Finding a Good Advisor
Markus Muhs - Feb 09, 2019
While you can pick up two apples in the produce section of your grocer and make a determination of which is better, it's not so easy in the financial advice industry. This is an update to a post I made 3 years ago with updated links and resources.
It's that time of year (RRSP/TFSA/tax season, whatever you want to call it). It's a time of year when many are looking to work with a financial advisor for the first time, but finding a good one can be confusing. Obviously I can be real self-serving and say "you've found one!" but I understand that many Canadians actually do some research on this, and I'm hoping you've stumbled across this post in your research and that it can be of help to you.
What’s in a Title?
Financial Advisor, Investment Advisor, Financial Planner… take about any combination of the words Financial, Investment, or Wealth together with Advisor, Planner, Consultant, or Manager and you have someone working in retail financial services. What do the titles mean? Absolutely nothing.
“Investment Advisor” (IA) is the most popularly used title for an investment dealing representative registered with the Investment Industry Regulatory Organization of Canada (IIROC). However, some companies call identically registered reps “Financial Advisors”... not to be confused with personal bankers at some banks, also called “Financial Advisors”.
A Financial Planner (FP) at one company may be someone who only provides financial planning services and does not deal with investments at all. At another company an FP might be a pure investment and/or insurance salesperson who does little to no actual financial planning. Myself, I was once an FP at a major bank and had the exact same role and registration as an IA, mentioned above. Today my title is IA but I do more financial planning than I ever did, including fee-only financial planning where I may not advise on investments at all.
At the end of the day, the job title tells you absolutely nothing about the qualifications or capabilities of an advisor. As a consumer, you need to go a few steps further when choosing your advisor, such as checking how (or if) they’re registered with IIROC and if they have a disciplinary record. IIROC’s AdvisorReport is a useful tool to find all this information, including an educational transcript of your current/prospective advisor. You can also check an advisor’s registration with the Canadian Securities Administrators' Are They Registered?. Doing your own due diligence on a person – checking CSA, IIROC, and Google – is an important first step to avoiding potential fraud or scams.
What if an advisor you're researching doesn't show up on either of the two databases above? Ideally, they should show up on both and be in good standing and everything, but if they don't show up on either then it could mean they're not licensed in any way and you just avoided getting scammed. More likely though, the person you're researching is an insurance salesperson only, and they may be highly qualified to offer you insurance advice or maybe even holistic financial planning if they have a CFP after their name, but you should not under any circumstances purchase "investments" from them, as these are usually very high cost segregated funds and the like.
A note on pure fee only advisors: they also would not show up on the above databases simply because dealing in securities is not part of their business. Such an advisor should have a CFP after their name and should be searchable on this database.
Unlike the legal and accounting professions, there are enormous differences between one designation and another in our industry when it comes to the amount of time put in, the rigor of the examination, and the interests of the governing bodies (be they non-profit organizations, or for-profit subsidiaries of multi-nationals).
I could tell you that that the best designations for an advisor are the CFP and CIM (but that again would be self-serving), or I could go into a whole account of all the designations out there, but that would make this blog post way too long. A while back, the Globe & Mail did an article on "The Ultimate Financial Advisor Designation" which, along with some other articles linked in that one, covers the subject matter pretty well.
It’s best to do a little bit of your own research on a prospective advisor’s designations. Don’t simply accept “he has a lot of letters after his name, so he must be smart,” but what do those designations actually mean? Some designations require little more than scoring 60% or higher on a few exams, while others have curve-graded exams where fewer than 40% actually pass.
Some designations, like the CFP (Certified Financial Planner), require a significant amount of continuing education annually while others require no continuing education at all (a holder of a designation may have passed an exam 20 years ago).
Insist on your prospective advisor having a designation that also follows a code of ethics and/or standards and practices. For example, the Financial Planning Standards Council (FPSC) requires all those bearing the CFP designation after their name to follow Standards of Professional Responsibility. Included is a Code of Ethics which, before all else, stresses the importance of integrity, objectivity, and putting the client first.
