Choosing a Financial Advisor

Choosing a Financial Advisor

What is a financial advisor?

A financial advisor is a professional who will assist you with a wide range of financial, estate and business issues. Your advisor should be able to help you with estate and legacy planning, including planning a will and using trusts; financial planning, including budgeting, tax planning, and retirement planning and saving; investing, including selecting and trading stocks, bonds, mutual funds, private equity and alternative investments; insurance planning, including life, disability and critical illness/accident; and business concerns, such as shareholder agreements, tax planning and incorporation.

Most people can benefit from professional financial advice. But it is important to understand that a financial advisor should do vastly more than buy and sell mutual funds for your RRSP.

How to choose an advisor

Begin by asking friends, family and colleagues for recommendations. Once you have a few names, meet with these prospective advisors. You should expect the advisor to ask a lot of questions about you and your financial situation so that they can begin to understand your circumstances and needs. The advisor should also give you the opportunity to ask questions about them, their qualifications and the services they provide. If the advisor begins with a sales pitch or doesn’t provide satisfactory answers to your questions, look elsewhere. Check the advisor’s registrations and certifications on financial industry websites. Your best bet is a Certified Financial Planner or Canadian Investment Manager.

Ask prospective advisors how they are paid. Ask specifically about commissions. They should be upfront about this. If they seem uncomfortable with the question or if their answer is vague, that’s a red flag. If the advisor charges a flat or percentage fee for a clearly understood level of service, you can be comfortable that they are not going to be badgering you to buy to increase their profits.

Ask your advisor about their background and education. Many bank and brokerage advisors are hired for their sales ability, not their financial knowledge. Some advisors know just enough about investing and insurance to stay within the law, but may know little about critical financial topics such as tax and estate planning. Look for an independent advisor who will include these areas in your overall financial plan.

What’s the difference between the dealer and the advisor?

Investment advisors (people) work in affiliation with investment dealers (companies). Look for an advisor who works with an independent investment dealer rather than a bank. This way, your advisor will not be restricted to offering you one bank’s products and services – advisors working through independent dealers can offer you products and services from many sources. Without sales pressure, the advisor will be free to focus on overall financial planning. The dealer performs the important functions of collecting fees from clients and ensures its advisors comply with regulations. The dealer also provides advisors with market and financial research and with certain marketing services.

Your choice of advisor should be based on the advisor, not on the dealer firm they work with.

Why you should work with an independent advisor

The success of your relationship with your advisor is based on how well your advisor’s interests align with yours. You need an advisor who will succeed when you succeed. The best way to ensure that is by working with an independent advisor. If you need any financial advice beyond occasional investment purchases, it’s also best if your advisor charges a fee for services, rather than receiving commission for products sold.

Your advisor should listen to you to understand your needs and goals and then find the products and services that are right for meeting those goals. An independent fee-based advisor can recommend stocks, bonds, mutual funds, alternative products, private equity and more from many sources and has no financial incentive to pick one over the other. That is likely not the case with a bank or insurance company advisor, who will likely be expected to meet quarterly or annual targets for each of the few categories of products they can offer.

Look for an independent advisor who can examine your full situation and tailor a plan to suit your family’s needs, including insurance, tax planning, estate planning, investments, business planning and more.