How To Choose A Financial Advisor

Written by Veronica Ott

How to Choose a Financial Advisor

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Are you planning for retirement? Or perhaps a large trip abroad? Maybe you want to start your own business and need start-up capital? No matter what the reason is, you may be considering working with a financial advisor to achieve your financial goals. Before proceeding with a financial advisor, it’s important to understand what they do, the different types, how they can help you and what your other options are.

What Does a Financial Advisor Do?

A financial advisor is an individual or “robot” (robo-advisor) that helps you create and execute a financial plan. More specifically, they help you determine how much money you have now, how much money you need in the future, and how you can grow your money. A financial advisor will help you grow it by making decisions on your behalf or by guiding your decisions with their expertise and experience.

Are There Different Types of Financial Advisors?

Yes, there are two main types of financial advisors. You can either use a robo-advisor or a human advisor. Robo-advisors are cheaper and easier to start working with. Their drawback is they often don’t provide a complete financial plan and it can be frustrating to not work with a real person.

On the other hand, you can work with an actual person through an online financial planning service. Usually, there is a robotic component to the service, but you can always chat with a human financial advisor when you need to. There are also traditional financial advisors where you meet with a person to discuss your finances. The cost of a regular financial advisor is more expensive, but you will get a complete financial plan.

When You Should Seek a Financial Advisor

Individuals often seek a financial advisor because managing investments is a complicated process. Many are not comfortable managing their money on their own which is why they reach out to a financial advisor. In addition, if you have a specific financial goal, you may not know how to attain it on your own.

Financial advice is usually recommended for individuals with a high net worth, complicated taxes, or a complex estate. They can also be useful for people going through major life events, such as retirement or paying for a large, abnormal expense.

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How to Choose a Financial Advisor That’s Right for You

Choosing a financial advisor that’s right for you is simpler than you might think. Below are three brief steps to choosing a financial advisor.

Pick the Services You Want. Do you want a simple service that helps you choose and manage investments? Your best bet is a robo-advisor. Or do you need complex services that help you manage your hefty finances? Your best bet is a human financial advisor. Each option has its pros and cons, you simply need to determine which one suits your needs best.
Determine the Costs and What You Can Afford. Generally speaking, a robo-advisor is more affordable, a virtual financial advisor is more expensive, and finally an in-person financial advisor is the most expensive. Make sure you assess the costs and determine if you have room in your budget for the added expense.
Evaluate Standards and Qualifications. Before moving forward with a financial advisor, do some due diligence on their standards and qualifications. This will give you an idea of what it will be like to work with the financial advisor.

Where Can You Find a Financial Advisor in Canada

In Canada, you can find a financial advisor at a bank, credit union, caisses populaires, stockbroker firm, mutual fund firm, insurance company, or independent financial planning company. Shop around until you find a few options that you like.

How Much Does a Financial Advisor Cost?

Every financial advisor charges differently so there is no exact formula for the cost. However, below are some basic guidelines to help you estimate the cost for different types of financial advisors.

Robo Advisors. Typically, they charge an annual fee which is a percentage of your account balance. The percentage is often between 0.25% and 0.5%.
Virtual Financial Advisors. The fee is either a flat subscription fee, a percentage of your assets, or a combination of both. The fees are attributable to both portfolio management and financial planning.
In-Person Financial Advisors. The fee is usually a percentage of the amount of assets managed, often around 1%. However, the percentage could vary based on the size of your account. Other human financial advisors may charge an hourly rate, flat fee, or retainer.

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Questions to Ask Your Financial Advisor

To prepare for your first and any future meetings with a financial advisor, it’s helpful to prepare some questions ahead of time. Below are some questions you can ask your financial advisor to determine if they’d be a good fit for you.

What is your certification or designation?
Are you licensed to sell other products?
Are you or the firm registered with a securities regulator?
What is your education and professional experience?
How long has the firm been in the business?
How do you determine what to invest in?
How long have you been with the firm?
How will they help you achieve your goals?
Can I see references from previous clients?
What products and services do they offer?
How are you paid? Commission? Fees? Salary?
How will you communicate with me?
How often will we meet?
Have you ever been under investigation or are your currently under investigation by a regulator?
Have there ever been any restrictions, terms or conditions placed on their registration approval?

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Difference Between a Financial Advisor, Financial Planner, and Robo-Advisor

A financial advisor is someone who can provide financial advice, but they are not part of a professional body. Financial advisors can have a fiduciary duty towards their clients which means that they have an ethical and legal responsibility to place your financial interests above all else. However, there is no clear requirement for them to have a fiduciary duty to you, it would be by choice or part of their organization’s policy.

A financial planner is part of a professional organization. In order to become a financial planner, you have to complete a certain level of education including tests and going through a curriculum. Legally, financial advisors cannot call themselves financial planners because they have not completed that specific education. Financial planners do have a clear fiduciary duty to their clients which provides an extra layer of protection.

Robo-advisors are an online automated investing service. Usually, the process of using a robo-advisor starts by answering several questions to determine your risk tolerance. After this, a personalized financial portfolio is created for you. Using a robo-advisor is often a cheaper option, however, you don’t usually receive a full financial plan unless you pay a large fee.

It’s Your Money

If you choose to work with a financial advisor, remember that it’s your money at the end of the day. You have a right to know what’s going on behind the scenes and you should do your best to get as much information from the advisor as possible. Take your time selecting an advisor as your relationship will be a long one.