Is a Financial Advisor the Right Choice for me?
15 March 2023 0
15 March 2023 0

Hal Kenty
(Enriched Academy Financial Coach / CFP)

I was very fortunate that my career eventually evolved into a role that provides a sense of personal satisfaction while allowing me to help others in a very direct way. First, as a financial planner of 21 years with Investors Group and now as a financial coach with Enriched Academy.

I would like to offer my insights on financial advice based on my various career and life experiences over the past seven decades. By the end of this post, I hope you will be better educated and motivated to take the necessary steps to create your own lasting wealth.

If you want help to grow your wealth in Canada, you have a few options when it comes to getting financial advice.

Large Wealth Management Firms

The large wealth management firms and banks dominate the financial advice industry in Canada. They mostly deal in mutual funds but also have capability to help you invest in individual stocks and other types of funds as well. As a CFP with a large investment firm for over twenty years, I became quite familiar with the various services and products these types of wealth advisors can provide.

At the firm I worked at, the expectations were that every client should have a financial plan and retirement plan and that they should be updated on an annual basis. Financial consultants are required to pass the Mutual Fund License Course in order to join the company and are expected to study to become a Certified Financial Planner within three years.

The following list is what you can expect to receive in terms of service from the financial professionals at large wealth management firms:

  • Initial discovery meeting.
  • Annual financial plan and retirement plan updated on an annual basis.
  • Risk tolerance assessment and corresponding investment strategy to achieve your financial goals.
  • Rebalancing of portfolio on a regular basis.
  • Goal setting for debt reduction and growing net worth.
  • Estate needs analysis and planning.
  • Insurance needs analysis.
  • Encouragement to move ALL your investments to their firm.

What are the drawbacks of a financial advisor?

The main drawback of large wealth management firms is their advisors usually get paid on the sale of financial products under their management. This limits the investment advisor’s income options and lowers their motivation to work with lower net worth individuals, particularly those new to investing with smaller portfolios or those who may be struggling with debt. Don’t be surprised if one of their first questions is, how much money do you have to invest? This type of advisor is more suited for higher net worth clients who want a hands-off approach and do not mind paying higher financial advisor fees.

For individuals who want to become financially literate and get more involved with decision making or pursue alternative investing strategies (real estate, private lending etc.) they will find very little emphasis on education and training with the large wealth management firms. In fact, promoting alternate investing is not usually allowed.

Should you get a personal financial advisor?

The main advantage of a personal financial advisor is they provide comprehensive service with very little work required on your behalf.  Although they often rely heavily on mutual funds and you need to be wary of MER and other fees, they are financial experts with whom you can build a long-term, trusting relationship. Clients get a comfortable feeling that they are dealing with a professional and reliable advisor.

How about the financial advisors at my Bank?

The big Canadian Banks can offer a range of wealth management services that is similar to those offered by the large investment firms. They have the added advantage of offering a comprehensive range of banking products and services and conveniently integrating them with their investing services.

What are the drawbacks? Banks are in the business of taking in money and lending it back out for a profit, hence the same issue arises as with wealth management firms.  If you don’t have a lot of money, you may not get a lot of attention and nothing in the way of personalized service. Their financial advisor services are mostly provided for high-net-worth clients and their insurance offerings focus on critical insurance products that are primarily intended to pay off mortgages.

What is a fee-only financial advisor?

Fee-only financial advisors are just as their name implies, they charge a fee for handling the services you request, rather than trying to generate commissions by selling you financial products. Their list of services can be comprehensive — they may act as an investment planner or retirement advisor, or they may provide financial planning, debt consolidation, insurance analysis or many of the other services you can get from a full-service wealth management firm.

How much do fee-only financial advisors charge?

Paying only for the services and financial guidance you need and ask for sounds attractive. You will not have any ongoing management fee or bias toward a specific financial product. However, the quality and price of their financial planning advice may vary greatly. If you google “fee-for-service advisor”, you will see hourly rates from as low as $10/hour to over $200/hour. A typical service will advertise a generic review and recommendation for around $800 and a customized plan for around $1800.

The other issue is how to choose a good financial advisor? If you choose an advisor who isn’t very competent or doesn’t take the time to properly understand your situation or explain things, you may not fully understand the risk or lack confidence in their plan. In addition, every time you have a question or need a follow up, it may end up costing you more.  

Financial advisor vs financial Coach

There are several key reasons that I am passionate about the Enriched Academy financial coaching program. The first is that I am able to offer the same level of professional service to every individual who signs up, regardless of their financial situation. The program costs the same and offers the same high-quality financial advice for high net-worth individuals as it does for those who are in debt or living paycheque to paycheque.

The fees for our one-on-one coaching program are relatively low compared to the annual management fees of a wealth management firm or fee-only financial advisor. The Enriched Academy program also provides lifetime access to a continuously updated training portal with all sorts of analytical tools at no additional cost.

Financial coaching also covers the entire spectrum of your financial situation: cash flow and expense management, budgeting, saving strategies, all types of investing (RRSP, TFSA, income properties, other passive income investments), debt management, building credit, wills, insurance, and retirement planning. If we see a particular need, we can go into more detail on any particular area.

While cost and the scope of services are important differentiators, the biggest benefit of a having a financial coach is that you become financially literate. You will learn to understand and analyze your financial situation and the available options, so you can make highly informed decisions regarding your financial future. This knowledge is very valuable for your confidence and peace of mind, even if you do come to rely on a professional for at least some of your financial advice. Issues like estate planning can be very complex and seeking quality professional advice is never a bad idea.

A financial coach is both educator and advisor. A coach teaches you the facts and provides a structured plan, an impartial opinion, and plenty of motivation and inspiration – but the decisions are ultimately up to you. The focus is on equipping you with the confidence and knowledge to make solid financial decisions.  If you want to be 100% hands-off money management and leave the decision making up to someone else, coaching is not a good fit for you.

Aside from the education and financial guidance, there are also intangible benefits to a money coach. Many people have trouble shifting from the learning phase (like reading this blog) to the action phase (purchasing an index fund online for example). A coach provides the motivation, structure and accountability to boost confidence and helps  turn complacency into actions that build a robust financial plan.

In Summary

Becoming successful financially starts with the knowledge that to earn more, you must learn more. The journey to financial freedom is not a get-rich-quick scheme. As evidence, a high percentage of people who win the lottery end up having less money three years later than what they had before they hit the jackpot. Professional athletes make millions of dollars but are disproportionately likely to end up bankrupt compared to your average citizen.

The missing factor in both cases is poor knowledge and a lack of learned financial responsibility that would have equipped them to protect and grow their wealth. It is precisely this financial knowledge and literacy that Enriched Academy is focused on providing to their clients.

Leave a reply