Here’s a continuing myth: professional financial advice is the same as picking investments. Now here’s the reality: advisors help clients with many facets of their financial lives, including cash flow management, tax planning, debt reduction strategies, business succession, and yes, investment planning. And studies have shown that consumers who receive financial advice accumulate more wealth than those who prefer self-directed options. The Investment Funds Institute of Canada found that having and using professional advice translates into almost four times more wealth for those who worked with an advisor for over 15 years.
Those statistics are no surprise to Scott Plaskett, a financial planner at IRONSHIELD Financial Planning. “Consumers [who work with advisors] tend to have a higher level of engagement around their financial affairs, and want to make sure their future is set,” he says. “There’s less anxiety about whether they are on track to achieving their financial goals as they have a professional with them on their side every step of the way.”
Here are three things to look for when seeking a professional financial advisor:
1. Confirm that the advisor has a professional designation.
Designations such as the Chartered Life Underwriter (CLU), Certified Financial Planner (CFP), or Chartered Financial Analyst (CFA) show that the advisor has studied extensively in the area that they are purporting to serve. Many designations exist so if you haven’t heard of a particular one, look it up online. Some are more rigorous, taking months or years to complete.
2. Consider your comfort level and your gut reaction to the advisor.
Does the advisor spend a lot of time getting to know you, your needs, and challenges? Does the advisor listen more than they speak in the initial meetings? “If the person is talking about implementing solutions and products in the first three meetings, then you clearly have somebody whose motivations are to sell a product versus going through a financial planning process,” notes Plaskett.
On the other hand, if an advisor is explaining the value they bring to the table, that’s a good sign. “Some people don’t want their financial affairs to become a do-it-yourself project,” says Sara Zollo, a financial advisor at Sun Life Financial in Toronto. “Time may be a valuable commodity to them. They may want someone to walk them through the financial implications of life events such as getting married, divorced, job loss, or receiving an inheritance. Who’s helping you with that planning if you’re just using an online platform?”
3. Have a discussion about fees.
Professional advisors may be paid by commission, fees, or a combination of both. They should be able to speak in layman’s terms about how they are paid and all the services for those costs. If you agree to work with the advisor, you should expect a letter of engagement or service level agreement, which clearly explains the terms of your relationship and remuneration in writing. It should cover both of your expectations as the advisor and the client.