Have you heard this one?

Kelly Rodgers, MoneySense November 2001

After seeing the stock market wither over the last few months, you may be shying away from the do-it-yourself approach to investing. Or perhaps you're unhappy with the professional investment advice you've been receiving. Either way, you may be in the market for a new financial adviser. The first thing you need to know before you go shopping is that supply and demand have shifted in your favor. During the bull market of the 1990s, financial advisers had many clients to choose from and could decide what level of service they provided. Now, life isn't so rosy for them. Revenues are down, which means that advisers will be trying hard to win your account. As a result, you may hear some lines that, at best, can only be described as embellishments of the truth. Here are five of the most egregious fibs:

"I usually only deal with clients who have portfolios of $1 million or more." If every adviser who made this statement were telling the truth, the accumulated wealth of Canada would be greater than that of Europe, Asia and the U.S. combined. Your adviser may use a different figure than $1 million, but his intention in exaggerating the size of his average portfolio is the same: he wants you to think you are incredibly lucky to be dealing with him. That way, you won't expect much in the way of service.

My advice: when you hear this line, look for another adviser. In today's environment, where advisers outnumber investment dollars, you have power. Look for an adviser who will work hard to manage your account.

"The annual MER might be high, but it's worth it to get the best fund!" When an adviser tries to sell you on the merits of expensive mutual funds, chances are she is really trying to enrich herself at your expense. There is absolutely no correlation between a high management expense ratio (MER) and good fund management.

That said, high fees do undermine a fund's performance. These fees are deducted from a fund's annual return and can easily eat up to 40% of your profits over the long term. You should reject any mutual fund that has an MER above 2.5%. While you're at it, reject any adviser who recommends expensive funds.

"I've never heard of Phillips, Hager & North." Anyone who calls himself an investment professional should know about Phillips, Hager & North Investment Management Ltd. It's one of the largest independent investment counselors in Canada, with over $30 billion in assets under management and over $4 billion in no-load mutual funds. More important, PH&N is one of the best fund companies in Canada and your adviser should let you know about it.

All PH&N mutual funds have very low MERs, ranging from about 0.85% to 1.5% Ten of its funds have received Morningstar Canada's four- or five-star ranking, a seal of excellence in the mutual fund industry.

If your adviser professes not to know about these excellent funds, it's probably because they don't enrich him with sales commissions or trailer fees. If your adviser truly doesn't know about PH&N funds, he doesn't have much knowledge of the industry. Do you really want advice from someone with such limited knowledge?

"Here are the historic returns from a representative account. I assure you, it's not my best account!" The account might not be your adviser's best account, but it's likely her second best.

Be skeptical when you're shown historical returns. The Association of Investment Management and Research (AIMR) has strict rules for presenting investment returns in marketing presentations. AIMR's code of ethics dictates that only composite returns can be used. This means that the returns for all portfolios with similar objectives must be combined.

If an adviser shows you returns from a "sample" account, ask yourself if you want to deal with someone who doesn't adhere to the ethical standards of the industry or, worse, doesn't know what those standards are.

"I can achieve annual returns of 11% to 12% on a conservatively managed portfolio." Yeah, right. A reasonable expectation for returns going forward is 6% to 9% on a balanced portfolio, annualized over the next five years. Anyone who says different is telling you a story to try to win your business. Don't be fooled by false promises.