Whatever designations an advisor puts after their name, you should be able to research and find the promoter of that designation, be it the FPSC or Canadian Securities Institute or other, and you should be able to find said person in some database.
Most people choose their prospective advisor by way of some sort of referral. Ideally, a family member or friend, with very similar financial circumstances to yourself, refers you to an advisor with whom they have worked with for many years and built up a great deal of trust. In most cases though, a stranger at the bank refers you to another stranger at the bank and you start entrusting your life savings with the new stranger and hope for the best. To be honest, the latter method is how most of my current clients originally came to know me.
A new online referral service to help Canadians connect with good advisors is SeekAdvisor. They do some of the leg work for you, curating a "short-list" of qualified, experienced advisors across the country, with more details in each advisor's profile in regard to what type of clients they work with and what services they offer. Advisors like myself don't pay a monthly marketing fee to SeekAdvisor, rather we pay a referral fee only when a prospective client finds us through them and signs up to become a client. This really puts the onus on SeekAdvisor not to sit back and collect monthly fees, but to actually ensure they're making those connections.
Company or Brand
All else being equal, the company an advisor works for, or the brand behind them, has no bearing whatsoever on the advisor’s competency or capabilities. Some of us differentiate our business with a personal or team brand, the way I do with "Muhs Wealth Partners", but ultimately most of us work for some sort of investment dealer who provides the platform to house our client accounts on, back office administration and compliance. Some of those dealers are subsidiaries of the big banks, some are subsidiaries of huge American firms, some are independent like Canaccord Genuity Wealth Management.
All IIROC registered investment dealers pay into the Canadian Investor Protection Fund (CIPF), putting all on an equal playing field in case of dealer bankruptcy. No advisor out there can legitimately say “the company I work for is larger and more established, thus your investments are safer with me.” If they do, they're not being honest, and you should look for a different advisor.
One area where the company an advisor works for does come into concern is product. Does the advisor work for a company that is more concerned about manufacturing and promoting their own investment products, or is the advisor committed to putting their clients’ needs first? There may be no black or white answer that an advisor can give up front, as things are constantly changing in our industry. You can answer the question for yourself by looking at your own investment statements and seeing if your accounts are predominantly made up of mutual funds offered by the same company your advisor works for.
In my own experience, I once worked for a company where I had the freedom to put my clients’ interests first, but that changed over the years, as that company became and more more concerned about their own “product penetration”. Putting my clients interests first entailed moving my office and my clients to another company.
Choosing a financial advisor is much like a job interview; you’re hiring someone to look after your investments and provide you and your family with comprehensive financial planning. My own role pretty much involves repeatedly going through many job interviews for many mini-paychecks.
I wrote a blog post a few months ago on 10 Questions to Ask Your Financial Planner. The 10 questions actually originated from the Financial Planning Standards Council (who have an excellent consumer-facing website by the way).
If not giving your prospective advisor the Nth degree, some very basic questions to ask are:
- What are your qualifications?
- What will you do for me?
- How much and how am I paying you? (ie: transactional fees or commissions, embedded commissions, fee as a percentage of assets, or fee for service)
Remember one thing: as the client, you’re the boss! You should never simply accept the status quo, such as "our branch's investment advisor, John Smith, will look after you..."
You should also not become complacent and accept that you’re permanently bound to any one advisor or company. There are no binding contracts, at least there shouldn’t be (stay away from any advisors who put your money into proprietary products that lock you in as their clients for many years). Your investment accounts should always be transferrable, should the service suffer at your current advisor.
I write these blog posts both as a reference for clients and prospective clients, and of course, the reason they're free of ads and click-bait is because I'm advertising me! If you’re currently looking for a new advisor, or even if you’re content with your existing advisor and just want a second opinion, please get in touch with me.
Markus Muhs / CFP®, CIM®
- Financial Planning Standards Council’s “Choosing a Financial Planner”
- Money We Have Blog: How to Find a Good Financial Advisor
- SeekAdvisor Blog (regularly updated with good no-holds-barred advice on finding an advisor)