Halloween should be full of frights, but investing for retirement should not.
According to the latest tally from Canadian Securities Administrators (CSA), 70 per cent of Canadian investors typically pay for professional advice.
In most cases, advisors steer their clients to secure and prosperous retirements. But every now and then, a few will emerge from the shadows to feast on fees as your life savings rot.
Dim the lights. Here are five signs your advisor might be a zombie.
1. Are you getting ghosted?
Do your calls and emails go unanswered? Do you only hear from your advisor when RRSP season rolls around and they want your cash?
Portfolio management is a year-long event and regular communication is essential, especially during market moving events.
Your advisor should keep in touch at the very least with a weekly or monthly newsletter to all their clients explaining the situation and assuring you your investments are well positioned for what comes next.
A good advisor should know your retirement goals, tolerance for risk and personal circumstances that impact your finances.
To formulate a proper plan they should also know your big financial picture: debt levels, home equity, workplace pension plans and other major assets and liabilities.
They should also ask about more personal matters, such as your family health history, to help determine life expectancy.
If they list your life expectancy in days, run, don’t walk.
2. Do they walk among the living?
Is your advisor even an advisor? There are four ways to find if advisors are registered, in good standing with regulators, and the right fit for you.
First, any individual or firm selling any investment product, including stocks, bonds, mutual funds or exchange traded funds (ETFs), must be registered with regulators in the provinces and territories where they do business.
In addition to keeping track of whoever calls themselves advisors, regulators try to keep tabs on them to ensure they are qualified according to set standards and report on any shady dealings.
To find out if your advisor is in good standing, the CSA offers an online registry.
Advisors not included in the database are probably a huge red flag but there’s always the possibility of error. If the “advisor” says they are registered, inform them they are not included in the database but don’t commit until they are listed.
There are different categories of advisors depending on the investment products they sell. Mutual fund dealers, for example, can only sell mutual funds.
While “advisor” is a broad term (and also spelled “adviser”), there is a long list of designations and titles.
3. Have they left a trail of carnage?
You might not be the first victim. The CSA also keeps track of advisors or firms that have been disciplined.
If they are on the list, you can find a record of the violation and the discipline they received, no matter how serious.
The list, however, does not include advisors who are currently under investigation or involved in a hearing or settlement process.
4. Has your portfolio been zombified?
Are your investments flat-lining as broader markets surge?
If your portfolio is properly diversified among asset classes, sectors and geographic regions, returns should reflect broader market benchmarks.
Over the past five years the TSX Composite Index is up more than 72 per cent and the S&P 500 has advanced by over 67 per cent. Even if the bulk of your portfolio is in fixed income, guaranteed investment certificates (GICs) have been averaging annual yields of 3 per cent to 5 per cent over the past five years.
If your returns are lagging way behind, there’s probably something wrong with the way it is managed. A properly managed portfolio will follow broader markets when they are up and stem losses when they are down.
Most diversified portfolios have a few duds, but the winners should far outnumber them.
5. Are fees devouring your investments?
The reason your portfolio is underperforming the broader markets could also be the result of high fees and the biggest culprits are usually mutual funds.
For most retail investors, mutual funds are the only way to get professional management and diversification.
For zombie advisors, they are a way to get rich commissions from mutual fund providers who often charge over 2.5 per cent on the amount invested each year.
Many mutual funds are worth their fees but good advisors should be directing you to lower-cost exchange traded funds (ETFs) or stocks that trade directly on the stock market as your portfolio grows.
