How To Choose A Financial Advisor

Posted on Monday 22 December 2014

It’s a sad fact that most Canadians are not very well educated in personal finance. Even if you know your ETFs from your TFSAs, though, it can sometimes be useful to have a second pair of eyes. This is where financial advisers come in. Whether you want to reduce your debt burden , invest your inheritance wisely , or get the best value for money in the property market, a good financial adviser can help you to make plans, set goals, and maximise results. So, how do you tell the difference between a Warren Buffett and a Bernie Madoff? This guide will teach you how to pick the right financial adviser for you.

  • Know your certifications

Unless you live in Quebec, the regulation and certification of financial advisers is quite fragmented. There are therefore many different certifications that a financial adviser might have. Some of the more common certifications are the CFP (Certified Financial Planner), ChFC (Chartered Financial Consultant), and CFA (Chartered Financial Analyst). To make things more confusing, although perhaps less risky, many financial advisers will have a few different certifications. However, these certifications also mean that you can check that your financial adviser is, in fact, certified. Canadian Securities Administrators has a handy tool for checking financial advisers’ credentials, so you can search by name or by firm to make sure that your adviser is who he says he is. If you want to go a little further with your background check, they also supply indexes of Disciplined Persons and Cease Trade Orders . Of course, just because a financial adviser hasn’t been sanctioned doesn’t mean that they are any good. You should search online for client reviews and testimonials. If you see nothing but complaints, consider a different adviser.

  • Consider your goals

The other thing about financial adviser certifications is that they mean different things. A CIM (Chartered Investment Manager) will specialise in building solid investment portfolios, while an EPC (Elder Planning Counsellor) will specialise in financial planning for seniors. Your financial goals will dictate the type of financial advisor you want to hire, so think carefully. Do you want to build a nest egg for retirement? Minimise your tax liability? Live off income from your investments and never work another day in your life? If you want a range of basic services, look for a CFP or similar qualification. These are usually the most suitable for the average financial advice customer. Knowing your goals will also help you to get the most out of your financial advice sessions. To make your financial advice sessions more fruitful, do some homework in advance and bring documents. If your adviser can see your existing investment portfolio, monthly income statements, assets, tax returns and so on, it makes it far easier for them to give recommendations.

  • Understand fees

Financial advisors generally earn their living in one of two ways. Some will charge fees, whether by the hour or at a flat rate, while others earn commission, whether on the size of your portfolio or the financial products you buy. Portfolio-based pay is, however, typically reserved for those investing large amounts of money. Be wary with commission-based financial advisers, as some are essentially salesmen for a particular company. The lack of fees might be attractive, but it’s difficult to know whether they’re recommending a product because it’s good for you, or because it’s good for them. They also may not work with you at all if you don’t want to buy any products and just need advice on how to structure your financial affairs. Of course, there are many entirely honest commission-based financial advisers, just as there are some crooked ones charging flat fees. Your financial advisor should be willing to disclose, in writing, their full fee structure. If they aren’t willing, move on. In particular, ask for an engagement letter when you partner up with a financial adviser. An engagement letter details the services to be provided, fees to be paid, and any potential conflicts of interest on the part of the financial adviser.

Finally, trust your instincts. A good working relationship with your financial adviser can be extremely valuable, so look for personal chemistry. Someone who understands your goals and your needs will give you far better advice than someone who doesn’t. They should be someone with whom you feel comfortable sharing your financial information. Meet face to face before committing to anything, and don’t be afraid to choose a different adviser if the one you meet doesn’t feel right.