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Financial Friday #138: How to Stress Test a Financial Advisor

Friday, December 9, 2022   /   by Mario Daniel Sconza

Financial Friday #138: How to Stress Test a Financial Advisor

Time to Stress Test your Financial Advisor?

Whether you use an investment firm or rely on the services available at your local bank or credit union, a lot of us have someone we commonly refer to as our "financial advisor". 

It's a generic term and is broadly used, but for most of us it means someone who "handles our investments". The actuality is that the scope of investment products and services they offer as well as their level of professional training and experience varies greatly.

Some of us only use an advisor to help us with investing our TFSA or RRSP  and may only meet with them on an annual basis, or simply review the statements that show up in the mail from time-to-time. Others depend on their advisor for a lot more than investing and seek advice on retirement planning, tax strategies, saving for a home, and many other issues.

Regardless of the scope or frequency of the service your financial advisor provides, the basic fact is that you are putting a lot of trust (and a lot of cash!) in their hands.

A good advisor is an invaluable resource for those of us who don't have the time or specialized knowledge to manage our finances on our own. However, depending on an advisor also means that you owe it to yourself to carefully evaluate their service and performance on a regular basis.

Whether you have had the same advisor for years or are just now looking for your first, you need to ensure they are offering value for your money. You should be carefully considering any initial choice of an advisor and also monitoring their performance and service on an ongoing basis. Despite the considerable consequences of their job performance on our future, a lot of us spent more time choosing a mobile phone plan than we do the "expert" who manages our life savings.

The main problem with evaluating a financial advisor is lack of knowledge. It is easy for us to judge the quality of food and service at a restaurant and make a decision if we will return, but it's a lot more difficult when it comes to a financial advisor.

A good place to start is to dig into the fees you are paying and what sort of returns you have been getting. You can also evaluate their service on a more basic level — Do they offer all the products and services you require? Do they keep in contact and remember you and your situation? Do they readily and clearly answer your questions.... even "prickly" ones about annual returns and fees? A good advisor should pass your "stress test" with flying colours.


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