To us there are no foreign markets. A guide to choosing the right financial advisor

Transcription

1 To us there are no foreign markets. A guide to choosing the right financial advisor

2 A guide to help you choose the right financial advisor In these pages you ll discover: How to avoid retirement, investment and planning scams Misconceptions about retirement/investment planning Fees and commissions: what you pay for and what you get Fiduciary or broker: which one is for you? Mistakes to avoid when selecting a financial advisor The importance of credentials Why you want financial peace of mind in retirement A few steps to achieving a healthy, financially secure retirement

3 Choosing a financial advisor takes time and it isn t easy. Why? Because you are bombarded with an overwhelming amount of advertising where claims on product performance, the cost of doing business or even client service can be misleading or confusing. How do you feel when you read or hear about an investment that claims to offer huge returns? Have you ever experienced high pressure sales tactics? Although the majority of financial advisors are honest in their daily dealings; there are still some who are either unqualified or filled with worthless and hurtful advice. Many of these who are out to intentionally rip off the public for their own benefit are eventually caught...however, at that point it is of little comfort to those who have had their life savings liquidated. When confronted by all this media-induced fear, how can you hope to find a qualified, competent, professional, honest and creditable advisor? You can start by reading this guide and hopefully use the insights and tips herein. Read on to learn how to avoid common investment schemes and overcome common mistakes when seeking out a financial advisor. Armed with this knowledge and hopefully by hiring the proper qualified professional, you should then be able to achieve the peace of mind necessary to enjoy a healthy, financially secure future and a stress-free retirement. A guide to choosing the right financial advisor 1

4 How to avoid potential investment and planning scams There are no fees This answer is sometimes heard in response to the question, How much are your fees? The person who says this is likely a commission-based advisor. There is a difference between commissions and fees. While the answer is essentially true, it is can also be deceptive. There is a cost of doing business with an advisor whether you can see fees and charges up front or not. Remember: you never get something for nothing and there s no free lunch. Find out all costs you are expected to be charged get it in writing before you sign on the dotted line. Bait and switch Whenever you read an advertisement that quotes a high interest rate in a low interest rate environment, you need to be cautious. Some financial institutions will have teaser rates. These interest rates are only good for a short time their only purpose is to acquire new clients. The institution will pay you this extra interest and consider it an advertising cost to them. The goal is to then sell you a bundle of products that is highly profitable (mostly to them, not you). Many investors shopping around are tricked into moving their money thinking they will always earn a higher interest rate than anywhere else. Don t fall for this. Read the details of any offer and ask questions. Outrageous claims Be very cautious when an advisor shows you high rates of return. They may even tell you the rates are guaranteed. Get the details in writing and don t make any snap decisions. If the advisor hesitates or claims there is nothing available in writing, you need to walk away. If something sounds too good to be true, it most likely is. Outdated beliefs Difficult economic times can create certain belief systems. For instance, during the Great Depression and more recently in 2008 people became scared of the banking system. What if people hold on to beliefs that all banks did not provide security? For instance, some financial advisors today may say that the stock market is the only place to invest or that insurance companies are limited in their ability to provide financial advice or products. In the past, this was true, but times have changed for both insurance companies and the banks. Don t cling to old beliefs until investigating the current facts. 2 A guide to choosing the right financial advisor

5 Remember: you never get something for nothing and there s no free lunch. Find out all costs you are expected to be charged get it in writing before you sign on the dotted line. A guide to choosing the right financial advisor 3

6 Misconceptions about retirement and investment planning Someone using the title of financial advisor or financial planner must be qualified and certified to advise and assist me with my finances. No. At times you may find that insurance agents, stock brokers, banking reps, and others employed in the financial services may use the title financial advisor or financial planner. These titles do not always reflect experience or qualifications. Depending on your needs, you will want an advisor with experience in areas of specialty that will benefit you. The skills needed to advise a person in or near retirement are much different than the skills needed to advise someone who is just starting out at their first job. The advisor with lowest fees is my best solution. Not necessarily. There can be many problems that arise from low fee advisors. Do NOT hire an advisor who says they have the lowest fees around or that they have no fees. The two most common problems are: The advisor works for a large financial institution, so they must be qualified. No. The common reality is just the opposite of the above statement. Many advisors actually begin their career and get their training at some of the largest institutions around, like a bank. You are more likely to be working with a rookie at these places. As an advisor gains experience and a loyal customer base, they often choose to work independently. Why? Many times, it is so they can service client needs better. By being independent, the advisor can offer a world of options and solutions to clients. Other times they leave the larger firms because they do not like being obligated to sell proprietary products. An independent advisor or one that works in a non-restrictive sales environment can put the client s interest first. 1. An advisor that focuses on having the lowest fees to attract clients is not focused on the specialties needed to solve the many complicated problems and issues for high net worth retirees or soon-to-be retiree. 2. The lowest fee that is being advertised is likely not what you will pay, especially if the advisor is using products that have built in fees, like mutual funds. You may think you are paying the lowest price, but, in fact, you may end up paying the highest fees and not even know it. 4 A guide to choosing the right financial advisor

