Different Types Of Canadian Financial Advisors – Which Is Right For You?

by Mike Holman

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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.

Financial planners

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

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

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

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

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.

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{ 12 comments… read them below or add one }

1 Sustainable PF

You forgot bloggers ;)

2 Canadian Capitalist

I hope Sustainable PF is joking. Bloggers are *not* financial advisors. We write for a general audience, not tailor-made financial plans. Thanks for the mention!

3 Mike Holman

@SPF – I thought of putting a category called “yourself”. But I figure that DIY investing is another post altogether.

@CC – We are definitely not advisors!

4 Millie Seguin

Why would you assume all insurance brokers sell high fee products? That is very misleading. I have been in the business for 8 years. My focus is on client needs not commission!!!!

5 Echo

It sounds like if you have no money and little knowledge you get charged high fees. And if you have lots of money and little knowledge you get charged high fees.

I guess the key is to become informed so you don’t get steered into your advisor’s high fee products, or else go it alone.

6 Mike Holman

@Millie – Do you sell any low-fee investment products? The reality is that clients who want advice have to pay for it and commissions add to the price of the products. I’m not saying it’s a bad thing to pay fees, but they aren’t cheap for someone with a larger portfolio.

@Echo – That sums it up. If you have a decent sized portfolio, it’s important to minimize the fees. This doesn’t necessarily mean DIY, but it could mean shopping around and negotiating.

Smaller investors have no choice – they have to pay their advisor via high-fee products or they DIY. Advisors have to eat too.

7 Thicken My Wallet

It may be a good follow-up post on who sells more than one product (i.e. an advisor licensed to sell funds and insurance) and pros and cons of going with someone who attends to sell many different types of products.

8 Jim Yih

Great article Mike!

9 Glenn Cooke

Folks need to be careful about the term ‘financial planners’. It’s shown here as a seperate category, but in reality most financial planners are actually one of the other categories. The number of folks that sell life insurance that call themselves financial planners is huge.

Life insurance brokers *do* sell high fee products. And by fees, Mike’s not talking about commissions. Investment fees inside universal life insurance and seggregated funds are typically much higher than they are for comparable funds available outside a life insurance wrapper. For example, Wawanesa Life offers some of the much loved TD E-Series of funds as a seggregated fund. Yes, the fees are higher than what would be available directly through TD.

However, the seg funds offer some additional guarantees not available when these products are purchases as a mutual fund (i.e. not through a life insurance broker). Are those guarantees worth the extra fees? It’s a personal decision, and I think most people would say no. I’ve very risk averse, so for me, the answer was yes, those guarantees are worth the additional cost.

10 Mike Holman

Thanks for the info Glenn.

11 youngandthrifty

Great article, Mike. I’m linking this! My readers will appreciate it, I’m sure :)

12 tom venner

I realize you have to generalize but some of us financial planners (with a CFP) are also lisenced for insurance and offer all three models of compensation. I have some clients that are fee-only, some that are asset under manaagement (0.5% for assets over $500k or lower for higher net worth) and commision based for lower net worth. I always try to find the best products at a resonable cost and never use full DSCs.

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