Our article Where to Go? Who to See? provides some guidance on finding an advisor that you may approach for a second opinion. The term “second opinion” sounds a little too limiting. My thought is that if you have gone through the steps to see who the best candidates would be, then hopefully you have more than one name.
Let’s assume that you have five different advisors that you are potentially interested in. The first step is normally for you to have a verbal discussion on the phone, or an in-person meeting, with each of these five advisors.
For purposes of this meeting, I would consider asking enough questions to get comfort. It would help if you were also prepared to provide a verbal summary of your current situation.
Examples of 10 questions that you should consider asking each advisor during the first meeting are:
1) Can you tell me about your qualifications, experience, education and training?
2) Can you provide some information about your support team?
3) What regulatory bodies are you licensed with and what is your current licence category?
4) What type of investments do you typically recommend?
5) Do you have a minimum account or household size?
6) What is your commission or fee structure / How are you paid?
7) How long have you been working at the current firm? What did you do prior to joining the firm?
8) What services do you provide to your clients?
9) What is your investment philosophy?
10) Would you be willing to provide a second opinion on my financial situation in writing?
Writing down their answers to the above questions will allow you to compare each of the responses.
At the end of the day, the goal is to find an advisor you fully trust, and you know you can work with. You want to feel comfortable talking to them and working together. Comfort is knowing that they have the knowledge and skills to help with both your investment and planning needs.
If you ask the same questions to each of the five advisors, then you should be able to assess them all and possibly short-list the number down to your favourite three. At this point, I would recommend providing the advisors some information about yourself to prepare the analysis.
When individuals ask us to provide a second opinion, we will provide them with a checklist of information that will help us prepare the analysis. It is not a requirement that all this information is provided; however, the more information that is provided, the more in-depth the analysis.
Below is a copy of our template for the information we request. You can use this as your own checklist to get started.
The Greenard Group Analysis — Information Request Template
Personal information
• Your name, spouse’s name, if applicable, and children’s and/or dependent’s names, if applicable
• Your birth date, spouse’s birth date, if applicable, children’s and/or dependent’s birth dates, if applicable
• Investment objectives, add up to 100% (income ___%, growth ___%, speculative trading ___%)
• Risk tolerance, add up to 100% (low___%, medium___%, high___%)
Tax information
• Tax return information — you and your spouse, if applicable
• Notice of assessment
Investment statements
• Bank account statements — if significant balance to be invested
• Non-registered investment account statement(s)
• Corporate account statement(s)
• TFSA account statement(s)
• LRSP/RRSP account statement(s)
• LIF/RRIF account statement(s)
• RESP account statement(s)
• RDSP account statement(s)
Optional other information
• Cash flow needs from your investments for the next 12 months
• Expected large withdrawals in the next two years (i.e. helping children purchase a house)
• Expected deposits (i.e. asset sale, inheritance)
• Copy of your financial plan, if applicable
• Performance report for current investments
• Budget documents
• Net worth statement
• Property assessment (primary residence, rental property, vacation property, etc.)
• Details of any debt (i.e. mortgage, line of credit, etc.)
• Other information that you feel is important for us to know for the analysis
After the above information is provided, it will typically take us a week to prepare The Greenard Group Analysis. We have access to various tools and systems that can assist us in analyzing the information provided.
During the one-week preparation period, we may ask for additional information or clarity on the information provided. If all the above information is provided, our analysis will typically have all the sections noted below.
The Greenard Group Analysis
Section I – Summary by Account
In this section of the analysis, we list every security, sorted by account. The Summary by Account will include the account name, type of account, security description, symbol, sector, geography, quantity of shares you own, book value, market value, unrealized gain/(loss) (if book values are available), dividend yield (if applicable), projected income and our specific comments about each security within each account. Our comments will include a recommendation on whether to hold or sell the security.
Part of this section of the report will deal with where each security is held in the various accounts. If we can improve the tax efficiency of the placement, this is the area where we will provide those comments. We have written a past article with further details on this.
Section II – Consolidated View
This section analyses the portion of the portfolio in cash, fixed income, and equities on a consolidated basis. The cash noted in this section of the report is linked to Section VI — Cash Flow Analysis. The fixed income is also analyzed for credit rating and duration.
