Most financial advisers make their living through commissions on the sale of investments, which means they face a conflict: Whether to recommend what offers the highest compensation or what's best for the client.
There other concerns about whether the financial industry has its clients' best interests at heart. Many advisers are too busy to give all their clients proper attention. High mutual fund fees undermine the gains of investors who already face low returns because they're investing conservatively for retirement.
Want to retire early?
There's wide agreement that Canadians will need help to make the right financial decisions about retirement, but no common front on how to provide that help. Industry people believe financial literacy is a key.
How can you work with an adviser to achieve your retirement goals? What should you look for when choosing an adviser? Are there signs that indicate that your adviser might not be a good fit? Do you need an adviser, anyway?
The Globe's personal finance columnist Rob Carrick took your questions.
Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998. He is the author or co-author of four investing books, including Rob Carrick's Guide to What's Good, Bad and Downright Awful in Canadian Investments Today, which will be published this December.
Questions and answers from the discussion
Brian: Is there a difference between a "financial advisor" and a "retirement planner"? I'm in my early-40s and looking for assistance on preparing for retirement. I'm not necessarily interested in meeting with someone to tell me what I should be investing in, but rather someone who will take a wholistic look at my household income, savings, pension(s), etc. and see how we can best meet our retirement goals.
Rob Carrick: Brian, what you're looking for is what every financial planner/adviser should be offering. Planning first, investments second. That's in the ideal world. In the real world, selling products takes precedence for many, many advisers. So much so that there may be no planning at all in some cases. Here's what I suggest you do: ask friends, business contacts, relatives and co-workers if they have an adviser who they can recommend not for the investment returns they've achieved, but rather for the comprehensive financial planning they've done. Failing that, stop in and talk to advisers in your neighbourhood or around your place of work. Ask them what type of financial planning they offer and see what they say. If the conversation turns to investments, walk away. You're looking for someone who will interview you and then produce a comprehensive financial plan. One thing you should know is that it's quite possible you will have to pay for this plan, either through an hourly or flat rate. If not, the cost of the plan may be built into commissions charged on any investments you end up buying. Mention you want a financial plan, and ask how much it will cost.
Rob from Ottawa: My experience with the front-line staff of the Big Six banks has been that they will push their own line of investment products and nothing else. And the average Canadian does not have over $500,000 in an investment portfolio to qualify for advice with the back-room 'wealth management' staff at the same banks. I seem to be part of a growing trend which relies on discount brokerage firms (BMO InvestorLine, TD Waterhouse, etc) and on-line retirement planning and asset allocation tools to manage my own destiny. I need to be convince that a retirement planner can offer me more. Thanks much.
Rob Carrick: Hey, homie. Maybe it's time we all stopped relying on the banks as our default provider of financial services. What are banks good at? Making money for shareholders by selling products to clients. If you deal with front-line bank staff for financial products, you get what they've been told to push. And don't go giving too much credit to the back-room wealth management geniuses at the banks (assume you're talking here about their private client and full-service brokerage divisions). These people may have nicer offices, but they work on the same principle as the front line staff, which is to say they are expected to generate revenue. Lots of people are going the self-directed route these days. I am working on my annual ranking of online brokers and have been talking to the people who run these firms. Business is way, way up. A major reason: dissatisfaction with conventional investment advisers. I don't know how many people will stick it out as DIY investors and how many will realize they need help. I guess it all comes down to whether DIY types can generate the returns they need to reach their financial goals. If you don't know how much you need or how much you're making, that's a sign an adviser might be of use.