In today’s video,
I am gonna go over
the importance of finding the right financial advisor,
and the stuff that you need to watch out for
when you choose one,
coz after all,
choosing a financial advisor is a lot like choosing a partner.
Hey guys, this is Thomas!
Better Mindset | Better Life!
There are thousands of financial advisors in Canada,
you might be asking how do I know which one to choose.
Sure, the advisor must have the technical skill and knowledge.
That’s a given.
but what else you need to pay attention to
when working with a financial advisor?
Today, I will break it down to the 4 most commonly asked questions
that you may have in mind.
I will also give pointers and questions that you can ask
when you first meet your financial advisor.
And I promise
you will not find these questions in other videos.
Let’s dive in!
We live in a world today,
where so much information is readily available at your fingertips,
that information overload is more of a problem
than lack of information.
You might think Google and YouTube
can give you all the information and advice
you need to manage your money,
but in reality,
a lot of the information on the Internet can be inaccurate,
incomplete, or given out with a malicious intent.
If you don’t know how to filter through all this information,
you might end up hurting yourself.
This is where using a financial advisor would be beneficial
because they are highly regulated,
meaning their information is current,
reliable and can be trusted.
I like to think of wealth management a lot
like losing weight or bodybuilding,
in which you have to set goals and targets,
come up with a meal plan and a workout plan,
and finally put in the work consistently.
Likewise, in order to build wealth.
you also have to set goals,
come up with a saving and investment plan,
and get the money to work for you consistently
However,
some people can achieve great results by relying on nobody,
whereas others can only achieve the same results
by using a fitness coach or personal trainer,
why the difference?
The answer to this lies in self-discipline.
You have to ask yourself,
are you disciplined enough that
you can consistently save up month after month,
and stick to your plan and targets?
If your answer is anything but a yes,
then you should consider using a financial advisor.
Who can qualify to be a financial advisor then?
How are they regulated?
Can I sue them if they gave me the wrong advice?
In Canada,
financial advisor is a title that can refer to
a ride range of professionals in different industries.
It can be someone that works for a bank,
an insurance company,
or even a private wealth management firm.
You want to work with the right one though,
because it’s kind of like seeing a specialist,
they are all medical doctors
but if you have problems with your heart,
you want to see a heart surgeon and not an eye doctor.
so if you are looking for retirement planning,
you don’t want to be seeing a financial advisor
that specializes just in the stock market.
You need to figure out
what you want to achieve with your financial goals first.
In recent years though,
the financial advisor designation is much more regulated.
Most of the individuals that claim themselves as financial advisors
are required to have a license,
and are also regulated by a provincial regulator
to provide advice on certain financial products.
They must first pass multiple exams,
and then get registered with the provincial regulators.
In addition,
they are all required to have errors and omissions insurance,
because they can get sued for giving bad advice to their clients
that results in financial loss.
On top of that,
most of the financial institutions in Canada
are protected and regulated by the government.
One such example is the
Canadian Deposit Insurance Corporation (CDIC)
It basically insures Canadians’ deposits
held at Canadian financial institutions such as banks up to $100,000
in the event that a financial institution fails.
For life insurance,
Canadian policyholders are protected by Assuris
if their life insurance company ever fails.
For more information,
please refer to the two links that I have attached below.
3. How much do financial advisor charges?
Financial advisors that work for free simply don’t exist.
If you come across one that claims
he will work for you for free, WALK AWAY!
In Canada,
there are two pay structures
that are most commonly used by financial advisors:
fee based or commission based.
To begin, let’s take a look at the fee-based structure.
Fee based structure comes in different forms.
One form is that, similar to lawyers and accountants,
the financial advisor will start charging you
the minute you start talking to them.
or they charge on the financial plan that they build for you,
and you are expected to carry out the plan all by yourself.
Another form of this pay structure is to charge the client
based on the amount of assets they hold,
and often this is a fixed percentage.
So, if you have $1 million asset,
then each year you need to pay 10k – 20k to the advisor.
The advantage of utilizing this pay structure is that
it would remove the bias
of recommending a certain financial product,
due to the fact that they don’t get commission for it.
On the flip side,
the disadvantage of this pay structure is that
the financial advisor might lack the motivation
to follow up with the client and review the plan.
They might also be less inclined to liquidate your investments,
for instance when you need the money to purchase a home,
because their asset management fee would decrease.
On the other hand,
commission based financial advisors get paid
by the product they recommend.
This might be advantageous to those clients
who do not have a decent portfolio size,
because this way they can still get proper financial advice
without paying a hefty fee upfront.
Too often we heard that some one
is recommending a product ‘’just for the commissions.’’
While this can happen, many times
the product actually DOES solve the client’s problem.
In this scenario,
do you prefer the advisor to charge you or charge the banks?
Personally, I am less concerned about
HOW someone is paid
and more concerned
WHY they are recommending a certain product
and are they transparent about it?
Keep in mind that you are always entitled to ask.
This brings us to the final question.
If pay structure cannot help me determine
who is the right financial advisor for me
what other factors can I consider?
There are numerous questions we can ask,
and I can guarantee you that these factors I will be telling you,
you will not find in other videos.
Let’s start with the obvious,
how long has the advisor been in the industry?
No offense to the newbies in the industry,
but try to look for someone who’s been in the business
for more than just a few years.
I usually recommend looking for
someone with at least 5 years of experience,
as good financial advising takes years to master.
Another question you may want to ask is,
what is the advisor’s expertise?
Do they specialize in retirement planning, estate planning,
tax saving, risk management, or investing?
If retirement planning is what you are looking for,
then an important consideration you should not overlook is
the age difference between you and your advisor.
Say for example,
if you are in your early 40s and he’s in his late 50s,
do you think he will still be around to advise you
when you reach your retirement age?
Yes experience is important,
but you also want to have someone
who will be there throughout most of your life’s major milestones
and when you make major financial decisions.
how reputable is your financial advisor?
Are they recommended by someone you know and trust?
Do they have any published content such as books or videos,
such that you can learn more about them
before you work with them?
Finally, when the time comes and
you are actually meeting with your advisor for the first time,
Do they listen to you,
or just try to push you with some products?
Do you feel their passion?
Are they being transparent with their fees, products, or plans?
Do they give any expectation?
Such as How many times they offer
to review your financial plan annually?
When you have a question?
What is their response time and
how communicative and easily accessible are they?
The bottom line is,
choose the one that gives you the confidence,
and makes you feel comfortable to work with.
I understand that was a lot of information,
and the financial world is complicated.
It is completely normal for some people
to feel like they want to avoid the topic
when it involves money.
Afterall, our schools did not teach us how to deal with money,
and yet, financial education is one of the most
significant forms of education you can receive.
Having the right financial advisor,
can truly save you a lot of headaches,
and make your life that much easier.
I hope you find this video useful,
and be sure to share it with someone
that you think might benefit from any of this.
You could potentially save them from a bad financial disaster!
Oh, and don’t forget to hit that subscribe button!
Every week, I will share more on how money works,
and how you can work with money!
This is Thomas,
and I will see you guys next week!