Most Canadians start planning for their retirement by walking into their local bank and investing in a Registered Retirement Savings Plan (RRSP). It’s quick, easy, and you get a discount on your annual tax bill. But, eventually (hopefully!) you’ll have enough of a nest egg socked away that you’ll want some professional advice on how to best manage and grow your savings. Here’s where to look for help.
Are You Ready For Professional Help?
If your investments are really small – a couple hundred or thousand dollars a year – filling in one of the various banks’ “risk assessment profiles” and talking with one of their RRSP experts is probably sufficient for the early years of financial planning. But, eventually, you’ll probably want to seek some more sophisticated advice. According to Greg Pollock, president and CEO of Advocis (The Financial Advisors Association of Canada), much of the Canadian public has a misconception that you need to have a certain amount of savings on hand before you can and should meet with a financial advisor. “This is not true. Most clients start out with under $25,000 in investments and savings when they begin working with an advisor,” says Pollock.
A recommendation from a trusted friend or family member never hurts but, if none are available, you can find a list of certified financial planners on Advocis.ca. You can also locate a financial advisor based on specialty and region using RateSupermarket.ca’s Find a Financial Advisor service.
The Benefits of Seeking Advice
There are some tangible benefits to seeking professional financial assistance. In 2012, Montreal-based CIRANO (the Center for Interuniversity Research and Analysis on Organizations) released a report entitled, “Econometric Models on the Value of Advice of a Financial Advisor“.
One of their key findings was that “Advised investors accumulate substantially more financial assets than their non-advised counterparts regardless of age and income.” In fact, in one survey of 3,600 people, over a 15-year period those using a financial advisor saw their assets at nearly three times the rate of people who did not seek assistance with their financial planning.
What Do Financial Advisors Cost?
There are three basic ways that financial planners earn their money: through commissions on the financial products they buy for clients; hourly fees paid by the client; and an “asset-based model,” usually used by high net-worth clients, where the planner earns a percentage of the portfolio’s value.
When interviewing potential advisors, ask what fee structure(s) they follow. Most follow the commission-based model since clients don’t have to pay directly for their services, but critics have pointed out that there’s a potential conflict of interest since some investments pay a higher commission rate than others. An unscrupulous (uncertified) advisor may be tempted to steer clients towards higher-rate products.