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What Is A Financial Advisor? And What Do They Do?

Financial advisors offer a wide range of services to help clients create and stick to a financial plan. Here’s what to look for, and questions to ask.

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Trying to manage day-to-day spending, while trying to invest for the future is a challenge for even the savviest savers. That’s why many people turn to financial advisors for help. Their job is to look at your finances, discuss your goals and develop a plan that can help you achieve the things you want now and in the future. Working with a qualified financial advisor can give you a clear picture of where you stand financially, help organize your household budget and simplify the saving and investment process.

There are thousands of financial advisors across Canada with different qualifications and areas of expertise. Before trusting someone with your financial future, it’s important to find a financial advisor who is transparent, provides the right services for your circumstances and who connects with you on a personal level.

What is a financial advisor, and what do they do?

“Financial advisor” is a broad term for anyone who is paid to help manage your money. Financial advisors can hold professional designations such as Certified Financial Planner (CFP) or Chartered Professional Accountant (CPA), or may use generic titles such as wealth advisor, investment advisor, portfolio manager, or retirement specialist.

Your financial advisor will review your current situation and create a detailed and personalized financial plan.

This includes setting realistic money-related goals, household budgeting, debt management, choosing and managing investments, tax planning, saving for education and retirement, estate planning and insurance needs. Some financial advisors provide general advice, while others specialize and provide services in one or more areas.

Besides offering guidance, many financial advisors are also licensed to sell insurance or investment products.

Financial advisors can work for banks, credit unions, caisses populaires or large investment firms, but many advisors also work for smaller firms or independently.

Do I need a financial advisor?

Everyone could benefit from professional financial advice. Financial advisors aren’t just for those with six-figure stock portfolios and complicated tax situations—they’re for anyone who needs help, even if it’s just the basics of how to pay off debt and save money. Here are a few reasons why you might want to work with a financial advisor.

To set a clear path – and stay on it: If you don’t have the time, knowledge or interest in managing your money yourself, a financial advisor can help by creating a plan and helping you stick to it. While that plan will likely include investment advice – what kind of asset mix is best, what sorts of stocks, bonds or funds you should hold – financial advice, at least these days, is about more than investing. Really, it’s about taking control of your finances so you can weather whatever life throws at you, expected and unexpected.

To meet your financial goals: Whether your goals are big or small, a financial advisor can help figure out what’s possible and build a plan to help you get there. Financial goals can include things like buying a home, paying for your children’s private school or university tuition, taking care of your parents in old age, or planning your retirement.

To receive impartial advice: Even if you’re good at managing your finances and picking your own investments, you may benefit from a third party who has years of experience with investing, tax planning and retirement strategies. A financial advisor can also serve as a neutral third party in emotionally charged situations, such as with spouses who disagree on how to manage their household finances, or siblings trying to navigate their parents’ elder care.

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Financial advisor vs. financial planner

A financial advisor and a financial planner may sound like the same thing, but there are a few differences. A financial advisor can be a jack-of-all-trades, but they typically focus on managing investments, including selling investment products. A financial planner is a specific type of financial advisor who specializes in creating a detailed plan to help you achieve your long-term goals, but typically doesn’t sell investments or manage assets.

Financial planning credentials

Financial planning isn’t regulated in Canada (except in Quebec), so anyone can technically call themselves a “financial advisor” or “financial planner.” However, there are dozens of financial designations from different professional bodies:

  • Certified Financial Planner (CFP)
  • Registered Finance Planner (RFP)
  • Personal Finance Planner (PFP)
  • Chartered Professional Accountant (CPA)
  • Chartered Financial Analyst (CFA)
  • Certified International Wealth Manager (CIWM)
  • Chartered Life Underwriter (CLU)

CFP is considered the leading designation in Canada, and is internationally recognized. It’s regulated by FP Canada (formerly the Financial Planning Standards Council), a non-profit that advocates for industry standards. CFP holders must pass an exam, have a minimum of three years of qualifying work experience, and take part in 25 hours of continuing education each year.

Things are a little more regulated in Quebec, where only trained and certified individuals can call themselves financial planners. The designation is called “planificateur financier,” or “Plan. Fin,” and can only be obtained through the Institut Québécois de planification financière.

If a financial advisor sells insurance or investment products, such as stocks, bonds and mutual funds, they must be licensed by and registered with a provincial or territorial securities regulator. Depending on what they sell, investment dealers are licensed by one of two organizations: the Mutual Funds Dealers Association (MFDA) to sell mutual funds, or the Investment Industry Regulatory Organization of Canada (IIROC) to sell other investments like stocks or exchange-traded funds.

Do financial advisors have a fiduciary duty?

Fiduciary duty is “a duty of a person to act in another person’s best interests,” according to the Canadian Securities Administration. Basically, it’s a legal and ethical obligation to put clients’ needs first. In Canada, financial advisors don’t have a formalized fiduciary duty—only individuals and firms registered as portfolio managers are held to the fiduciary standard.

All other types of financial advisors and planners are held to the “suitability standard,” which means recommendations must be suitable for a client’s personal profile and objectives (though not necessarily in their “best interest”).

