Canadians still making mistake of choosing financial planner based on blind trust

With so much uncertainty and volatility in financial markets and world economies, getting good advice from a qualified financial adviser or planner is more important than ever.

With so much uncertainty and volatility in financial markets and world economies, getting good advice from a qualified financial adviser or planner is more important than ever.

Unfortunately, many Canadians still are operating on blind trust when choosing a financial or retirement planner.

A study for the Financial Planning Standards Council (FPSC) has found that many Canadians operate on blind trust when choosing someone to help them with their financial and retirement planning and generally are misinformed about the qualifications and ethical obligations of planners.

“We strongly encourage Canadians to seek advice for their financial planning needs but also to make sure they hire smart,” said Cary List, CEO of FPSC, which sets the standards and oversees enforcement of the certified financial planner (CFP) designation. “Poor hiring literacy can put Canadians at risk of engaging individuals who may not be appropriately qualified to meet their needs.”

Finding a good adviser is not that easy because financial advice largely is unregulated in Canada.

Current regulation is piecemeal and is based on selling investment products such as stocks, mutual funds and insurance. Advisers need to have appropriate licences to sell products, but there is no government-enforced standard or mandatory professional oversight for competent, ethical and professional behaviours.

Financial planners in Canada can have varied training, qualifications and experience. Some may call themselves a financial planner while others may be a financial adviser, financial consultant or investment adviser, to name just a few. This situation exists because financial planning is not regulated in any province or territory, except Quebec.

There are many financial planning designations which offer a combination of training and experience. Most require training in money management, investing, tax, estate planning and insurance and some also include ethics and a voluntary code of conduct.

Some of the financial planning credentials on the market include CFP, personal financial planner (PFP), chartered financial consultant (ChFC) and registered financial planner (RFP). Additional qualification financial planners hold may include chartered accountant (CA), certified general accountant (CGA), investment dealer, mutual fund dealer and insurance broker.

The Investor Education Fund offers a number of tips to make your choosing a financial planner more successful.

First, choose someone who can meet your goals and need. If you want a planner to provide investment advice, choose someone who is registered with their securities regulator. If insurance is a priority, look for an insurance licence.

Check each potential planner’s qualifications and background. Find out if they have any credentials and call their professional associations to see if there are any complaints against them.

Interview more than one person and ask about their education, experience, specialities and customers, what kinds of investment products or services they’re registered to sell, how they’re paid and if they’ve been subject to any disciplinary action by any association or regulator.

Ask for references from clients with similar needs to yours and find out if the planner works with any other professionals such as lawyers, accountants or insurance agents, and ask these individuals for references.

Ask how the planner is paid and compare their fees with others. Make sure you get a letter outlining the specific terms of your agreement and get a notice in writing of any changes to compensation structure during your relationship.

And understand any conflicts. If your planner is qualified to buy and sell investments, understand how they choose investments for you. Do they recommend a wide variety of products or just those their firm sells? Do they make more money from one investment than another and do they make money from sales fees every time you buy and sell?

Doing some homework and asking the right questions can help ensure you get a planner or adviser who is right for you.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.