Taking Financial Ownership

Ask Lisa: If I don’t have a lot of savings, is long-term planning impossible?

Dear Lisa,

I’m married, in my 30’s, with a two-year-old and another one on the way. I have an RRSP, an RESP, and a little under $10,000 in investments through an employee benefit program. I also have a small mortgage and no debt outside of that.

However, with daycare fees and fixed monthly expenses, I have very little in my savings accounts; a picture that will unlikely change as I will soon be on maternity leave. After that, my childcare costs will double.

Lately, planning for retirement has been on my mind. Even though I’ve always made financial decisions with my partner, I feel that now I need the help of a planner or advisor. So, my question is, how do I find one? Should I seek an independent? Or look to a large financial institution? Or maybe go the robo-advisor route?  Since I don’t have a lot of money to invest, I’m wondering if it’s worth investing in fees and upfront costs of getting advice. Would I embarrass myself if I were to go to a professional and present them with such little assets?

I know I need a long-term game plan. And I’m worried about my savings account (which I depleted during my first maternity leave ☹).

What direction should I take?

–       Lost Mama


Dear Lost Mama,

A quote from Ellen Degeneres comes to mind:

Never follow anyone else’s path, unless you’re in the woods and you’re lost, and you see a path. Then, by all means, follow that path.

Navigating the world of financial advice can feel a bit like being lost in the woods. Except instead of finding one path to follow, there are a bunch of paths – 67 to be exact! That’s right – there are 67 different professional designations listed in the database of financial certifications on the Investment Industry Regulatory Organization of Canada website. With that many choices, it’s hard to know which direction to take when looking for an advisor.

Let’s create a map to guide you to the advice you’re looking for.


First, know what you need

Many of the financial advisors out there can be broadly grouped into one of two categories: planners and implementers. What does this mean? Consider the healthcare industry: you visit a doctor for advice on your overall health, and a pharmacist to fill your prescriptions. Similarly, in the financial industry, some professionals can advise on your overall financial health (by preparing a comprehensive financial plan), and others are more focused on implementing the plan (with products like investments and insurance).

Wealthsimple is a great example of an implementer. Like the other robo-advisors, they have automated the process of selecting investment products and do it at a very reasonable price. However, they’re currently not offering comprehensive financial plans.

Unless you’re comfortable assessing and diagnosing your financial health, you’ll want to work with an advisor first to build your plan, then someone (human or robo) to select the products you need to implement it.

Sometimes these roles are filled by the same person, which leads me to my next point.


Know what to look for

You’d think that your advisor’s job title would help you understand which type of financial advisor you’re speaking to. Unfortunately, the terms “financial advisor” and “financial planner” are not regulated in Canada (outside of Quebec), and some individuals who use these titles focus on selling products, not providing advice.

To make sure you’re working with someone who has the right expertise to build your financial plan, you’ll want to look for credentials. Here are a few to watch for:


For comprehensive financial plans:

  •    Certified Financial Planner (CFP)
  •    Financial Planning Standards Council Level 1 Certificant (FPCS1)
  •    Registered Financial Planner (RFP)

For investment plans and portfolio management:

  •    Chartered Investment Management (CIM)
  •    Chartered Financial Analyst (CFA)

Having a some of these letters after your name is certainly an indicator of professionalism and competence, but there’s one more thing I think you should consider.


Know how your advisor is compensated

You know that phrase “no such thing as a free lunch”? It definitely applies here. There are professionals who offer a plan at “no cost” – but who are we kidding, unless you’re a volunteer, no one works for free. The truth is, there is a cost to the plan. You’re just not paying for it directly. You’re paying for it either through commissions or a management fee.


Here are three standard fee models you might see:

  •     Commission-based planners are compensated by the financial institutions who back the products they sell. This is an indirect cost to you, built into the price of the product.
  •    Assets-under-management refers to a structure where you pay a fee equal to a percentage of the money being managed by your advisor. This is an indirect cost to you, paid out of your investment portfolio funds.
  •    Fee-for-service, or fee-only planners, provide financial advice and expertise for a flat fee. They may or may not sell products. This is a direct cost paid you.


A financial advisor could be compensated by one of these methods or a combination. 

I think it’s important to understand exactly how your advisor is compensated as it could influence their motivation and where they focus their attention. I might be biased, but for a comprehensive financial plan, I think a fee-only planner is the way to go. When implementing your plan with investment and insurance products, assets-under-management and commissions make sense.

Now that you’re armed with the information you need to select your financial advisor – where do you start your search?


Know where to look

Personally, I think the best way to choose an advisor is to ask your family and friends who they are working with and who they would recommend. Many of my clients find me through referrals!

There are also online databases, like this one from Money Sense, where you can search based on location and type of service. Or, try visiting the website for the designations listed above – most of them will have a tool to help you “find a professional”.


The journey of a thousand miles begins with a single step

Please don’t let embarrassment hold you back from seeking the advice you need! To use another analogy, that’s a bit like worrying that you’re too out-of-shape to hire a personal trainer or join a weight-loss group. There are many financial planners out there (especially the fee-only kind) who love to work with young families and professionals just starting out on their financial journey.

Is it worth investing in fees and upfront costs? I think so! A comprehensive financial plan gives you a clear vision of where you’re heading – that’s the direction you’re looking to go. Plus, the earlier you get your money to work for you, the bigger your investments will grow. And the better you’ll feel about your savings account.


The views and opinions expressed in this column are those of the contributor and do not necessarily reflect those of Equitable Bank. Any information provided is for information purposes only and Equitable Bank makes no representations as to the validity, accuracy, completeness or suitability of any content. You should seek the advice of a qualified professional or undertake your own research before making financial decisions.

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