Canadians often turn to financial advisors for investing advice, but experts say picking someone to help you manage your money is much more than just promises of stock market returns.
“What you want is someone who’s not going to just invest your money,” Jason Pereira, senior partner and financial planner at Woodgate Financial, said in an interview with Yahoo Finance Canada.
“What you need is someone who’s going to provide context to what you’re doing with your money in the scheme of your life, and make sure that the money is there to service your life.”
Picking a financial advisor may feel like a daunting task. Here’s what Canadians need to consider when hiring one.
Financial advisors vs. financial planners
There isn’t a difference between titles like financial advisor and financial planner. What is important is making sure your choice of advisor is properly certified and has backing from an accredited body.
The base certification is the Certified Financial Planner (CFP) designation. There are approximately 17,000 CFP professionals across Canada. You can check their certification on the CSA Group’s website and see if there are disciplinary actions against them. The Financial Planning Association of Canada also has a directory of members that lists their designations.
Given that investing advice is often a critical part of an advisor’s services, it doesn’t hurt to check out a potential advisor’s history. A database from the Canadian Securities Administrators allows interested clients to check the disciplinary history, if any, of anyone selling securities in the country. The Investment Industry Regulatory Organizations of Canada also publishes an annual enforcement report.
There are, however, certain titles that can be potentially misleading, depending on the specific financial services required. John Webster, the president of Queensbury Securities, says one example is the title “senior financial advisor.” It could indicate either that they have been in business for a long time, or that they have experience dealing with seniors.
Find someone with a specialty that lines up with your needs
While many turn to financial planners for advice on growing their wealth, working with an advisor is not just about investing, says Jan Russel, president of the Russel Wealth Planning Group.
“We always like to start with people’s goals and objectives, because we feel that really drives not just how they invest, but how they’re going to handle… their financial future in general,” he said in an interview with Yahoo Finance Canada.
As with other professions, different financial advisors may have different areas of expertise – such as family wealth, retirement and elderly care – that may fit better.
Pereira says it’s important to find someone who can explain their knowledge of your specific situation – whether you’re a student, retiree or new homeowner to name a few – rather than a generalist. And there’s no need to limit your search geographically.
“We are living in a digital world,” Pereira said.
“You want someone close, fine. But the reality is you might be settling for someone not as good as you could get elsewhere.”
Watch out for returns that seem too good to be true
Potential clients should also be wary of unrealistic promises on their investments.
“You certainly don’t want somebody who is going to make promises that they can’t keep. Anybody that tells you that this stock is guaranteed to double, you don’t want to do business with,” Webster said.
“And if somebody is telling you that there’s no risk in an investment, there is. It’s just hidden somewhere else.”
Pereira recommends looking for an advisor that is “planning centric.” They should be responsive and proactive, and be able to show you samples of their work.
“At the end of the day, it’s about the plan, not just chasing returns,” Pereira said. “You can’t control the markets, no matter what anyone tells you.”
Russel also says that if the advisor does not have a philosophy of investing – something he explains to all potential clients, along with a risk tolerance questionnaire – it could indicate a “red flag” in their approach to financial planning.
“It’s a long-term relationship,” Russel said. “Some people are just good at sales and can get you in the door, but it doesn’t mean they’re going to provide decent service over the long run.”
Be on the lookout for fees and hidden costs
Pereira also says to think about cost transparency. Clients should understand not only overall fees, but the costs of investment products and any account trading fees.
At the end of the day, financial advisors are going to charge a fee. That could be embedded in the product itself, charged as a separate advisor fee or can be a flat fee based on a percentage of assets managed. If the cost outweighs your current finances, it’s better to stay away.
It all goes back to “understanding what you are trying to achieve,” Russel says, as well as having trust between a client and advisor and ensuring that the advisor is “not so overly diversified (with) other things that you just become a transaction to them.”
Even with trust and honesty established in the relationship between client and advisor, you should make sure it’s a relationship you are likely to continue for many years.
“It shouldn’t happen more than two to three times in your life. Because at some point, the advisor is going to retire,” Pereira says. “So the reality is, if you do this right, you will be with this person for decades.”
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