You can ask prospective financial advisors if they’re a fiduciary, or whether they follow a code of ethics. If the individual advisor or their firm is registered with IIROC or MFDA, you can check if they have any complaints registered against them or if they’ve been subject to disciplinary action. For CFPs and RFPs, you can check complaints and disciplinary action through FP Canada.

How much does it cost to go to a financial advisor?

How much a financial advisor charges depends on their experience and the scope of work. Generally, advisors are paid through a flat fee, a percentage-based fee, commissions, or some combination of the three. When discussing costs with an advisor, it’s important to confirm exactly what services their fee covers: creating a plan, implementing it, buying and selling investments, providing ongoing advice, etc.

Fee-only: With a fee-only financial advisor or financial planner, you pay a flat or hourly rate for their services. This way, you’ll know exactly what you’re paying and what you’re getting for that amount. Most fee-only financial planners will charge between $1,000 and $3,000 for a comprehensive financial plan. They also may offer hourly rates of $100-$400 for smaller projects.

Percentage based: Some financial advisors charge a flat percentage fee based on how much money you invest with them. The advisor will invest your money based on your financial plans and goals, and will charge a small percentage of your investment value each year—usually around 1% of the assets they manage. Depending on the advisor, this fee may only cover investment management, but not financial planning or other advice.

Commission: Some financial advisors work on commission, and earn a percentage from the sale of investment products or financial transactions. For example, a commission-based advisor may earn 2% on whatever money you invest in a specific mutual fund. This fee structure can work for people with fewer assets, but it also means the advisor’s advice might be biased toward certain investments rather than your best interests. And if an advisor works for a big bank or credit union, they’re often tied to selling their employer’s products.

How to choose the right financial advisor

Remember, anyone can call themselves a financial advisor—even if they just sell investment products. You don’t have to go with a financial advisor from your bank, or default to whoever family members uses. While you can ask friends and family if there’s a firm or specific advisor they recommend, what works for them might not work for you. Ultimately, you want a financial advisor who understands your unique needs.

It’s also important to look for a financial advisor who works with clients with similar incomes, net worths, lifestyles and employment. For example, if you’re a self-employed entrepreneur, you probably don’t want to work with a financial advisor who mainly deals with government employees with pension plans.

Questions to ask a financial advisor

Before committing, it’s a good idea to meet with a few different advisors in person to get a solid understanding of who they are, how they run their business, and what you can expect from working with them. When meeting a financial advisor, here are a few questions to ask:

Credentials and experience

  • What are your qualifications or area of expertise? What designation do you hold?
  • How long have you worked as a financial advisor?
  • How long has your firm been in business?
  • How many clients do you work with?
  • Do you or your firm have any complaints against you/them, or have you faced disciplinary action?

How it works

  • What can I expect from you in terms of a financial plan?
  • What’s your approach to investing?
  • How closely do you work with clients, and how often do you communicate?
  • How do you keep in touch with your clients (phone, email, online chat, in person)?

Payment

  • How are you paid? Salary, fee for service, or commission?
  • Are you a fiduciary, or do you follow a code of ethics?

Questions financial advisors will ask clients

When taking you on as a client, a financial advisor will want to interview you as well. Before visiting a financial planner, be prepared for a full audit of your personal and financial life.

Personal information: Age, marital status, employment, where you live, and whether you have children or other dependants.

Financial goals: Your short- and long-term financial goals, and when you want to reach them. For example, retiring by age 60, buying a cottage, or saving for your children’s university education.

Money you earn: Salary, rental income, business or investment income, or freelance/side hustle income.

Money you owe: Mortgage, car loan, student loan, credit cards, personal loans or business loans.

Investments and savings: Investments you hold in non-registered accounts, registered accounts such as an RRSP, a TFSA or an RESP, workplace pension and savings plans and any property you own.

Your risk tolerance: If you’re a conservative or more aggressive investor, if you’re comfortable with market ups and downs, how much money you’re willing to lose in the market.

Insurance: Life, auto or home insurance policies you have in place. If you any insurance coverage through your employer.

The whole picture: A diligent financial advisor will dig deep. Special circumstances, such as caring for aging parents, an ill spouse or a child or with a disability could impact your plans. They might ask about your values, or what success means to you: buying a home, taking care of your family, leaving an estate, etc.

There’s a lot to consider when looking for a financial advisor, from their experience and credentials to their fees and whether they’re a fiduciary. Paying a financial advisor may seem like another expense weighing on your budget, but having a professional create and execute a long-term plan can help clarify goals and give you peace of mind that your financial wellbeing is taken care of so that you can live your life. If you choose to work with a financial advisor, go with one who is reputable, transparent and will work with your unique needs to protect and grow your assets.

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Writer

Jane Switzer is a Toronto-based personal finance writer and editor. Driven by her interest in financial journalism, she completed the Canadian Securities Course and has covered topics including saving, debt, credit scores and investing for websites like Ratehub. Her work has appeared in several publications such as the National Post, Globe and Mail, Toronto Star and Maclean's.

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