The Pros and Cons of Financial Advisors

Where do you go from here?

Did you go and open up a TFSA like I told you to? Good for you! The next step is to figure out if you want a financial advisor to look after your investments, or if you want to learn how to take control of your finances and do it yourself (I’ve been managing my own investments since the age of 18). Hopefully, this article will give you the confidence to choose what’s best for you.

WHAT TO LOOK OUT FOR WHEN SHOPPING FOR AN ADVISOR:

  • The industry is not very regulated, so you need to ask the right questions. Find out what their qualifications are, what fees they make off of your investments, and what kind of service (tax/retirement/estate planning etc) they can provide as your short or long-term goals are met.
  • Invest your time and shop around. You don’t need to trust the first one you meet. A good financial advisor will listen to your financial/life goals, build a plan that will get you there, and meet with you along the way to see how you’re feeling about your portfolio. If you have one that says they don’t have time for you, it’s probably best to look elsewhere.
  • Did you know that advisors don’t need a business-related degree to become certified? Some employees at financial institutions can be licensed to start selling certain investments after taking an online course. Suggested study time is 60-90 hours, and you only need a 60% to pass. That bar doesn’t seem too high, does it? Especially when you’re giving them control over your money. Do some research into their certifications.
  • Advisors will often try to sell you mutual funds if you’re new to the investment world. Canada has some of the highest investment fees in the world. Making the wrong decision with your investments or advisor can cost you $100’s-$1000’s over your lifetime.
    • Fees to look out for: MER (Management Expense Ratio), Front-End Fees or Initial Sales Charge (ISC), Back-End Fees or Deferred Sales Charge (DSC), Low Fees or Low Sales Charge (LSC), or No Fees. Confused? Don’t worry! I added these terms to the dictionary.

The pros of using a financial advisor:

  • Time: They select the type of investments so you don’t have to do any research.
  • Advice: After discussing your level of risk, and financial/life goals, your advisor will set up a plan that they think will work best for you.

The cons of using a financial advisor:

  • Lack of Control: At the end of the day, all financial advisors are in sales. Some of them don’t care about what happens to your money once they have your business. They’re still getting paid even if your investments tank.
  • Cost: Someone is paying for the service they provide (that someone is you). Many of the fees are hidden so make sure you read the fine print on any contracts and documents before signing on the dotted line!

A FINANCIAL ADVISOR HORROR STORY!

In the summer of 2008, one of my friends’ dad had a hunch that the markets were going to crash. He told his financial advisor (a trusted friend at the time) that he wanted to sell all of his investments and keep everything in cash. He was travelling at this point and wasn’t aware of a signature that was needed to sell his investments. His advisor had never mentioned this to him. Our friends’ poppa bear came back home and quickly turned into a grumpy bear because he had lost 1/3 of his hard-earned savings, in less than a week. He called his advisor who replied with a casual, “Sorry. There’s nothing I can do”. Even though he lost 1/3 of his savings, his advisor still got paid. Needless to say, he no longer deals with financial advisors. He now looks after his own personal account making around 8%/year.

This isn’t the first time I’ve heard a story like this. And I didn’t write this article to bash financial advisors. I personally know a lot of great advisors and just want to give you some advice on what to be mindful of when you finally have some savings and want to start investing.

If you want some more help with this, need some more guidance with your budgeting, or if you just want to send me cookies, contact me! My favourite is double chocolate chip.

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