How to pick a financial advisor in Canada

(Originally posted in 2021)

Understanding how to choose a financial advisor can be difficult. There are many different types with varying prices and service offerings. Advisors range from comprehensive professional financial advisors to simple investment advisors to do-it-yourself solutions. Picking the right advisor is crucial to balancing the services you desire with the fees that you pay. Join us as we explore the different options you have when trying to understand how to pick a financial advisor in Canada.

Before we begin outlining what your options are, there are a few questions you first need to ask yourself. The first one is, what do I want? With so many options available, understanding what you are looking for in an advisor is key. For example, if you are looking for tax planning advice, then an investment advisor is likely not the best solution. Likewise, if you are looking for a comprehensive financial planning solution, then a robo-advisor will not be sufficient. You need to understand what you want to pay for to ensure that you get the right advisor for the right price. This will also ensure that you are not paying for things you do not want or paying and assuming you get services when they are not included. Financial planning service may include:

• Cash flow planning and budgeting
• Insurance and risk management
• Retirement plan
• Investment planning and portfolio management
• Tax planning
• Estate planning
• Education planning

The second question you need to ask is what makes advisors different? There are several different criteria to consider when evaluating advisors. From their level of education and qualifications to their registration and firm type, these nuances can make all the difference.

Registration

Advisors may limit the services that they offer because of their registration type. By law, a seller of mutual funds, stocks and bonds must complete training and be registered with a provincial or territorial regulator. These different regulating bodies include the provincial securities commissions, the Mutual Fund Dealers Association, and the provincial insurance regulators. You can use the Canadian Securities Administrators’ National Registration Search to check whether the advisor or firm is registered and what kind of registration they hold. We also recommend that you look into whether the advisor or firm has been subject to disciplinary action or complaints.

Education and Qualifications

Apart from their registration, what sets advisors apart is their education and qualifications. There are various types of advisors, and you can tell a lot about their abilities and their level of commitment through a review of these factors. There is a very minimal amount of education required to sell either mutual funds or insurance because of this fact, there are many advisors with this type of education across Canada. However, if you are looking for qualified professional advice, then you will want to ensure that the advisor you are interviewing has the right professional designation.

In Canada, there are four designations typically associated with financial planners. The Personal Financial Planner (PFP), the Professional Financial Planning Course (PFPC), the Certified Financial Planner (CFP), and the Registered Financial Planner (RFP). Both the PFP and the PFPC are associated with bankers and are not particularly relevant for independent financial advisors or planners. Also, the PFPC was a standalone course but has since been discontinued. When searching for a financial planner, there are only two designations that you should be looking for, the CFP or the RFP. Both of these designations demonstrate high proficiency in financial planning and a commitment to excellence. When working with someone that holds this professional designation, you can be sure that you are working with a committed, knowledgeable and well-trained professional who holds themselves to the highest standard for ethics and advice.

Conflict of Interest

While most advisors aim to give good advice, there are outside factors that can contribute and influence that advice. One such factor is a conflict of interest such as compensation structures. For example, if your advisor is paid using a commission structure, they may have an incentive to encourage you to invest where they will earn the highest compensation. To ensure you understand where all of these conflicts lie, you need to know how your financial advisor is paid. If they get paid for referrals, or to sell other products, then you should know if there is an additional incentive for them to make certain recommendations. One way to avoid this is to work with an independent fee-only advisor.

Firm Types

Do-it-Yourself
If you are looking for the cheapest fee solution, then you are likely to want to do-it-yourself (DIY). This option allows you to have full control of every component of your financial life and is recommended for people who have the time and the desire to spend researching all of the components of financial planning. If you are happy to manage your asset allocations, investment vehicles, tax options, and general retirement planning on your own, then this can be a cost-effective option. For this type of investor the fees are very low and can be free depending on the platform you select. However, all of the time, risk, and work then falls on your shoulders.

Robo-Advisors
If you are looking for a little more help and willing to pay a slightly higher fee, then your next option is to use a rob advisor. Using this option, you can delegate all of your investment decision to a low-fee digital asset management company. This option is best suited for people that do not have the time to do investment research but believe that they can make their own financial planning decisions, such as which accounts are best, how to manage their current and future tax bills, and how best to set up their retirements. Using a robo-advisor, you get professional money management for a low fee but receive no financial planning support.

Investment Advisor/Stockbroker
Much like the robo-advisor, using a dedicated investment advisor or stockbroker will allow you to delegate your investment planning and portfolio management, but again, you will receive minimal financial planning advice. This option is ideal for someone who strongly believes that they can pay another person to beat the market. Although this is no evidence to support this position, the option does exist. However, we recommend that you ensure that you know what you are paying for before you go down this road. As many investment advisors claim to be financial planners but provide no financial planning advice and still charge you high fees.

Full-Service Financial Planning/Wealth Management
The final and most comprehensive option is to hire a full-service financial planning or wealth management firm. These firms will provide you with the most thorough and detailed financial advice. When selecting this type of advisor, we recommend that you ensure that they have at least a CFP designation and are fully transparent surrounding their conflicts of interest and fee structure. These advisors can have one of three fee structures, including commission-based advisors, fee-based advisors, or fee for service advisors and provide investors with the most value. As they help you get a better understanding of not only your investment products but of your entire financial picture through a detailed plan. It is important to understand that if you want a comprehensive solution, you need to look for a financial planner and not a stockbroker or robo-advisor.

Selecting an advisor can be a difficult task, but we hope that this information has helped you to gain a better understanding of the options and the landscape in Canada. Remember to begin by laying out what you want and then match the advisor with your financial goals. It is also important to remember that you can switch advisors if it ends up being the wrong fit. With that in mind, we recommend that you begin by speaking with a full-service financial planner and work your way back from there. This will ensure professionalism, expertise and that you get all of the services you believe you are paying for. Take your time when looking to pick a financial advisor in Canada and make sure they are right for you.

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