I understand the necessity of saving and investing for retirement but I have to ask, should I get a financial advisor?
Do I really know enough about finances to be able to make wise choices with investments?
Seriously though, I know how to budget and save but when it comes to investing that seems like a different world altogether.
What do financial advisors really do and are they worth the fees?
We all want to retire someday where we can just kick back and do what we want to without having to work.
Perhaps do some leisure travel, maybe even take a cruise.
It makes sense that if we don’t take the time to plan for that retirement it isn’t going to be so wonderful when we get there.
I know I don’t just want to exist in my old age, I want to be able to travel and have adventures. See the things I didn’t have the time or money to see and do when I was younger.
So what I need is a plan to get there and I believe this might just be where a financial advisor comes in.
Just so you know, I am not a financial adviser nor am I going to recommend one to you. All I am offering is information on the subject and nothing more. It will be up to you to take the advice and seek someone in your area who can help.
In this article, we will dive in and see what we can learn about financial advisors. What they do and how they can really help to lay the path with you to a good retirement.
Let’s get started…
Table of Contents
What Is A Financial Advisor?
According to Wikipedia, a financial advisor is a professional who provides financial services to people based on their particular financial needs.
A financial advisor will assist you with the management of your finances. This can range from partial management to complete management depending on your needs.
The term ‘financial advisor‘ describes a wide variety of people and services including financial consultants, financial planners and investment managers.
One way to ensure you find the qualified professional is to look for a professional with the correct designation:
- CFP (Certified Financial Planner)
- CIWM (Certified International Wealth Manager)
- CLU (Chartered Life Underwriter)
- CPA (Chartered Professional Accountant)
- DFA (Distinguished Financial Planner)
- EPC ( Elder Planning Counsellor)
- F.Pl (Financial Planner)
- PFP (Personal Financial Planner)
- PFS (Personal Financial Specialist)
- R.F.P. (Registered Financial Planner)
The national professional association that certifies financial planners and establishes and enforces the financial planning standards is the Financial Planning Standards Council (FPSC).
The qualification that is considered the gold-standard designation is the CFP.
The corresponding designation in Quebec is F.Pl and is granted by the Institut Quebecois de Planification Financiere (IQFP).
What Can A Financial Advisor Do For Me?
A financial advisor or planner helps you create an overall wealth-building strategy.
They help you identify ways to decrease financial risk while simultaneously building wealth over the long term.
They don’t come in a one-size-fits-all package, you will have to take the time to find the one that is right for you and your unique situation.
They hold different designations and offer a wide range of knowledge and expertise as well as a plethora of products and services.
They can really help you understand all that confusing jargon and actually help you select the investments that are right for you.
Here are a few of the things a financial advisor can do:
- assess your current financial situation and help you determine your goals.
- develop a comprehensive plan that includes all major areas of financial concern such as retirement, college planning, insurance, avoiding estate tax, etc.
- offer objective advice when unexpected financial issues arise
- set up investment accounts and invest funds on your behalf
- locate appropriate financial vehicles for you such as insurance policies or mortgage
- some will even complete your tax return for you ensuring you pay in the least amount.
For me, this is well worth the fees to ensure I am making educated, sound financial decisions as I work to secure the future I envisioned.
When my grandfather passed away in 1977, his home and assets went directly to his spouse. He had his affairs in order so the house was passed to her free from probate fees because it did not become part of the estate as she was a part-owner.
Let’s jump ahead to when she passed away in 1999, she did not seek the advice of a financial advisor and her heirs suffered for it.
She solely owned the house so upon her death it needed to be sold and the funds became part of her estate. This was then left vulnerable to not only death taxes and final taxes but also probate fees. In the end, her daughters received very little because the bulk of the estate went to taxes and fees.
Now if she had used the services of a financial advisor she could have gone to a lawyer and had the ownership setup to be JWROS (joint with right of survivorship) in equal shares with her daughters. This would have ensured that upon her death the ownership of the house would have passed directly to both of her daughters.
They could have then sold the house and only paid the real estate and legal fees involved and kept the bulk of the money which I am sure was her intention. The same thing could have been done with any non-registered investments.
Tax planning and estate planning are very much a necessary part of any financial plan and a good financial advisor will prepare you for any scenario.
Yes, what you don’t know can hurt you.
When Do I Need A Financial Advisor?
The fact is that everybody could benefit from the advice of a financial planner but the cost can be prohibitive.
Still, it takes time and energy to educate yourself to properly manage your finances.
The earlier in life we develop a sound financial plan the easier it will be in the long-term.
Eventually, we all reach a time when either we don’t have the time or our finances have become too complicated.
