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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.
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.
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.
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.
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.
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.
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.
Is investing on your financial to-do list this year?
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.
Do you need to speak with a professional about your debt load?
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.
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.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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