InHouseCFO's Small Business Blog

A Small Business Owner's Guide to Choosing an Investment Advisor

Posted by Donald Cameron on Mon, Nov 04, 2013

As Canadian small business chartered accountants, we spend a lot of our time worrying along with our client's about their business. Fortunately, often this worry converts into financial success. Unless proper decisions are made however, this success adds to the worry - trying to figure out what to do with these hard-earned savings.

It is thus very important to address how you will small business investment advicedeal with this as early s possible so that a plan can be put in place to start having this money work for you.

The sooner it does, the more it can help you on the road to financial independance.

You'll be surprised how less worrisome your small business becomes as your savings grow.

Unless your own small business is in the investment industry itself, self-investing is never an option (even if your business is in investing, don't self-invest; the "Cobbler's Shoes" story immediately comes to mind).

There isnever a DIY solution to investing, especially now, with the complexities of the investment world we are in.

This article is a guide to help you choose the right advisor.

Who NOT to pick as investment advisor


As with your business advisors, choosing who will help you grow your savings is too important of a decision to let friendship and/or business connections bias your choice.

Make this a hard and fast rule.




In choosing who you’ll use to advise on and manage your small business’ surplus money, you should first know that there are various types of advisors, some by their nature we recommend against considering.

Types of advisors:

Financial Planner (CFP)(MFDA)

While anyone can hang out a shingle and call themselves a financial planner, only ones who carry the professional designation of Certified Financial Planner (CFP) possess proven technical training and professional proficiency standards maintained by the  Financial Planning Standards Board.

These folks usually hold licenses to trade in Mutual Funds. This licensng is regulated by the Mutual Fund Dealers Association (MFDA).

Mutual funds were, at one time, pretty much the only way most individuals were able to invest if they were smart enough not to try to do it themselves. Now, however, as with most other professions, the internet has facilitated investing, lowered the cost of doing so, and spawned tools which, like they have for us in the business and financial advice business, allow much more experienced, educated, and frankly smarter professionals who heretofore plied their trade to institutional investors, to offer their skills and solutions to everyday people like us.

There is no longer any need to invest in mutual funds sold by CFP planners any. Frankly most mutual funds’ track records as investment options are abysmal, due to their management costs and investment policies built to protect the brand selling the fund, rather than increasing the investors risk-rated returns.

Let's look at the categories that we should be dealing with and why.

Investment Advisor (IIROC)

There is a plethora of professionals that use the title investment advisor. In almost all situations, these professionals are regulated by a professional body known as the Investment Industry Regulatory Organization of Canada (IIROC). The regulatory requirements and standards of this self-regulating body are very high, and to-date we individuals have been able to rely on their oversight of their members to protect our interests.

To find the right kind of investment advisor that we recommend using, we need to split this category into two classes.

Traditional "Stock Broker"

The first class is the traditional stock broker, a person who can buy and sell any securities that he/she has been approved for. This approval depends on the level of proficiency the advisor has attained through courses managed by the Canadian Securities Institute (CSI).

Classic stock brokers can charge fees either by transaction, or as a form of monthly management fee, the latter usually based on the value of the portfolio being managed.

In all cases however, this class of stock broker must get your permission each and every time they want to do a trade (buying or selling). This means one of two things:

  1. The advisor wants a fall-back excuse should results be unexpectedly poor; and/or
  2. He/she lacks the experience required to get permission to trade on your behalf on a "discretionary" basis;

Either of these reasons alone, in my opinion, takes them out of the running for consideration as an investment advisor.

Discretionary Investment Manager (CIM)

This class of investment advisor, holds the designation Chartered Investment Manager (CIM). To have this designation, an advisor must qualify for the designation “Portfolio Manager” with the securities commission for the province in which the advisor operates, or with the IIROC member firm at which they work.

In my opinion, this level of proficiency is a very strong indicator of skills and experience, and the only class of investment advisor that Canadian small business owners like us should consider.

Investment Counsellor (CFA)(OSC, BCSC, ASC)

The next type of advisor is known as an investment counsellor.

In our opinion, the level of training and experience that these individuals must have to be classified as an investment counsellor, as regulated by the provincial securities commissions, places them at the top of the heap. They almost always have a professional designation Chartered Financial Analyst (CFA), which, like our own Chartered Accountancy (CA) designation, is obtained only after meeting very high academic and experiential standards.

Up until recently, these folks worked for and delivered investment advice to large institutions, and ultra-high net worth families. While a minimum size of portfolio is required, this level has come down to a range more achievable by small business owners. This minimum level is usually $1.0 million, however we have seen it as low as $500,000.

Firms with lower minimums and costs are starting to appear, one example being a firm called STEADYHAND. small business investment counsellorThis firm is run by the former CEO of Phillips Hager and North, one of the largest institutional money managers in Canada (now owned by RBC). This level of quality, combined with professional competence, provided cost effectively may just be the best of all worlds.

Final Considerations

Once you've decided on the category of investment advisor that is acceptable, you then interview candidates which hold the designations you've chosen, and as with any service provider, ensure that they possess the following other characteristics:

  1. Time to help you:
    • If they're too busy, move on, you need their full attention;
  2. Interest in helping you:
    • You'll figure this out quite quickly during your initial discussion(s) with them before they are retained for their services;
    • Why add anyone to your team that isn't interested in you and your business?
  3. Personality that meshes with:
    • Your culture and style;
    • Your profile as an investor;
    • Rate structure that is market based; and
  4. Get referred:
    • It's always good if there's a referral source.

The above should be carefully thought through in advance of actually handing over some of your hard-earned cash. As the setting up of accounts, and advance planning that goes into having the ability to place money to work as investments is quite time consuming, and the transferring out, should a decision to change be made, quite cumbersome, this is one decision that should be made with the long-term in mind.

Tags: Picking a Professional