Canada Markets closed

What type of financial advisor is right for you?

Gail Johnson

These days it's no longer just enough to say you're looking for a "financial advisor". Rather, it's crucial to figure out what type. And while everyone knows of advisors who work on the traditional commission-based model or salaried employees at banks, less well-known are fee-only and fee-based advisors. How do Canadians decide what kind of advisor to work with?

"There are a few ways advisors can be compensated and neither is necessarily greater or wrong but important for consumers to understand the difference," says Toronto certified financial planner John De Goey , vice president and associate portfolio manager at Burgeonvest Bick Securities Limited. "You really need to know yourself and the answer isn't right or wrong but circumstantial. You need to find what works for you."

Advisors defined

Commission based: The most common type of financial advisor out there, they get compensated by selling products like mutual funds, stocks, insurance products and GICs.

Fee-based: These advisors charge a fee for their services that's generally tied to the size of a portfolio. The fee is usually expressed as a percentage of assets. For example, a fee-based advisor might charge 1 per cent on the assets with no additional trading costs.

Fee-only: Advisors who fall in this category compare themselves to lawyers and accountants in that they charge strictly for their time; they might charge an hourly rate or a flat fee per project. They don't sell products.

Most of De Goey's practice is fee-based, but he does some commission-based and fee-only work as well. (For his fee-based work, he charges 1.4 per cent on the first $250,000 under management and 0.6 per cent on all assets above a quarter-million.)

Critics of the commission model say it creates a conflict of interest -- advisors pushing products that give them the biggest payout as opposed to those that are in the client's best interests.

"About two-thirds of all advisors work on commissions and generally don't get paid unless you buy something; the products have compensation embedded in them," De Goey says.

"Often, higher-quality products are less remunerative, so it could — and I emphasize could — cause certain advisors who are of less-than valiant moral rectitude to sell things that could pay more rather than being the most suitable for clients. You can't guarantee that, but studies show a correlation between compensation and recommendations."

If you're looking to avoid the commission trap, investors should be aware many fee-only advisors are not licensed to sell products. So while they might be best-positioned to provide unbiased financial advice, they typically don't implement someone's financial plan — a task not everyone is up to solo.

"The best fee-only advisors I know don't have a licence to sell a product," says De Goey, author of The Professional Financial Advisor III—Putting Transparency and Integrity First, which comes out in October. "Rather, they charge a fee the way a lawyer would charge to draw up a will. People need to ask how their advisor is licensed."

Then there's the perception of cost: many people would rather not pay direct fees upfront, even if the recommendations from a fee-only advisor end up being more economical in the long run than those given by a commission-based advisor.

Plus, some fee-only advisors don't take on people with small portfolios, which rules out many young investors and families.

Fee-based, fee-only advisors gaining popularity

De Goey says fee-only and fee-based models are slowly becoming more commonplace. He'd like that trend to grow and see Canada follow the example of Australia and Great Britain, which banned commissions earlier this year.

"If it were up to me, Canada would legislate commissions out of existence," De Goey says. "The questionable, shady advisors who are just sales reps would get flushed out if we got rid of commissions. ... The industry is slowly but surely morphing into a professional paradigm: you need to demonstrate value-added services and you need to use evidence-based research to support the recommendations you make …The industry is starting to put the focus on genuine planning … as opposed to just selling stuff."

Toronto certified financial planner Warren MacKenzie, president and CEO of Weigh House Investor Services, would like the Canadian financial-advisory industry move from the "suitability standard" to the fiduciary model, where advisors are required by law to put clients' interests ahead of their own or their firm's.

"People make the mistake thinking that the person they're dealing with is on their side, just like a doctor or lawyer, who have a fiduciary obligation," MacKenzie says. "With the suitability standard, if you come in and ask an advisor for Canadian stocks, he's got to give you Canadian stocks. As long as it's Canadian it qualifies, it's suitable. But it's not necessarily in your best interests.

"I hope in time it will be the fiduciary standard where the advisor has to put client's interests first," he adds. "People need to understand whether their advisor works as a fiduciary or as salesperson."

MacKenzie, whose firm also helps clients find and hire a professional to manage their portfolio, says that Canadians seeking an advisor must ask what kind of regular report they'll receive.

"You want a report that shows you your performance as a percentage compared to a benchmark," McKenzie says. "What could be more simple than showing the rate of return next to a benchmark? If you look at any reports from banks, they don't show you that. They'll show that you're a little higher or lower than last month but not the rate of return compared to a benchmark.

"It's practically impossible to manage your money wisely if you have no way of telling whether your advisor is delivering value or if he is simply an additional cost that means you will have less to spend in your retirement."

