Canadian Finance BlogFinancial Advisors – Canadian Finance Blog

Who Needs a Financial Advisor?

Jim Yih — Tue, 15 Nov 2011 10:00:41 +0000

20 years ago, when I came into the financial industry, I believed that financial advisors had access and were privy to more information than the general public. The world has changed a lot today. There is no shortage of information and arguably the general public has access to the same information because of the power of the internet. This has increased the number of ‘do-it-yourself’ investors.

In my financial education programs, I meet a lot of people every year and I have come to believe that despite the increased amount and access to information, most people still need the help of a financial advisor. Who needs a financial advisor? I believe most people lack one or more of the qualities to be able to do it yourself:

They don’t have the time
They don’t have the knowledge
They don’t have the desire
They don’t have the confidence

Without these qualities then you may be the ideal candidate for working with a financial advisor.

What does a good financial advisor do?

Contrary to popular belief, I do not think a good financial advisor has superior investment skills or the ability to consistently outperform the market. I think A good advisor has to care, communicate and deliver but most of all, a good advisor puts the client interests first (which is near impossible to do). This is not easy to do because of the inherent conflict of interest that comes from the fact that most advisors are compensated from the sale of products like mutual funds, GICs, stocks, and insurance products.

Because of compensation, the focus of advice is usually centred around products. For example many financial advisors, their primary focus is on investing and the management of a portfolio because that’s how they get paid. Another example is estate planners often focus on insurance product solutions because that is ultimately how they get paid.

In my opinion, a good advisor goes beyond just the sale of products. The best advisors I know focus on good financial and retirement planning and will deliver advice and solutions that are not just product based.

What are some signs of a bad financial advisor?

This is a great question but a tough one to answer because there are so many subjective and personal issues that can occur in a relationship between and advisor and the client. Two people can have the same advisor. One thinks that advisor is great while the other thinks they are lousy.

I think one of the key issues I see is the issue of good service and communication. In most cases, people think their advisors are bad because they have lost faith in their advice or the service from their advisor. A bad advisor is someone you no longer trust.

How can a financial advisor help those in need?

Unfortunately, too many people are financially illiterate or disinterested in their financial affairs. Anyone who knows me, knows I have a very strong opinion on this. I’ve always said that nobody cares about your money more than you care about your own money. Nobody cares about your finances more than you care. The best financial advisors might care but they still can’t care more than you.

I’m in no way anti-advisor. In fact, I am the opposite. As I said earlier, I think many people need and should have advisors but the problem is too many people think a financial advisor is going to solve all their problems or put them on that magic path to financial freedom.

Financial advisors are there to help you but they can’t do everything for you. I would hope that a good financial advisor helps raise people’s levels of financial literacy instead of just saying “Don’t worry, I‘ll take care of everything for you.” While this may sound like what people want, it’s very dangerous to relinquish too much management to others. Ironically, I think the best advisors move clients from being totally dependent to being independent and accountable for their own financial affairs.

The bottom line is you have to care to get ahead. If you don’t care, then who will? Read more, take courses, look up some basic stuff on the internet. The information is out there, you just have to find some time and desire to get it!

How much will you pay for a good advisor?

As I mentioned earlier, most advisors are paid commissions through the sale of a product. Although fee and compensation disclosure is required, many clients have no idea how much they are paying their advisors. In fact, many people think they are not paying anything in fees because the fees are bundled and indirectly paid.

The message I think is important is that people need to ask the questions about compensation:

How do you (the advisor) get paid?
How much will you (the advisor) earn (a dollar amount)?
How much am I paying in fees?

Clients have the right to ask and know the answers to these questions. Remember it’s your money. You have to care enough to ask.

Who Needs a Financial Advisor? originally appeared on Canadian Finance Blog on November 15, 2011.

Is your financial advisor a bully?

Jim Yih — Tue, 19 Jul 2011 09:00:29 +0000

When I hear the term bully, I often think of a school kid bully that forces other kids to give up their lunch or makes other kids do silly demeaning things. The last think I think about is when it comes to financial advisors.

Yesterday I posted an article on my site suggesting that not all financial advisors are equal. I know a lot of great financial advisors but every now and then I run into the story of the bad apple that gives other financial advisors a bad name. In this case, he was the financial advisor bully.

Patricia was 75 years old and still very sharp. She attended one of my investment workshops through the University of Alberta and we started to dialogue. Early on, she asked if I would take over her portfolio and manage it for her because her current advisor was really pushy . . . we’ll will call him Buddy! Buddy was from the insurance channel but had a mutual funds license. Buddy was really persistent and wanted Patricia to move all her money into the Manulife Guaranteed Income Plus Product for more security. Naturally, Patricia asked me if this was a good idea.

I told Patricia that I was somewhat familiar with the product but I was far from an expert. I gave her some references to some opinions from independent sources:

Manulife Income plus hard sell from Micheal James on Money
More on Manulife Income Plus from Micheal James on Money
The High Cost of Peace of Mind from Canadian Capitalist
Manulife’s new Guraranteed minimum withdrawal product by Morningstar
GMWB Case Study and a suitability nightmare by Tax Resource
The retirement risk zone with Guaranteed Income products from Retire Happy Blog

I also suggested that the best way to make any decisions is to get some different opinions from other advisors. My suggestion was to shop around for a new advisor. I gave her the name of a couple of advisors and she got a couple of referrals from close friends. After interviewing them she decided to go with one of the advisors I recommended.

