Hiring a financial advisor is an important decision

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You’ve decided to hire a financial advisor. But who do you choose? Deciding which advisor to work with can be difficult and maybe even a little daunting. Here are a few ideas on how to make that decision.

Like most purchasing decisions it comes down to what is being offered and at what cost.

I will start with the cost because many financial services consumers are unaware of how their financial advisor is paid.

Some financial advisors are remunerated based on commissions on investment products sold to their clients. Ongoing “trailer commissions” can be paid to your advisor from mutual fund companies based on the mutual funds you own that are linked to your financial advisor.

A potential problem with commission-based payment methods is a conflict of interest or at least a perceived conflict of interest.

Does a commission-based model encourage the financial advisor to recommend more buying and selling of investments? Or does it encourage the recommendations of investment products that pay a higher level of commission?

An alternative option is a fee-only advisor. No commissions are paid.

Fees can be a specific fixed amount per year, an hourly fee based on time spent, or a per cent of assets under management.

Receiving professional financial advice has a cost and it is in your best interest to fully understand how those costs are determined. Receiving financial advice is an important business relationship and understanding the cost is important.

The next thing to understand is what services are being offered. This can range from an annual call reminding you to make your RRSP contribution to comprehensive financial planning.

Comprehensive financial planning will include topics such as reducing debt, preparing to assist your children or grandchildren with the cost of post-secondary education or planning for retirement. Other services include tax planning, insurance planning, and estate planning.

Deciding which financial advisor to choose is no different than many other important decisions you make. You need to be informed. A good place to start is to understand the services provided and the costs. Then make the decision that is in your best interest.