A dad recently got in touch to ask for some thoughts on how his adult son could find a financial planner.
“My advice is to steer clear of advisers pushing company products,” the dad wrote. “But I also read of financial planners being charged with Ponzi schemes. Surely there must be ways to find reliable, honest planners.”
There are definitely ways to find a reputable planner, but there’s a bigger issue that must be addressed first. It’s the term financial planning itself. Some financial planners provide only guidance, without selling investment products or investment advice. They charge an hourly or flat rate and can provide services ranging from a comprehensive full plan to a consultation on a specific question like the affordability of buying a home or readiness to retire.
The term financial planner can also include people who sell investments and investment advice as well as some degree of planning. The question I throw out to this dad and his son is whether they want a planner who focuses on financial guidance, or someone who also sells and manages investments.
Fee-for-service planners – the ones who focus on planning and charge an hourly or flat rate – are coming into their own in the Canadian market. Some have flexible rates that can accommodate young clients, while others focus more on the medium to higher net worth market. Planners who sell and manage investments are typically paid through fees and commissions. A typical fee would be 1.5 per cent of the value of your investments, with the money taken out of your investment account. Fees on investment products would be extra.
With a fee-for-service planner, your big risk is weak skills or incompetence. You minimize that risk by ensuring the planner has accreditation like the Certified Financial Planner, or CFP; the Registered Financial Planner, or RFP; or, the Personal Financial Planner, or PFP.
With all types of planners, you can check for a disciplinary history. But the real test is how the planner comes across in an introductory interview. You ideally want someone who emphasizes planning more than investments and who asks lots of questions about your current financial position and your goals. Financial plans drive the choice of investment – putting investments first is a turnoff.
Some tools for finding a reputable planner:
- As a starting point, consult a directory of planners and money coaches, and a list of planners who work on a fee-for-service basis.
- Google a planner to get a sense of how they operate by looking at their website, LinkedIn page and social media posts.
- Check the disciplinary history of CFPs using FP Canada’s Find A Planner search tool.
- Dig deeper by consulting this national database of individuals and companies disciplined by provincial securities regulators and other bodies.
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Rob’s personal finance reading list
Hello, 6 per cent
The latest Savers Roundup from HighInterestSavings.ca includes a mention of a rate teaser from an online bank offering 6 per cent for the first five months on a savings account. Another example of how high rates are delivering the best returns in decades for savers. By the way, rate teasers can lull you into thinking you’re getting better returns than you actually are. Getting 6 per cent for five months is great, but what about the other seven months of the year?
A Loblaws vs. Costco smackdown
A comparison of prices on a variety of grocery items, including bread, eggs, yogurt and toilet paper. The conclusion is interesting because it considers both price and the quantity you’re getting for the buck. Now, for a Costo vs Walmart comparison.
Gen Z and millennials are reaching life’s milestones at a later age than previous generations, which strikes me as fine because lifespans are increasing. But an argument is made here that there is something more going on – an “extended adolescence” in which young adults are encouraged in their spending to prioritize themselves and their needs.
Canada’s ETF innovations
The U.S. market for exchange-traded funds is vastly larger than ours, but Canadian ETF companies have been innovators. Here are three examples.
Q: The government is allowing greedflation and the Bank of Canada is penalizing mortgage holders and borrowers in general, who are frequently the most vulnerable. Why can’t this be stopped?
A: I have also wondered if companies are using inflation as a smokescreen for raising prices to juice profits. But the Bank of Canada recently issued a paper saying that growth in price markups has not been a noteworthy contributor to rising prices. The Bank of Canada has raised interest rates to cool inflation, which is absolutely toxic to an economy and cannot be left unchecked. There’s definitely a debate to be had about whether the central bank waited too long to raise rates and thus has to leave borrowing costs higher for longer than it would have otherwise had to. But “stopping” the Bank of Canada would set a bad precedent of interference. The bank is independent of government and other parties, and that’s how it should be.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
A primer on disability insurance, which pays out a percentage of your income if you’re unable to work as a result of illness or an accident.
The money-free zone
Barbie and Oppenheimer are both worth seeing, but the movie I’ve enjoyed the most so far this summer is Past Lives, by the Canadian director Celia Song. A quietly beautiful movie about longing, regret and moving forward, built on the story of a young Korean woman who moves with her family to Canada and then on to New York.
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
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- ✔️ The housing file: A house isn’t special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home downpayment in Canada’s big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here’s how to time the eventual rollback of interest rates
- 📈 Investing: Canada’s top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer’s guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle