Why work with a financial advisor?

Determining what your financial goals are, let alone achieving them, can be overwhelming for most people. Seeking support and advice from a professional is a smart decision if you don't have expertise in a particular area.

Still, many people don't seek the advice of a financial advisor (financial planner) when they make decisions that affect their long-term financial well-being. Why? Some people are unaware of the services these professionals provide. Others may not believe they need the assistance provided by a trained financial advisor.

Let's start by dispelling the myth that financial advisors are just for rich people. Whether you are just starting out in the workforce or you're beginning to think seriously about retirement, you can benefit from consulting a financial advisor.

A financial advisor begins by completing an analysis of your financial situation. With that assessment, the advisor can create a comprehensive plan of action to help you meet your goals. A good financial plan will include a review of many things including, life insurance, disability coverage, critical illness protection, wills, estate planning, debt management, investments and retirement savings.

A financial advisor can only do an effective job if he or she has complete details about your finances. You are sharing very confidential information, so the relationship between you and your financial advisor should be comfortable and trusting. Ideally, it should also be an ongoing one that lasts for many years.

It's also important for you to be realistic about your expectations. Seeking help from a financial advisor doesn't mean you'll get double-digit investment returns or magically eliminate your debt. A continuing financial review should be part of your lifestyle, just like your annual check-up with the doctor.

How do financial advisors get paid?
Your financial advisor should put in writing how they are paid for the services they provide. They can be paid in a number of ways:

Commission: In some cases, the suppliers of financial products, such as an insurance company, pay the advisor a commission. In other cases, you pay the commission. For example, if you buy shares of a publicly traded company through your advisor, you pay a commission that is usually a percentage of the amount invested.

Salary: Some advisors work for a company that pays them a salary. The advisor's employer may get its revenues from fees paid by clients or in commissions paid either by clients making a purchase, or the suppliers of financial products.

Fee-for-service: Advisors paid on a fee-for-service basis may charge an hourly rate, set a flat rate for a specific service or be paid a fee based on a percentage of your assets or income. In some cases, compensation can be a mix of fee and commission. You should ask if the advisor or organization receives any benefit other than commission, such as advertising and promotion subsidies, from suppliers of financial products.

How do you know a financial advisor is right for you?
Finding an advisor who is right for you can be a job in itself. Evaluating candidates can be time consuming, but is definitely time well spent. When you're screening advisors, here are a few things to take into consideration:

Be up front – Be sure to ask in advance if you'll be charged for your initial meeting. Prevent any misunderstandings by explaining you'd like to meet just to find out more about the advisor's investment and insurance knowledge.

Credentials – Look for an advisor with recognized industry credentials. The most significant designation is a Certified Financial Planner (CFP).

Background and experience – Ask a potential financial advisor about industry experience and other roles he or she has held.

Get recommendations – Ask friends, family or professionals you trust for their referrals. Your lawyer or accountant may be able to recommend a financial advisor.

Ask for references – When you have an initial meeting with a potential advisor, ask for references.

In essence, you take on the role of an employer when selecting a financial advisor. Anticipate that you may have to interview several candidates in order to find a financial advisor who's right for you.

Once you've chosen your financial advisor, plan to meet at least once a year to review your investments and discuss any changes to your financial goals.

What's a CFP?
The Financial Planners Standards Council website (www.cfp-ca.org) lists a number of designations and acronyms. Here are a few of the more common designations you may have seen:

CFP™ – Certified Financial Planner™
The internationally recognized credential awarded in Canada by Financial Planners Standards Council (FPSC). CFP professionals must meet the FPSC's standards in education, experience, examination and ethics. CFP professionals must also have 30 hours of continuing education every year and agree to abide by the CFP Code of Ethics to renew their right to use the credential annually.

CH.F.C. – Chartered Financial Consultant
One who has passed advanced courses in financial planning and wealth accumulation granted by The Financial Advisors Association of Canada (Advocis).

CGA – Certified General Accountant
A professional designation granted to individuals who have passed the educational and experience requirements of their provincial association. CGAs have extensive training in accounting, tax and financial management. They are required to adhere to a code of conduct and a mandatory continuing education program.

CFA – Chartered Financial Analyst
One who has passed exams administered by the U.S.-based Association for Investment Management and Research. Common holders of this credential are money managers and stock analysts.

CIM – Canadian Investment Manager
One who deals in portfolio and wealth management. It is a title granted by the Canadian Securities Institute.

CLU – Chartered Life Underwriter
One who has passed exams given by The Financial Advisors Association of Canada and who has been determined to be a financial planner with advanced knowledge in life and health insurance, and employee benefits.

Surf the web
Investor Education Fund provides information that helps you grow your financial know-how www.investored.ca

In the province of Quebec, many of the designations are different. To find a listing, visit the Institut québécois de planification financière www.iqpf.org or Autorité des marchés www.lautorite.qc.ca.