There are many types of financial professionals who can help you accomplish your goals. A financial planner is someone who can help you create your plan and choose strategies that are right for you. A financial planner can help you adjust your plan as your life changes. They can also help you set priorities if you have conflicting goals.
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Why should you work with a financial planner?
A financial planner can be helpful for many reasons. They can be particularly useful during times when your life has changed a lot. For example, if you’ve switched jobs or gotten a pay raise, a financial planner can help you can determine what to do with the extra income in your financial plan. Will you save it, spend it, or pay down debt?
Divorced or experienced a loss of income will also likely affect your financial plan. Having someone to work with can help you manage the stress that can accompany times like these.
Your financial planner can help you:
- Set realistic goals and take steps to achieve them.
- Create a plan for long-term goals like education or retirement.
- Understand and choose the right mix of investments.
- Develop an investment strategy to fit your goals and level of risk tolerance.
- Decide what type of insurance you need.
- Build an estate to leave to your family or charity.
- Save and invest in ways that reduce your taxes.
These kinds of tasks involve not just planning but knowledge of different kinds of financial products.
It’s important to know what kind of financial goals are important to you, since this isn’t something a financial planner can decide for you. Learn more about setting your financial goals.
How do you choose a financial planner?
You can find a financial planner at financial institutions, investment brokerages, or at full-service asset management firms.
However, you should also choose based on the kind of skills and expertise you need. For example, if you want your planner to provide investment advice, choose someone who is registered with their securities regulator. If insurance is a priority, look for someone who has an insurance licence.
Follow these steps when choosing a financial planner:
1. Check qualifications – Referrals from trusted sources are helpful, but not enough. Check each potential planner’s qualifications and background. Find out if they have any credentials. Call their professional associations to check on any complaints against them.
2. Interview more than one person – Make sure you feel comfortable discussing your finances with the people you interview. Find out if they provide the services you want. Ask about:
- Their education, experience and specialties.
- How many clients they have and how often they communicate with clients.
- What kinds of investment products or services they’re registered to sell, if any,
- Which organizations they’re regulated by.
- How they’re paid.
- If they’ve been subject to disciplinary action by any regulator or industry association.
3. Ask for references – Find out if the planner works with any other experts, such as lawyers, accountants, or insurance agents. Ask for references from these individuals.
4. Compare fees – Ask the planner to explain how they’ll be paid and compare their rates with others. Make sure you get a written letter outlining the specific terms of your agreement. Also make sure you get notice in writing of any changes to compensation structure during your relationship.
5. Understand any conflicts – If your planner is also qualified to buy and sell investments, understand how they choose investments for you. Do they recommend a wide range of investments? Or do they only recommend certain products such as mutual funds from certain companies or only products that their firm sells? Will they make more money if they recommend one investment over another? Do they make money from sales fees every time you buy and sell?
If your planner also sells investments or provides investment advice, you can check their registration status and background through the Ontario Securities Commission.
What should you expect from a financial planner?
Working with any financial professional is a two-way relationship. It’s a good idea to go in with clear expectations about what they can help you with, and what you’ll need to bring to the conversation.
Your planner should tell you:
- What services they’ll provide and how the process of planning works.
- What documents they’ll provide to you.
- Their responsibilities as your planner.
- Your responsibilities as a client.
- How they’ll be compensated.
Along with asking about your goals, your financial planner will also likely ask you for information about your personal and financial situation, including:
- Your personal situation – information about your job, where you live, whether you’re married, and whether you have children or other dependents.
- Your current investments – investments you hold in non-registered accounts, registered accounts such as an RRSP, a TFSA or an RESP, and any workplace pension and savings plans.
- How you feel about risk – and what kind of investor you are. For example, are you a conservative investor or are you more willing to take on risk to meet your goals?
- Any money you earn and owe – do you earn a salary, rental income, business income? Do you have a mortgage, car loan, student loan, credit cards, personal loans or business loans?
- Your insurance – such as life, auto or health insurance. Mention any insurance coverage you have paid for yourself or that you receive through work.
- Your taxes – including income tax, property tax and tax on your investments.
- Your will – the planner will want to review it and will likely encourage you to write one if you don’t have a will.
- Your estate – how much money and property will you leave behind after your death and what you would like to do with it?
You may not have answers to everything a planner may ask you. You always address the most important priorities first and return to others later.
