Month: January 2016

How to choose the right financial planner

Investing in your future is one of the most important decisions you can make.  When it comes to choosing a financial advisor, it can be difficult to know when you’ve found the “right” person.

Why is it so tough? Your financial situation, hopes and dreams are personal! Not many realize what financial advice really entails, so how can you know if service is up to standard?

Here are some tips on making the right decision to ensure peace of mind when it comes to your finances.

1.       Speak up

Being shy won’t help when meeting with a potential advisor. Think of this as a job interview and you’re doing the hiring. Ask them about their background, their philosophy on financial planning and, of course, their portfolio. Have they provided like-minded clients with success?

A great way to start the conversation is to ask about their experience so you can determine compatibility. Even the most talented investor is not much help without understanding your needs and properly communicating.

2.       Do your research

More likely than not, you heard about your potential advisor from a friend or trusted source. Even so, it’s a good idea to do your research ahead of time. Are they registered with any online sources?  Do they have credible financial designations?  What is their education and experience?  Knowing these will help you determine their capacity as a financial advisor. Searching online for reviews and feedback from others can be helpful before stepping face to face with a potential planner. Walking into your first meeting knowing your stuff will help you feel prepared and confident prior to discussing big, important topics.

3.       What do you need

Knowing what services and help you actually need from a financial advisor is not always clear. You may know you need a professional to help, but knowing what services you truly need is another story. This is where your rationale and gut come in.

It’s up to your financial advisor to explain what alternatives are available and what services can be fruitful and promising for you. This is when an advisor should be asking you all about yourself and your financial goals. This is also when you should be asking the advisor all about his/her services and what they can help you with. Go with your gut. Are they trying to get to know you? Do they seem interested in becoming familiar with your financial goals and timelines?

If you have a good rapport with an advisor, you should be able to walk away with a clear idea of services they offer that will help meet your goals.

4.       Trust your gut

Overall, it’s important to remember to follow a gut feeling. You should feel comfortable speaking to your financial advisor. If it feels forced or like you’re speaking to a salesperson, those are issues to watch for. Here are some elements to run through in your mind when making the decision:

a)      Financial advisor vs. salesperson: Does the advisor feel more like a salesperson, or does it feel like they could be a partner in your financial future? If it sounds like they have a preconceived notion about what you need, or if they’re trying to sell you a pre-made package before taking the time to get to know you, that’s a serious red flag.

b)      Good vs. bad listener: The only way a relationship with a potential financial advisor is going to work is if they really listen to you. Are they asking you enough questions about your financial history and future goals or plans? Are they trying to sell you on something you don’t feel comfortable committing to? Your perfect financial advisor will listen to your goals, adjust their offerings to your needs and make sure you understand and are comfortable with every decision.

c)       The honest policy: An essential and difficult part of your financial advisor’s job will be to honestly tell you exactly how it is with transparency about their services. Are they giving you vague responses or skirting around the questions you’re asking? They should be able to provide clear and succinct reasoning behind any service suggested. If they can’t, there’s a problem.

Like most relationships in life, trust is an integral facet to the success of a partnership with a financial advisor. You want somebody who is prepared to invest in your future with the same honesty and integrity as you are. Ultimately, gauge your gut instinct and comfort level, ask the right questions and be prepared to take some time to think it over. Keeping these tips in mind will ensure you move forward with the perfect partner in harnessing positivity for your financial future.

Rate Hikes Do Not Mean Doom

In theory rising interest rates spell trouble for stocks but history confirms that equity market returns have varied significantly following an initial central bank rate hike. This is because not all interest rate hikes are equal. An increase is more meaningful if the starting point is 0.5% as opposed to 5.0%. When 10 year bonds yield 5%, then bond yields are viewed as potential replacements for stock returns, but since 10 year Government of Canada bonds are currently yielding 1.4% the worry is less.

Equity bull markets do not usually end at the first rate hike. Stocks tend to peak much later as can be seen in the table to the left. For the eight Canadian stock market recoveries since 1970, stocks continue to gain 25.2% on average for 12 months. This is split into two distinct periods: 1970 to 1989, when stocks gain 8.2% on average before peaking 5 months after the first hike; and 1990 to 2008, when stocks gain 42.2% on average before peaking 20 months after the first hike.

Twitchy investors should look beyond rate hikes and focus on the yield curve. The yield curve is one of the most reliable economic indicators and one that savvy market watchers keep on their radar. Most other economic data is backwards looking, so it is no wonder that the track record of forecasters using other signals is abysmal. The yield curve has an excellent record of predicting stock market peaks over the past 45 years and it is not signaling a bear market now. A yield curve inversion usually takes place about 12 months before the start of a recession, but the lead time ranges from about 5 to 16 months. The peak in the stock market usually occurs near the time of the yield curve inversion and just ahead of a recession.

The yield curve describes the difference between short term Canadian cash yields and long term bond yields. Typically short term interest rates are lower than long term rates so the yield curve slopes upwards, reflecting higher yields for longer term investments. This is referred to as a normal yield curve. When short rates move above long term rates and the curve becomesinverted, this is a clear sign that a slowdown is likely. It is no wonder that an inverted yield curve often incites fear in equity markets.

The yield spread between 3 month T bills and 10 year Canada bonds is shown in the chart above for the past 45 years. It also shows when the differential has turned negative, as indicated by the blue circles, and also shows the S&P/TSX stock index for ease of comparison. The yield curve has been flattening over the last three years but the good news is that the curve is still steep and certainly a long ways from inverting. If the Bank of Canada aggressively hikes its key policy rate and short term yields rise swiftly, the central bank would have to increase yields by 0.93% (assuming bond yields stay the same) before the yield curve becomes inverted.

An inverted yield curve is the best indicator of pending stock market trouble. Rates are usually increased to cool an overheating economy but in the current situation an increase would simply be the normal process of raising rates from the low levels they have been at following the financial crisis. Based upon what the yield curve is currently telling investors, this bull market has more room to run because a bear market will not come until the yield curve says so.



This report may contain forward looking statements. Forward looking statements are not guarantees of future performance as actual events and results could differ materially from those expressed or implied. The information in this publication does not constitute investment advice by Provisus Wealth Management Limited and is provided for informational purposes only and therefore is not an offer to buy or sell securities. Past performance may not be indicative of future results.

While every effort has been made to ensure the correctness of the numbers and data presented, Provisus Wealth Management does not warrant the accuracy of the data in this publication. This publication is for informational purposes only.