Dreaming of the Right Financial Advisor

Our articles and webinars recommend that you speak with a professional advisor before making any financial decisions. But how to find the right financial advisor? The answer: It depends!

There are independent and company-affiliated financial advisors. An independent advisor should generate personalized strategies based on your interests, risk level, and financial situation. An independent financial advisor charges a set fee: an hourly rate ($100–$250 per hour) or a set percentage (1%–1.5%) of your investable funds. Independent advisors are perceived to provide unbiased service and offer a wider range of investment choices.

A company-affiliated financial advisor might have their choices influenced or restricted by the company’s “set menu.” There may be no up-front financial cost, but they earn a commission on your financial purchases. You should ask how, and how much, they are paid over a one-year period, and if they can’t give you a straight answer, I suggest a hasty retreat.

Also consider the certification of your potential financial advisor. In Canada, there are Certified Financial Planners (CFP), Qualified Associate Financial Planners (QAFP), Registered Financial Planners (RFP), and Chartered Financial Analysts (CFA). They are backed by three separate professional organizations: QAFPs and CFPs by FP Canada, RFPs by The Institute of Advanced Financial Planners, and CFAs by the CFA Institute. These certifying agencies provide training, ensure ethical behaviour, and have a complaint process for perceived ethical breaches.

Some planners may have several designations from different organizations. Ask about unfamiliar abbreviations and then research: How are they certified? How much education is required? Is there a solid code of ethics? Is there a clearly defined enforcement/discipline process?

A good financial advisor should provide a personalized financial plan and give you the opportunity to discuss insurance, tax, and estate planning. Your advisor should have a communication plan and be willing to help you increase your financial knowledge.

Remember, you are about to employ someone to look after your financial future. Ask friends and acquaintances, and use the internet. With today’s technology, you can even have an advisor in another city (make sure they understand your provincial laws and regulations). Talk with several independent and company-affiliated advisors and ask questions. If you are unsure about any answers, cross that person off your list.

One question to ask: Do you prefer mutual funds or exchange-traded funds (ETFs)? Both mutual funds and ETFs invest in a diversified portfolio of securities from companies around the world, can focus on specific world regions or a particular category (e.g., banking, energy, technology, dividend-paying securities), and are well regulated here in Canada. However, their management expense ratios (MERs) — the cost of operating the fund — are different. Mutual funds typically charge 1.5%–2.5% while the ETFs charge 0.25%–0.35%! Over time, this difference could mean thousands more dollars earned with an ETF.

ARTA’s extended health care coverage includes Greenshield Counselling (formerly Inkblot), which includes financial counselling. A thirty- to sixty-minute introductory meeting can allow you to determine if you are happy with the advisor and understand how much it would cost to continue.

In the spirit of full disclosure, retired teacher Ray Hoger explains that he invests almost entirely in ETFs, and he has not held a mutual fund for over twenty years.