Working with a financial advisor can be rewarding, but do your research first

Since I first entered the personal finance industry 27 years ago, there has been a recurring debate about the role of financial planners and advisers and how they serve the Canadian public. Today, in 2011, the issues and questions have not really changed. A simplistic way of looking at it is this – does your adviser make money (commission) from the products he recommends (sells) to you, or does s/he charge you solely for advice? Or maybe s/he is a combination of the two.

Or perhaps you seek financial wisdom from your accountant, or your tax return preparer? Maybe your bank?

Regulators and media types wring their hands over this question. Attempts to clarify the playing field have largely, in my opinion, been unsuccessful. They try to legislate who has the right to call themselves a financial planner, and to foist educational standards on industry participants.

Financial planners can have many designations behind their name, but mortgage brokers can just have one!

The sad truth is that in the real world almost anyone can call themselves a financial planner – and regardless of the regulators’ huffing and puffing, do so unimpeded.

Some feel the way to protect the public is to foist higher education on financial planners, rewarding them with a fancy designation they can put after their names. CFP, PFP, RFP, and CH.F.C.for financial planners; CIP, FCIP, and CLU for insurance professionals, and AMP for mortgage broker agents. Stockbrokers and mutual funds sales people can aspire to be a CFA (rarely), an FCSI, or a CFP.

With so many designations available, and no standard approach across industry sectors, it is no wonder the public is confused – if the personal finance industry itself cannot agree on this stuff, then who can?

At least the mortgage industry has one, and only one, official designation beyond the basic mortgage broker agent license, and that is AMP – Accredited Mortgage Professional.

It is a fact financial sales people must study, pass exams, and pay for licenses to enable them to sell their products and services. Examples are stockbrokers, insurance salespeople, mortgage broker agents, and mutual fund sales people.

Working on commission is not always a bad thing

And there is absolutely nothing wrong with you working with someone on commission – it’s the way of the world. This does not make them a bad person. Just as fee-based financial planners are not necessarily all saints and financial experts with extraordinary talent.

I don’t have the energy or the patience to standardize the industry – there’s no money in it for me, and I am not sure enough people truly care.

In my experience the most accomplished and financially secure individuals I have met either educated themselves, or surrounded themselves with honest, competent, hard working financial specialists who put their client interests first at all times.

As a consumer, there are a few basic things you need to know before you retain the services of a personal finance professional. It starts with ‘don’t jump in blindly to a new relationship, and then cry foul later if you are not happy’. Follow the common sense guidelines below, and you will be ahead of the vast majority of Canadians.

1. There should be no such thing as a stupid, ill informed consumer anymore. If you are one of these, it is your choice. There is an amazing amount of free information in the public domain, so if you don’t do some research and self education before you jump into something new, you are simply hoping for the best, and good luck to you.
2. Ask your friends and family who they work with for the various aspects of their personal finances. Ask them why? Ask them if they are happy with the service levels; their professional’s ability to set and surpass expectations; and the result of the services they have engaged.
3. When you meet with a new personal finance subject matter expert, take the time to get to know this person. Can you envision working with them over a period of years? Do you have a good feeling about this person?
4. Ask for several client references you can contact, and do follow up with these references. Every prospective client in my office is invited to go into my file cabinet and pick any three files at random, and ask if they can contact these people to discuss me and my services. Interestingly, few take me up on the offer, but believe me, they understand that if I have the confidence to allow them to control who they can seek references from, either I am a supreme B.S. artist or I actually “walk the walk”, and not just “talk the talk”.
5. Ask the industry expert for demonstrable proof they have and can deliver the kind of results you and s/he are expecting to achieve together. Ask about their experience and their level of education. (Notwithstanding my commentary above, any professional who has invested time and money to improve and upgrade their knowledge deserves at least some recognition for that)
6. Ask them if they use their own services and follow their own advice.

The longer I make this list, the more of you I will lose. None of this is rocket science. Keep it simple and smart. Put some effort into your personal finances, and the rewards will be substantive and perhaps even life changing.

You can go it alone – a few people do, with varying degrees of success. Or you can surround yourself with subject matter experts (as I do for my own personal finances). Doing nothing is not wise.

And let the industry thrash around with its attempts to standardize things – they are going nowhere fast. The ball is in your court.

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