If you’re looking to choose a financial advisor, we have compiled the below list of 7 key steps you should follow. We’ll elaborate on all the elements involved in more detail below.
- Understand what different advisors are qualified to do.
- Make sure you’re collaborating with a reputable firm.
- Make sure their title means what you think it means.
- Look at the letters after their name to understand their qualifications.
- Consider choosing a financial planner for the most comprehensive advice.
- Ask about fees; an advisor should be proudly transparent about the fees they charge.
- Ask friends and family if they feel they’re getting fair value for their fees.
Firstly, what is a financial advisor?
The title “financial advisor” is an unregulated term in most of Canada. In most provinces, anyone can call themselves a financial advisor, and there are no regulated educational requirements. Times are changing however, and Ontario and Saskatchewan have begun implementing regulation to the term. For example, in Ontario the new regulations specifically state what the educational requirements are to use the term. However, reputable firms will impose educational requirements on their advisors regardless of regulation. Different firms will have many different offerings. Some examples of offerings are financial planning or personal financial planning, wealth management and portfolio management. Then, there’s the title of the specific advisor with whom you’ll be working.
Below is a list of some common titles you’ll see:
Financial planner
The term financial planner also used to be completely unregulated in Canada, but times are changing. The province of Ontario’s Financial Services Regulatory Authority of Ontario (FSRA) has recently introduced regulation of this term along with the term “financial advisor”. FP Canada is an approved certifying body, so you can feel confident that an advisor holding the CERTIFIED FINANCIAL PLANNER® (CFP®) or QUALIFIED ASSOCIATE FINANCIAL PLANNER (QAFP™) designations has had adequate education and supervision to provide financial planning. Other designations approved by the FSRA in Ontario are on their website.
Investment advisor
In Canada, the term Investment Advisor is not a designation or certification, but a job title that is often granted to an individual working with an investment firm that is regulated by the Investment Industry Regulatory Organization of Canada (IIROC). Both the firm and the individual are required to hold IIROC registration, in order to sell and provide advice about many different investment products.
Wealth advisor
This term is a job title that Wellington-Altus Private Wealth grants based on certain criteria. These include being registered with IIROC to provide investment advice and also holding an approved financial planning designation.
Portfolio manager
Portfolio managers (PMs) don’t just provide investment advice, they can also make discretionary trades on your behalf. Advisors advertising their registration as PM’s must hold either the Chartered Financial Analyst (CFA®) or Chartered Investment Manager (CIM®) designations.
Financial coaches
These coaches go by many titles, and they aren’t traditional advisors. Typically, these coaches will help people get better at budgeting, increasing their savings and building good financial habits.
A word on accountants
Most accountants only provide tax advice, and it’s important to remember they see the world through that lens. There’s a lot of other considerations to financial advice beyond taxes.
Which professional to pick
So, which of those advisors should you pick? What if you don’t know what you need help with? Some websites suggest you should know what you need help with before booking a meeting, but we disagree. The trouble with personal finance is that most people don’t know what they don’t know. When people are laying awake at night, their most worrying question is “am I missing something?” and we find this to be true so often. Many Investment Advisors and Portfolio Managers are also financial planners or work alongside them. Therefore, choosing a financial planner who meets these criteria could be a good first step on your journey to uncover all potential issues.
While most people make an appointment for a specific purpose, our professional experience as financial planners provide us a strong ability to uncover many issues our clients were previously unaware of. While you might have booked the appointment because you only need investment advice, meeting with a financial planner who asks deep, probing questions might uncover issues or opportunities that you didn’t even know you had.
While many people only reach out for investment advice, a financial planner can make sure you’ve also covered the other critical areas: financial management, insurance & risk management, tax planning, retirement planning & estate planning.
Fiduciary duty
What about fiduciary duty? This is something you’ll often see mentioned on US-based websites, but applies in Canada as well. An advisor with a fiduciary responsibility has a legal obligation to put the client’s interest ahead of their own. Members of FP Canada (which grants the CFP® and QAFP™ designations) are required to act as fiduciaries for their clients.