  • Italian Markets Set for Relief as Risk of Junk Rating Retreats
    Finance
    Bloomberg

    Italian Markets Set for Relief as Risk of Junk Rating Retreats

    Moody’s cut Italy’s credit rank by one step to Baa3, its lowest investment-grade rating, on concern the government’s budget will erode its fiscal strength and stall plans for structural reform. Italy’s financial markets have been under pressure since the coalition government pushed for a higher-than-expected

  • Finance
    The Canadian Press

    Most UK firms to trigger Brexit safety plans 'by Christmas'

    The vast majority of British firms are poised to implement their Brexit contingency plans by Christmas if there isn't greater clarity over the country's exit from the European Union, a leading business group warned Sunday. The Confederation of British Industry said these plans could include

  • Mnuchin Open to Change in Currency Test as U.S. Spars With China
    Finance
    Bloomberg

    Mnuchin Open to Change in Currency Test as U.S. Spars With China

    One method Mnuchin’s considering: Use a 1988 trade act with a broad definition of currency manipulation to designate a country a manipulator, even if the label isn’t warranted by specific tests under a 2015 law, he said. Treasury applies three tests to measure whether a country should be labeled a currency

  • Eastern China coal mine accident kills 2, leaves 18 trapped
    Finance
    The Canadian Press

    Eastern China coal mine accident kills 2, leaves 18 trapped

    Two people died and 18 were trapped in a coal mine in eastern China on Sunday after a rock burst destroyed part of a mining tunnel, state broadcaster China Central Television reported. The spontaneous fracturing of rock — a kind of earthquake induced by excavation — took place around 11 p.m. Saturday

  • Poland Votes at Ground Zero of Europe's Battle With Populism
    Finance
    Bloomberg

    Poland Votes at Ground Zero of Europe's Battle With Populism

    Prime Minister Mateusz Morawiecki has canvassed the country with a "Poland First" message, painting the pro-European opposition as out-of-touch elites who look down upon most Poles. The governing Law & Justice party has bolstered support via handouts and hikes to pensions and state wages,

  • MUFG says bank's CEO will not attend Saudi conference
    Finance
    Reuters

    MUFG says bank's CEO will not attend Saudi conference

    The CEO of Mitsubishi UFJ Financial Group's banking arm will not attend the Future Investment Initiative conference in Saudi Arabia, the group said on Sunday, joining a growing list of business executives to withdraw over concern about the death of journalist Jamal Khashoggi. A spokesman for the

  • Euro May Take Lower Path Into ECB as Draghi to Maintain Rhetoric
    Finance
    Bloomberg

    Euro May Take Lower Path Into ECB as Draghi to Maintain Rhetoric

    Market dynamics have shifted only slightly since the European Central Bank’s last meeting, yet not in a supportive way for the common currency. Data may be suggesting the forecasts for growth are broadly on track with the Governing Council’s projections, but on the other hand subdued inflation, early

  • Deja Vu for Weary Pound Traders as Focus Stays on U.K. Politics
    Finance
    Bloomberg

    Deja Vu for Weary Pound Traders as Focus Stays on U.K. Politics

    Domestic politics is set to come back into focus for markets as the U.K. fights over how to break the deadlock in Brexit talks. “Theresa May has actually managed to unify the Conservative Party, unfortunately it’s in opposition to her plans,” said Jeremy Stretch, head of Group-of-10 currency strategy

  • Finance
    Bloomberg

    Italy's Banks at Risk From Widening Yield Spread, Giorgetti Says

    The bond spread, the stock of public debt held by banks and the new European Union banking rules put tension on the Italian financial system, which “may generate the need to recapitalize some institutions that already have capital fragility,” Giorgetti said. Italy’s banks are reeling from the impact

  • Finance
    Bloomberg

    Mnuchin Highlights Ties to Saudis After Journalist's Killing

    “We have a longstanding relationship with Saudi that dates back to a long period of time,” Mnuchin said to reporters in Jerusalem, the first stop on a six-country Middle East swing that will include a visit to Riyadh.

  • Finance
    Bloomberg

    Bordeaux Heading for `Great, Classic' Vintage After Dry Summer

    “2018 was a vintage with two periods,” he said at a tasting of wines from the 2016 vintage organized in London on Oct. 16 by the Union des Grands Crus de Bordeaux. Bordeaux, which remains the reference point for the fine wine market due to its combination of high-quality vineyards and relatively large

  • Audi's electric SUV faces four-week delay because of software bug
    Finance
    Reuters

    Audi's electric SUV faces four-week delay because of software bug

    FRANKFURT/SEOUL (Reuters) - Audi's first electric sport utility vehicle (SUV) will hit showrooms four weeks later than planned because of a software development issue, a spokesman for the German luxury car brand said on Sunday. The spokesman said Audi's e-tron midsize SUV faced delay because

  • The Future of the Car May Be Older Than the Model T
    Finance
    Bloomberg

    The Future of the Car May Be Older Than the Model T

    China, where subsidy-toting drivers own a third of the world’s passenger EVs, is doing the most to fuel the boom. The market value of batteries used in electric cars, electric buses and related energy storage should multiply by about 10 times to a potential $500 billion by 2050, according to Sanford

