Choosing A Financial Planner

Many people trade stocks on their own through self-directed accounts or they simply set up monthly RRSP contributions through their bank or employer.

If you go through your bank or employer, the only decision you make is which product to choose from the basket of options you’re given. Another option is to have a financial planner or full-service broker do the work for you.

Would you choose to let a financial planner guide your financial wealth?

Well, it could be that you just don’t have the time to do your own investing. Many professionals work long weeks and just don’t have the energy to read about the financial markets to see what’s going on. By the time the weekend hits, the only thing on their mind is to relax and recoup until Monday rolls around again.

Investing can be intimidating, especially if you’re new to the world of investing. There are literally thousands of different stocks and mutual funds to choose from, which can overwhelm even the most seasoned and knowledgeable of investors.

A knowledgeable financial planner can help make the decisions for you to and help you wade through the potentially treacherous financial waters. They (should) have an extensive knowledge of the markets and various financial products that could possibly fit your needs.

They can also save you time, as they make all the decisions for you … again, based on your needs or risk profile. While you’re at work, they should be scouring the markets and finding products. Depending on what relationship you have, they may also ask your opinion on what investment they choose, and you still have the final say.

So, for peace of mind and convenience, a financial planner can help you achieve your financial goals, even if you don’t have any financial knowledge … but at what cost?

There are essentially two ways a financial planner gets paid – either by commission, or the might receive a flat rate from the client, in the form of a yearly fee.

As far as full-service brokers or financial planners go, they receive commission based on all the investment purchases and sales you make. Not only that, they can receive additional commissions – these commissions are called ‘trailer commissions’ – these are commissions that are paid long after you’ve made the initial purchase of the investment vehicle and as long as you hold it.

I will elaborate on trailer fees in a future blog post, but the question that may be nagging at you, is there a potential conflict of interest, when a financial planner is paid by an investment company but is supposed to be representing your interests?

While I have no problem people making money off me – everyone has a right to earn a living and you have to pay for service – it is a cause for concern for me. How can someone be truly ‘objective’, if large commissions are dangled in front of them?

The answer is, you have to make sure you’re dealing with someone who truly has your best interests at heart. I’m not saying that most financial planners are out to rip you off – most, are in fact, honest and hard working – but make sure you do your homework and continually monitor the performance of your portfolio and the purchases that are made on your behalf.

A friend of mine recently dumped his financial planner because he sensed that this guy wasn’t putting in a great deal of effort. As a matter of fact, he wasn’t even ready for their meetings – he would frequently ‘run the numbers’ during the meeting and ask silly questions that should have been answered beforehand.

He now has a new financial planner that seems to be working for HIM. He also doesn't take anything verbatim and always asks questions. Anything he finds strange or doesn't understand, he asks right away, rather than waiting and assuming that the planner knows everything.

So, what lesson can be learned?

Simple – the responsibility still rests with you. While there are certain laws that are there to protect you, you need to constantly monitor and make sure you’re getting the level of service you’d expect, regardless of the size of your portfolio.

Check your statements and ask questions – why was a particular investment purchased? Was it purchased because it matched your requirements or did it offer a generous commission package?

Even though a financial planner can save you time and will do much of the work – the responsibility still rests with one person – YOU.