The financial world today is highly complex. New products come to market all the time. Often these products are not easy for the average investor to use or even understand. It can be difficult to sort out the choices you need to make to plan for - and protect - your financial future.
But at what point do you decide you need the help of a financial planner? There's no single right answer. Some people say that unless you have more than $150,000 in savings and an income of at least six figures, you can do your own planning - if you have the interest and time. Others say that everyone should have a financial planner.
Here are the top three reasons you may decide to hire a qualified financial planner.
Top 3 reasons to hire a financial planner
Financial planners are not the same thing as an investment adviser or broker. They offer a much broader set of skills. You may choose to work with a financial planner for one or more of these reasons.
- You don't feel ready or able to put together a proper financial plan. Many people don't have the time, interest or knowledge to create a solid financial plan. For instance, you may not know ways to improve your tax situation. Or, how to plan for your retirement. Financial planners can help you put your finances in order. They know how to deal with the 'big picture'. They will work with you to help you plan for life's twists and turns and to improve your overall financial life. Did you know? Investor Education Fund recently surveyed 1,000 Ontarians on their financial knowledge. The survey found that their knowledge of financial planning and setting goals was quite low. Learn more now about our financial literacy survey
- Your life has changed and you don’t know what changes to make to your financial plan. With a new job, for example, you may have more money. You will also have more decisions to make. What should you do? Save, spend, or pay down debt? When you get married or start a family, you will have different concerns. How will you protect your loved ones if something happens to you? How will you provide for their future? A qualified financial planner is trained to help you adjust your plan as your life changes. They know the questions to ask. They can also help you work to balance your goals if you have goals that seem to conflict. Did you know? Our survey of investors found that even when people understand a financial or economic principle in theory, they find it difficult to apply the principle to a real situation. This can be even more difficult to do well when facing a big life change. Learn more now about our financial literacy survey.
- You need help to understand and choose appropriate investments to achieve your financial goals. Investor literacy is low in Canada. Many people have trouble answering even basic questions about investments and financial planning topics. Others may know just enough to know they are not equipped to make the best financial choices. Or, they are worried they will let their emotions take over and end up buying when they should wait - or holding when they should sell. If this is you, you may want to work with a financial planner. Like other advisers, a financial planner can help you develop an investment strategy that will fit your goals and your comfort level. Did you know? Our investor survey found that less than 3 out of 10 Ontarians could pass a quiz on investment knowledge (where a pass is 60 per cent of answers right). Half of the Ontarians we surveyed answered less than half the questions correctly. Learn more now about our financial literacy survey.
Finding the right planner
If you decide to work with a planner, check their background and qualifications carefully. In Canada, anyone can call themselves a "financial planner" and offer advice. They don't have to have any education or professional credits specific to the practice. So, make sure your planner is properly qualified.
Learn more about the qualifications of financial planners Read: How do I choose a financial planner?
In addition, consider how your planner is paid. They may charge a flat fee for the financial plan and additional planning services. If they are registered to sell investments, they may include the financial plan in their services. In this case, they make money on the investments you buy and sell.
Learn more about how advisers get paid Read: What am I paying my adviser for?
Tip: If your financial planner is also qualified to buy and sell investments, make sure they do not have a conflict of interest. For instance, do they only recommend products that their firm sells? Will they make more money if they recommend one investment over another? Do they make money only if you make money on your investments, or do they only make money from sales fees every time you buy and sell? You need your planner to give you unbiased, neutral advice that works best for you - not for them.
Who uses an adviser? The answer, it turns out, is most Canadians. In 2010, the Investor Education Fund surveyed Canadians 20 years of age and older. We found that 70 per cent said advisers were their preferred sources of information about financial matters.
Remember: A qualified financial planner is highly trained in the practice of financial planning. Make sure you choose someone with proper training and credentials. They will work with you to design a plan that will help you achieve your financial goals.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.