Working with an Advisor
Like many New Brunswickers, you may not have the time, interest, or knowledge to build an investment portfolio or financial plan yourself. In this case, getting advice from a professional may be a good idea. An advisor can help you set goals, build a long-term plan, choose suitable investments, track your progress, and adjust your plan when needed.
Advisors can offer a broad range of products and services. Before deciding who to work with, be sure they are qualified to provide you with the services and products you need. Do not rely on the title on a business card. Do your homework to make sure they are properly licensed or registered to provide you with the products or services to meet your needs.
Choosing an Advisor
If you decided to work with an advisor, choosing the right one may be one of the most important financial decisions you make. Before investing, it’s important that you do your research. Choosing an advisor is a personal decision and you must decide if you feel comfortable with the person and the firm, and how trustworthy you feel they are. It’s important to work with someone you can honestly and openly talk to and bring forward any concerns.
Checking registration and disciplinary history
Checking that individuals and firms who may play a role in your financial life have the required licence or registration is an important first step in protecting yourself from frauds and scams. Regardless of office location, an individual or firm must be registered with the securities regulatory authority in each province or territory where they do business, even if they don’t have a physical presence there. Registered firms and the individuals working for them may also be referred to as “registrants.”
If the individual or firm you are considering was disciplined by a securities regulator in Canada, this information will show up on the results of your registration search. You may want to follow up with the disciplining securities regulator to learn more or find out if any restrictions exist on the person’s registration.
If the person you are dealing with is not registered or licensed, or is on a caution list, contact FCNB.
An important step in deciding if a firm or advisor is a good fit for you is to ask them questions. Understanding the investment philosophy of an advisor can help you understand how they make investment decisions. Different advisors have different guidelines and principles, and they may not match up with your investing philosophy. For example, if you are concerned with environmental, social and governance issues and want to align your investment choices with these values, ask your advisor if they understand your philosophy and have the knowledge to assist you.
Background and education are important factors to consider when choosing an investment advisor. An individual must meet certain requirements and minimum standards to be in the business of selling or advising in securities. Many categories of registration, designations and titles exist that financial professionals can have. Learn more about the Categories of Registration.
Recognize the red flags of fraud
Frauds and scams can come at you a number of ways. They’re evolving all the time and aren’t always easy to spot. But if you know the signs and if you report suspected frauds and scams, you’re better prepared to protect yourself, your family and your community from scams. Some of the most common signs to look for in investment fraud are:
- Being promised guaranteed or high returns with low or no risk.
- Being pressured to make a fast purchase decision or told to keep the opportunity secret.
- Being let in on a ‘private opportunity’ only the wealthy know about.
- Being bombarded with fast-talking sales and financial jargon, but no real answers.
Visit our Frauds and Scams section of our website to learn more about recognizing and reporting fraud.
Download our Five Steps to Choosing a Financial Advisor workbook for a place to record the information you gather when researching who you will work with.
The cost of working with a financial advisor
Fees vary depending on the type of advisor you work with, the products you are buying and the kinds of services the advisor is providing. If the advisor is paid by salary, the cost of their advice is built into the products you buy. They may be paid a commission for every product they sell. Others charge a flat fee based on an hourly rate or a percentage of the value of your account. Commissions and other incentives may influence them to recommend one investment over another. Make sure you understand how your advisor is paid and consider how this may impact the advice they give you.
It is also important to understand what fees you will pay to buy, hold and sell the investment, and how this affects your returns. Fees impact how much the investment must increase in value for you to break even or make money, and still have to be paid if the investment decreases in value.
Responsibilities of the Advisor
An advisor’s role is to give you helpful, informed and suitable information and advice as you build and carry out your investment plan. To do this, they will gather information from you into what’s known as a Know Your Client (KYC) form. This form includes questions about your financial situation, your comfort with risk, and more. The answers you provide help your advisor get to know you to determine what investments are best suited for your portfolio. Bring your Investment Planning Workbook with you to make answering these questions easier!
Once your plan is in place, your advisor should tell you about investment opportunities and any changes that could affect your investments. They should be available to answer your questions, especially during market lows or life changes when you may be tempted to act on your emotions.
You can expect your investment professional to:
Your investment professional cannot:
Client Focused Reforms
Client Focused Reforms (CFRs) are changes to securities rules that require registered investment firms and professionals (registrants) to put their client’s interests first. The objective of these reforms is to enhance investor protection and deliver better, more suitable investment advice and/or products for clients.
The reforms were introduced in two phases. The first was the implementation of the conflicts of interest rules, which took effect June 30, 2021; the remaining reforms, concerning relationship disclosure information, came into effect December 31, 2021.
Client’s Interest First
CFRs are built to help ensure registrants are making decisions in the best interest of investors. The best interest principle woven through these reforms means registrants must ensure a client’s needs and interests are put before those of the firm or investment professional when:
Registrants are required to address any conflicts of interest that may affect investor decisions or the recommendations they provide to investors.
Expanded Suitability Obligations
Know your client (KYC): To best understand their client, registrants collect information through the ‘know your client’ (KYC) form. This information helps them recommend products best suited to individual investor needs. These reforms expand the information registrants are required to collect to make product recommendations.
Suitability determination: The reforms explicitly require registrants put their clients’ interest first when making a suitability determination. This will ensure they take reasonable steps to understand the products they are buying, selling or recommending to their clients.
These obligations hold registrants to a higher standard of conduct and may result in more suitable investments for clients.
Clarify their Role
Registrants must also do more to clarify for clients what they should expect from the relationship. This includes being clear about the products and services the registrant can offer, as well as any potential restrictions or limitations that may apply. The reforms also prohibit a registrant from misrepresenting the products or services they offer, the qualifications they hold, or through the use of misleading titles.
To learn more about the conflicts of interest rule and what it means to you as an investor, read Client Focused Reforms: Understanding Conflicts of Interest.
Responsibilities of the Client
Your advisor has an obligation to update the information they have in the Know Your Client (KYC) form every three years at a minimum (and more frequently in certain circumstances). However, it is your responsibility as a client to be open and honest about any changes to your personal or financial situation. Major life events like marriage, divorce, the birth of a child, an employment change, or receiving unexpected income can have a significant impact on your finances and the recommendations you receive.
Be honest about your risk tolerance and your comfort level. Don’t be embarrassed or shy about asking questions until you completely understand any products being recommended and how they will fit into your overall plan.
Review your account statements and jot down anything you want to discuss. Read any documents you receive about investments you’re considering. And remember, never sign anything you have not read or do not understand fully.
If you have a complaint
As an investor you have the right to expect the professionals who handle your investments will obey the rules, always provide you with suitable advice, and treat you fairly. If you have concerns about the way your investments or securities have been handled or a company you’ve invested in, or if you believe a company or individual has broken securities laws, it’s important to make a formal complaint.
Although most financial advisors and the firms they work for are fair, efficient and follow the rules, you may have a complaint if the individual or firm:
- Is not registered to sell the investments being recommended. (Use the National Registration Search to look up the registration details of the firm or individual you are considering working with)
- Takes money out of your account, or buys or sells securities with your money, without first getting your permission. (This does not apply if you have set up a discretionary account, which allows your advisor to make trades at their discretion without getting your permission.)
- Switches you from one mutual fund to another when there is no legitimate reason.
- Does not take reasonable care to see that your investment request is executed at the best possible price, given the market conditions at the time.
- Recommends you buy or sell a security that is unsuitable based on the information gathered from you in the Know Your Client form (KYC).
- If you have a concern with a firm or financial professional regarding a conflict of interest.