  • Riksbank Seen Zeroing In on First Rate Increase in Seven Years
    Finance
    Bloomberg

    Riksbank Seen Zeroing In on First Rate Increase in Seven Years

    Governor Stefan Ingves and his colleagues are on Wednesday expected to keep their benchmark unchanged at minus 0.5 percent, but could signal a greater probability that they will move before the end of year rather than wait until February. The bank is plotting an exit from an era of extreme monetary

  • Finance
    Bloomberg

    新华社:习近平称中国支持民营企业发展方针“丝毫不会动摇”

    (Bloomberg) -- 中国经济增速放缓兼之金融市场动荡不安下,中国国家主席习近平最新表示,支持民营企业发展,这一点丝毫不会动摇。

  • Finance
    Bloomberg

    新华社:习近平称中国支持民营企业发展方针“丝毫不会动摇”

    (Bloomberg) -- 中国经济增速放缓兼之金融市场动荡不安下,中国国家主席习近平最新表示,支持民营企业发展,这一点丝毫不会动摇。

  • Protector of Austrian Industry Jewels Turns Into a Raid Target
    Finance
    Bloomberg

    Protector of Austrian Industry Jewels Turns Into a Raid Target

    The foundation, which controls fiber maker Lenzing AG, aluminum maker Amag Austria Metall AG and rubber maker Semperit AG and is looking for a fourth asset, is targeted by Austrian investor Michael Tojner in a hostile attempt, B&C Chairman Wolfgang Hofer said in a statement on Saturday. UniCredit SpA

  • Facebook’s Biggest Boondoggle Is Hyping Video
    Finance
    Bloomberg

    Facebook’s Biggest Boondoggle Is Hyping Video

    The important question isn’t whether the social-media company didn’t tell advertisers as soon as it knew it had inflated the numbers (it says it did) but whether the video-content boom, which the social network has actively fueled since 2014, reflects any consumer demand. In 2016, the Wall Street Journal

  • Ex-Deutsche Trader Charged by U.K. in Euribor Manipulation Case
    Finance
    Bloomberg

    Ex-Deutsche Trader Charged by U.K. in Euribor Manipulation Case

    Hauschild appeared before Westminster Magistrates’ Court on Saturday, according to a press release issued Sunday by the SFO. In 2015, he was charged in the U.K. with 10 other traders for a conspiracy to rig Euribor, a benchmark that underlies trillions of dollars worth of financial transactions. Hauschild

  • China says must balance stable growth and risk prevention
    Finance
    Reuters

    China says must balance stable growth and risk prevention

    China must balance the need for stable growth while managing risks and maintain a prudent and neutral monetary policy, the State Council, the country's cabinet, said on Sunday following a meeting of top economic and financial policymakers. Data released on Friday showed the world's second largest

  • Saudi Shares Slump as Crisis Over Khashoggi Killing Roils Market
    Finance
    Bloomberg

    Saudi Shares Slump as Crisis Over Khashoggi Killing Roils Market

    (Bloomberg) -- Saudi stocks dropped as world leaders pressed the kingdom to come clean about how and why government critic Jamal Khashoggi was killed.

  • Finance
    Bloomberg

    Theresa May in the Brexit Foxhole

    To understand why the talks are so stalled, it helps to borrow a somewhat strained metaphor from Brexit Secretary Dominic Raab. When Raab, then new to the job, met the EU's chief Brexit negotiator, Michel Barnier, for the first time three months ago, he gave him a copy of Isaiah Berlin's much-appropriated

  • Saudi Crisis Shows Wall Street Struggle Between Ethics and Cash
    Finance
    Bloomberg

    Saudi Crisis Shows Wall Street Struggle Between Ethics and Cash

    Now Fink’s BlackRock Inc., overseeing more than $6 trillion of other people’s money, is facing a comparable challenge, stuck between conscience and the implacable demands of the bottom line. While BlackRock and the rest of the financial industry have targeted Saudi Arabia as a massive revenue generator

  • Coronado to List in Australia After Country's Biggest Coal IPO
    Finance
    Bloomberg

    Coronado to List in Australia After Country's Biggest Coal IPO

    Trading is scheduled to start on Oct. 23 on the Australian Securities Exchange. Coronado is the biggest producer of U.S. metallurgical coal, used to make steel. Majority owned by private equity firm Energy & Minerals Group, it has mines in America’s Central Appalachian region and an operation in Australia

  • Italy's Populists Fight for Support From a Million Mountain Folk
    Finance
    Bloomberg

    Italy's Populists Fight for Support From a Million Mountain Folk

    As voters in the semi-autonomous, largely German-speaking provinces of Trento and Bolzano, head to the polls Sunday, the anti-establishment Five Star Movement and the anti-immigration, pro-business League are recovering from the first serious rift of their five-month-old alliance, strong criticism of