Quick question on financial advisors – a friend was asking me about how to a financial advisor (she’s in Toronto), do you have any suggestions on resources on:
1.) How to select an advisor
2.) Directory of financial advisors (esp. fee-based ones)?
First of all – the type of advisor she is talking about is one who charges for specific services. For example they might charge $300 for a financial plan. This type of advisor typically won’t handle the actual investments. They are like financial architects – they draw up the blue prints and then you (or someone else you hire) has to start building.
I don’t think the fee-only advisor business model has been all that successful in Canada. It might be easier to find a commission-based advisor who also has a fee-only advice service.
Fee-only advisors are not perfect
Word of warning – Fee-only advisors may not have conflicts of interest because of commissions from investment products, but they do have a conflict because of their fees.
The more financial analysis they do for a client, the more they can charge. I think for someone fairly young, having a detailed financial plan is useless because there are just too many unknowns in your future.
An expensive financial plan might be a good idea for someone who is about to retire, needs to get a handle on their finances and has a good idea of what their retirement income, needs are.
For most young people, the “rules of thumb” are as good as any detailed financial plan. Avoid/reduce debt, save 10% of your income is a great start. An advisor can give good advice about investing ie how to set up an appropriate portfolio, risk level etc. But it shouldn’t cost too much. I wouldn’t spend more than a couple hundred dollars for an analysis.
How to find an advisor – resources
These articles will provide a good background for someone who is looking for a new financial advisor of any type:
- Different types of Canadian financial advisors
- How financial advisors get paid
- Canadian financial advisor qualification courses
- How to do a background check on a Canadian financial advisor
- Canadian discount brokerage comparison – This will help you choose which discount broker to use after consulting with a fee-only advisor.
Here is an interesting case study by Canadian Capitalist where he actually tries to find a fee-only financial advisor:
- Finding a financial advisor part 1
- Finding a financial advisor part 2
- Finding a financial advisor part 3
Here are a couple of fee-only advisor lists:
Does anyone use a fee-only advisor? Any advice on how to find one?