4 Questions You Should Ask Any New Advisor

A few months ago, an individual I’ll call Cheryl, who is a LinkedIn connection, reached out to me to determine what services our team offered and how we were different from the competition. Cheryl was in her early 40s and had recently switched jobs. Although she was excited about her new position, she had several questions about the pension package she received in the mail and needed help understanding her options.???

If you’re considering hiring a financial advisor in Canada, it’s normal to feel a little overwhelmed with all the choices. Choosing the right advisor is a very important decision and not all advisors are created equal.

Here are four essential questions you should ask any potential financial advisor.?

1)?????What Are Your Qualifications and Certifications? Always start by examining the qualifications and certifications of any potential advisor you are considering. In Canada, you want to look for designations such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Personal Financial Planner (PFP). These credentials indicate that the advisor has undergone rigorous training and adheres to high ethical standards. If the advisor is licensed with IIROC you can access their advisor report to determine if there were ever any judgements against the advisor.

?2)?????Can You Provide References or Client Testimonials? Although having appropriate credentials is a good start, it does not necessarily mean the advisor is competent and a right fit for you. Requesting references or client testimonials is an excellent way to gain insights into the advisor's track record and client satisfaction. Any potential advisor you are considering should have these readily available and be willing to share with you. ?

3)?????What Services Do You Offer and How Are You Compensated? This is where things can get complicated. At a minimum, advisors should be able to help with basic financial planning and should be able to help you plan your retirement, children’s post secondary education, insurance coverage, and basically any financial goal that is important to you. This may include saving for a down payment on a house, new vehicle, paying less taxes, or reducing debt faster.

When it comes to recommending which products to use, what the advisor can recommend will greatly depend on which firm they work for and what type of license they hold. Some advisors have insurance licenses and can only recommend investments that are regulated by the insurance industry, while other advisors have a mutual fund license and any investment they recommend would be governed by the mutual fund industry.

Other advisors work for firms that have proprietary products; in other words, they can only recommend what their firm offers. The simplest way to tell if you are in a proprietary fund is to look at your statements and if the investments you are in, are the same as the firm your advisor works for, then it’s a proprietary fund. This isn’t to suggest that all proprietary funds are bad; most firms have at least one or two investments that can meet almost any financial goal, but it may not necessarily be the best option always.

Understanding how the advisor is compensated is crucial. Some advisors work on a fee-only basis, while others may earn commission on financial products they recommend. Ensure transparency in costs and the advisor’s incentives align with your best interests. ?

4)?????How Often Do We Meet and Do You Provide Proactive Contact? In the industry, this is known as a “Service Agreement” and it should clearly outline what level of contact you should expect. You should also be clear with any potential new advisor how often you would like to hear from them and the advisor should be honest and straightforward if they will be able to keep this level of commitment. In order to keep this level of service and to keep costs to a minimum, some firms have minimum account sizes, and this should be discussed in the first meeting. ?

Also, receiving a statement in the mail once a month or generic emails don’t count as proactive contact. If you are content with this level of service, there are many low-cost firms that work with thousands of people that can provide this for you. ?

When I met with Cheryl, her biggest financial worries were: when could she retire, how to invest her funds, and how she should simplify her investments (Cheryl had changed jobs three times in the last 10 years and she had her investments spread out in many different places).

Through subsequent meetings we answered all of the questions discussed above and completed the following plans:

·????????Cash flow plan to help her reduce her debt-load faster then she was planning to do.

·????????Retirement plan that helped determine what investments she should choose and how much she should put away each month.

·????????Consolidated all her investments into one account, to minimize risk to her investments and simplify her estate plan.

If you have any questions or feedback, I’m always happy to discuss.

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Happy planning.?