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Choose wisely your representative

The first step to investing wisely is to determine if the individual or firm you are dealing with has the right to sell the product that is being offered to you. You will need to check the Register of firms and individuals authorized to practise. You should check the Register ideally every time you do business with them.

The following list is not exhaustive; it covers the types of participants most investors deal with.

Unless you do your own trading, such as on-line, you will deal with a representative.

Don’t forget: There is no such thing as a risk-free investment with high returns.

For more information, please read Choosing an Investment Dealer or a Representative
 

Financial sector participants and the services they offer

Type of participant Services offered

Investment dealers

They offer a wide variety of investments such as:

  • shares
  • bonds
  • mutual fund units

Some investment dealers provide advice and a full range of services: analysis, research and portfolio management. Others act as intermediaries by buying or selling securities according to your instructions, without giving you advice.

Mutual fund dealers

They only offer mutual fund units.

Scholarship plan dealers

They only offer units in scholarship plans, which pool the contributions made by several investors to a Registered Education Savings Plan (RESP) de plusieurs épargnants. Contributions are made periodically and are used to purchase units.

These dealers invest the contributions in scholarship plans.

Exempt market dealers

They offer investments to accredited investors (institutional investors or wealthy individuals) or securities distributed under an exemption from the prospectus requirement.

Portfolio managers

They manage your investment portfolio according to the mandate you give them. They make decisions and negotiate on your behalf with a dealer who executes your buy and sell orders.

Investment fund managers

Investment fund managers direct the business, operations and affairs of an investment fund.

Life and health insurance firms (insurance of persons)

They offer individual life and health insurance products or individual annuities of one or more insurers.

Financial planners (F. Pl.)

They assist you in developing a financial plan by identifying strategies adapted to your needs and considering your constraints and objectives.

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Mind your own business - Checklist

How to choose a firm and a representative … after all, you’ll be letting them use your money.

  • Check with the Autorité des marchés financiers (AMF) that the broker (dealer) and representative are authorized to practice in Québec.
  • Does the representative do business with clients who have a profile similar to yours? Make sure that the representative is thoroughly familiar with the products and services that are appropriate for you. Some may specialize in niches that aren’t right for you.
  • What type of firm suits you? If you are an experienced investor who intends to do your own research and make your own investment decisions, a discount broker could be the solution. If you are looking for someone to provide advice and make recommendations, then you might want to call on a full-service broker (dealer with an unrestricted practice).
  • Choose a representative who will take the time to explain his recommendations and assist you if you have any difficulty in understanding information.
  • Find a representative you can trust to share ideas and concerns and discuss what orientations to adopt.

Questions to ask your representative:

  • What is your academic background? How does it distinguish you from competitors?
  • What will your role be in this partnership? What will my role be? How often will you be in touch?
  • How are you paid? What fees do I have to pay?

What should a conscientious representative ask you?

Your answers will influence what investments are proposed to you.

  • Your knowledge of investments: How familiar are you with investing? How have you invested your money up to now?
  • Your financial goals: Are you hoping for a quiet retirement with visits to your neighbourhood public library or do you want to travel abroad twice a year? Your goals will guide your representative.
  • Your investment horizon: Do you want to invest to buy a house in two years or to pay for your children’s university education fifteen years from now?
  • Your risk tolerance: How would you react if the value of your investments declined 10% in value overnight?
  • Your financial and personal situation: Do you have family responsibilities? How much money can you set aside for investments? Is your employment income stable? Do you depend on investment income for living expenses?

Pay attention…

  • Ask your representative about any matter you don’t understand. If it isn’t clear enough and the concept appears vague and confusing, turn down the recommendation and ask for an alternative.
  • Take the time to understand any proposed investment, including its features and risks.
  • Check the performance of the proposed investment over the past few years. Has the return been stable or highly volatile (risky)? Don’t forget, however, that past performance does not guarantee future results.
  • Analyze the asset allocation strategy your representative suggests. What is the portfolio manager’s strategy for the proposed fund? Is it compatible with your profile and your needs? Is your portfolio sufficiently diversified?
  • Evaluate the advantages of choosing this product or strategy for the representative and for you as client.
  • Read, analyze and understand the investment materials provided to you, such as a prospectus. If you find some sections harder to understand, ask your representative for help.
  • Read, check and keep your transaction confirmations, statements of account and notes on your conversations.
  • Notify your representative if there are any changes in your financial situation.
  • Be aware that certain types of investments contain risks.
  • Monitor the value of your investments.

