Ellen Roseman, the personal finance columnist for The Toronto Star, has a great column on choosing a financial planner. For people not interested in DIY financial planning, finding a good advisor is as difficult as finding a good mechanic, only much more important.
Like many people, I had a negative experience with the financial planning industry. Just out of university and working for the very first time, I went to an advisor recommended by a colleague. The advisor recommended two options for my retirement account: a venture capital fund or a telecommunications mutual fund. Both these funds are very inappropriate as initial investments. A good recommendation would have been a broad stock index fund and a broad bond index fund. He did not tell me that both funds provided him with fat trailer fees and the venture capital fund had a 6% sales commission. I bought the venture capital fund and it is down 56% in five years. My colleague bought the telecommunications mutual fund and it rocketed for a while before the bottom fell out of the sector. Soon, both of us fired the advisor.
There are some very good financial advisors who take their fiduciary duties very seriously. Some of the signs include:
- Fee-only planners who charge on an hourly basis for a financial check-up or drawing up an investment plan.
- Professional designations like the CFP.
- No affiliations with the mutual fund industry. An employee of a mutual fund company might be bound to sell active funds from their employer.
- Willing to provide at least three references and being up-front about fees and commissions for any of the products they suggest.
You can read Part 2 of this series here.
