What You Need to Know About Financial Advisors but Were Afraid to Ask
Today, if you search on the Internet for the best financial advisor, you will get a result of approximately 847, 000 pages. We know what you’re thinking, “Which one should I call?” To help you with this decision, we’ve put together this article to look at financial advisors and what their job entails. Today, many use the word “expert” or “specialist” very lightly and we wanted to help you by highlighting aspects you need to be aware of when you are looking to make the right financial decision by hiring a financial advisor in Ottawa.
How to Become a Financial Advisor
In order to have the title of financial advisor, an individual will need to take a course that teaches the fundamentals of investing, taxation and some basic legal terminology. The problem with this designation is that while it teaches the academics of investing, it does not give real world experience. Imagine learning how to ride a bicycle by only reading a book? You can’t learn something until you have “real world experience”. So, even if an individual has the “financial advisor” designation it does not mean their advice should be taken as the gospel truth. Look for testimonials, referrals, financial reviews and proof of their track record.
Types of Financial Advisors:
Here are some of the most common places you would find financial advisors:
- Financial institutions like banks have individuals who have the title “financial advisor”, but there are some things you really need to be cognizant of when you are dealing with these individuals. First, they work for the bank and are paid by the bank so guess what? They are going to be promoting that bank’s products for the greatest commission for themselves. Typically, what the financial advisor will do is take a look at your finances, then through their financial alchemy come back and tell you that the bank has just the product that will meet your needs. It is beneficial shop around for different Financial Advisors in Ottawa before you take the advice of a financial advisor that works for their employer and not for you.
- Mutual Fund salespeople are another group that have the designation of “financial advisor”, but they are typically paid by commission. That means their priorities are in line with the organization that is going to provide them with the best commission structure. Let me give you a scenario, you go to the doctor with a broken finger but the doctor is paid by a company that sells wheelchairs. If the doctor had low moral standards he would prescribe a wheelchair for you even though you just broke a finger! I know, it’s an extreme example. Just having some fun but I think you get the point!
- Financial planners also fall under the category of financial advisors but this one is a mixed bag. What you have to find out from the get-go is how the financial planner earns his/her money. The majority of them will get a commission from the type of investment they sell which may cause a potential conflict of interest, but there are also some Ottawa financial planners that work for an hourly rate. Since the planner works for an hourly rate, in theory they are going to provide you with the best advice – but the challenge is knowing whether they are worth the hourly rate they are quoting. Do not fall under the pretense that higher hourly rates mean the financial planner is good at what they do. You really do need to screen the people who will help you make important financial decisions.
- Stock brokers fall under the umbrella of financial advisors and usually have some real world experience in trading but they work for commissions as well. The way the stock trader makes money is by the trade so they may come up with reasons why now is a great time to “do a trade”. Whenever you execute a trade then you lose some money for their commissions so you really need to be diligent when screening stock brokers as well.
- Insurance brokers are now offering investment grade products as well. It is helpful to be aware of this or you could end up purchasing an insurance policy that has financial instruments you do not need or even want. The brokers work for commissions and while in theory they are working on your behalf they are in a volume business so they want to sell as much coverage as possible to as many people as possible even if they do not need the instruments. Look for honest brokers who really work for your benefit.
Ok, So What Does All of This Mean?
We have indicated who has the title financial advisor and how they usually earn their income but we have to look at why you should consider working with one. The sad reality is that in Ottawa and most of Canada, the majority of us will not have enough money to retire. With the Canada Pension Plan going through some growing pains the young families of today will be lucky if it is available when they reach retirement age. The days of working for a company and getting a good pension might be behind us. The individual will need to save enough to make the “golden years” pleasant instead of one filled with financial strife and anguish.
There are many benefits to RRSPs but they are not going to meet all of your needs. While they do provide tax sheltered growth potential, the amount of money that you can invest is woefully inadequate – so you will need to seriously look at alternatives. That is where the financial advisor comes into play. The financial advisor is hired to increase your assets and wealth.
Finding the Right Financial Advisor for Your Needs
This is where the rubber meets the road so to speak. There are great financial advisors out there who are worth the investment.
Every financial advisor will need to meet the licensing requirements set out by the Canadian government but you should also find out whether they have any post- secondary credentials from reputable institutions. Academic prowess and investing success are not mutually exclusive but you should focus on individuals who have a higher level of cognitive reasoning given the complexity of investments out there in the market.
After you have sorted out the educational credentials in of the Ottawa financial advisor you will need to start looking at the track record each of them has established during their career. Some recommend not to take financial advice from someone fresh out of college and just starting out. Try to target financial advisors that have been gaining experience in the industry for at least three (3) years and longer.
The benefits of seeking advice from financial advisors that have been in the industry for a long time is they should have a track record and reputation you can scrutinize. A great way to scrutinize the reputation of the financial advisor is by looking for the reviews and comments that were made by the clients who dealt with them.