It’s not uncommon to hear that “investors don’t know what they don’t know.” In fact, according to a recent survey by the Ontario Securities Commission, almost one-third of investors rated their financial knowledge too high, with many struggling to answer questions about investment costs and investor protections.1
This points to another related behavior (and potential blind spot): Whether because of pride, anxiety or other feelings, people don’t always admit they need help investing and planning – and that can have a ripple effect for their financial future.
Where to start? Here are four questions to ask a Financial Advisor so they can better understand your goals and help you achieve the future you see for yourself.
How is my portfolio performing?
Most of us have been there: We receive some sort of financial or investing statement and give the figures a cursory glance. “Looks good,” we might say, and then we tend to move on to the next thing on our to-do list.
But it’s important to take more than a passing glance. The next best step might be using that document to have a conversation with a Financial Advisor. Have those assets performed the way you expected? Why?
Asking your Financial Advisor probing questions like this can give you not only better insight into their investing rationale but also potentially peace of mind, helping you stay invested during periods of market volatility. They can help you understand how your portfolio performed, the factors influencing your returns and even the way your investments are structured to limit risk. Knowing that might help you get through the ups and downs.
Am I diversified enough?
Most people know the central rule of investing – diversification. However, that can be easier said than done, as market shifts can cause your asset allocation to fall outside of the target ranges you have set. For example, if equities rise, you may end up with a larger allocation of stocks than you originally intended. An increase in a company’s market capitalization can also result in owning more of one position than you may have intended.
Consider asking your Financial Advisor if your original asset allocation is still in line with your risk profile. For example, if your risk profile was initially conservative, but market movements increased your equity allocation, your portfolio may be considered "aggressive.” Allocation changes can creep up in your portfolio, especially in fast-changing markets. Consider talking to your Financial Advisor about whether you need to make any changes to align with your initial target allocation, so you’re not taking on too much (or too little) risk.
Is there anything more I can do to limit my tax bill?
The average Canadian family pays more than $39,000 in taxes each year.2 While taxes aren’t everyone’s favorite subject, they’re an important part of wealth planning — and one to consider discussing with your Financial Advisor.
Ask your Financial Advisor about your options for investing in a tax-efficient way. This could involve strategizing around which investment accounts to use – such as a Tax-Free Savings Account, Registered Retirement Savings Plan and non-registered accounts, among others – or ensuring the various mutual funds and exchange-traded funds you invest in incorporate tax-efficient strategies themselves. Ask your Financial Advisor to include this in your regular discussions, and remember to keep them apprised of changes to your life, such as an inheritance, a new home or the birth of a child.
What are the fees associated with investments?
When it comes to investing, fees matter. The more you pay in fees, the less money you may have to grow in the market. Of course, financial advice isn’t free – but how and what Financial Advisors charge can vary. Make sure you understand how your financial professional is paid. Some charge a flat rate for service while others charge a percentage of assets managed. Some are compensated by the funds they invest your money with. Sometimes, it’s a combination of these scenarios.
Don’t be shy about asking your Financial Advisor what they charge and what it costs you – they should be sharing those details and explaining how their compensation structure works. The more you know about what you’re paying, the better decisions you can make about how much money to save and spend.
The Bottom Line
Working with a financial professional is a critical step to creating financial stability and confidence in the future. But it’s essential to know the right questions to ask them. These serve as a framework to help your Financial Advisor consider your goals and help you feel more comfortable about how you’re invested. That’s a chat worth having.