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I recently read an article on BNN Bloomberg about regulation (or lack of regulation) of the job titles Financial Adviser and Financial Planner here in Canada (find the article here).
The gist of the article is that there is very little regulation about the two job titles, and this isn’t good for Canadian consumers. Currently, there is no minimum level of education someone needs to be a Financial Advisor or Planner. Rightly so, this is frustrating for consumers, but also for established Financial Advisors and Planners.
No matter what the minimum standards are, there will always be a discrepancy between the best in the business and the average or lower end. That is unavoidable, and a consistent problem in any industry or job classification. But without at the very least a defined minimum standard, clients could be in a position where they are getting inadequate service or advice. And it isn’t always obvious, especially for younger or smaller clients, who are just starting out.
At the same time, having the same job title as someone who doesn’t meet the same standard as yourself can be frustrating. A bad experience with one Financial Advisor could cause someone to think all advisors are the same. Essentially, one bad apple spoils the rest. Even though there isn’t a minimum education standard, becoming an established advisor or planner isn’t a walk in the park.
A relationship with your Financial Advisor shouldn’t be something you settle on, it should be a great fit for both of you. It should be someone you trust and are comfortable with. At the end of the day, they are helping you with most likely your biggest savings goals and planning. It is not something that you can simply re-do or replace if it doesn’t work out as you had hoped. There’s no restart button at retirement.
Here are some questions you can ask your Financial Advisor to help you figure out if it’s the right fit and gives you comfort in the relationship.
How Are You Paid?
Typically advisors are paid by commission, salary, or a mix of the two. I think understanding how your current (or potential) advisor is paid is important because it tells you how much skin they have in the game. It’s also important to know how much you are paying them, and how that impacts your savings goals (over your lifetime, how much of your savings goes towards fees).
If an advisor is paid strictly from commission, then they have a lot more incentive to ensure you’re happy. Their pay is based on how much Assets Under Management (AUM) they have, and if their clients leave then their salary actually decreases. When advisors have a salary, there’s a level of comfort and security that comes with it. It doesn’t necessarily mean they’re less capable or motivated, but it’s a different drive when your next paycheck isn’t guaranteed.
I would say advisors paid by commission are more like to go the extra step and answer emails/phone calls outside of traditional business hours. You could even ask them if you have an important question in the evening or on the weekend, how likely are they to respond within an hour or two? Or if you couldn’t meet during traditional banking hours, would they be willing to meet in the evening or on the weekend.
What Is Your Education and Experience?
The leading designation for Financial Advisors and Planners is the Certified Financial Planner (CFP) designation, but there are quite a few different designations an advisor could be working towards.
Knowing if your advisor has designations or are working towards designations can show you their commitment to their profession, give you an indication of their ethical standards, and provide you with confidence in the aspects they are discussing with you.
Experience goes hand in hand with education, the two work and compliment each other well. If you’re in a particular situation or need help in a specific area, you should ask your advisor what their experience with that is. If your advisor is in a position to refer you to someone who can also help (an accountant, lawyer, or another professional) that’s a very strong trait. No one can do every job, and it’s important to recognize when referring is in your best interests.
What Sets You and Your Company Apart From Other Financial Advisors?
There’s a lot of options today for financial needs, so it’s important to know what sets your advisor apart. Whether it’s things they do that they take pride in or the way their company does business, if you know the reasons why you’re with your advisor, it builds confidence in the relationship and builds trust when the markets go through a downturn. It also makes it easier for you to recommend people to your advisor, so you can help them out.
Looking into an advisor and the company they work for can tell you a lot. Companies that offer a lot of technology that makes the client experience better and less expensive can go a long way. Transparency isn’t something consumers always find, so when we do, it says a lot. Remember, a happy client who understands why they’re with their advisor is the best referral/advertising machine an advisor could ask for. If they aren’t excited and happy to explain things in a way you can clearly understand, it could be an indicator something is not quite right.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.