Choosing an advisor

Once you have decided to make a commitment to planning and saving for retirement, the next decision should be whether you want to tackle this project on your own or if you want to enlist the services of a financial advisor. Each of us has to decide which course of action best suits our needs.

Do it yourself

The biggest advantage to tackling your personal finances without enlisting the services of a financial advisor is that you will probably save on fees. However, if you decide to go down this route, there is a huge leap from theory to reality.

In the beginning, setting up financial goals, implementing an investment plan and following the markets can be exciting. But investing can be hard work and, like any other task, it becomes tedious for many. Interest can wane and important issues can be overlooked or ignored.

Other issues must be considered

If you have a spouse, the decision should be made together. While one partner may enjoy working with finances and managing money, the other may not. What happens if the person who manages the family finances can no longer do so?

If a relationship has been established with an advisor, it becomes an easy transition; if not, important decisions need to be made and sometimes at short notice. At the very least, the partner who does not enjoy managing their personal finances alone should establish an account and build a relationship with an advisor. The partner who does enjoy the challenge can continue to do so on their own.

Of course, there will always be stories of investors who dumped their advisor at the bottom of the market and never looked back. The chances are if they had been doing it on their own, they would have suffered a similar setback, followed by a similar rebound. Such anecdotal stories are like the markets themselves . . . timing is everything.

These kinds of examples are anecdotal evidence not based on research. Still, they resonate with us because they appeal to our emotions, particularly after a period of less than stellar market returns.

The Advisor Advantage

However, there is information available that is based on research rather than on somewhat unique stories of failure and success.

The Investment Funds Institute of Canada published a paper titled “The Value of Financial Advice” that used data compiled by Ipsos Reid. It identifies many of these issues and a compelling argument is made for employing the services of a financial advisor.

It was discovered that in every income category individuals who used an advisor had accumulated significantly more investment assets. The same discrepancy existed when individuals were categorized by age rather than income.

The study found that advisors provided valuable guidance in helping their clients choose an  appropriate asset mix for their circumstances, a critical factor for achieving success. It also provided a word of caution.

Though investors are often coaxed by widespread media commentary that they can do better on their own through low or no advice embedded products, such as exchange-traded funds, the reality is that the investment decisions of investors, without advice, are very often driven by short-term biases.

Investors often cycle between being over-cautious and under-cautious, and very often at precisely the wrong times. The full report can be seen at

Of course there will be articles and commentary by those who will try to discredit these findings. Read them with an open mind .There will be some valid points and some that may not be.

There are those who are ready and willing to tackle their personal finances on their own. It is less expensive than using a financial advisor but their support network is much more limited.

Another consideration is the value of personal time spent on planning and investing. Is it time well spent or is it taking away from your productive working time or your enjoyable recreation time?

You should take all of these factors into consideration before making your decision of whether to employ the services of a financial advisor.

Choosing a Financial Advisor

By now you have a good idea of the entire investment process. However, it is one thing to know what to expect when you walk into a financial advisor’s office; it is another thing to find an advisor that suits your needs.

The truth is that the same investors who are unprepared or uninterested in handling their personal finances are probably equally unprepared for the task of choosing a financial advisor. There are many great financial advisors but not every one of them will suit your needs.

Multiple Advisors

One school of thought is to use more than one advisor in order to achieve a diversified approach to managing your money. This approach is less efficient than most people realize and can actually do more harm than good.

When managing your personal finances, there are many factors to consider.

It is somewhat like putting the pieces of a jigsaw puzzle together. Now imagine that the pieces of this jigsaw puzzle are scattered among three different offices with three different people trying to imagine what the finished picture should look like. Without knowing whether or not they have the pieces they need, assembling that puzzle would be difficult, if not impossible.

The same applies to your personal finances. Using multiple advisors can lead to overlap and gaps in your investment portfolio as one advisor does not know what the other is doing. It can also lead to incomplete financial plans, the creation of unwanted tax liabilities and overlooked estate planning issues.

Rather than improving your diversification and returns, you run the risk of accomplishing the opposite.

Choosing the right advisor

The alternative is to do your homework ahead of time and find an advisor who suits your needs. The following guidelines can help you make that choice.

Choosing the individual is more important than choosing the firm. The challenge is in finding someone you are comfortable with who can also offer the products and services you require.

It is estimated that there are over 50,000 financial advisors in Canada, including accountants, lawyers and perhaps even your local banker. How do you know which one is right for you?

Trust is critical. A large part of your retirement lifestyle is going to be guided by investment income rather than Canada Pension Plan and Old Age Security cheques. When choosing a financial advisor, find somebody who is willing to listen to your concerns, who demonstrates they understand your personal goals and financial situation, and who you feel good working with.

A good practice is to interview at least two or three financial advisors before making a choice. Here are some things to look for:


Advice involves more than just choosing investments. It can include financial planning advice, the types of accounts that should be opened, help with pension plan questions and help with consolidating accounts.