What to do in case of a problem with my broker or representative?

  • Take notes on any actions you take from the moment you encounter a problem.
  • Compile all the facts that lead you to believe that something is wrong.
  • Keep your new account application documents, any transaction forms, any account statements and the correspondence concerning your investments.
  • Tell your representative orally that there is a problem. Confirm it in writing if necessary.
  • If the problem is not resolved quickly, contact a senior executive, a supervisor or someone with authority at the firm, preferably in writing. Some brokerage firms have their own ombudsman or complaints officer to whom you can refer the matter.
  • If the results are unsatisfactory, contact the AMF. You can ask for your complaint to be transferred to the AMF, which will analyze the reasons for your complaint and assist you in resolving the dispute.
  • If the broker is a member of the Investment Dealers Association of Canada or the Chambre de la sécurité financière, it is also important to contact these agencies, so that disciplinary action can be taken if necessary.
  • You can decide to retain legal counsel at any time.

Questions to ask your representative

1. Are you registered?

Registration helps protect investors because the AMF will only register firms and individuals if they are properly qualified. Firms and individuals are registered by category — each category has different education and experience requirements, and permits different activities. The AMF can tell you if a firm or individual is registered and if they have a record of any disciplinary actions.

2. What is your background?

You want someone who is qualified and has the right experience to give you the help you need. Ask questions like:

  • What are your professional qualifications?
  • How long has your firm been in business?
  • How long have you been with the firm?
  • How long have you worked in the industry?
  • What professional associations do you belong to?

3. How are you paid?

Advisers can be paid by salary, commission, a flat fee, or a combination of these methods. If an adviser is paid by salary, the cost of their advice is built into the products you buy. Many advisers are paid a commission for each product they sell. Other advisers charge a flat fee based on an hourly rate or a percentage of the assets in your account.

Find out how the adviser is paid, how much their services will cost and what services you’ll get for your money.

4. What kinds of products and services do you offer?

Not all advisers offer the same products and services or have the same expertise. Some specialize in certain kinds of investments. Others can offer you a wide range of products and services.

If you’re an experienced investor, you may want an adviser who offers a wide range of products and lets you choose. If you’re newer to investing, you may be more comfortable with fewer choices and more guidance from an adviser.

5. Who are your clients?

An adviser’s job is to help you work toward your financial goals. It will help if the adviser has a good track record with clients like you— people with similar backgrounds and goals. Ask the adviser to describe their typical client. Does he or she work with clients who are like you? Also ask for references from clients who have been working with the adviser for a while.

6. How will you help me reach my goals?

The adviser should ask about your financial goals and investment objectives. Are you mainly looking for safety, income or long-term growth? Are you saving for something specific, like retirement? The adviser will also ask about your financial situation, investment knowledge and experience, and risk tolerance.

This information may seem personal, but it helps the adviser make the best recommendations for you. Make sure the adviser asks for this information and gives you a copy. You should also let your adviser know whenever your personal or financial situation changes so they can update this information.

7. What level of service can I expect from you?

You should discuss this with the adviser up front. Ask questions like:

  • How often will we meet to review my financial plan?
  • How will you update me on the performance of my investments?
  • How quickly will my phone calls and e-mails be returned? Will they be returned by you or by support staff?

Making the most of the relationship

Think of your relationship with your adviser as a partnership, with both of you working to achieve your financial goals. You’ll want to keep the lines of communication open and meet at least once a year. Ask questions if you don’t understand something. Be honest with yourself and your adviser about your financial situation. Your adviser needs accurate information to recommend the best investments for your situation.

For more information, please read Choosing an Investment Dealer or a Representative