7 The skills needed to advise a person in or near retirement are much different than the skills needed to advise someone who is just starting out at their first job. A guide to choosing the right financial advisor 5

8 All credentials are basically the same. No. In most Canadian provinces there is no legislated standard in place for the estimated 100,000 people who claim to offer financial advice. With the exception of Quebec, people who call themselves financial planners are not required to obtain any credentials whatsoever. However, there is good news. One of the most widely known designations is the CFP or Certified Financial Planner. Long considered the gold standard for financial planning in Canada, the CFP designation provides assurance to Canadians that the design of their financial future rests with an appropriately qualified professional who will put their clients interests ahead of their own. The Financial Planning Standards Council (FPSC), incorporated in 1995, is a not-for-profit standards-setting and certification body that develops, promotes and enforces professional standards in financial planning through Certified Financial Planner certification. FPSC s purpose is to instill confidence in the financial planning profession and CFP designates must meet certain criteria: The Four E s Education, Examination, Experience and Ethics FPSC ensures that CFP professionals and FPSC Level 1 Certificants in Financial Planning meet appropriately high standards of knowledge, skills, abilities and ethics through rigorous requirements for education, examinations and experience. To obtain the CFP designation, candidates must complete a rigorous education program, pass two national exams and have three years of qualifying work experience. To maintain certification, every year they complete new professional education courses and agree to adhere to the Standards of Professional Responsibility for CFP Professionals and FPSC Level 1 Certificants in Financial Planning. The FPSC Fitness Standards (the Fitness Standards) define the character expectations that FPSC has for CFP professionals and FPSC Level 1 Certificants in Financial Planning. The FBSC may bar an individual from becoming or remaining certified if they are unable to meet the criteria set out in the standards or is charged/convicted of an offence listed. Canadians can search for, or check on the status of a registered Certified Financial Planner (CFP ) by going to It is important that you find out the requirements of any advisor s certification before you put your trust in it. 6 A guide to choosing the right financial advisor

9 Fees, commission, and more fees: understanding what you pay for and what you get Do you know what you are paying in fees? How do commissions work? These are important questions. Friends, family or colleagues who are recommending an advisor to you may say that they have been with them for a few years. They state that they like and trust that person. However, when you ask them how their advisor gets paid, most do not know the details. They may say that they assume their advisor gets paid by either the mutual fund company when a new fund is purchased in their account, or tell you that their advisor is paid somehow by the institution they work at. Some may say they pay their advisor a fee and others say their advisors receive some combination of commission and fees. Understanding exactly how your advisor is compensated is very important. Consider this: if your advisor only receives a commission whenever they buy or sell a stock, bond or mutual fund in your account, how much can you trust their recommendations? If they are paid by fees only, that will make it important to understand what the fee is and how they charge it. If you are interviewing a new advisor, make sure you ask about their compensation up front. If the advisor is trying to sell you a product that is on a commission basis, you should know. Commissions are not wrong neither are fees. Once you understand how your advisor gets paid for certain products and services, you can then ask why something is being recommended. Knowing how your advisor gets paid will help you tremendously. If your current advisor or an advisor you are considering hiring does not want to clearly answer questions about their compensation, that could be a sign they are trying to hide something. It may be an indication that they are not thinking of your best interest, but possibly of their own. A guide to choosing the right financial advisor 7

10 If you are interviewing a new advisor, make sure you ask about their compensation up front. If the advisor is trying to sell you a product that is on a commission basis, you should know. 8 A guide to choosing the right financial advisor

