Protect your investments: 4 questions you must ask your financial advisor

Four questions that will form the foundation for a prosperous relationship between you and your financial advisor

According to the BC Securities Commission’s Smarter Investor Study, most B.C. investors trust their advisors. “Trust is good, but investors should also ask questions,” says Pamela McDonald, BCSC’s director, communications & education. Investors shouldn’t delegate all of their due diligence to their advisors. To become a smarter investor, be sure to start your relationship with your advisor by asking the four questions below. The answers you receive might surprise you, but they’re sure to make you a better investor.
 
What kind of investor am I?
What is your investment risk tolerance? Find out by taking the risk test on the BCSC web site. “Your appetite for risk will depend on your personal goals, life stage, lifestyle, timeline and knowledge,” says McDonald. “We’re all different, and we all have different investment comfort levels.”

What are my investor responsibilities?
Investors agree they have the responsibility to ask questions, review their portfolios, do their own research and understand what services they are paying their advisors for. But, even though investors agree they have responsibilities, they don’t always act on them, and trust is a key reason. “It’s important to trust your investment advisor,” explains McDonald. “But that trust shouldn’t keep you from taking care of your financial interests.”
 
Is my investment advisor qualified?
A good advisor can make all the difference in an investor’s experience. But before hiring one, do a background check to find out what they are licensed to do for you. A person registered to sell mutual funds, for example, can only sell and provide advice on mutual funds, unless he or she is also registered in another category. “Everybody should know from their own due diligence who their advisor is and what they can do,” says McDonald. “And find out if they’ve ever been disciplined for breaching securities laws.”
 
What investments am I buying and what are the attached fees?
Ask questions about any potential investment until you thoroughly understand it:  What is it I’m buying? How does it make money? What are the risks and potential returns? Ask what fees you will pay now and in the future. Ask your advisor how they’re being compensated when you buy an investment. “Fees are a part of every investment,” says McDonald, “so it’s important that you know how much they are.”