What does a financial advisor do?

So, what is a financial advisor exactly? A financial advisor/planner takes your goals and dreams and translates them into numbers within a time frame. Depending on your financial situation and life stage, a comprehensive financial plan would include everything from financial management (cash flow, net worth statement), to an insurance review, examination of investments, tax planning, and retirement and estate planning. That’s a big enchilada.

A financial plan gives you a very clear idea of where you’re at—financially-speaking—and where you’re headed. If you’ve ever wondered if you should pay down the mortgage faster or invest in your TFSA instead, a financial plan will clarify which choice is best for you and your goals.

Who is qualified to be one?

According to IIROC, the self-regulatory agency that oversees investment dealers, there are 67 different designations and initialisms for different types of financial advisors. To make matters even more challenging, the financial planning profession is unregulated in every province except Quebec. That means anyone can be a “financial advisor” or “planner,” with some misleadingly calling themselves financial planners when they are actually investment and insurance salespeople.

One way to cut through the confusion is to look for professionals with the following designations:

  • CFP (Certified Financial Planner)
  • CIWM (Certified International Wealth Manager)
  • CLU (Chartered Life Underwriter)
  • CPA (Chartered Professional Accountant)
  • DFA (Distinguished Financial Advisor)
  • EPC (Elder Planning Counselor)
  • F.Pl (Financial Planner)
  • PFP (Personal Financial Planner)
  • R.F.P. (Registered Financial Planner)

The Financial Planning Standards Council (FPSC) is the national professional association that certifies financial planners and establishes and enforces financial planning standards. The CFP is considered the gold-standard designation. In Quebec the corresponding designation is F.Pl and is granted by the Institut québécois de planification financiere (IQFP).

Why should you have one?

Money is a taboo subject; we’d rather talk about almost anything else. But this avoidance can cause us to make poor financial decisions and miss out on enjoying our life to its fullest potential.

Research shows that people who have a financial plan are more likely to feel prepared to meet their financial goals, are more confident about their finances, have higher saving rates, and build greater wealth than non-planners. Our lives are filled with inflection points—job, relationship, children, illness, retirement, inheritance—that affect our finances. Each of those pivots is an excellent time to either draw up a plan or tweak an existing one.

Here are some reasons to work with a financial planner:

  1. Plan for retirement. Fewer and fewer Canadians enjoy ye olde “defined benefit pension plan” where the employer guarantees paying a fixed or inflation-adjusted amount of income in retirement. And, with the rise of the “gig” economy, even the less-desirable “defined contribution pension plan,” where the employee’s contribution is defined but the employer’s payout amount is not, is out of reach for many workers. According to a survey conducted by the FPSC, only a quarter of Canadians have an employer-sponsored RRSP savings matching program. This means that more of us need to take the wheel when it comes to our retirement savings and start looking into different retirement plans as early as possible. Having a financial plan is the first step in ensuring that our retirement is comfy, not cramped. For pre-retirees, having a plan 5-10 years prior to the expected retirement date is important in order to make the best decisions.
  2. Unify financial goals with your partner and family members. Have you ever been a victim of financial infidelity? According to a survey by the FPSC, 34% of us keep financial secrets from our romantic partners. In some cases, these may be relatively harmless, yet, over time, these financial indiscretions can derail us from reaching our goals. A planner is an impartial third party who can better align a family’s conflicting financial goals and prevent relationship break-ups over money.
  3. Pay less in taxes. We don’t have control over how our investments perform. However, we do have some control over how much we pay in taxes. A financial planner often works with other professionals, such as your accountant or lawyer, or with their own in-house team to ensure that all the pieces of your financial life fit together in the most tax-advantaged way.
  4. Give yourself peace-of-mind. Many of us are stressed about money: feeling guilty about how much we’ve spent or financial mistakes we’ve made, and then feeling worse because we can’t afford to take that vacation we desperately need. Having a financial plan clarifies our goals so we can make better spending and investing decisions, which will improve our overall wellbeing.

How to choose a financial advisor

While a referral is always useful, your own due diligence is, as always, key. You can find a list of all registered CFPs on the Financial Planning Standards Council (FPSC) website where you can also check if they are a member in “good standing” or have had any history of disciplinary action. You can also check the Portfolio Management Association of Canada (PMAC) website for a list of portfolio management firms whose advisors act as fiduciaries, with the highest levels of professional education and ethical standards.

Once you’ve identified a short-list of qualified candidates, here are some key questions to ask them:

What will my financial plan include?

Correct answer: “Financial management” such as cash flow, budgeting, net worth; insurance/risk management, such as property & health insurance; investment analysis; retirement, tax, and estate planning.