11 Fiduciary or broker: Which is right for you? There is a big difference between a financial advisor who works as a fiduciary and one who works just as a broker. According to the Canadian Securities Institute, three inter-connecting relationships exist in the client-financial advisor interaction. TRUST, AGENCY AND FIDUCIARY Trust is expressed through three constant elements in a relationship with a client: 1. Disclosure of information: The freer the flow of information between the Advisor and the client, the greater the possibility for a strong bond of trust to form. 2. Influence over decisions: The client must know that information he/she is sharing with the Advisor is positively affecting the Advisor s decision-making in reference to the client. 3. Exercising control: The client feels some control in his/her relationship with the Advisor and does not feel manipulated or patronized. Agency relationships are used extensively in business. In the wealth management business, the law of agency is what gives Wealth Advisors and their firms the ability to enter trades on behalf of the client without the client being in direct contact with the party on the other side of the trade. It is also what allows a client to give trading authority over his or her account to a third party, through either a Trading Authorization form or more formally, a Power of Attorney. The Fiduciary role carries with it the highest standard of care. A person who holds a position of trust often has a duty to the individual who has placed trust in that person. This could be in connection with the care of assets or when they are responsible for the personal affairs of others. Fiduciary duties have been found to exist in relationships such as: doctor-patient, lawyer-client, and director-corporation that the director serves. Historically, courts have found that a Financial Advisor may owe a fiduciary duty to a client if the Advisor provided investment advice and the client relied on such advice. The existence of a fiduciary relationship imposes the highest standard of care on the Advisor. The Advisor must act carefully, honestly and in good faith in dealings with the client and not take advantage in any way of the trust the client has placed in the Advisor. The Broker. The relationship of an investor to his or her investment banker or discount broker will not likely give rise to a fiduciary duty of that broker, where the broker is simply a conduit of information and an order taker. Think about it. Who would you prefer working with, an advisor that is required by law to put your interest first or one that just takes orders or makes an effort to provide advice and make reasonable recommendations? With a properly signed account agreement, Wealth Advisors do not require written instructions from clients every time an order is placed. The law recognizes that the Advisor has authority to proceed to do what is customary in his or her business in carrying out the instructions. A guide to choosing the right financial advisor 9

12 Mistakes to avoid when choosing a financial advisor Working with an advisor who does not have a permanent office If you ever meet an advisor and they are coming to your house because they don t have an office, this could be a real problem! If you go to their office and it is in one of those rent-by-the-hour offices that is not good either. When you enter into a relationship with a financial advisor, it should be for the long term. You can tell a lot about an advisor and their operation by visiting their office. You can see if they have support staff and you can get a good feel if they are successful or not. I recommend that one of the first things you do is visit the advisor s office and check them out thoroughly. Working with an insurance only advisor An advisor who offers only insurance investments and receives a commission for every recommendation can create a conflict of interest. You don t want to be in a position of having to question everything recommended to you. An advisor that is commission-only works on the rule of suitability not on a fiduciary basis. An advisor who tries to sell on the first appointment If you meet with an advisor who tries to get you to buy from them on the first appointment, you should leave and never talk to them again. If they are trying to get you to buy quickly from them it could mean that they are trying to hide something or not giving you time to do your due diligence. You should have time to think and consider your options. You don t want to rush into anything when you are seeking a long-term relationship. If they are offering solutions on the first appointment, do you believe they are doing their own due diligence about you? Are they analyzing your situation and trying to come up with the best solution? Or are they simply trying to sell you something? Believing the too good to be true story It is very tempting to believe the too good to be true story. Why? Because you wish there was really something that could be that good. It would make your life better. It would make your life easier. So we are drawn to something that is unbelievable! Something that sounds too good is almost always not true. Don t believe the hype. Doing it yourself Sometimes people think they will just do it all themselves. You may feel you can do just as good a job as hiring an advisor. You may be right. But here is something to consider: a competent advisor lives, eats, and breathes financial topics every day, all day. Do you really want to do that in your golden years? Most who do it themselves really don t want to, but feel that they have to. They may feel they can t afford an advisor. However, is the stress and uncertainty worth it? Having the right advisor does not eliminate your position as CEO of your life. You are just hiring a CFO to assist you. By doing this, you can focus on the more important things in your life. Picking an advisor based on their fee This is a mistake that can create a major frustration. If you pick an advisor because you think their fee is the lowest and they don t do what you need or it ends up costing you tons more in overpaid taxes, what is the point? So What s the Solution? For individuals in retirement or close to retirement, there is more involved than just money management. You have income planning, estate, tax and investment needs to consider. If you want your retirement years to truly be the best of your life, you will need a top notch advisor. You will need an advisor who considers the whole picture. Pick an advisor based on expertise. You will probably want an advisor who works specifically with those in retirement and those close to retirement. 10 A guide to choosing the right financial advisor

