Do you have a financial advisor?
Whether you're examining investment performance or wishing to customize your tax and retirement options, you'll need in-depth information to make the most of your investment decisions. So where does one begin the process of finding an informed, trustworthy source?
Matthew Semple, manager, wealth management at National Bank in Montreal, says to start by taking a look in the mirror and asking yourself what your personal goals are. For those with no experience in hunting down a suitable financial planner, look to the Financial Planning Standards Council for guidance, he suggests.
"Ask yourself what you're looking for in an advisor. Is it to do with retirement planning? The other thing is to perhaps consult friends with positive experiences. If you're seeking an advisor, you'll want to avoid the Earl Jones situation," he says. "When you meet an advisor, the key thing is to ask them what type of license that they have and with which organization?"
There are "red flags" to be aware of too, Semple warns. For instance, for someone who's not knowledgeable on the subject, the whole notion of investment risk can be unclear.
"You need to be introduced to it in a way that you understand how risk works," he says. "The challenge with a new investor is if they've never seen a drop in the market like we saw in 2008, they might think that they're willing and able to take on risk. But in the end, when it does happen, they find they're not so comfortable with it."
A lot of people Tina Di Vito talks to admit they don't have a financial advisor. The head of BMO's Retirement Institute in Toronto says the main reason Canadians don't seek financial advice is because they don't feel they've got enough assets to work with.
"There's a bit of a myth out there that suggests you have to be a wealthy individual in order to have a financial advisor," she says. "In Canada, we're very fortunate that we can obtain financial advice from a variety of means. One of them, of course, is banks where financial advice is usually free."
For someone that's never had a financial advisor, she recommends it might be worthwhile to stick with your bank branch so long as you're comfortable with the advisor you're paired with.
"You're most likely familiar with people in your branch and you'll want to build on the relationship with that bank if you have a loan or a mortgage or accounts with them," she says. "The financial planner at your branch will be able to take a look at your financial situation and put a plan of action together. Generally, the advisor at a bank branch won't charge for a financial plan."
How is the advisor paid?
Both Di Vito and the National Bank's Semple say it's critical that any advisor that you do speak to makes clear upfront how they get paid for their services.
"They should always explain how they get paid. When discussing investments, they should be clear if any fees are involved," Semple says. "You need to know if you're buying a fund if there are any management fees involved with that investment."
Dean Owen, chair, Advocis and a partner at Cherry Financial Services in Saskatoon, agrees when meeting with both fee- and commissioned-based advisors, getting their full compensation disclosure is extremely important.
Generally, Owen adds he thinks it's best to seek out an independent advisor versus going with a large bank.
"I'm biased … but when you're starting out, most people have a need for some savings products as well as insurance products and you're limited in what you can do in terms of what a bank (offers)," he says. "It's different in different provinces but most Canadian banks are not allowed to retail life or disability insurance inside of their branches."
Meanwhile Ed Rempel, a certified financial planner and partner at Ed Rempel & Associates Inc. and Armstrong & Qualie Associates says it's important for people to be able to identify the difference between true fiscal advice and what he calls 'financial quackery'.
"Quackery is the reason people have trouble getting real advice. It's everywhere in the financial planning world," he explains. "The vast majority of advisors aren't really doing financial planning they're pretty much all investment salespeople. That's the crux of a search: you need to find somebody that's going to do comprehensive planning for you rather than just sell you an investment."
It's understandable for newcomers to the scene to struggle with getting a grasp on the benefit of financial planning, he tells Yahoo! Canada Finance, but it's typically more beneficial long-term for the individual than simply choosing one investment versus another.
"We also find people seem to think they need to get organized financially before they see a financial planner but that's sort of like getting well before you go see a doctor," he says.
When you're sizing up a certified financial planner, it's important to know what they've done to date and how.
"Most planners think of financial planning as unpaid and they're paid by investments so you'll find they'll want to go to the investment right away. So ask them, 'what specific planning do they do?' Have them show you a sample of a financial plan and explain what their process is," he advises. "You want to see the whole process of planning before you get to the investment side."
And don't get roped in to a herd mentality when it comes to investing, Rempel cautions. Most of the time, investment advice should be something that's not intuitive to you. Thus, be aware of current events.
"At any point in time, there seems to be a prevailing belief that's all over the press that's regarded as a good thing to do, and that's generally whatever has been doing well recently," he notes. "You'll find advisors will be recommending that very thing because they know you'll be comfortable with it. That's not necessarily something that's going to work for you."
Also noteworthy, Advocis offers tips for consumers on its website for how to go about choosing an advisor and what questions to ask. And KYFA.com (Know Your Financial Advisor) recently launched a free tool it calls AdvisorMatch designed to aid Canadians seeking out the financial advice they desire.