When Buddy found out that Patricia was going to move her money, he not only was livid but he started the attack on the new advisor, the company she worked with and the investment recommendations. In the end, Patricia stayed with the bully which really baffles me and saddens me.

Here we have a high pressure salesman who was selling a high fee and high commission products. I could point to a lot of problems with his approach like a lack of a financial plan, retirement plan or estate plan. There was no investment policy statement. He originally put Patricia into back end loaded mutual funds and used this against her if she moved the money to the new advisor even though the transfer of funds was an ‘in kind’ transfer. Yet he was willing to trigger those DSC fees to move her to the Manulife Guaranteed Income Plus.

It’s stories like this that gives the financial industry a bad name. The good good news is not all advisors are like this. I personally know some great advisors. How good is your advisor? It got me thinking that maybe what we need is an advisor rating system that allows the public to post their advisors up on a site and then rate their work, experience and services. There’s rating systems for everything else, why not for financial advisors too?

Even if there was a rating site, I’m not convinced it would help 75 year old Patricia because I’m not sure she would post Mr. Bully up and rate him. But maybe it would help others. Do you know anyone bullied by their advisor? Just remember it’s your money and a relationship with you advisor should be productive, pleasant and constructive.

Does anyone have any stories they want to share about high pressure financial advisors who act like bullies?

Is your financial advisor a bully? originally appeared on Canadian Finance Blog on July 19, 2011.

Will The Fee Only Financial Planner Model Ever Catch On?

Guest — Tue, 03 Aug 2010 09:00:08 +0000

There is little doubt in my mind that hiring a Fee Only Financial Planner is in the best interest of the consumer. Financial Planning is an occupation and every Financial Planner needs to get paid. This is true for good planners, bad planners, honest planners and dishonest planners. If they do not get paid they can not earn a living. The Financial Planners loyalties are going to lie with the person or company who pays them, because without a paycheque they have no job.

If they get paid a salary they are working for the company that pays that salary, the advice they give is going to involve the products and services of the company they work for. If the planner gets paid on commission they are going to do their best to sell the products of the companies who pay them that commission. After all if they do not sell you something they do not get paid anything. If the Financial Planner is getting paid by you, then their loyalty is with you and providing you the advice they feel is in your best interest. It is pretty clear that having a Financial Planner who is only working for you is better for you then having a Financial Planner who is being paid by a company to sell you something.

Despite this, very few people actually use a Fee Only Financial Planner and I do not see that changing anytime in the near future. There has been so much advertising out there for so long misinforming investors that financial advice is “free” that it is very difficult for people to pay for it. Mutual Fund fees are hidden from investors, and commercials advertise free financial reviews or free second opinions. What these companies are really offering is a free sales pitch. You bring in your investment statements and they tell you how much better off you would be, owning the investments they have to sell. It is like getting a free automotive review from a car dealership when you are buying a used car. They are going to recommend a car on their lot and they are going to tell you all of the positive features about the car. But do you expect them to tell you if there is a mechanical issue or other negative aspect of the car?

To get unbiased advice you need to get it from someone who has no interest in selling you something and that is what Fee Only Financial Planners provide. It would be like taking a used car to a mechanic before you buy it. Because you are paying the mechanic and they do not benefit either way if you buy that particular car or not, they are going to give you an unbiased opinion on if that car is in good running condition.

The investment industry likes things the way they are now, many companies and many financial advisors/planners are making a lot of money with the current system so why would they want it to change. I can tell you from experience that it is a much more difficult task to be a Fee Only Financial Planner and that on average Fee Only Planners do not make nearly as much income as their commission based counterparts. The only way things will change is if either consumers demand a change, by moving there assets away from these companies, or if the government steps in and changes the laws that are currently in place. The UK and Australia have both announced plans to make commission based investment sales illegal to protect consumers, but Canada does not seem to be moving in that direction any time soon.

About the author: Ryan Rohloff FMA, FSCI is a financial planner with Atlas Financial Planning.

Will The Fee Only Financial Planner Model Ever Catch On? originally appeared on Canadian Finance Blog on August 3, 2010.

Fee-Only Financial Planners

Tom Drake — Wed, 13 May 2009 11:00:20 +0000

Looking for some professional help with your investments, budget and retirement planning? You should look for a financial planner. Looking for someone to do this with your best interests in mind? You should hire a fee-only financial planner.

Fee-only financial planners get their income from you, at $100-$250 an hour, to create a financial plan suited for you. Their fees are clearly laid out so that you know exactly what you are paying for and how much.

Commission-based financial planners have an inherent conflict of interest since they might make more money selling you a mutual fund with a higher MER, which also includes a higher commission for them. Paying these higher hidden expenses could cost you more in the long run, especially if you’re not on the financial path that’s right for you.

While I’m sure there are many commission-based financial planners that do not let this sway their decisions, going with a fee-only financial planner, at the very least, gives you peace of mind that both you and your advisor are working towards the same goals… yours.

Fee-Only Financial Planners originally appeared on Canadian Finance Blog on May 13, 2009.