There are people out there in the world who are trained to manage other people’s money. They’re called financial advisors and a well-chosen one can serve a meaningful purpose in your life if you actually need the help.
Let’s begin by explaining how a relationship with a financial advisor generally works. It’s pretty simple: you hire one to handle your investments and help you build a financial plan and you pay them a fixed percentage of those investments— usually around 1%—every year for their services. Certain financial advisors will opt for a flat fee instead because they consider it fairer to be paid the same no matter the client they’re working with. Notice how that’s not the case with a 1% yearly fee, because the more you invest, the more that 1% will represent.
We’ve already learned about reasonable return expectations when investing in a diversified portfolio of stocks and bonds, so what could possibly make it worth it to give up as much as 1% of that return every year to have a trusty advisor by your side?
You don’t have the time. It’s totally understandable if your life and work don’t leave you with the time you need to learn how to invest, much less manage those investments in a confident way on a regular basis. When family and career are your priorities, you’ll be able to give your all to them by interviewing a handful of advisors to find the right one for you.
You don’t have the mind. In this scenario, you could have all the time in the world but zero interest in acquiring investment knowledge. For some, the subject is such a bore to the point of being upsetting and I get it. Everything is not for everyone, and it’s senseless to be ashamed of that. That’s why experts exist in any field who can help you for a reasonable fee. And in many cases, like tax planning, and wills and estates, you’re going to require a level of expertise that probably isn’t feasible to pick up by reading up on it over the weekends. In many cases, you want the confidence of a professional having done the thing right.
You can afford the convenience. The beauty of money is that it can buy your freedom. Just like you may be perfectly able to clean your house once a week, but choose to pay someone to do it to free up a few hours for family time on the weekends, the same can be said for the work involved with managing your financial affairs. If you’d rather be doing something else, and can pay an advisor to take care of your money, going ahead and doing that will add value to your existence.
Now, what qualities does a stellar financial advisor exhibit?
- They should be a fiduciary, meaning they are legally obliged to act in your best interest. Most advisors in Canada are not fiduciaries but are ruled instead by the suitability rule, which leaves room for them to line their pockets by selling you funds with higher fees, even though you could buy cheaper ones and still meet your financial goals.
- Expanding on the last point, advisors shouldn’t be able to sell you an investment fund with a higher fee—and a higher commission for them—even though cheaper options exist that serve the same purpose. That’s called a conflict of interest. It’s your money, so as much of it as possible should stay in your pockets.
- Finally, and it may sound obvious, but your financial advisor should be on your level. You should be able to speak to them frankly about your goals with trust and without judgement and build a meaningful relationship over the coming decades. They should also explain everything they do with your money with patience and in layperson’s terms you are sure to comprehend.
If you put the points we’ve discussed into practice, you’ll find exceptional financial professionals to have in your corner and grow your money responsibly over time. On the flip side, if you’re more than willing to learn how to invest for yourself, there are plenty of books and videos out there to get you started. Consider my new book, Nine Steps to Successful Investing: A Guide for Young Canadians, to begin your investing journey and improve your financial health in no more than an afternoon.
I’m also available to teach you 1-on-1 over Zoom if you prefer.
Feel free to drop any questions in the comments!
Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.