This is a guest post by Robert, who lives in Calgary and
works as a financial adviser retired at 34. He is married, has three kids. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
A gentleman approached me at church because he found out that I worked as a stockbroker and financial planner. He started asking me questions about investment accounts and retirement savings. He told me that he had met with a couple different “advisors”, but ended up investing his RRSP at the bank. He wanted to be reassured that he had made the right decision. When we talked about why he made his decision, I realized that he was really wondering who he could trust.
Insurance Salesman. It is said that a man with a hammer sees every problem as a nail. Likewise, from talking with an insurance salesman, my friend got the impression that every financial problem can be solved with insurance. The intended use is to provide for your dependents at your death. A person could also use it to pay taxes in their estate or to divide their estate privately and unequally. It could be used for a chartiable donation. It could even be used for education savings for children (I’ve been told). Many of these secondary uses are more complex and expensive than other tools. While I believe that the majority of insurance brokers can be trusted with insurance sales, they may not be qualified financial planners.
Mutual Fund Salesman. Like insurance, mutual funds are a tool. Whether or not the salesperson offers good advice depends on their training and motivation. Personally, I would look for a qualification like CFP (certified financial planner) before trusting that their advice is better than an online calculator.
Bank Advisor. This is what my friend ended up choosing. Advisors at the bank may not have access to as large a toolbox as a mutual fund salesperson, but there’s little difference between Canadian Large-Cap Dividend mutual funds, and most banks have very good offerings. In addition, the bank needs to protect its reputation, so these advisors likely have received a certain amount of training. They can also usually refer you to other sections of the bank as your needs change: chequing, lending, GICs, mutual funds, insurance and stocks or bonds. My friend was concerned, because he got his first mortgage through the bank, but renewed with a broker. The difference in price caused him to mistrust the bank. But when it comes to investments, the price difference is minor and he likely made a good choice.
Stock Broker. A stock broker, especially one that earns an annual fee rather than a commission on each trade, usually has a certain level of experience and professionalism. When I worked as a stockbroker, I had a number of new clients who arrived with accounts from other institutions. I often shook my head over the ones who arrived from a mutual fund salesperson, but most of the ones that arrived from stockbrokers had very reasonable portfolios. I remember one couple who complained that their broker didn’t pay much attention to their account over the past couple years, and wouldn’t recommend any changes. It was a small RESP with just two stocks, but I found that it had far outpaced the index. It’s too bad they didn’t have confidence in his advice, which had served them so well.
When it really comes down to it, trust isn’t based on a job title. Trust comes from knowing that your advisor is competent (eg. from training and experience) and honest (eg. puts the client’s interest first). You can judge whether or not an advisor is trustworthy from their background, but also from the types of questions they ask to understand your needs and from the feeling you get from being with them. It may not be easy to determine, but most people will do very well to start at their bank. They can interview prospective advisors until they are comfortable with one and their account has grown to a size that will benefit from a higher level of customization.
Who do you trust when discussing money issues? If it’s another person, how can you tell he or she is honest? If it’s yourself, how do you know you’re competent?