For the longest time I was looking for a good personal family doctor. I did not imagine that process would take years but it did. In that quest to find a family doctor, I was reminded of the reality that not all doctors are created equal. Just because they have the same degree and the same education, doesn’t necessarily mean they are all equally good.
Most financial advisors are generalists
A family doctor is somewhat of a generalist. They call themselves general practitioners (GP for short). Just like there are lots of GPs, there is a massive amount of financial advisors who are generalists as well.
You can often tell an advisor is a generalist by the list of products they sell. Here’s and example of something I found on a financial advisor’s website:
“We specialize in: Health & Dental Plans, Private Health Services Plans, Medical Access Insurance, Wellness Insurance, Health & Welfare Trusts, RRSP’s, RRIF’s, Mutual Funds, Annuities, Segregated Funds, and GIC’s.”
So what don’t they specialize in? Ironically, there is no specialization going on here which is why one might consider them a generalist. Sadly you can find lots of examples of these generalist out there.
Financial advisors sell products to make money
Comparing financial advisors to doctors is not the best comparison because there are many differences between the two groups. One big difference is that most financial advisors do not get paid when they give advice or develop plans. Like it or not, most financial advisors simply get paid when they sell products. Some advisors give advice and develop comprehensive plans as part of their compensation from the sale of products but in the end, they sell products to get paid.
‘Financial Advisor’ is an abused termThere was a time when life insurance agents sold life insurance; banks sold bank accounts; and stock brokers sold stocks. Today, it’s not that simple. For the past 20 years, there has been a convergence among these groups. Everyone is getting into each other’s game and the term financial advisor has become misleading and over generalized. Stock brokers now sell insurance. Insurance agents sell funds and banks sell pretty much anything and everything.
Here in Canada, everyone seems to be a financial advisor whether you are a stock broker, bank representative, life insurance agent, mutual fund salesperson, fee only consultant, mortgage broker, bankruptcy trustee, accountant, etc.
If everyone calls themselves a financial advisor, then who should you go to? Terminology can be very misleading because there is no universal definition of what a financial advisor means. If products are a key form of compensation, then maybe one strategy is to use the products you need to determine the type of advisor you go to. Traditionally, a financial advisor helped you with financial matters but there has always been a bias to investing. If you want help investing, then it’s best seeing an advisor that focuses on investing. If you want insurance products, then see someone who really understands insurance. If you want to get a mortgage, then see a mortgage broker.
Even the ‘fee only’ industry is becoming confusing. People are calling themselves financial coaches and financial consultants in addition to financial advisors.
Just like there are good doctors and bad doctors, the financial industry also has good advisors and bad advisors. Many people have expressed to me the challenges in finding a good advisor. Trying to find a good financial advisor can be as challenging as it was for me to find a good family doctor.
Despite the challenge, don’t lose hope. If you are one of the many Canadian that needs financial help, shop around and interview a number of possibilities before you jump in with both feet. Don’t be afraid to ask questions. After all it’s your money and you should care enough to ask questions.
Stay tuned for my next post which will share lot of great questions to ask advisors before you start working with them. Good luck!