Know Your Advisor Tool – KYA – Ready For First Critique

Just a quick update to let you know that the first working draft (not to be used yet) is available (also note, this is the second version after feedback from Globe and Mail readers). Thanks to everyone for the great suggestions – and let’s keep them coming.

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 14 comments
  • Brad MacBeth

    I'm disappointed that you would roll out your beta version of the Know Your Advisor tool through the Globe and Mail already, rather than incorporating feedback, re-testing, etc.

    Also curious why you don't disclose in your 'About Preet' bio that you are a VP of a Mutual Fund company, Pro-Financial Asset Management ( and why the website of Pro-Financial doesn't disclose who is involved in the fund.

  • Million Dollar Journey

    I just read the article in The Globe! Congrats on the coverage Preet, you are everywhere!

  • Dan

    Have you consulted with any of the organizations that promote protection for retail investors( e.g. FAIR Canada set up by IIROC – Foundation for Advancing Investor Rights)?

    Also, under the education section you don`t have an credit for a University degree in Finance or Accounting. As a CFA L2 candidate and CIM (not an advisor), I can attest that it was a 4 year degree program where I learned the bulk of knowledge – I passed L1 after opening the books less than a week before the exam because of the breadth of Finance courses I took as part of my degree.

  • Preet

    Hi Dan, thanks for the great comment – I will definitely be adding something to give credit for a finance or accounting degree. I've chatted with Ermanno at FAIR before, but not in detail about this specific endeavour.


  • Preet

    Thanks for your comment Brad – note the response is located in the comments section on this page:

  • Sancus

    Excellent work Preet on the KYA tool; I think you've identified the majority of issues. If you are open to a few suggestions, I'd like to offer the following thoughts to consider:

    1.You may want to weight the answers to “how is your advisor paid” section a little differently. In regards to developing a financial plan, hourly fee is by far the best compensation method (there are of course excellent advisers that can develop a comprehensive plan (not tied to product sales) that are not fee-for-service, but it's rare). However, for asset management the best arrangement is fee-based on assets; it aligns the advisor's interests with the clients most directly and encourages ongoing long-term results (because the larger the asset base (growth) the larger the revenue for the advisor – and because there is no upfront payment, so the advisor only gets paid over time encouraging them to keep the client happy and satisfied, or risk the client leaving the relationship). Fee-for-service on asset management does not put any “skin” in the game for the advisor and the cost on an hourly basis to manage an individual portfolio continuously would be cost-prohibitive (and you would never get access to the best advisors because none of them would charge that way because you could never manage a portfolio properly charging hourly). For a smaller portfolio this may not be a factor, but for anything north of $250,000 fee-based on assets is far superior (I've experimented with them all as an advisor and fee-based on assets is by far the best for the client to keep the advisor engaged and encourage ongoing supervision of the portfolio). But, with that said, it needs to be open architecture fee-based, not SMAs or wrap account fee-based. This is essential. Most fee-based advisors today are not really fee-based. They are using wrap accounts and/or Separately Managed Accounts (SMA), which are simply unwrapped mutual funds (you see the individual securities, but it's just a model like a mutual fund). If the advisor is not open architecture (meaning they analyse and have access to all investment vehicles – funds, stocks, bonds, ETFs, hedge, etc. – and make the same fee no matter what vehicle they use or what the asset allocation) they are not truly an investment advisor, they're an asset gatherer, IMHO. Therefore, you may want to modify the question and weighting to ask if the advisor is open architecture fee-based or do they simply put the clients money into a wrap account or proprietary SMA program. Also ask if the fee is the same no matter the asset class (different fee level for difference asset classes encourages overweighting to equities to earn a higher fee). So lastly, separate the question for financial planning and for asset management. FYI, in the States, the dominant HNW arrangement for wealth management is hourly for the plan and open architecture fee-based on assets for investment management (my training is in pension and HNW management in the U.S.).

    2.You really should have a large weighting to a question regarding performance reporting. Individual clients should get an annual report (in person or at least by mail) that articulates clearly (one page) what the performance for the family’s assets has been since inception. This report should give three numbers per family goal (family goal means all accounts tied to a goal is one portfolio – for instance a husband RRSP, wife RRP, and joint account all intended for retirement has one goal, therefore it should be shown as one portfolio and have its performance reported. RESP would be a separate goal and have a separate report): total cumulative return since inception, average compounded annual return since inception, and calendar year return. These results should be compared to “target return” for the portfolio, an appropriate benchmark, and inflation (this is the same report shown to investment committees for institutional assets – pension, endowment, etc.). Individual account or individual security results are meaningless, especially for a specific time period – it needs to be since inception to guage true results and be a fair time horizon to judge the advisor's capabilities.

    3.In regards to education, I beleive the CIMA designation should be close to the CFA. The CIMA in many ways is better than the CFA when managing retail client portfolios; mainly because the CFA concentrates on individual security analysis where as the CIMA is the same studies (same books as the CFA) but only the portfolio management and risk management sections. For someone with 10+ years experience, the CIMA can give a better understanding then the CFA for individual portfolios. CFAs tend to be far more focused on building portfolios with all individual stocks etc. (and more active) and less interested in EFTs, etc. Althouhg the CIMA is not as comprehensive or useful as the CFA on a stand alone basis, the CIMA, I think, should carry some weight over the others.

    4.Also in regards to education, IMHO, the CLU is a fairly useless designation without a CFP and advance portfolio management designation – it encourages the use of wealth destroying insurance strategies without the background to understand why they are (normally) mathematically inferior methods. Anyone I know with a CLU and not a strong portfolio background focuses far too much on insurance as an investment strategy rather than risk management (with the insurance's accompanying large commissions).

    Just some thoughts from a 15-year plus fee-based advisor who started out as transaction based and experimented with fee-only (hourly).

  • CAB

    When will you do a do you know your real estate agent? They only get paid commission, very rarelly will you get a different model of payment. But bashing commission is really in.. so you get ot be the star!!!

  • Preet

    Hey Sancus – great comments – thanks for taking the time to submit them. I'm taking it all in, and the other comments, and will continue to tweak the tool over the next week or two – updates will be provided on the daily blog posts…


  • Preet

    Hi CAB – I'm actually not against commissions at all. For financial advice, a DSC fund might be the most viable solution for a client/advisor relationship. The only thing I'm against is lack of disclosure.

  • jeff

    Need to provide score what does 95% imply…provide a ranking scale….

  • Jen Moore

    Hi Preet. I read through your KYA questionnaire and I think it's great. It seems as though the higher the score, the better the advisor so I'm just wondering if question 2 should give 5 points for a “yes” answer and 0 points for a “no”. I am a CFP and I can tell you that in my initial discussions with prospective clients, all of these questions are answered in a formalized introduction that I provide to my clients. I also provide clients with my privacy policy at our first meeting so that they are aware that even if they decide not to work with me, any information they provide will be kept with the same care as all of my clients. The 10 Questions to Ask brochure produced by the FPSC is a fantastic tool for a first conversation and covers everything from services offered, approach to financial planning, association with other professionals, regulatory bodies, compensation, conflict of interest qualifications & expectations. In my experience, clients really appreciate the candour. I have found that my openness has also been a benefit to me because the trust it builds opens the door for the client to provide me with full disclosure as well. The result is a very balanced relationship with no ambiguity.

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