managers through regulatory and industry listings to ensure they remain compliant with the regulatory framework.

4. Does the advisor do comprehensive portfolio and performance monitoring? This is an aspect of wealth management often overlooked by clients, mainly because it is intensely time-consuming, but it is critical to achieving long-term financial goals. An advisor who takes their profession seriously continuously monitors and reviews client portfolios for management style, compliance, investment policy, performance (including Alpha, Beta, and peer/benchmark comparison, service quality, administration, and tax-efficiency). Advisors should also provide ongoing analysis, research, liaison with portfolio managers, and regular reporting to clients, including quarterly performance reviews and semi-annual/annual client review meetings. This means a lot of paperwork for the advisor, but that’s what clients are paying them for! If you’re not getting that level of service, what exactly are you paying for?

5. Does the advisor offer a holistic planning framework? In addition to those all-important portfolio management services, a client will know they’re getting value from an advisor who ties their investment plan into a comprehensive retirement planning strategy, an education planning strategy, a family lifestyle protection strategy (including assessing the need for life, disability, or critical illness insurance) and an estate plan.

6. Does the advisor have recognized professional credentials? Those seeking wealth management advice should also ascertain that the advisor has bona fide credentials, such as the Chartered Life Underwriter (CLU) or Certified Financial Planner (CFP) designations. s. In the case of advisors with a fiduciary relationship, it must be clear that the advisor has a structure in place to comply with the industry rules and regulations set out by the Investment Industry Regulatory Organization of Canada (IIROC), the Mutual Fund Dealers Association of Canada (MFDA), and the provincial securities commissions in the jurisdictions they operate in.

© 2021 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.

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