Canadians looking for help managing their money during uncertain times may want to turn to a financial planner or advisor to guide their decisions on everything from investing to paying off debt.
But as much as developing your own financial plan is complicated, getting the right help is no easy task, experts say.
“I think there is still a lot of ambiguity for Canadian financial advisors about what exactly they are doing,” said Jason Heath, managing director at Objective Financial Partners. .
Heath, a certified financial planner (CFP), and other experts also said relying on outside advice may not be appropriate for all households given the costs of financial planning itself. ing.
Here’s how to decide if a financial planner is right for you and how to navigate the market to find the right planner.
Financial Advisor vs. Financial Planner
Get different types of financial guidance, from direct advice to hands-on investment management.
But the first distinction we must make is the difference between a financial advisor and a financial planner.
The Financial and Consumer Agency of Canada (FCAC) provides a broader set of financial advisors, including everything from bankers to securities brokers to insurance agents, and more specialized financial planners (advisors who help people buy financial products). ) are distinguished. Plan for long-term savings goals. Some financial planners offer advice on wealth planning, ways to save on taxes, and advice on planning for retirement.
However, the agency points out that Any Canadian resident outside Quebec may claim to be a financial planner or advisorit is the client’s responsibility to know exactly what the person is qualified to do.
Both roles may come with specific certifications, Heath says, and it’s important to clarify upfront. Typically, this can be verified by searching the advisor or planner’s name with the state or territory regulator.
CFP is qualified to provide general tips on tax saving strategies. However, if you need specific advice, we recommend that you consult a certified public accountant.
The FCAC notes that besides a CFP like Heath, there are two other general qualifications, the Personal Financial Planner and the Registered Financial Planner, which have their own education and experience requirements.can i check Online requirements for each title.
Heath is also a planner who only gives advice. This means that we do not directly manage our customers’ money or sell specific financial products.
For Heath, the appeal of this approach is that he doesn’t feel obligated to offer a specific product to solve a customer’s financial problem. If advisors can only sell insurance-based solutions to problems, they can lead someone down an unproductive path in the name of meeting sales quotas, he said.
“Most financial services professionals in Canada are paid based on the products they offer and sell, so they can be motivated to recommend one behavior over another,” he says.
“I chose this behavior because I look the client in the eye and don’t feel like I’m trying to take advantage of them or sell them in some way.”
How are advisors and planners paid?
The FCAC states that payment methods for advisors vary depending on the services the advisor provides. This could be an hourly fee to help develop a financial plan, a percentage based on the value of assets under management, or a fee to purchase stock on your behalf.
Salaries of Heath and its ilk are paid on a rewards-only model. It’s like a lawyer paying a per-session or hourly consultation fee.
Hourly rates can range from hundreds to thousands, Heath said, depending on the scope of the service and the expertise of the advisors and planners and the typical clientele.
For those already struggling to make ends meet, using a financial planner can be prohibitive given these costs.
“Not everyone is in a position or desire to write a check for financial advice,” he said.
More common for advisors managing investment portfolios may be percentage-based commissions earned from earnings, said Shannon Terrell, lead author and spokeswoman for NerdWallet Canada.
Portfolio manager fees can fluctuate, but are typically between 1% and 2% per year in Canada, she said.
That may not seem like a lot, Terrell said, but the fees paid to managers are essentially subtracted from investment returns, and by themselves, even in a strong year. “It’s often in the single digits,” he said.
“At the end of the day, you have to ask yourself, is it worth the cost of transferring your finances and portfolio to someone else?”
Heath said some independent portfolio managers often have minimum investments that clients must have on the books before an advisor can take them. That could be more than $250,000 and would prevent most Canadian households from receiving this level of service, he said.
For those who can’t afford an advice-based approach, don’t want to give up some of their investment returns, or don’t have enough cash to start engaging with an advisor, there are inexpensive options to consider. , and even some free alternatives.
Terrell said many financial advisors offer free consultations before asking for a contract to be signed, which can be used to “get a better picture of your finances” and get you on the right track quickly. measures can be taken.
Heath said most banks and other financial institutions will have wealth advisors that customers can access to start saving even a small amount.
The FCAC said banks have staff who can help understand and purchase certain investment products, such as GICs and mutual funds, or help contribute to registered savings plans such as RRSP and TFSA.
Heath said the advice is typically “available” to most Canadians, but at larger institutions the turnover tends to be high and clients may not stick with the same adviser for long.
Like independent experts, Heath says bank financial advisors can be hit or miss, but it’s possible to find “hidden gems” by working with private banking providers.
There are also some lower fee options for those who want to grow their money through passive investments such as exchange traded funds managed via robo-advisors, but these options come with direct advice from real humans. may have little or no
How to find the planner that’s right for you
According to the FCAC, where to find a financial adviser depends on the type of advice you need, whether it’s a bank, brokerage firm, insurance company or an independent planning firm.
The Consumer Affairs Agency lists There are many places to find an advisor, including FP Canada, the Canadian Association of Financial Advisers, the Association of Financial Planners, and the Investment Industry Regulatory Agency of Canada.
Finding the right financial planner is like dating, says Heath. You want to find someone who has a good reputation, a matching personality, and the right stage in your life.
Some people prefer older advisors with a little more experience, while others prefer younger ones who, if possible, will stay with them from a young age until they retire, he said.
If you’re considering working with someone you’ve found online or through word of mouth, Terrell recommends “hunting down” prospective advisors and planners to see if they’re a good fit in terms of both service and personality. It is recommended.
“I encourage people to participate in these conversations and treat them like interviews,” she says. “Know your questions ahead of time. Take notes and be prepared to follow up on any ambiguities.”
Here are some questions Heath and Terrell advise you to ask before reaching out to a particular advisor or planner.
- Do you offer financial advice and hands-on management?
- What are your certifications?
- How will I be paid for this relationship? What is the fee structure?
- Is there a minimum amount required to start investing?
- What kind of clients do you usually work with?
- How often do you meet with your customers and how do you communicate with them?
- How has the portfolio you managed historically performed?
The FCAC also has list of questions You may want to ask your advisor if you have ever been reprimanded by a regulator or had any restrictions imposed on your license.
Heath said some financial planners may try to convince you by criticizing existing investments and promising high returns, but this could be a “red flag”. Warning.
Heath says one of the biggest mistakes you can make when choosing an advisor is not asking enough questions.
He was surprised to hear from customers that they were nervous about asking questions and could seem silly. This trend, he found, is common among established professionals and older people alike.
“I am shocked because this is their money and they are paying these individuals a lot of fees,” he says.
“You have the right to have your questions answered and to have an open and honest relationship.”
Heath’s last piece of advice applies whether you’re looking for outside financial help or going it alone. It’s about educating yourself.
For those who can’t afford it, or who don’t see the value of a financial advisor or planner, there are now free or low-cost resources online that can provide the necessary foundation to set you up for financial success. There are many, he says. .
At the same time, if you rely on third parties to make all of your financial decisions, you may not have the background you need to know if the advice you’re getting will benefit them rather than yourself. .
“The most important thing people can do, whether they’re young or have a lot of money, is to learn about money,” Heath says.
“You get more information, you ask better questions, you seek better advice, and you understand BS.”
