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Financial Advisor Loyalty

Overview

Published: 12/02/2013

by Warren Mackenzie

It is always wrong when people act in an unethical manner and explain their behaviour by saying ‘it’s just business’. In business or in life, there is no excuse for unethical behaviour.

 

Being fair and loyal to the people you’ve dealt with for many years is an admirable trait. However, if this loyalty is costing you many thousands (perhaps hundreds of thousands) of dollars, you should at least know the cost of your loyalty.

 

What does it mean to demonstrate loyalty and fairness to your financial advisor? It means being honest in all your dealings and being reasonable in your return expectations. For example, if you are in equities and the market has just crashed, don’t expect to be unscathed; don’t expect your advisor to be able to predict market downturns; don’t expect your advisor to consistently outperform; don’t expect higher than normal returns without higher than normal risk; and don’t expect your advisor to work for nothing.

 

However, loyalty and fair play should be a two-way street. If you are being loyal to your financial advisor, he or she should at least reciprocate. He does this by providing performance information so that you know how you are doing compared to the proper composite benchmark (and if you are underperforming, you should know the reason why); by being open and transparent about all fees; by ensuring that you have an investment policy statement that explains your investment strategy; by keeping things simple and income-tax efficient; and by disclosing all conflicts of interest.

 

Investors should never feel guilty about asking simple questions. How does my performance compare to the composite benchmark? What is the total of the fees I am paying? Where is the investment policy statement that governs how my account is being managed?

 

To be fair to you, your advisor needs to provide this information, as this is what you need to manage your money wisely.  

 

Warren MacKenzie, CA, CFP, CHFS, founder of Weigh House Investor Services in Toronto, can be reached at warren.mackenzie@weighhouse.com or at 416-640-0550.

 

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