Finding the right advisor requires time, research and scrutiny.
Yet experts say far too many Canadians are unwilling to put in the time and energy required to find the right planner.
“People put more time into thinking about purchasing a vehicle than they do about selecting a financial advisor,” says Greg Pollack, president of the Financial Advisors Association of Canada.
A recent study from the Montreal-based Centre for Interuniversity Research and Analysis on Organizations found those who find a good advisor, on the other hand, see their assets grow 2-to-3 times faster than those who manage their investments independently.
An estimated 10 million Canadians use the help of professionals working at financial institutions, brokerage houses, independent operations and environments like insurance companies to plan for their retirements and financial security.
And interest grows with age. About 64% of those 50 and older use a financial advisor, while only 47% of those under 50 seek advice.
Convincing younger Canadians—especially those with limited incomes—to plan for their futures remains challenging.
But Pollack says Ottawa’s decision to delay the age when people will receive OAS and reducing the availability of defined benefit pension plans will get people’s attention.
“There seems to be a growing awareness that individual Canadians are going to be more dependent upon themselves [and on advisors] going forward,” he says.
While sharing intimate financial details can be difficult for investors, ensure prospects that finding an advisor will eliminate some worry and stress.
The ongoing recession has been tough on many investment portfolios, but the study found those who worked with professionals to develop long-term plans are more likely to reject the panic instinct to sell should markets tumble.
Something to tell them to consider: walking into a bank branch and merely taking the recommendations of the person assigned to your file isn’t the best strategy, says Camille Beaudoin, a financial literacy specialist at l’Autorite des marches financiers in Quebec.
They should be doing their homework, visiting several candidates and asking targeted questions—this means you should be ready to answer tough questions.
They’ll also be looking for someone who has time for them, and who has clientele with the same profile they do.
Beaudoin says a lot of work needs to be done to raise the financial literacy of Canadians.
In 2009, more than a third (38%) didn’t have any investments set aside for the future, with residents of Quebec and New Brunswick being the least prepared.
The goal for professionals should be to arm citizens with practical information they can use from an unbiased and reliable source, as well as aid in debt reduction.
“It definitely is an issue of concern, partly because the financial world has gotten a lot more complicated, the demands on the household are much greater, yet we haven’t added in more education,” IEF president Tom Hamza said in an interview.
Not to mention, high-profile fraud cases involving Bernie Madoff and Earl Jones have shattered some people’s faith in the honesty of financial advisors.
To help clients make informed decisions, follow these practices when meeting with prospects: clearly state your credentials; outline your strategies, philosophy and successes; and discuss your fees, portfolio performance reviews, and benchmarking upfront.
Also, avoid promising a specific percentage of returns and don’t offer any special promotions or deals right away.