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Whether you’re making your first contribution or you’re a veteran investor, one question that commonly gets asked is: how do you find a good a financial advisor?
If you have any financial knowledge then you should probably manage your money on your own. That being said, it’s definitely worth seeking out an advisor or plannerif you have certain goals, such as retirement or estate planning or you want to make sure your portfolio is on the right track. Here are some quick tips on how to find a good financial advisor.
Understand that titles don’t mean a thing
You might think you’re in good shape since you work with a financial planner at your local bank or at an investment firm, but those people are often just salespeople trained to sell you their company’s productwhile getting rich on fees.
Markus Muhs an Investment Advisor and Certified Financial Planning professional with Canaccord Genuity Wealth Management confirmed with me that job titles generally are completely meaningless.
“A Financial Advisor can be anything from a personal banker to an investment banker making multi-million or billion dollar decisions. Outside of Quebec anyone can call themselves a Financial Planner.”
Be weary of some designations that some people put on their business cards: PFPC, CSC, IFIC are not designations, they are courses. If you see these on a business card, RUN, as it says something about the “advisor’s” desperation or their company’s lack of standards.”
Know how your financial advisor is getting paid
Financial advisors aren’t cheap. Your initial consultation could cost a few hundred or even a few thousand dollars. Some advisors charge a flat fee (“fee only”), while others charge a commission or fee as a percentage of assets (“fee-based”). You need to look at your individual situation to decide what the best solution is.
For example, if you have a moderate portfolio of say $100K, it probably makes more sense to just find a fee-only planner to set you up with a financial plan. On the other hand, those of us with a vault full of money ($1 million+), could benefit from a fee-based advisor according to Muhs.
“Because of their high net worth they can negotiate a lower percentage fee (1%, possibly less) and they can attract the truly top-notch advisors/portfolio managers/planners out there.”
If you’re a first-time investor with zero knowledge, I guess it’s okay for you to purchase mutual funds, however, you need to be aware of any upfront fees and possibly trailing commissions. “If investing in a discount brokerage you should ensure you choose the D-series version of the fund, which has a reduced trailing commission built into the MER, or the completely commission-free F-class, if available.”
Do-it-yourself investors are better off using Tangerine or TD e-Series funds which are low-cost index mutual funds.You can also very easily build a diversified portfolio with just a single ETF purchase, using Vanguard’s asset allocation ETFs.
Where to find a financial advisor
A couple of directories exist to get you started finding a financial advisor. If you’re looking for a fee-only advisor near you, Holy Potato’s directoryis a simple Google Docs spreadsheet where financial planners have entered their own details of their practices. Another option is checking out the Financial Planning Association of Canada. They have a wide array of qualified, experienced advisors who are vetted based on their commitment to always act in their client’s best interests.
Generally speaking, I would avoid advisors associated with a bank or any investment firm which creates and sells its own mutual funds since they are primarily commission based and incentivized to sell their own products. Admittedly some of them can be great but I would only work with them if you knew for sure they are superstars (for example, through a referral from a friend or family member, not a referral from a bank rep). You should never walk into a bank and blindly ask to speak to a financial advisor.
“For the vast majority of us, looking for help both on the financial planning side and managing our investments, a commission-based advisor might be the only choice” says Muhs. “In that case, make sure their compensation aligns with your goals: that at all times they’re able to recommend the products that are best for you and not the ones that pay them the highest commissions or that bear the branding of a parent company.”
Final thoughts
A Chartered Financial Analyst (CFA) is the gold standard when it comes to designations but if you know someone who’s obtained their CFA they’re probably only managing multimillion-dollar accounts so they’re out of reach for the majority of us.
Generally speaking, the designation most commonly seen behind good, qualified advisor’s names in Canada is the CFP (Certified Financial Planner) and/or CIM (Chartered Investment Manager designation. If you find an advisor who has achieved both, you can be sure that you’re in good hands. Either way, you want someone you can build a relationship with.
“Advisors in Canada are not bound to a fiduciary duty (not required to put the client’s interests ahead of their own or their company’s) in Canada” says Muhs. “However, holders of some designation are encouraged (based on codes of ethics) to put the client’s needs first.”
Markus Muhs, CFP®, CIM® (www.muhs.ca) is a Portfolio Manager at Canaccord Genuity Wealth Management, located in Edmonton, Alberta. He provides comprehensive financial planning and wealth management to families with assets over $300,000 across Alberta, British Columbia, and Ontario. Markus alternatively provides fee-for-service (fee-only) financial planning to non asset-based clients.
