What Kind of Financial Advisor Is Best For You?
I had someone come to me the other day, and say, “I have big plans for my future, and I want someone who can help me figure out all the moving pieces. I’ve talked to my financial advisor and he doesn’t seem to be able to provide the kind of help I’m looking for. Do all financial advisors provide the same products and services?” she asked.
It’s a good question, because in Canada, the term “financial advisor" is used broadly to describe financial professionals who might be providing very different services and investment products. In this post, we’ll break down the different types of financial advisors and the services they offer so you can get the right type of help you need.
What’s Inside?
Why do you need a Financial Advisor in the first place?
If you have a financial goal, like retirement, or you want to save money, or you want to invest in something but have no definitive, written plan on how to do any of this, it may be time to partner with a financial advisor.
Hire a Financial Advisor when you have had a major life event.
The time to hire a financial advisor may seem most obvious to you when you’ve had a major life event happen such as:
Marriage. You’re excited about your new journey together, but how should you combine your finances? And how do you create and prioritize your new financial goals?
Divorce. Your income has suddenly changed and you find yourself managing all the financial tasks that used to be shared with your partner and creating new goals for your future. Where do you start?
Inheritance. Sudden windfalls, especially those received from losing a loved one, can create conflicting emotions within us. Having a sober second opinion partner on your side can help you invest and allocate this gift in the way that is most beneficial to your family’s future.
New job or promotion. New job, new possibilities. How can you make the most of it? How can you invest your new earnings in the most tax-efficient way? What are the best employee benefit choices for you?
Retiring soon. Your income up till now has come from either a regular paycheque or profits from your own business. Where will the money come from now and how can you make it last? What new goals should you set for this next chapter?
Hire a Financial Advisor When You Have Unanswered Questions
There are other reasons to retain a financial advisor besides having a major life event. Can you relate to any of these?
You don’t know where to start.
Are you a procrastinator? Do you sometimes have “analysis paralysis?” It’s natural to feel overwhelmed about finances. Make that one decision to hire a financial advisor. Let them take on the analysis and guide you through. The procrastination problem is solved!
You’re just not interested in finances.
Let’s face it, would you rather spend your days figuring out what investments will earn you money or would you rather head out for an adventure with your friends or spend quality time with your family? I’m going to guess you’d rather do that. No problem, hire someone else to manage your financial worries for you.
You don’t have time.
Maybe you handled your investments in the past and are tired of it. You have lots of other interests and things you would rather spend your time doing. Financial planning and budgeting for the future can be time-consuming, and not everyone has enough time in their day or week to dedicate to it. Hiring a financial planner may be a smart move for you.
Hire a Financial Advisor When there are Two Decision Makers
You and your partner have different money ‘styles.’
Nearly 73% of couples have fought over money in the last year. Finances have long been a top reason for discord in relationships. If you find yourself in this situation, a financial advisor can serve as a neutral third party to guide you through those challenges.
You need an accountability partner to manage your emotions about money.
A financial advisor can help prevent you from making emotional decisions about money: Selling an investment at the wrong time, not understanding all the risks. And they should be there to generally help you build good habits around money.
Having a good financial advisor will help you earn more money.
A 2016 Canadian study showed that after 15 years or more, households using an advisor have 2.73 times more assets than those who go it alone.
For example, if you invested $100,000 yourself and 15 years later, your portfolio is worth $145,000, the research shows that if you had invested your money with an advisor instead, your portfolio would be worth closer to $250,000 instead of $145,000 after 15 years.
What Kind of Financial Advisor is Best For You?
You know you need to hire someone to help you. But, so many financial professionals have the title “Financial Advisor.” Which one is right for you?
Let’s go through the most common types of Financial Advisors and the wide range of services they provide.
What is a Financial Coach?
Are you just starting your financial journey? Are you restarting your journey with no assets after a setback? A Financial Coach may be the first place to look. These are professionals accredited by the Association for Financial Counseling and Planning Education, who do not offer investment management but can help with the more challenging aspects of finances, such as debt management and budgeting. They can be a for-profit business or partnered with a non-profit. As their name describes, they provide a strong accountability partner for getting back on your feet and becoming financially savvy.
What is an Insurance Advisor?
These are financial advisors who are licensed for insurance products only. These include segregated funds, which are basically mutual funds with a life insurance wrapper. Insurance Advisors are generally paid commissions by the companies whose products they sell.
Some Insurance Advisors also provide financial planning services. See “Financial Planner” below for more on that.
What is an Investment Advisor or Wealth Advisor?
This individual manages your investments for you. They may be affiliated with a large bank or they may be independent and partner with a firm that is registered as a portfolio manager or broker/dealer. Some Investment Advisors are paid by commissions, but most these days are paid a monthly fee based on the size of your investment portfolio, or what is sometimes called “Assets Under Management.”
Wealth Advisors may also provide financial planning services for their investment clients, which leads us to the final category:
What is a Financial Planner?
Are you someone who would prefer to receive unbiased financial advice about your more complex financial goals and situation that is not tied to a particular investment product? Maybe the majority of your investments are tied to real estate and you need a retirement plan but can’t hire a Wealth Advisor because you aren’t invested in the stock market? Unlike some countries, Canada has very few Financial Planners who are not paid for investment management. But they do exist.
Financial Planners are professionals who are paid either hourly or by a flat fee to retain their services for a period of time. They will prepare a written, comprehensive financial plan for you and can work with you over time updating the plan and, depending on their licensing, may advise you on investments as well.
Here are some ways a Financial Planner might be able to help you:
Let’s say you’re spending too much on income tax. A Financial Planner can work with your accountant to find ways to reduce the taxes you pay.
Are you thinking of retiring soon but you’re not sure if you have enough money yet to do so? A Financial Planner can help you get the answer to that.
Do you have business partners and are concerned about what will happen if you were suddenly gone or unable to work tomorrow? A Financial Planner can help you identify risks you might not have thought of and find ways to reduce them so your family is taken care of. For example, if you were to pass tomorrow, would your spouse have to immediately become a business partner? Do they want that? If not, a Financial Planner can help.
When life happens and you have a personal relationship with an advisor you trust, it’s such a relief to be able to come to that person for financial advice. Remember, they have the benefit of not only working with you but dozens of other people who have gone through your same situation.
How to Find A Financial Advisor that Fits Your Money Style?
So now that you know what kind of help you need, I hope that helps whittle down the names of the financial advisors you’re considering working with. The next step is to interview them and see if they’re a good fit.
You’re in luck, because I have just the tool to help you through this process. It’s my list of “12 Smart Questions to Ask When Interviewing a Wealth Advisor.” It has all the questions you should ask and why you should ask them. And it’s totally free.
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