What to look for in a financial planner


How do I find a competent financial planner? The question seems simple, but within this job title lies a vast puzzle of what the words mean, who does what, and what the work is worth.

There are 213 professional designations that have something to do with financial planning, according to the Financial Industry Regulatory Authority, FINRA for short, formerly called the National Association of Securities Dealers. The list begins with “Three-Dimensional Wealth Practitioner,” continues with “Sisterly Assurance Advisor,” and ends with “Wealth Management Specialist.” The most common references for planning are the Certified Financial Planner (CFP) and the Registered Financial Planner (RFP), both of which are used in Canada. They are widely and often used on business cards and wall plaques.

The search for a real financial planner in Canada should start with the plaque on the wall. Two designations are widely understood to attest to a level of competence. The basic Certified Financial Planner designation, which requires a course of study, passing tests, and traditionally involves some sort of apprenticeship and a national credentialing exam. The next level, Certified Financial Planner, requires all of that, plus additional training to provide more detailed and comprehensive financial plans, says Don Forbes, who is based in Carberry, Manitoba, and is both certified and checked in. “Obtaining these accreditations is a demanding educational process,” he explains.

To develop a financial plan, qualified RFPs and CFPs are appropriate, says Caroline Nalbantoglu, a planner who heads CNal Financial Planning in Montreal. In all provinces, RFP and CFP are basic qualifications, she notes.

The purpose of titles and clearances is to separate trained planners from aspiring ones. Many people are attracted to selling financial products such as mutual funds. Large up-front commissions, fees on fixed annual rate accounts as well as trailing fees that can transfer money from the client to the planner for as long as the client holds the fund are common.

Paul Edmond is a CFP based in Winnipeg. His company, Groupe Financier Edmond, is well established and respected. His company lists nearly two dozen questions to ask anyone who wants to take your money to plan.

At the top of the list are qualifications, that is, a certificate or more on the wall showing training. Next is accessibility – is there someone to answer questions even if the planner is on vacation? So how do you pay the planner? Is it hourly, by commission on products sold, by specific task, or by time spent on a file or problem? Also, the philosophy – does the planner crave value stocks that are cheap by certain standards, stocks that rise in value rapidly, mutual funds, or exchange-traded funds with mixes of various types of stocks and bonds.

Another important question is how is the planner paid, based on work done or a percentage of assets under management? Salaried planners at banks and credit unions are paid to sell products. Their advice may be good, but they are not selfless. There is also the question of putting money in.

“We never accept money from anyone for the Edmond Financial Group,” explains Edmond. “It’s always a check or a debit for our trustee or the back office company.” With the big banks selling mutual funds, outright fraud is too unlikely to worry about. But individual planners have been doomed for a lot. The rule is never to write a check to an individual. If you are asked to do so, make sure the doorknob does not hit you when exiting.

The list of planners and investors who stole clients includes, of course, the late Bernie Madoff, history’s greatest schemer. Additionally, Allen Stanford, an American once on the Forbes list and believed to be worth $2.2 billion at one point, was on the list. Canadian Henry Cole, who diverted money from a major bank to his personal numbered company, was on the list. There’s a moral: Avoid anyone who offers a tax avoidance scheme with an investment.

What is planning worth?

The offhand answer is whatever it gets you in terms of above-average returns in your markets. If a planner’s advice beats the Dow Jones Industrial Average or the S&P/TSX for a few years, you might think he’s good at it. Not necessarily. Planners and investment advice providers can make a lot of risky bets in various portfolios.

Winning portfolios are announced, losers languish in obscurity or have their assets merged with winners. This is called “survivor bias” and it cannot be tracked or measured. After all, what is the performance of a fund that is no longer listed and that was put to death a few years ago? He may have been a winner for a decade, but a terrible flop in his last two years. Failing to follow risky funds can cost some investors their fortunes. Ensure you get persistent returns above the relevant indices. It’s what you pay for, after all.

What can you do to make sure the advisor who wants your business is legitimate? Ask who employs him. If it is a chartered bank, the planner will be supervised by supervisors. His advice may be poor, but if the funds are in the accounts of a major bank, outright theft is too remote a possibility to worry about.

Does the planner, especially if independent, have errors and omissions insurance? If so, then there is an outside entity, an insurance company, that has been convinced that the advisory or planning activity is at least what it claims to be. Who employs the planner and what is the hierarchy of managers?

Does the planner have an easily understandable load menu? If so, read it. If not, ask why. Get a written estimate or contract for the work to be done and what it will cost.

Also, what is the investment reporting process? Will there be monthly or quarterly reports? Reports on the status of financial plans? Reports showing how recommended investments, for example, perform against category averages? Will you pay any fees outside of the fund, such as a monthly or quarterly bill, or will the fees simply be deducted from your wallet? In the latter case, the charges may trigger asset sales and possibly capital gains taxes.

Finally, and this is the most effective protection of all, study the financial markets, funds and stocks for yourself. There are many books, online reporting services for funds, such as Morningstar, access to bond appraisers like S&P (although you won’t get detailed reports without paying high fees), and simple questions – do you have any big business clients that you can name (big planners will do that proudly). And, are your own manager’s financial statements available? Check the footnotes. Any disputes will likely be listed.

Due diligence has its rewards.


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