2. Are there any conflicts of interest?

The next step is making sure that you and your adviser are aware of the many potential conflicts of interest. Because of poor regulations there are no effective industry watch dogs, which translates into "buyer beware." Some areas of frequent consumer abuse include: when the same firm acts as the underwriter and then adviser; the excessive sale of mutual funds over individual stocks and bonds; the sale of rear-load funds over front-load funds; the sale of RRSP-eligible cloned funds over RRSP-eligible index funds; the excessive sale of universal life insurance; and the high fees charged by wrap accounts and asset allocation services.

Most of these conflicts arise because these products are associated with higher commissions for the adviser and the company. This often translates into the adviser's interest being placed ahead of yours, resulting in poor portfolio performance!

The best way to minimize conflict of interest is to hire a fee-for-service (FFS) financial adviser. Most advisers are remunerated by commission, being paid a percentage of what they sell you. This percentage varies greatly between different products and companies and this is where the problems begin. With human nature being what it is, you could get a product that is best for your adviser but not necessarily for you. The likelihood of this happening is enhanced by the fact that most commissions are hidden, so consumers have no idea of what they are paying.

Similarly, some of the best funds (e.g., no-load and index funds) do not pay the annual trailer fee commission, which means that your commissioned adviser is not likely to recommend them. This conflict would not happen with the FFS adviser, resulting in less fees and better portfolio performance.

Most financial planners (the generalists) will work on an hourly fee-for-service, but you have to ask. Unfortunately, finding an investment adviser (the specialist) willing to work fee-for-service is more difficult. However, I think this will change in the near future because of the growing numbers of do-it-yourself investors who will be seeking second opinions on their investment portfolios. Until then, an alternative is to hire a flat-fee commissioned adviser (as for wrap accounts) but only if the remuneration is based on performance. The performance-based remuneration will guarantee value for your money. Another alternative is to become a do-it-yourself investor and complement this with an hourly fee-for-service second opinion two or three times each year. The pay and rewards for the do-it-yourself investor can be tremendous as outlined in my book Second Opinion: Hire The Best Financial Advisor or Do It Yourself.

3. Will there be a written legal contract?

The written investment contract is your legal document that outlines the adviser's job description. My estimate is that 95 per cent of investors do not have this, which is a recipe for disaster. Most advisers know that they should be providing a written investment plan, but they also know that this could lead to occupational suicide. A written investment plan charts your financial future and without one you are flying by the seat of your pants.

The written contract protects your investments and allows you to keep a score card on how your hired help is performing. There are several things that should be addressed in the written investment plan, but most important for the busy doctor are which performance benchmarks are used and how annual fees are to be reported. At present a written contract is not the industry standard simply because we, the consumer, have not asked for it. Come on investors — wake up and demand a written investment plan.

Conclusion:

1. Only use a financial adviser with the correct credentials.

2. Remember that the industry motto is "buyer beware." You have to get informed!

3. Minimize conflict of interest by using a fee-for-service financial planner. When using an investment adviser, request that the annual remuneration be tied to portfolio performance.

4. Always get a written contract outlining such things as expected performance, which performance benchmarks will be used and how annual fees will be reported.

5. Give serious consideration to becoming a do-it-yourself investor using one of the many brain-dead investment strategies such as index investing or "Neuro Approach" investing as outlined in Second Opinion.

For further information, go to Dr. Curran's Web site at http://tcurran.junction.net.