Financial Friday 174: How do I know if my  financial advisor is any good?

Whether you use an investment firm or rely on the services available at your local bank or credit union, a lot of us have someone we commonly refer to as our "financial advisor". It's a generic term and is broadly used, but for most of us it means someone who "handles our investments".

Some of us only rely on our financial advisor to invest our TFSAs & RRSPs and meet with them very infrequently, or simply review the statements that show up in the mail from time-to-time. Others depend on their advisor for a lot more than investing and seek advice on retirement planning, tax strategies, saving for a home, and many other issues. The scope of investment products and services they offer as well as their level of professional training and experience varies greatly.

Regardless of the services your financial advisor provides, the basic fact is that you are putting a lot of trust (and a lot of cash!) in their hands. Despite the considerable consequences of their job performance on your financial future, a lot of us spend more time choosing a new mobile phone than we do the expert who manages our life savings. A good advisor is an invaluable resource for those of us who don't have the time or specialized knowledge to manage our finances on our own. However, depending on an advisor also means that you owe it to yourself to carefully evaluate your initial choice, and continue to monitor their performance on an ongoing basis.

A good place to start is to dig into the fees you are paying and your return on investment. Mutual funds are the most common investment for Canadians, but their built-in management expense ratio (MER fee) can be in excess of 2% in many cases. While this may seem small, over 20 years it will compound into tens or even hundreds of thousands dollars less in your retirement fund compared to a similarly performing exchange-traded fund (ETF) with an annual fee of 0.5% or less.

If you have mutual funds, make sure to confirm the MER fee with your advisor and ensure the fund’s performance over the long-term (not just one or two years) justifies these higher fees. Although mutual finds are actively managed to try and beat the market, the truth is that most fall short of this goal after their high fees are put into the equation.

You should also evaluate your financial advisor on a more basic level — Do they offer all the products and services you require? Do they keep in contact and remember you and your situation? Do they readily and clearly answer your questions.... even "prickly" ones about annual returns and fees? A good advisor should pass your "stress test" with flying colours.

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 looking for  more than just investing advice, our financial coaching program offers a customized, one-on-one approach that digs into your entire financial picture — from managing expenses and debts, to cost-effective investing, to getting on course with a purpose-built retirement plan. Our accredited financial coaches educate you and provide accountability, motivation, and professional guidance. You can easily book a free Financial Assessment Call if you would like to learn more about our coaching services.

If you are reading this newsletter, chances are you are leaning towards educating yourself and taking a more DIY approach to investing. Although the freedom, lower fees, and proliferation of simplified investing options like all-in-one ETFs have made self-directed online investing a  popular option, it isn't for everyone.

Why not join us next week on Tuesday for an immensely practical (and completely FREE) session that will answer all of your questions (and teach you a few questions you should be asking) when it comes to financial advisors. Enriched Academy is committed to an unbiased approach and doesn’t recommend any particular financial services, but we can teach you about the available options and how to make the best decision for your situation.


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