How to choose a financial advisor
TORONTO – You’ve decided to get your financial house in order, but what steps do you take next?
Experts agree that, when first starting out, getting professional advice from someone you trust is critical to managing your personal finances.
“It’s important to seek advice when you’re first starting out,” said Scott Hannah, President and CEO of the Credit Counselling Society, a non-profit organization that helps Canadians solve their debt problems and manage their money.
READ MORE: 5 steps to a financial plan
Financial professionals “can help you identify what are your goals and establish your current financial situation,” said Chris Buttigieg, Senior Manager of Wealth Planning Strategy at BMO. Buttigieg said that a professional will also identify if there are any gaps in your plan and provide strategies to achieve your goals.
If deciding to seek professional advice was step one, step two is figuring out who to talk to. Not all financial professionals are created equal. Because financial planning isn’t regulated in much of Canada, “financial planners” can vary widely in their training, education, experience and qualification.
What to look for in a financial planner
Before you seek out a professional, you need to determine what your financial goals are. Whether your goal is to pay down debt or learn more about where to invest your money, you should look for experts with credentials tailored to your specific needs.
If you goals are very basic, such as starting a budget or setting goals, you could try services offered for free online from the Financial Consumer Agency of Canada (FCAC), or seek out a free, non-profit group that provides counselling.
The Credit Counselling Society, Credit Canada Debt Solutions and Consolidated Credit Counseling Services of Canada are some non-profit organizations that help Canadians manage their debt and finances.
According to the FCAC, while many financial planning tasks can be done by the consumer on a daily basis, when time or knowledge is limited, some may feel more comfortable working with a professional.
But, you may not want to immediately turn to your bank for help. “You may not get the best advice from your financial institution,” said Hannah. It’s their job, after all, to sell you products and services.
Ask friends and families for referrals, but don’t stop there – shop around. It’s perfectly fine – and encouraged – to interview multiple planners before choosing one. Ask them about their qualifications and credentials (more on that below), ask them for references, which organizations they belong to, how long they’ve been a planner, and so on.
Another important question to ask them is how they get paid – do they make a salary, or are they paid by commission or a flat fee?
The FCAC provides a complete list of questions you should ask potential financial advisors.
Before you make your decision, check their referrals. “It’s a great way to learn more about a potential financial professional and to check out any concerns that may have arisen from your in-person meeting,” according to the FCAC, which provides a list of questions you should ask when calling references.
According to the FCAC, you should expect that the professional you choose will spend enough time with you to fully understand your needs and respond to your questions.
“The financial professional should report to you regularly, and should not take action on your behalf without first getting your permission,” reads the FCAC website.
What do their credentials mean?
“Financial planners” can vary widely in their education, experience and training. When interviewing potential advisors, ask them about their training, credentials and what they mean.
Because financial planning isn’t regulated in Canada, anyone can call themselves a “financial advisor.” The designations you should be looking are CFP (Certified Financial Planner), or RFP (Registered Financial Planner). While a Personal Finance Planner (PFP) is an actual designation, it was first created by the banking industry for bank staff to give financial advice to customers. Because of this, it may not be relevant or specific to your financial needs.
According to the Financial Planning Standards Council (FPSC), a not-for-profit body that enforces standards in the financial planning industry, the CFP designation is the “gold standard in financial planning.”
When interviewing potential advisors, you should also ask them what the status of their designation or registration is – current, renewal outstanding, under investigation or suspended are all possible answers, according to the FPSC.
You can check the status of a professional’s designation using this tool from the FPSC.
How to avoid scams, fraud
If a financial planner sounds too good to be true, they probably are. The FCAC states that financial fraud is a growing problem, with some 15 million Canadians targeted by fraud every year.
The FCAC lists a number of red flags to watch out for when dealing with finances and investments. If someone pressures you to make a decision on the spot or doesn’t give you much information about an investment – telling you “it’s complicated” – trust your gut and stop the transaction.
For more on how to spot and avoid financial fraud, visit the FCAC website.
Note: This feature is for expository and informational purposes; it is not meant to be taken as personalized or expert financial advice.
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