With whom will I be working?

Correct answer: Most established financial planners work with a team of specialists that could include accountants, lawyers, more junior financial planners, and even life coaches. Ensure that the person you hire will be your specific point person.

How do you get paid?

“Fee-for-service” planners are paid by the client. Asset-based planners receive commissions or trailer fees from investment product providers, such as mutual funds or insurance companies. Some planners offer clients a choice: If the client purchases investment products, the planning fees are offset. While some clients prefer this turn-key financial solution, there’s potential for conflicts of interest.

Can I get it in writing?

Ensure that the scope of services and all fees are covered in a written contract that includes the number of face-to-face meetings, check-ins, etc. Monitoring and ongoing coaching are essential to success.

Are you a fiduciary?

Your planner should be legally obligated to put your interests ahead of their own. Ask which provincial or professional regulatory body governs their profession, whether they subscribe to a code of ethics, and if their credentials are up to date.

Can you tell me about your business?

  • Size of their business. The business needs to have sufficient resources to meet your needs in addition to the needs of all their other clients.
  • What safeguards are in place to ensure your financial information is safe?
  • Median asset size. Who is the firm’s typical client? Make sure you’re a good fit. For example, if your planner works mostly with government employees who have defined-benefit pension plans and you’re an entrepreneur, that may not be the ideal fit.
  • Contact network. How deep is their contact network should you need referrals to lawyers, accountants, etc.

What to pay a financial planner

Depending on the complexity of their work, expect to pay a fee-only planner either hourly fees of $250-$500 or a flat fee of $1,500-$5,000 for the plan. If you own a corporation or have complex tax or estate matters, fees will be on the higher end. There may also be an option to pay an annual retainer fee for ongoing advice.

Alternatives to hiring a financial planner

It would be a wonderful world if we could all have a personal financial advisor, but it’s not financially feasible for everyone. Those with few or even mid-level assets may be well-served by the following options instead:

  • Hire an entry-level financial planner. Formerly called FPSC Level-1 Certificants (renamed Qualified Associate Financial Planner, or QAFP, on January 1, 2020), these accredited planners are best suited to those with less complex financial needs.
  • Ask your financial institution. Some of Canada’s top banks offer the “complimentary” services of a professional financial planner, typically included as a perk within comprehensive bank accounts. One example is the HSBC Premier Chequing Account, which provides a dedicated Premier Relationship Manager to each accountholder, whom you can go to for help with long-term goal setting, mortgage tips, investment feedback, etc. Keep in mind, these financial planners work for the financial institution, not you, and they’ll likely be biased toward their bank’s products; a financial advisor unaffiliated with a particular bank is more likely to offer unbiased advice and recommendations.

Earn up to $500 when you open an HSBC Premier Chequing Account. Terms and conditions apply. Offer value is composed of multiple products, offer ends November 30, 2023.

Issued by HSBC Bank Canada.

  • Find the digital middle ground. Though most robo-advisors typically provide pre-built investment portfolios, some are now offering more made-to-measure portfolios combined with personalized financial advice. For instance, Wealthsimple‘s ‘Generation’ plan includes one-on-one financial planning sessions, albeit only for those with deposits of $500K or more; others, like CI Direct Investing, pair each client, no matter their investment level, with a dedicated financial adviser. Aside from assessing investments the financial adviser can also provide insight into estate planning, tax optimization, and insurance.
  • Go DIY. There are some aspects of financial planning that you might be able to handle yourself. If you have enough investing savvy to trade your own securities, you can bypass the services of a traditional broker and save a lot of money by using a discount online broker, like Questrade. Investing independently may be intimidating at first, but you can always test the waters with only a small amount of money initially—most online brokers have low investment minimums (or no minimum at all). 
  • Cover at least the basics. If you ultimately do decide to consult with a financial advisor, you can cut down the number of hours you spend with them (and, consequently, money spent on them) by preliminarily handling some of the basic elements of financial planning that are made easier by online automations. For example, you can cover one key aspect of estate planning by using a site like Willful, which can help you create a customized legal will from start to finish. The process takes about 20 minutes and doesn’t require an expensive lawyer or notary.

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Rita Silvan is the former editor-in-chief of ELLE Canada magazine. After a successful career in women’s consumer publishing, Rita has pursued her interest in finance, especially in the areas of personal finance and investing for women. She obtained the Chartered Investment Manager (CIM) designation from the Canadian Securities Institute. Rita is also the former editor-in-chief of goldengirlfinance.com and a finance writer for Tier-1 Canadian banks and bespoke wealth management firms.


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