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Is it time to switch advisers? - Metro US

Is it time to switch advisers?

Are you a conservative investor? Of course you are. Who wouldn’t be after a year in which stock portfolios dropped 30 to 70 per cent in value?

But being a conservative investor means different things to different people. Marketing consultant Dan Richards asked a cross-section of affluent Canadians about their investments in spring 2007. Almost without exception, they defined their philosophy as quite conservative, very conservative or extremely conservative. One successful doctor said he didn’t buy technology stocks and penny stocks. He focused on “safe blue chips such as the banks and Bell.”

Who knew that banks and Bell would take a nosedive? Nothing is safe anymore and no stocks are immune from contagion in a worldwide credit crisis.

Only guaranteed savings products can keep your capital intact. But they also guarantee low returns, which may be eroded by inflation and taxes.

Richards interviewed investors again last fall and found a significant erosion of confidence in financial institutions and financial advisers. Some felt they had received poor advice: “I was told owning bank and life insurance company stocks was safe for conservative investors.”

Some wished they had been warned of the volatility ahead: “Why wasn’t I told to get out? Firms must have known.”

There’s a growing backlash against passive, buy and hold strategies and advisers who fail to provide direction, he said.

How do you know it’s time to leave? Here are some questions to ask about the quality of service you’ve received, courtesy of Richards.

• Did my investment adviser take a plan-based approach in the first few meetings, talking about the rate of return I needed to achieve my long-term goals?

• Did my adviser warn me how bad things could get in the short term? Was I told that stock markets could drop 30 per cent or more in a single year?

• Did I have a conversation with my adviser a year ago, before this severe downdraft, about my long-term needs and the appropriate level of equity investments?

• In the past six months, to what extent has my adviser been available and accessible to me by telephone? Am I being informed about what’s going on in the markets?

• Has my adviser ever discussed the risk I was taking with my equity investments and my level of comfort with that risk?

• Has my adviser suggested hedging the risk in any way?

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