Investors who are comfortable doing all of that for themselves might be well suited to a discount broker or an online broker. Those who want personalized service and help in those areas and others should work with a full service investment dealer.


Advisors who can offer a full range of products rather than just one type of product, such as a mutual fund, may be more objective with advice on which product best suits the client. A full service investment dealer can offer individual securities such as stocks, bonds and GICs as well as mutual funds and exchange traded funds.

They have a far larger menu from which to choose.

Some advisors may work for firms that sell only products promoted by their firm. Advisors who sell only proprietary products are at a disadvantage because it is far more difficult for them to be objective.


Red flags should go up if an advisor promises better performance than his competitors or if he suggests that he can beat the market. If it could be done, the advisor wouldn’t need a client base; he could simply invest his own money and become wealthy.


An advisor and his firm must have the appropriate credentials.

There are a number of organizations that are involved in the education and oversight of advisors and their firms. One is the Investment Industry Regulatory Organization of Canada or IIROC. There are others as well, such as the Mutual Fund Dealers Association of Canada or MFDA.

Investors should know the organization in which their investment firm holds a membership.

The website for IIROC is

The website for the MFDA is

Advisors must also be licensed. IIROC advisors are licensed to sell individual securities, exchange traded funds and mutual funds with additional licenses available for options trading. MFDA advisors are licensed to sell mutual funds. Trading in commodities requires the advisor to hold a specialized commodities license.

In addition to being licensed to sell products, advisors may carry additional designations, such as CFP (chartered financial planner), CIM (chartered investment manager), CFA (chartered financial analyst) and so on. While these designations indicate that an advisor has completed the required course work, it is not a guarantee they will suit your needs. It is only one of many factors to be considered.

 The other problem with designations is that there are a multitude of them.

Every organization tries to promote its designation as the industry standard but in reality there is no one designation that stands above the rest.

In the accounting profession, the designation CPA tells everyone in the world that the individual is a chartered accountant. In the engineering profession the professional designation is P Eng.

There is no overall equivalent designation in the financial services industry. Developing one designation in the financial services industry is a challenge because each organization wants to protect its own turf.

Experience and History

Investors should check the resume of a potential advisor. In addition to education and credentials, the employment history of a financial advisor should be examined. If the advisor has a history of frequently changing firms, there may be a legitimate reason but it would be wise to investigate further.


While you shouldn’t expect a financial advisor to disclose their level of income, it is worth asking them how they are compensated. If the advisor is forthcoming about his method of compensation and willingly discusses how he is paid on a variety of different products and services, it is a good sign.

On the other hand, if the advisor is reluctant to discuss compensation, the relationship is not getting off to a good start.


Another factor is the preferred method of communication used by the advisor. It they rely heavily on email but you prefer frequent face-to-face meetings, it may not be the best fit. Because the financial services industry relies heavily on communication, it is a good idea for clients and advisors to be on the same page.

Business Style

Some advisors have a business based on active trading, while others take a longer term approach and focus on portfolio management. Know what kind of a financial advisor you want and don’t hesitate to ask a potential advisor what the focus of their business is. It is rare that an advisor can be all things to all people. Be wary of those who think they can. Choose one whose business style best suits your needs.


Most financial advisors work with an administrative assistant. When interviewing an advisor it is a good idea to ask to meet the assistant. At the same time, discuss what role the assistant will play and what role the advisor will play in managing your account.

Many questions, such as requests for a cheque, information about tax receipts or updates on documentation are often handled by the assistant. Because they are part of the team, learn who they are and what their role is. It will form part of your decision.

Friends, colleagues and relatives

If you are aware of someone who deals with a financial advisor, don’t just ask their opinion; ask specific questions. They may be able to provide some insight that can help you make a decision.

Gut Feeling

 Sometimes a first impression goes a long way. If the advisor’s approach makes you feel uncomfortable, the chances are that feeling won’t go away. In this case, it might be to everyone’s advantage to walk away from a situation before a relationship even begins.

Finding a firm

Canadian Securities Administrators has an excellent website () that provides links and information on a host of investment related issues, including finding and working with a financial advisor.

Many of the firms will have websites indicating the location of their nearest office. You can also check the yellow pages at to see which firms have offices in close proximity to where you live.

Similarly, Mutual Fund Dealers Association (MFDA) firms can be checked at:


Choosing an investment advisor is an important decision and several factors should be considered. A checklist may include: 

  • What kind of advice does the advisor provide?
  • What investment and insurance products are available through the advisor?
  • What kind of performance promises does the advisor make?
  • What are the advisor’s credentials?
  • How much experience does the advisor have?
  • Is the advisor willing to discuss how he is compensated?
  • How does the advisor communicate with his clients?
  • What kind of approach does the advisor take when managing portfolios? Does that approach fit with your needs?
  • Who provides the administrative support for the advisor?
  • Who do your friends, relatives and colleagues suggest might be a good advisor?
  • What is your gut feeling when you meet with the advisor?

NEXT: Administrative Details