The key to protecting your money is managing it, and the key to managing it is finding a professional you trust.
“If you’re not managing your money you’re not protecting it,” says Paul Holmes, MPA, CIM CFP, a portfolio manager and senior wealth advisor with Scotia Wealth Management. Whether it’s informed self-management or hiring an advisor it’s important to “understand what you own” right from the start.
“Know your limitations, know when you need help,” Holmes says. “Don’t be enchanted with the speculative.” Current trend examples include bit coin or pot stock scams.
“Don’t speculate with your hard-earned dollars, a fool and his money, or her money, are soon parted,” he says. “Don’t chase returns. The market is getting very frothy.”
It’s not unusual for confident people to lose their sense of risk and forget that what goes down doesn’t always go up. Managing the risks, is where a professional with experience is an asset, says Holmes, a discretionary portfolio manager in the business for near 25 years.
“I’ve seen a lot and been around a lot of speculative froth and some downturns and through the credit crisis and 9-11 and the Russian debt default. I could go through a list of things that have happened that people got financially hurt,” Holmes says. “For those investing and putting money in their RRSPs this year and tax free savings accounts, seek out the expertise and the knowledge and experience of somebody who knows and that you trust.”
Build a rapport with someone you feel “has your back.”
“I think the best place to start is get a referral from a trusted friend or family member,” Holmes says. “Seek out references, interview people. I would say interview at least three people.”
Determine if the person is looking out for you and define what their fiduciary duty might be. In some cases, a financial advisor has a legal duty to look after your interest first – but that’s not always the case.
Keep in mind there are different approaches for a financial advisor as well. One is non discretionary basis, where the advisor needs to come to the client with ideas on what to buy or sell. With a discretionary advisor, the investor is delegated that authority to trade on behalf of the client.
Have a conversation about your risk profile, know what you’re prepared to lose.
“The onus is on us to know every important facet on a client’s financial life. The better we know you the better we can understand your response and your risk profile,” Holmes says.
And while it’s key for an advisor or planner to know the client and his or her risk profile that conversation also goes both ways.
That keen knowledge comes back again to knowing your limitations.
“My advice to clients is to know your own risk profile … often people don’t know their own risk profile until something bad happens and then they’re exposed,” Holmes says.