The individual advisor
In order to determine investment suitability, IIROC registrants in Canada are required to ask for personal information, which usually includes your full name, age, date of birth, employment status, income, your net worth including assets and debts and marital status including spouse’s information. However, this checklist doesn’t necessarily capture all the important aspects of your financial situation.
How can you tell if your advisor is a good one without knowing if they’re a financial planner? Well, do they ask you about your existing investments? Do they ask about your family, your goals & dreams? Do they ask you about your existing insurance policies? Do they request copies of your Notices of Assessments from CRA, your work group benefits booklet, your wills? If not, this may be an indication that they may not be considering the full scope of financial needs.
The advisor should also be warm and easy to talk to. Finances are highly personal, and a personal connection can uncover so many more problems and solutions that a cold or impersonal advisor might not be able to. Most websites suggest meeting with multiple advisors, and that can be beneficial, unless you feel a connection with the first one. Financial advice is highly personal so a personal connection can make a substantial difference.
Financial Advisor Fees
There are three main ways an advisor is compensated:
Fee for service/hourly Financial Advisor
There are great reasons for choosing an advisor who is compensated hourly or per plan. There are also some great reasons for choosing other fee structures:
- The up-front cost prevents many people from starting a financial plan in the first place.
- People often don’t complete the action steps provided by the planner. Once the planner has provided a plan, there’s no financial motivation for the planner to ensure all the action steps are completed.
- Having access to financial advice without an extra bill means people reach out for advice more often, which increases the likelihood of making good financial decisions.
- The advisor has no extra financial incentive to build the client’s net worth.
Fee-based Financial Advisors
In this account type, clients are charged a set percentage annual fee based on the size of the assets under the advisor’s administration. As the client’s investment account grows, the advisor will generally see an increase to their compensation. These fees are very clear and may be tax-deductible in non-registered accounts.
Commission-based Financial Advisors
In this account type, advisors can receive an up-front transactional commission on the buy or sell of a particular quantity of securities. This amount is negotiable and is often between 0% and 5% of the purchase amount. The Sweeney Bride Strategic Wealth team charges 0% transactional commission for mutual fund trades.
It is important to note that certain products may have additional fees embedded in them. These fees are separate from any transactional commissions or annual fees based on account value. For example, the Sweeney Bride team’s compensation with accounts of this type often comes from some mutual funds that pay a “trailing commission” to an investment firm.
Our team was glad to see that trailing commissions were banned for firms that don’t provide advice as of June 1, 2022. Does that mean all trailing commissions paid to firms should also be banned? Not at all. In fact, these trailing commissions can provide you access to a financial planner that provides ongoing financial advice. Whether that’s a change of investment strategy, job change advice, or tax planning advice. For perspective, compare this to the cost of keeping a lawyer “on retainer” for legal advice on demand.
Determining value in fees
How do you know if the fee-based charges or trailing commissions are good value? Ask your friends and family if they’re happy with the value they’re receiving from their fees. Also, ask the advisor! They should be able to enthusiastically explain the value in their fees.
Determining value in fees
How do you know if the fee-based charges or trailing commissions are good value? Ask your friends and family if they’re happy with the value they’re receiving from their fees. Also, ask the advisor! They should be able to enthusiastically explain the value in their fees.
Who’s right for you
Once you’ve decided you’re ready to meet with an advisor, make sure to ask for recommendations from a friend or family member you trust, and also make sure to dig into why they recommend that advisor, so you know if the advisor is providing value that you care about.
Sweeney Bride Strategic Wealth Advisory is a financial planning team. We have four advisors in the office who are all CERTIFIED FINANCIAL PLANNER® professionals as well as registered with IIROC-to provide advice on security selection. We are always happy to meet with those interested in becoming clients. Reach out to us here to book a gratis meeting to see if we’d be a good fit to work with you or your family.
The information contained herein has been provided for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. This does not constitute a recommendation or solicitation to buy or sell securities of any kind. Wellington-Altus Private Wealth Inc. (WAPW) does not guarantee the accuracy or completeness of the information contained herein, nor does WAPW assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Before acting on any of the above, please contact your financial advisor. WAPW is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
© 2022, Wellington-Altus Private Wealth Inc. ALL RIGHTS RESERVED. NO USE OR REPRODUCTION WITHOUT PERMISSION.
