Here are some of the main types of financial advisors you might run into. It’s important to note that these are general categorizations and there can be overlap between groups. There are a number of different factors to consider when choosing who to deal with for investing advice. Some people want convenience, some investors want education, others just want someone to talk to.
Please check out How Canadian financial advisors get paid, for more information on advisor compensation methods.
Don’t forget to visit the list of Canadian financial advice resources at the bottom of the post.
Bank financial advisors
This is the person who will help you if you want to set up a mutual fund account at your local bank. They will have their IFIC course and might even have their CFP. It’s hard to beat banks for their convenience, but don’t assume the person you are dealing with knows what they are talking about.
Compensation – Salary plus small commission.
Pros - Convenient.
Cons - Will likely be biased to selling bank products.
Mutual fund salespersons
This person will typically work for a mutual fund company or a financial planning company and will only be licensed to sell mutual funds. Often they will only be able to sell the funds from one company which is very limiting. It’s a sure bet that all the funds they sell will have high management fees, since that is how the salesperson gets paid.
Compensation – Commission.
Pros - Convenient. They will often do house calls.
Cons - Investment knowledge will likely be minimal. Will only sell high-fee products.
A financial planner is an advisor who will look at your overall financial situation and make recommendations. Retirement planning, asset allocation, and taxes are some of the areas a financial planner should cover.
Compensation - Commission or fee-only
Pros - Usually good investment knowledge if they have their CFP. Ask for it.
Cons - Won’t take on small clients. If commissioned based, will only sell high-fee products. Fee-only advisors are usually too expensive for small portfolios.
Stock brokers typically work for larger financial firms and traditionally deal with individual stocks. Depending on their qualifications, they might also offer mutual funds and financial planning advice as well.
Compensation - Commission.
Pros - Good knowledge of markets. Can provide information on companies.
Cons - Very expensive. No financial planning provided.
Insurance brokers are primarily concerned with insurance, however they are sometimes licensed to sell other investment products such as mutual funds and seg funds. They will also offer products that are combination investment products and life insurance products.
Compensation - Commission.
Pros - Convenient, if you are already buying insurance from them.
Cons - Typically only sell high-fee products.
Managed investment advisors
Most investment companies offer a managed portfolio service for high-net worth clients. Fees are usually percentage based on asset size.
Compensation - Commission based on portfolio size. Ie 1% of portfolio value per year.
Pros - Good investment knowledge.
Cons - Fees are usually pretty high for services offered. Need a large portfolio – likely north of $500,000.
Financial coaches are a new type of financial advisor who can help you with a wide variety of financial issues.
Most of these services seem to lean towards helping people manage their basic finances and paying off debt. Having a financial coach can provide some accountability and motivation for someone who is trying to get their finances in order.
This type of service is not regulated, so be very careful what you sign up for.
Compensation - Fee based. Charge by the hour.
Pros - Less intimidating than dealing with a financial advisor for the first time. Coaches will deal with non-investment issues such as debt reduction, which most other financial professionals avoid.
Cons - Non-regulated. Might not have much knowledge.
More financial advice resources
- How to run a background check on your Canadian financial advisor at Money Smarts Blog.
- How Canadian financial advisors get paid at Money Smarts Blog.
- How to find a Canadian financial advisor at Canadian Capitalist.
- Canadian financial advisor qualifications and courses at Money Smarts Blog.
- Here is a list of Canadian fee-only investment advisors at Canadian Couch Potato.
- A money coach may be the answer at the Globe & Mail (written by Preet Banerjee).
- Why don’t most financial advisors plan finances? at Million Dollar Journey.
- In defence of mutual fund DSC fees for smaller investors at Money Smarts Blog. Contains tips on how to reduce your DSC fees.
- Should financial advisors disclose their commissions? at Money Smarts Blog.
And if you want to do it yourself
Canadian online discount brokerage comparison at Money Smarts Blog. Comprehensive comparison of discount brokerage fees and services.