Navigating financial and investment products in a new country can be complicated, especially if you don’t have a background in finance. As a newcomer in Canada, having someone who understands the newcomer experience, and whom you can rely on for sound financial advice is important. In most cases, a professional financial advisor or planner can help.
In this article:
- Who is a financial advisor?
- Types of financial advisors
- Difference between a representative, advisor and planner
- Questions to ask your financial advisor
- Information your financial advisor may need from you
Who is a financial advisor?
A financial advisor is a qualified individual who helps manage your money. They can create a detailed financial plan, which involves:
- Assessing your current situation;
- Determining your present and future goals and needs;
- Giving advice on the financial products that are right for you; and
- Reviewing and updating your investments periodically.
Types of financial advisors
Choosing a financial advisor depends on your needs and financial goals. Here’s an overview of a few key categories of advisors so you can make an informed decision.
Financial advisors or planners
A financial advisor or planner assesses your current financial situation, understands your goals, and then works with you to create a financial plan to achieve those goals. They provide advice on saving, investing, financial planning, risk management, taxation, mortgages, retirement planning, estate planning, etc. They can also help you start or contribute to a registered savings plan, such as a Registered Retirement Savings Plan (RRSP), Registered Education Savings Plan (RESP), Registered Disability Savings Plan (RDSP) or Tax-Free Savings Account (TFSA). For securities, mutual funds or insurance, if they are not licensed to sell these products themselves, they may refer you to another professional in the same organization or externally.
The products and services a financial planner offers may be limited to those provided by the organization they work at. They may charge an hourly fee and/or charge a commission based on the products for their services. You can find financial planners at banks, credit unions, independent financial planning firms, trust companies, mutual fund dealers and full-service brokerages.
Investment advisors / specialists / representatives
- Advisors: They develop, implement and manage your investment plans/strategies and provide investment advice on any type of security. Typically, they work at independent or bank-owned organizations that are registered as portfolio managers. Some may work at full-service brokerage firms or mutual fund dealers.
- Specialists: They offer similar services to advisors but may be restricted in the financial products they can offer.
- Representatives: They are more commonly known as stockbrokers and are registered to buy and sell a variety of investments on your behalf, such as stocks, bonds, mutual funds, ETFs (Exchange Traded Funds) and closed-end funds. Investment (or mutual fund) representatives work at brokerage firms that are registered as investment or mutual fund dealers. They make a commission when they buy and sell investments.
Investment advisors (or specialists or representatives) usually focus on investment planning and wealth management. They may charge a flat fee or an annual fee based on the size of your portfolio. Some of them may be licensed to sell insurance products and provide estate-planning services. If you choose an investment broker, they may charge a commission based on the securities bought/sold or the value of mutual funds and other products purchased through them.
If you’re just getting started with investments in Canada or have a small portfolio size ($100,000 CAD or less), the investment specialist or advisor at your bank can assist you with any advice you need.
Insurance agents / advisors / brokers
Insurance agents (or advisors or brokers) are trained and licensed to sell insurance and provide advice on the topic. Some might specialize in a specific type of insurance while others might sell a wide range. They may also be licensed to sell investment products like mutual funds, securities, etc. Insurance agents usually work for one insurance company and can sell only their products while brokers are independent and may sell a variety of products from different providers.
You can find insurance agents at banks, independent insurance firms or agencies, mutual fund dealers, or some brokerage firms. Insurance agents make money through commissions on the products they sell. The commissions are built into the cost of the insurance product. They may also charge you an additional service fee.
What is the difference between a representative, advisor and planner?
The terms financial advisor and financial planner are often used broadly for anyone who manages your money, such as an employee of a financial institution, a stock broker, or an insurance agent. They don’t always mean that an individual has specific qualifications, expertise or certifications. Outside Quebec, anyone can call themselves a financial advisor or financial planner. In Quebec, only certain trained individuals are allowed to use the title of a financial planner.
You can use the glossary from the Investment Industry Regulatory Organization of Canada to understand different designations and to find financial planners and advisors.
Trained, licensed or certified professionals
What sets some advisors apart from others are education, training, experience and qualifications. Advisors have many designations while financial planners have three common designations: Certified Financial Planner, Personal Financial Planner and Registered Financial Planner. Each designation has different educational requirements. So, be sure to be sure to ask your financial advisor about their qualifications so you can determine if they have specialized training to help you achieve your financial goals.
By law, sellers of mutual funds, stocks and bonds must complete training and be registered with a provincial or territorial securities regulator. You can use the Canadian Securities Administrators’ National Registration search to check whether an advisor or firm is registered and what kind of registration they hold.
What questions should you ask your financial advisor
Here are some of the topics you should discuss with your advisor:
- Their qualification, education, and professional background. Ask if they are licensed or certified in any financial areas and if the firm they work for is registered with a securities regulator;
- How long the firm they work for has been in business;
- Their tenure with the firm;
- Financial products and services they offer and the ones they’re licensed to sell;
- Their fee structure and cost of services: commissions, service charges, etc.;
- Frequency of meetings to review investments and plans;
- How they will keep you informed;
- References from previous or existing clients;
- How they decide on appropriate investments for their clients;
- Have there been any restrictions, terms or conditions placed on their registration approval. Inquire if they were ever investigated or disciplined by regulators. You can also check disciplinary cases online on the Investment Industry Regulatory Organization of Canada (IIROC) website.
Don’t feel compelled to sign up with the first financial advisor you meet. While most advisors aim to give good advice, some may be influenced by external factors such as commissions and incentives. So, take notes, compare responses from different individuals, and then decide who would be best to manage your money.
Information your financial advisor may need from you
A financial advisor needs a variety of information about your financial situation before they can provide any advice or make a financial plan for you. To start off, they will usually share a worksheet or questionnaire with you. You may have to provide information about your age, investment and life goals, risk tolerance, debts, your income, your tax situation, dependents, monthly expenses, and any other factor that will affect your financial future.
Each individual’s financial situation is unique – financial and investment advice that works for one person may not work for another. That is why it’s essential to find someone who is well qualified and understands your situation as a newcomer, who will act in your best interest, provide relevant guidance, and assist you in achieving your goals. Professional advice and the right resources can help you be better prepared for a secure financial future in Canada.