13 The importance of credentials Earlier in this document it was mentioned that not all credentials are equal. The more knowledge you have, the more power you have. Financial Analyst, Financial Advisor, Financial Consultant, Financial Planner, Investment Consultant or Wealth Manager are all generic terms or job titles. They may be used by investment employees (or independents) who do not hold any specific designation. It is important to research credentials so you know what it took to earn it. Listed below are a few common and legitimate designations in Canada: Personal Financial Planner PFP The designate has learned and mastered the following core competencies: Proven strategies on how to best serve clients financial needs Comprehensive knowledge of Canadian financial planning Effective approaches to establish deeper client relationships built upon trust and credibility Certified Financial Planner CFP CFP professionals specialize in the financial planning process and can address topics such as: Retirement planning Investments/Portfolio Management Tax strategies Estate*/Trust planning Education Planning Chartered Investment Manager CIM The CIM has mastered the following: An ability to conduct discretionary portfolio management services on behalf of clients Specialization in high-level investment strategies tailored to affluent clients Meaningful relationships with clients, built upon trust, respect and portfolio management Credibility in the eyes of clients, peers, employers and regulators through the dedication to a higher professional standard Certified International Wealth Manager CIWM The CIWM certification is currently the highest designation for integrated wealth management planning around the world. Those certified, have shown their expertise in proven strategies to protect and build the significant wealth of a more affluent clientele. This is one of the only globally recognized and fully portable credential for international wealth management. Fellow of CSI* FCSI Every industry has leaders these people are the Fellows of CSI (FCSI ). The FCSI is the highest honour and most senior credential in Canadian financial services. It is reserved solely for an elite group of experienced financial services professionals that meet the highest standards for advanced education, ethical conduct, industry experience and peer endorsement. *Offered through Canaccord Genuity Wealth & Estate Planning Services **Canadian Securities Institute Insurance*/Risk Analysis A guide to choosing the right financial advisor 11

14 Why you want financial peace of mind in retirement If you had to give peace of mind a monetary value, what would it be? Many would say it is priceless. The more stress we have, the quicker we age, the worse our health becomes and the more tired we become. Peace of mind allows us to relax and pay attention to the really important areas of our life. We can focus on family, friends and health and reach some of the goals we have longed to accomplish our whole life. There is no joy when one has to worry about where the money will come from to pay the bills. No matter how much you have, you will always worry unless you have sound planning. Without proper planning, there is an underlying worry that will eat away at you. A little nagging voice inside of you that says, You better look into this. Financial peace of mind does not come from having more than you can ever spend. It comes from having enough to do things you desire. It is knowing that you have a plan in place to take care of the basics and, if circumstances allow, the fun things you always wanted to do. A final few words... Don t procrastinate! Get it done now. If you don t have a plan, get one right away. If the plan you have is one you made a while ago, get it updated. Just like a will, you should update your financial plan every time there is a significant change in your life and retiring, or getting close to it, is one of those times. 12 A guide to choosing the right financial advisor

15 How to achieve a healthy, financially secure retirement STEP #1: Make a commitment to yourself to get a financial checkup as soon as possible. The longer you wait, the worse things can get and the longer you will have worries, the nagging voices, and the lingering heartache of knowing you need to get it done. STEP #2: List your objectives. Do you want to have a solid plan in place or continue wondering how things will work out? Do you want to work with an advisor who has the best credentials, works on a fiduciary basis, and puts your interest first? Or do you want an advisor who is only required to make reasonable recommendations? Do you want to work with an advisor based on the lowest fee knowing that they have overlooked areas of concern that could cost you more in the long run? STEP #3: Ask the tough questions. The way you learn about an advisor is to ask specific questions and listen carefully to the answers. Here are some tough questions to ask an advisor before you hire them. 1) Do you work as a fiduciary? 2) How are you registered with provincial and federal securities regulators? 3) How long have you been an advisor? 4) What are your credentials? 5) How do you get paid for different investments or account types? 6) What is your investment philosophy? 7) How do you communicate with clients, and how often? 8) Can you supply me with some references? STEP #4: Get it in writing. Once you are satisfied that you re working with an honest, competent professional, meet them face to face in their office. Get any recommendations in writing so there are no surprises. By following these four steps, you ll gain all the information you need to make an informed, intelligent decision and choose wisely. To learn more or for a second opinion, visit novuspro.ca. This document is solely the work of the author for the private information of clients. Although the author is a registered Investment Advisor at Canaccord Genuity Corp., this is not an official publication of Canaccord Genuity Corp. and the author is not a Canaccord Genuity Corp. analyst. The views (including any recommendations) expressed in this document are those of the author alone, and are not necessarily those of Canaccord Genuity Corp. The information contained in this document is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability. This information is given as of the date appearing on this document, and neither the author nor Canaccord Genuity Corp. assume any obligation to update the information or advise on further developments relating to information provided herein. This document is intended for distribution in those jurisdictions where both the author and Canaccord Genuity Corp. are registered to do business in securities. Any distribution or dissemination of this document in any other jurisdictions is prohibited. The holdings of the author, Canaccord Genuity Corp., its affiliated companies and holdings of their respective directors, officers and employees and companies with which they are associated may, from time to time, include the securities mentioned in this document.

16 Australia Canada China France Germany Guernsey Ireland Isle of Man Jersey Singapore United States United Kingdom Canaccord Genuity Wealth Management in Canada is a division of Canaccord Genuity Corp. Member Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. The company of the Canaccord Genuity group of companies through which products and services are offered may differ by location and service. See canaccordgenuitygroup.com/en/companies for more information. canaccordgenuity.com