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Advisor Scorecard

Most investors get their investment advice from a financial advisor. Financial advisors can be important allies for financial success – if they are competent and have their client’s best interests at heart. Unfortunately most investors have no yardstick against which they can compare the service and advice they receive with the service and advice other investors receive and against basic standards designed to maximize the success of your investing experience.

Canadians have consumer reports to rate all kind of appliances and other material goods. We have surveys to rate the satisfaction of bank customers and for rating the effectiveness of advertising campaigns. But until now there was no simple tool that allowed you to see how your financial advisor stacks up. By using the following scorecard you can see how your advisor compares with other advisors. If you are in doubt as to whether the answer to a question is true or false – assume it is false.

 

TrustResponse Points
I am totally confident that my advisor has my best interests at heart.
My advisor would not recommend a product or strategy which he did not understand.
If my advisor consistently underperforms the relevant benchmark he will bring this to my attention.

CommunicationResponse Points
My advisor really listens to me.
My advisor talks to me in plain English – not jargon that I don’t understand.
My advisor never puts me under pressure to buy a product or make a decision.

Fees and commissionsResponse Points
Clearly explains all the fees and MER’s that I pay.
Has also explained what fees and commissions he earns.
Does not recommended a ‘fee based account’ for what is basically a ‘buy and hold’ portfolio.

Setting realistic expectationsResponse Points
She does not suggest that she can consistently beat the market.
Has explained that bonds with a higher yield always carry higher risk.
Is not suggesting that I should expect more than 8% after fees in a balanced portfolio.

Aiming for the right rate of returnResponse Points
Develops a financial plan with me that shows the rate of return I need to earn to achieve my goals.
Explains that aiming for a higher return requires more risk.
Suggests that I take no more risk than is necessary to achieve my goals.

Managing riskResponse Points
Does not recommend leverage to increase returns.
Explains the need to protect myself against all risks including inflation and income tax.
Warns me about the amount my portfolio could be expected to fall in a bad bear market.

Proper diversificationResponse Points
Does not ‘over diversify’ me with more than a dozen mutual funds.
Has me properly diversified with at least 1/3 of my equities invested outside of Canada.
Is not recommending more than 80% of my portfolio be in equities.

Keeping it simpleResponse Points
Gives me a simple investment portfolio with a maximum of not more than 30 individual stocks.
Does not recommend unproven and very complicated 'structured' products.
Does not recommend holding positions that amount to less than 2% of my entire portfolio.

Minimizing income taxResponse Points
To the extent possible, recommends bonds in my RRSP and stocks outside the RRSP.
Talks about the after-tax rates of return, not only the pre-tax rates.
Recommends annual 'tax loss harvesting'.

Performance reportingResponse Points
Shows me the annual rate of return (for the entire portfolio) for 1, 3, and 5 year periods.
Compares my actual rate of return with the relevant benchmark in my Investment Policy Statement.
Whether I outperform or underperform, she provides an explanation I can understand.

Following an investment strategyResponse Points
Has created a detailed Investment Policy Statement based on my needs and goals.
Suggests an asset mix based on my needs, not on a ‘risk tolerance’ questionnaire.
Has an investment strategy and has explained it to me in terms I understand.

ServiceResponse Points
Has not 'shoved me off' only to be talked to by junior staff.
Returns calls within 24 hours.
Suggests when I should sell – not only when to buy.

ExperienceResponse Points
Has at least 10 years experience.
Has maintained / increased skills with relevant degrees and certifications.
My advisor is a 'student of the market' and has a passion for investing.

ProductsResponse Points
Does not recommend mutual funds which pay deferred sales charges to the advisor ("DSC funds")
Does not insist on buying only individual stocks or bonds.
Does not recommend 'balanced' mutual funds with fees that are higher than necessary.

If you wish to help us with an anonymous market research survey we are conducting, please indicate the investment firm you are currently with: