The Value of Independent Financial Advice

Earning money, saving money, and making money grow offer a daunting series of challenges to most of us. Yet, despite the important consequences for the rest of our well-being, it’s surprising how few hours many of us are willing to devote to the purpose of improving our financial health. In many cases far more time is spent deciding upon what new car to buy, or on a vacation destination than on making a well-reasoned choice of investment for an RRSP.

Even when a few spare moments are found, time often only opens the window to the recognition of how much there is to know before we ever get to the point of making a truly informed decision. Today’s universe of investment alternatives is immense. For instance, consider that there are presently more than 1,100 different mutual funds registered in Canada. A decade ago, the corresponding number was fewer than 200. The past ten years has seen an explosion in the variety of opportunities we’re being offered to help make our money grow.

For investors, the ever-increasing number and complexity of choices suggests that knowledge and time will forever seem to be in short supply. That’s why, for many Canadians, seeking the help of a financial professional in creating a well-conceived financial plan might prove the most important investment decision they’ll ever make.

A financial advisor has the comprehensive training, up-to-date product knowledge and years of practical investment experience to develop a personalized financial plan tailored to your needs. He or she will help you to discover an acceptable balance between risk and reward, enabling you to achieve your long range financial goals. They can even make your financial plan more tax-efficient.

Building financial independence doesn’t mean taking a do-it-yourself approach. Part of "getting ahead" means knowing your own limitations. Most of us wouldn’t consider installing complex electrical wiring in our homes, because we recognize the boundaries of our expertise. Making sure you conduct your financial plan properly from the very start should likewise prevent the need for costly repairs in the future.

Choose wisely. Otherwise, the freedom of choice you limit may be your own.

What does an independent financial advisor do?

A financial advisor helps you identify your financial goals - and what holds you back from attaining those goals. He or she works with you to construct a financial plan and makes a number of recommendations. He or she then implements the elements of that financial plan and provides you with periodic reviews to assess the success of the plan and to consider any changes necessary to better meet your original - or revised - goals.

Independent financial advisors are not tied to any one mutual fund management company, insurance company or other organization which manages financial products. Therefore his or her personal compensation is based on one of the following two types or a combination of both:

Commission basis: Commissions are payable on financial products purchased through the investment advisor. Commissions can be payable by the investor, by the company which manages/sponsors the financial product (such as a mutual fund management company) or a mixture of both.

Fee-only basis: The client pays the advisor a fee based on the client's assets, income or on an hourly rate to reflect the effort in creating and updating the financial plan and in making transactions.

Your financial advisor will be pleased to discuss with you his or her compensation. Additionally, documents such as mutual fund simplified prospectuses provide detailed information on commissions and other compensation.

How to select a financial advisor

Just as with any other professional there are various ways of finding someone whose skills and experience are suitable to your needs.

Asking a friend or relative for a recommendation is a very good way of making contact with someone as is asking another professional you work with such as an accountant or a lawyer.

You should probably meet with at least three or four investment advisors before deciding on one you want to work with. Remember you will be entering into a long term relationship!

Your selection process should be based on a variety of issues such as:

His or her experience, qualifications and credentials.

Can the advisor supply you with references from existing clients.

Does he or she have the appropriate depth of knowledge and experience in the particular financial issues you face, such as estate planning, education planning, insurance, tax strategy.

How the advisor will keep you informed of the progress of you financial strategies, and with what frequency.

How you will pay for the advisor's services, such as fees, commissions etc.