Many investors are making the decision to manage their own investments.  In fact, they can do very well with an index mutual fund or basic ETF portfolio and a consistent, systematic contribution plan.

But not everyone wants to “do it themselves.”  What if indexing is not your thing? You may have accumulated a substantial balance or want to diversify into individual stocks, bonds and certain niche products.  If you don’t have the time or expertise to make your own investment decisions you may prefer to hire someone.

Related: 5 challenges DIY investors face

Here are five questions to ask your money manager:

What’s in a name?

Whether you call them Financial Advisers, Mutual Fund Managers, Wealth Managers, etc. how do you find someone to manage your money?  A good start is to go to the MoneySense Directory for a list of Asset Based Planners.

While most will prepare a personal financial plan for you (for a fee), they also purchase and manage your investment portfolio.  Their main goal is to make investment recommendations that will directly affect your ability to meet your goals.

The basic qualification to be licensed and sell investments in Canada is passing the Canadian Securities Course (CSC) and the Conduct and Practices Handbook Course (CPHC).  Advanced designations include:

  • Certified Financial Planner (CFP)
  • Financial Management Adviser (FMA)
  • Canadian Investment Manager (CIM)
  • Fellow of Canadian Securities Institute (FSCI)
  • Chartered Financial Analyst (CFA)

Of course, the more educated, knowledgeable and experienced the money manager is, the higher the fees.  You need to decide on the right balance of fees, expertise and the value they would bring to you.

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Most investors just want to know about investment performance.  While this is certainly a factor in your decision, to find a person who is the right fit for you, you need to ask other important questions of your prospective money manager.

How will you invest my money?

Is the person able to recommend a variety of investments, or are they limited to certain funds?

Will the investments be tailored to your specific needs – savings targets and time horizons?  Some may use the same basic strategy for all their clients.

Before you hand over your money, know where it is going.  Never turn over a cheque payable directly to the individual you are dealing with.  This may sound simplistic, but we’ve all heard of investment scams where people have lost their life’s savings by not following this rule.

How do you get paid?

It’s essential to understand how much the arrangement will cost you.  Compensation is always a big issue.  The larger the fee, the greater the return must be to justify it – and often at a greater risk.

Related: Why a fiduciary standard for investment advisors is needed in Canada

Money managers are typically paid through client fees which are usually based on a percentage of your total managed assets.  A 1 percent management fee is pretty standard.  There may be a minimum annual amount.  Find out what other services this fee will cover and decide if you will use them enough to warrant it.

There may be other, separate, fees as well – commissions and transaction fees (individual or flat rate), and hourly rates for special services (estate planning).

Certain fees can be negotiated.  Nevertheless, make sure you have a written account so you always know what you are paying and how you are paying it.

These are some other issues you need to be aware of.  Within a commission structure, are there a limited number of products that can or would be recommended?  Someone who charges a percentage of assets may advise against moves such as charitable giving or buying property. 

What is your typical client like?

You don’t want the average client to be very different from you.  You don’t want to be the smallest (or the largest) client in terms of available assets.

RelatedPay for advice, or do it all yourself?

An ideal money manager will have experience helping people with similar financial circumstances and goals.

How much attention will your account be getting?

The more clients the money manager has, the less attention any one account will get.  You are paying for personal service not cookie-cutter advice.  However, with similar clients, an adviser with a proven strategy will produce roughly similar results – and that’s not all bad.

How much input will you have?  While you should be made aware of discretionary investment decisions and how they affect your goals, the money manager doesn’t want to be on the phone with you all day hashing out your ideas.

Will the money manager be taking care of your account or handing it over to a subordinate?

How will problems and complaints be resolved?

Can you walk away if you are not completely satisfied with the arrangement, or will there be stiff penalties?

How will you add value?

If you’re paying a money manager, you’re probably looking for someone who is going to do more than you think you could do on your own, but you don’t want to pay an exorbitant cost for it.

Ask them how they make their decisions.  How will they help you manage risk to receive the return you are expecting?  You may need to save more or adjust your expectations.  In what circumstances will they change your investments?  What is their approach?  Does it mesh with yours?

You are paying for results, not a complex strategy.

Related: David Chilton on the high cost of mutual funds

Beware of anyone claiming to be able to beat the market year after year.  If it sounds too good to be true, it probably is.  Few money managers consistently outperform cheaper index funds, especially once fees are taken into account.

Final thoughts

You may be able to perform the entire financial process yourself, from outlining your goals and how to get there with your own financial plan, to researching, purchasing and managing your own investments.  There are a lot of resources available if you have the time and inclination to get the job done.

Or, maybe you have an investment strategy in mind and merely need some direction and confirmation that you would be on the right track.  In this case a project based financial planner or money coach may be what you need to start you off on the right foot.

Related: Why fee-only financial advice might be right for you

If you decide to hire an expert specializing in money management, keep in mind that the strategy and actions taken still need to make sense to you.  You are ultimately responsible for your family’s money and ensuring it is handled properly.


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