Financial advisors play an important role in ensuring the financial success of both individuals and companies. Of course, everyone wants to have financial security, but the truth is that most Canadians are only one emergency away from being in big financial trouble.
The good news is that by working with a financial advisor, you can set yourself up for long-term financial success, so that you can weather any storms life throws your way. But how can you find a reputable financial advisor in Canada?
This article will go over everything you need to know about financial advisors, including how to find a financial advisor, the services they offer, the questions you should ask a financial advisor before hiring them, and much more.
Why Work with a Financial Advisor
Financial advisors help people to reach their goals. By offering valuable advice and actionable insights into things like saving money, making investments and retirement planning, financial advisors enable people to achieve financial freedom and live their best lives.
Decide What Part of Your Financial Life You Need Help With
Financial advisors offer a variety of services, so not everybody uses financial advisors in the same way. People have varying objectives and are at unique stages in life. As such, financial advisors are never one-size-fits-all. Depending on your own personal needs and goals, a financial advisor may be able to help you with a number of different things.
Let’s go over a few of the main services that financial advisors offer so that you can get a better understanding of the type of assistance a financial advisor can provide you with.
Financial planning is a blanket term that covers all the different ways you need to have a plan for your money, which can include setting a personal savings plans and mapping out your financial goals so you can reach your personal goals.
One of the main roles of a financial advisor is to advise you on making investments. Having a diversified investment portfolio is one of the best ways to grow your money while at the same time shielding yourself from economic insecurity. By having a solid portfolio, you can essentially put your money to work for you, which will help you reach your goals much more rapidly than if you were simply depositing money into a savings account.
Retirement Income Planning
Oftentimes, people go to financial advisors for assistance with planning their retirement. When they are young, most people don’t spend a ton of time thinking or worrying about their retirement. But as people get older and retirement draws closer, this often becomes a priority. By working with a financial advisor, you can start saving for your retirement earlier in life, which can help you retire with more financial security and possibly even retire sooner.
Seek Financial Advisors with Reputable Credentials
You might think that anybody with the title of a financial advisor who is working at a financial institution is a qualified expert, but this is not necessarily the case. Sadly, there are financial institutions that offer credentials to their sales staff for a fee, essentially allowing them to call themselves financial advisors even though they may not have the experience or training you expect.
Genuine financial advisors will have one of two professional accreditations; either they will have “Certified Financial Planner” (CFP) status, or they will have a “Personal Financial Specialist” (PFS) designation. Always check the credentials of anyone claiming to be a financial advisor, and if they don’t have one of these two professional designations, then you should avoid working with them at all costs.
Know How Financial Advisors are Compensated
Not all financial advisors are compensated in the same way. Generally speaking, when it comes to paying your financial advisor, there are three different methods of payment, and the fee structures vary from professional to professional. So, let’s briefly look at the difference between financial advisors who get paid only with fees, those who charge hourly rates, and those who also make a commission based on their performance.
Fee-only Financial Advisors
Fee-only financial advisors charge you a regular monthly fee for their services, whether you are actively updating your financial plan or not. However, the benefit of this sort of structure is that your financial advisor is essentially retained, meaning that whenever you need financial advice or want to update your financial plan, that person will be available to you to answer any questions you may have and assist you with whatever you need, without charging you any additional costs.
Financial Advisors Who Earn Commissions
Financial advisors who earn commissions also generally charge fees, but they usually only charge fees when you actually need their services instead of charging you on a recurring basis. That said, these individuals make a commission based on their performance. For example, if you opened an investment portfolio with a commission-based financial advisor, that person would charge you a small fee for opening the portfolio, but they might also take a percentage of the profits your portfolio gains over time.
Hourly-Rate Financial Advisors
Most financial advisors earn a percentage of your account, especially those who have minimum thresholds, meaning that you need to have at least a specified amount of money in your account, commonly at least $100,000.. However, financial advisors that don’t require you to have any set amount of money may charge either an hourly fee or a higher one-time consulting fee for providing the services of a financial advisor.
What Questions Should You Ask?
