What to know when shopping for financial advice in a sea of titles and credentials
TORONTO — Choosing a financial adviser is a big decision, yet few investors realize that in most provinces there’s a lack of specific, harmonized regulation of professionals who provide that type of service.
An expert panel set up by the Ontario government has made several recommendations to deal with major concerns, including the myriad of confusing titles and credentials and the lack of an explicit obligation to act in a client’s best interest.
However, that hasn’t stopped investors from increasingly relying on financial advisory services.
A 2016 study by the Canadian Securities Administrators found that 56 per cent of respondents were working with an adviser, up from 43 per cent a decade earlier.
For those considering working with an adviser, experts recommend taking these steps before making a choice:
Marian Passmore, director of policy for investor advocacy group FAIR Canada, says securities regulators will only register firms and individuals if they are properly qualified. So check an adviser’s registrations.
“A lot of people don’t do that,” Passmore says. “If they had done so, they may have not lost their money.”
A good place to start, says Passmore, is the CSA’s AreTheyRegistered.ca site, which allows you to search for any licensed investment adviser. Keep in mind, however, that insurance and financial planners won’t be on that site unless they’re also licensed investment advisers.
The CSA website also allows you to see if your licensed adviser has ever been disciplined for misconduct.
Ask about products and services offered
Not all advisers offer the same products and services and not all have the same expertise, so it’s important for consumers to understand the differences.
For instance, most investment advisers are licensed by either the Mutual Fund Dealers Association or the Investment Industry Regulatory Organization of Canada. But while most MFDA-licensed advisers deal only in mutual funds, IIROC advisers can also offer other products including stocks and exchange-traded funds.
In the case of financial planning services — whether that’s to reduce taxes, save for a big purchase or to retire in comfort — there are dozens of designations and investors will likely have a hard time distinguishing between them.
“IIROC has over 30 credentials that people have but that doesn’t really tell you how difficult or onerous those credentials are,” says Passmore.
The certified planner certification is a reputable designation for those who want a combination of sound investment advice and financial planning know-how, says Ken Kivenko, an investor advocate who is also chairman of the Small Investor Protection Association’s advisory committee.
“They can go beyond the straight investing phase,” Kivenko says. “They do holistic plans.”
Assess the cost of advice
Because advisers can be paid by salary, commission, a flat fee or a combination of methods, it’s important to make sure you understand how your adviser is paid, how much their services will cost, and how this may affect the advice you’re given.
For instance, many advisers are paid a commission for every product they sell, which may influence an adviser to recommend one investment over another, according to the CSA.
But keeping fees and other investment-related costs low has been proven to be one of the best and easiest ways to help your savings grow.
A fund with low fees, such as indexed mutual funds and exchange-traded funds, has an automatic head start over higher-cost rivals for returns — and compounded over years the advantage can grow even more powerful.
David Hodges, The Canadian Press
Edited on 7 April 2017