This can happen for a variety of reasons:
- want to save for our children’s college
- received an inheritance
- a new job
- wish to purchase a house or vacation home
- received a large amount of insurance money
- won the lottery
These are significant milestones in life where you may want the benefit of professional, unbiased advice to help pay down debt, or increase savings.
Having a financial adviser at your side when these things happen can save you so much grief.
How To Choose A Financial Advisor?
Just like there are different qualities of plumbers and electricians, there are good and bad advisors.
There are several things to consider when choosing a financial advisor.
You can start by asking friends or relatives who they use and find out how they like them.
Check online in your local area or the local newspaper. You want to have the advisor close enough to visit and talk to in person. This is the best way to get true attention.
Even when you decide on a financial adviser you do not have to stick with that person. If you are not happy with that adviser or you happen to find another more suited for you then by all means switch.
One good way of switching is to work with the new adviser for a while before moving your account over just to be sure.
Remember, they are working for you.
The Different Types Of Financial Professionals
Financial Planning – involves all areas of your finances including how much you need to save, what type and how much insurance you need, investment strategies and vehicles.
Investment Advisory Services – focuses on which investments to hold in which accounts. The best investments are reserved for the ongoing financial planning process
Retirement Income Planning – this helps you coordinate CPP, OAS, taxes, investments, pensions, retirement date and more so they can all align toward delivering a steady income for life.
Seek Those With Proper Credentials
You definitely want to ensure the person you entrust your finances to holds the proper credentials. We discussed above what credentials are most credible.
Seek out someone holding the CFP (Certified Financial Planner), PFS (Personal Finacial Specialist), or an investment advisor who holds their CFA(Chartered Financial Analyst) designation.
In order to obtain these credentials, they must pass an examination by demonstrating proficiency in the subject matter. In order to maintain this designation, the advisor must adhere to an ethics policy and meet continuing education requirements.
How Are Financial Advisors Compensated
There are a number of ways a financial advisor may be paid Including:
- charging an asset-based fee
- an hourly fee
There is no right or wrong way for an advisor to be compensated it is just important for you to be educated on the different ways and understand how they work.
A non-fee-only advisor may receive other kickbacks or incentives from their company based on sales goals or objectives.
If you are buying an investment that you intend to hold long-term and doesn’t require ongoing advice, paying a commission may be the most cost-effective option.
On the other hand, if you require that advisor to be readily available to update your financial plan, and answer ongoing questions then a commission-based fee is not the right option for you.
You can search online for a list of financial advisors in your postal code or ZIP code.
Be sure to type in the credentials and billing structure that meets your goals.
Some companies allow you to choose an advisor with the expertise you are looking for, especially if you don’t require a face-to-face meeting. Many choose to work remotely these days.
I personally do not recommend going with an online financial adviser for obvious reasons.
Questions To Ask Before Hiring
There are a few key questions that need to be answered before handing over your hard-earned money:
- How long have they been practicing?
- How are they compensated?
- Can they walk you through different retirement projections?
Using specific questions can help you develop a feel for if this advisor is someone you trust.
It is important you understand the answers to your questions and if not then ask additional probing questions until you are satisfied with the answers.
I would also advise you to check their credentials and ensure there are no complaints about this advisor.
One thing we do when hiring a new financial advisor is to start small.
Once we have interviewed the person and are comfortable enough to go ahead and work with them we don’t hand over all our finances.
We start small.
Give them a small amount to develop a portfolio with. See how they handle it.
Do they follow your wishes or try to talk you into something else?
Once they have proven reliability and you are comfortable, then hand over increasing amounts until you are satisfied they can handle all of your business.
Should I get a financial advisor is a very personal question however I believe everyone should have a financial adviser.
The fact is that most of us could benefit from working with a reputable financial advisor.
Initially, we can start by educating ourselves as much as possible but eventually, there will come a time when you are unable to handle it yourself.
Circumstances change in life and we may find ourselves requiring the expertise of a financial advisor.
Be sure to check for a reputable, advisor who holds proper credentials.
You don’t have to pick the first one you talk to.
Interview them to ensure you feel comfortable working with them.
When you find one that works for you and with you, it will free up your time to focus on the things you really want to do.
For myself, I didn’t have a financial adviser until just a few years ago when I started my online business.
I didn’t expect it to take off as quickly as it did and before we knew it we needed help.
After explaining to him about our ‘little’ blogging business he knew exactly how we should handle it to make sure the taxes were paid and that we pay in as little as possible and properly invested the remainder.
Do you work with a financial advisor?
Did this article encourage you to think about getting one?
Please share your experiences in the comment section below.
Wishing you the retirement you dream of, best wishes.