Ask lots of questions and make sure you understand the answers. Does he or she have many clients in circumstances similar to your own? What was he or she able to do for them? Would the same strategies work for you? Can the adviser provide references from these other clients? Given a brief outline of your own circumstances, what might he or she be able to do for you, and at what cost?
When it comes to fees, some financial advisers receive part or even all of their remuneration from commissions – indeed, this has become standard practice in the insurance and investment industries. Commissions do create biases toward pushing certain products, though, so if you're looking for a financial planner who will provide totally impartial advice, look for one who earns a living from fees alone.
Also, in listening to the advisers' financial (or insurance or investment) proposals, treat with caution any assumptions they make in their financial projections. Given market conditions lately, is a 15-percent average annual equity yield realistic? Are house prices likely to continue rising? How quickly will that debt be retired if interest rates rise? Is inflation worked into the calculations? Finally, a good personal fit is important. Do you get along well with that person and feel comfortable with his or her attitude and advice? Is this someone you feel you can trust? If not, you should probably keep looking.
Above all, avoid the temptation to rely on "Oh, my accountant says this" advice from friends and acquaintances; it may be based on misinterpretations of the original comments or generalizations that don't reflect your situation. There could be a lot hanging in the balance, so you shouldn't risk it on hearsay – get it yourself right from the horse's mouth. The payback could be significantly greater than the cost. (Stressed about money? 10 tips for stress-free money management.)
Who's who? A guide to the different areas of expertise among the field of finance
Financial planners
• Certified Financial Planner (CFP)
This is an internationally recognized accreditation bestowed in Canada by the Financial Planners Standards Council (FPSC) and is now the leading planner designation in this country, with almost 17,000 accredited members. CFP education covers wealth accumulation, retirement planning, investment products and strategies, risk management and estate planning. For more information or to find a CFP in your area, contact Advocis (the Financial Advisers Association of Canada) at 1-800-563-5822 or visit their website at www.advocis.ca.
• Chartered Financial Consultant (CH.F.C.)
This designation is no longer conferred in Canada, although some advisers who have already acquired it still use it. CH.F.C.s have advanced knowledge in wealth accumulation and retirement planning; most are also CFPs.
• Chartered Life Underwriter
(CLU) This designation originates in the life insurance industry but denotes specialized expertise in taxation and estate planning. CLUs must complete the core part of the CFP training courses, and most CLUs are also CFPs. Registered Financial Planner (RFP) This designation is conferred by the Institute of Advanced Financial Planners (IAFP) after one has submitted a comprehensive sample financial plan for peer review and passed a rigorous exam. Most RFPs are also CFPs. Contact the IAFP at 1-888-298-3292 (www.iafp.ca).
• Personal Financial Planner (PFP)
This designation is the banking industry's equivalent of the CFP.
Page 2 of 3 – On page 3, learn how to differentiate between accountants and investment advisers.
