Does Your Financial Advisor Pass the Test?
Whether you work with an investment firm or rely on the services available at your local bank or credit union, you are putting a lot more than just your faith in your “financial advisor”.
You should be carefully evaluating your initial decision and also monitoring their service on an ongoing basis. Despite the considerable consequences of their job performance on your future, a lot of us spent more time choosing a mobile phone plan than we do the "expert" who manages our life savings.
Another factor clouding the issue is the confusing hodgepodge of names used to describe financial service providers — (certified) financial planner, financial advisor, financial coach, money coach, etc. Although there are a number of recognized certifications in the industry, the degree of experience, expertise and qualifications varies greatly. It is interesting to note that outside of Quebec, anyone can call themselves a financial planner or a financial advisor.
There are lots of options to help you manage your money, but it isn’t always clear what each one does, and more importantly, which one is right for you?
Financial advisor is a generic term and is broadly used, but it usually refers to someone who deals specifically with investments. It isn’t their job to evaluate your retirement plan and see if it will support your retirement dreams. They will, however, help you invest your retirement funds based on the information you give them about your situation and expectations.
A financial planner and financial coach take a more holistic approach to helping you with your financial life and can help with retirement planning, managing expenses, saving for a home, and many other issues. The Enriched Academy coaching plan goes one step further and adds in an education component, so you not only get expert advice and a comprehensive plan, you also learn to manage your own finances — for life!
Aside from education and guidance, there are also intangible benefits of a financial coach. Many people have trouble shifting from the learning phase (like reading this newsletter) to the action phase (purchasing an index fund online for example). The presence of a coach is highly motivational, and the structure and accountability built into the coaching sessions really helps to boost confidence and get the action started.
Your main considerations for choosing a financial advisor should be how much knowledge and time you have and the degree you would like to be involved. You could leave it completely up to someone else, and even though they may have a fiduciary duty to act in your best interest, it’s too much of a leap of faith for most of us. We work hard for our money and want to have some ability or knowledge to assess whether it is being managed effectively and within our expectations for risk and return.
If you are reading this newsletter, chances are you are leaning towards educating yourself and taking a more DIY approach. We have many clients who prefer the freedom and lower fees of DIY financial management, but we also have clients who routinely supplement their own knowledge with that of a professional.
You may want advice in a specialized field such as inheritance and estate planning or advanced tax issues, but for the most part have the confidence and time to manage things on your own.