There are a number of very important questions that you should ask of any financial advisor before hiring them so that you can determine what sort of advisor they are, what financial services they specialize in, and whether or not they will truly be an asset to you. So, let’s go over some of the best questions to ask a financial advisor.
What Type of Clients Do You Typically Work With?
First and foremost, you’ll want to know what type of clients this person typically works with. This is an important question because, as mentioned, financial advisors offer many different services and specialize in different areas. So, if one particular financial advisor has many retirement planning clients, then you may not necessarily want to avail the services of that advisor for creating your investment portfolio. Likewise, some financial advisors specialize in crafting financial plans for people who already have significant wealth. If you are just starting out on your financial journey, this sort of advisor likely won’t be of much assistance to you.
Are You a Fiduciary?
A fiduciary financial advisor is someone who has a fiduciary duty with respect to their client’s interests. Having a fiduciary duty means they are ethically and legally obligated to consider your financial well-being above all else and are not allowed to make any sort of commission from managing your finances or investment assets. This may be a good thing or a bad thing, depending on how you view the situation.
You may want a financial advisor who makes commissions when your investment portfolio does well because it means that they have more incentive to ensure your portfolio gains money. Really it’s a matter of personal preference and philosophy, but this is definitely something you’ll want to know upfront before hiring a financial advisor.
How are You Compensated? And How Much Will I be Charged for Your Services?
Of course, another very important question is what sort of fees the financial advisor charges, as this can directly impact your financial well-being. Some financial advisors charge hefty fees that can actually slow down the rate of your savings, and, as such, you need to know upfront exactly how much you’ll be paying this person and when.
Conclusion & Recommendation
Working with a financial advisor is one of the smartest financial decisions you’ll ever make. A good financial advisor can help you with financial planning, but they can also advise you when it comes to making investments and planning for retirement.
In many cases, financial advisors are very affordable, especially when you consider that their job is to help you grow your money. Uncertainty is a part of life, but you should never leave your well-being to chance. By working with a financial advisor, you can protect yourself and your family financially in the event of an emergency and withstand the economic ups and downs that life will certainly bring your way.
If you don’t already have a financial advisor, you should look around and speak with a few financial services providers about this service, compare rates, ask questions and, ultimately, hire a financial advisor to help you grow and protect your wealth.
Frequently Asked Questions
When Should You Talk to a Financial Advisor?
There is no right or wrong answer to this question. The truth is that whenever you feel like taking charge of your financial future, it will be a great time to speak with a financial advisor. Whether you are young and looking to create a financial plan to help you reach your goals, middle-aged and looking to diversify your investment portfolio, or getting older and thinking about retirement, financial advisors help different people at different stages in their lives, so it is never too early or too late to talk to a financial advisor..
How Much Should You Pay for a Financial Advisor?
This is another question that has no definite answer. The amount you pay your financial advisor should be proportional to the service that they provide you. For example, if a financial advisor creates a winning investment portfolio for you and those investments make you a bunch of money, then that person may earn a good commission, and if so, then good for them.
Likewise, you may decide on a flat-fee structure with your financial advisor, in which case you should discuss that up-front. Every financial advisor is different and charges different fees, but generally speaking, you should shop around and speak with a few financial planners before making your final hiring decision.
That said, there are some general guidelines to keep in mind. Typically, financial advisors working on million-dollar accounts earn around 1%, whereas those working on accounts with less money will charge a slightly higher percentage, maybe around 1.4%, and those working on multi-million-dollar accounts may charge as little as 0.4%. Again, these are ballpark figures, and every financial advisor is unique. But if your financial advisor is talking about 3% or higher, then you should certainly walk out the door.
How Much Money Do You Need to Consider a Financial Advisor?
Some financial advisors have minimum thresholds, which typically start at $100,000. However, depending on their firm, some financial advisors may have a higher minimum, such as $500,000 or even a million dollars. That isn’t to say that there aren’t financial advisors out there who work with people just getting started on their financial journey because there certainly are. However, keep in mind that if your financial advisor doesn’t have a minimum threshold, it’s likely because they don’t charge a percentage of the account and instead probably charge a higher hourly rate or a la carte fees for using their services.