Knowing your level of risk tolerance is important when making any investing decision. This is something your financial planner can’t decide for you — only you can know how much risk you are willing and able to handle.
Our worksheets can help you prepare for your discussions with a financial planner.
Try the Investment Policy Statement Blueprint tool.
How are financial planners certified?
Your planner’s qualifications will help you make sure they can provide the services you’re looking for.
There are many financial planning designations, which offer a combination of training and experience.
Many financial planners have passed courses and exams in financial planning, and hold designations granted by an education provider or standards body. Others are also registered with their securities regulator to sell investments or provide investment advice. They may also be licensed to sell insurance or hold designations in accounting or estate planning.
In Canada, financial planners are known by many different titles. While some may call themselves a “financial planner”, others may be a “financial advisor”, “financial consultant” or “investment advisor”, to name just a few. This is because financial planning is not regulated in most Canadian provinces and territories.
In Ontario, the Financial Professionals Title Protection Rule (FPTP) from the Financial Services Regulatory Authority of (FSRA) came into effect in March 2022. The FPTP Rule sets minimum education, examination, conduct, and oversight standards for the financial planner and financial advisor titles. Individuals using these titles must have a qualification from an approved list of credentialing bodies. This includes such titles as Certified Financial Planner (CFP) and Personal Financial Planner (PFP).
If your planner sells investments or offers investment advice, they need to be registered with their securities regulator. There are different registration categories. For example, some planners are registered to provide advice only on mutual funds. Others can advise on a broader selection of investments. Make sure the services they are registered to provide meet your needs.
Ask about and understand the qualifications and experience of a planner before you work with them. Make sure the products and services they provide meet your needs.
How is your financial planner or advisor paid?
There are four common ways financial planners and advisors are paid.
1. Fee only
Fee-only advisors are paid directly by you. They don’t earn any commissions. They may charge a flat fee based on the services they provide to you. Or they may charge you by the hour. Once you agree on the fees, you know what you’ll get and how much you’ll pay.
For example, a planner may quote $500 to build a financial plan for you. For this price, they may tell you that you’ll get two sessions with them. In the first one, the planner will gather information from you to make the plan. In the second, you’ll meet to review the plan. Any ongoing advice would be charged at an hourly rate.
Planners paid this way receive the same amount of money no matter which products you buy. This means their advice is not tied to whether you purchase certain products.
2. Sales fees and commissions
If your planner is registered to buy and sell investments, they may charge a sales fee every time they buy or sell an investment for you. Or they may charge you a fee based on how much you invest. The sales fees may be embedded in the cost of the investments you buy and sell, like mutual funds. Or the fees may be added to the cost of your investments, like an account management fee.
Some planners may offer a wide range of investment choices from many companies. Others may offer fewer investments or only ones from the company they work for. In any case, the more money you invest and the more often you trade, the more the planner makes. Some products pay more fees than others, which may lead a planner to favour those products.
If your advisor is paid a sales commission, ask them if they’ll make more money recommending one investment over another. If they will, check that the investment they’re recommending is one that will help you reach your goals.
3. Asset-based fee
Some financial planners charge a set fee based on your investments with them. They usually charge a fixed percentage of the value of your portfolio. Their fees cover the time they spend managing your money and giving you advice. Depending on the investments you choose, additional fees may be embedded in the product cost.
These planners usually work with investors with more money (at least $250,000). The fee rate generally decreases as the amount of money invested increases.
Some advisors are paid an annual salary. These advisors usually work for a bank, trust company or credit union. They provide advice about the products their financial institution offers, which limits what they can recommend to you. They often help clients with one-time buying decisions but can also provide ongoing assistance.
Total cost reporting
The fees you pay to your firm for its advice and services have an impact on the overall performance of your account. Total cost reporting will make it easier to see embedded fees you pay on your investment funds.
There’s more to choosing a planner than fees. Check their education, experience and qualifications, too. Make sure the products and services they offer meet your needs.
A financial planner can help you put together a plan, understand and choose investments, and update your plan as your life changes. Keep in mind:
- Your financial planner should learn about your goals, level of risk, and different aspects of your financial situation.
- Check the background of your planner. Understand the qualifications they have and whether their qualifications meet your needs.
- The way your planner is paid depends on the services they offer. Find out how your planner is paid and compare their rates with others.