The consolidated view enables us to sort the equities first by sector (percentage in energy, materials, industrials, consumer cyclical, consumer non-cyclical, financial, technology, communications, and utilities), then by individual holding.
By doing this, we can identify duplication between accounts and position sizes that are outside of recommended ranges (i.e. overweight, or underweight). For those securities that we recommend holding we list those securities that are underweight, market weight (optimal), and overweight.
Section III – Structure Comments
In this section, we provide a high-level, macro view of your current asset allocation. We review the component in cash, fixed income, and equities, and your current number of holdings. A disciplined approach always begins with risk management. Determining the number of holdings is dependent on the size of the account. In this section, we will do the calculations to determine the optimal number of equity holdings. This section will provide our opinion on your optimal position size. We will also outline the calculation range for the portfolio from minimum position size (i.e. half position size) to maximum position size (where we will rebalance the holding).
Section IV – Fee Analysis
This will include all the fees that are both transparent and embedded. The following are examples of the fees that we will include: Management Expense Ratio (MER), Trading Expense Ratio (TER), Brokerage Fees, Advisory Fees, Management Fees, Annual Administrative Fees, Performance Fees, Front End Sales Charges (primarily when a mutual fund is sold), Deferred Sales Charges, Short-Term Trading Fees, and Trading Commissions.
As part of the Fee Analysis, we perform a Tax Analysis of the fees you are currently paying. Embedded fees, such as Management Expense Ratio, are not deductible for tax purposes, whereas investment counsel fees charged on the fee-based managed accounts we offer are tax-deductible in taxable accounts (i.e. non-registered, joint with right of survivorship, corporate).
Section V – Geographic Exposure
With this section of the report, we analyse the current geographic exposure of the consolidated portfolio. The first part is broken down by countries first: Canada, United States, etc. The next section deals with currencies and the current foreign exchange diversification in the portfolio.
We will touch on the taxation of foreign income and various tax treaties that exist that may impact the placement of certain types of investments among the various accounts.
Section VI – Cash Flow Analysis
Investment income is a key component to overall investment returns. When we provide a second opinion on a portfolio, we are specifically looking at your return on your capital. Are you receiving an appropriate level of dividend income? Our report will list the projected income flow from your investments. This will be broken down in yield (percentage) and a specific dollar amount.
Another component of this analysis outlines your requirement for cash flow from your investments, if any. We would typically determine the specific dollar amount required and how best to position the accounts to provide the required cash flow. Our recommendations will ensure that an appropriate amount of funds is earmarked to reduce risk. If applicable, we also perform an analysis of your Registered Retirement Income Fund payments.
Section VII – Performance Benchmarking
The Canadian Securities Administrators (CSA) have passed laws that make it mandatory for financial firms to provide clients this information. The mandatory disclosures are typically done on an account-by-account basis. We recommend that you request a copy of the consolidated performance numbers, net of fees. When we generate reports, we can have multiple time periods on one report (i.e. one-year, three-year, five-year). If you can provide a similar report from your existing institution, then we will be able to provide our benchmarking services. The benchmarking service compares the performance of your accounts relative to the closest benchmarks. In most cases, we will have three or more benchmarks for each analysis, including the following: cash equivalents, fixed income, Canadian equities, and US equities.
Section VIII – Total Wealth Planning
Depending on the information provided we will typically have recommendations and talking points regarding planning. Planning can range from education, financial, tax, retirement, and estate topics. In our analysis we will typically write questions to begin covering some of these areas.
Section IX – Recommendations
After all the analysis of your current holdings and situation in the first eight sections, the last section outlines our specific recommendations and actionable steps. In conjunction with reviewing the analysis and recommendations, we will also review the draft Investment Policy Statement, Managed Portfolio Program Fee Agreement and go through our current model portfolio holdings. We also always welcome any questions that you may have.
One of the benefits of requesting a second opinion from multiple advisors is the ability to get different perspectives. Every advisor will have a different approach, style, and recommendations. We highly encourage you to obtain copies of the second opinions in writing so you can fully assess and find the best long-term financial relationship for you.
Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the TC. Call 250-389-2138, email [email protected] or visit greenardgroup.com/secondopinion
