Not all financial advisors are created equal
For the longest time, I was looking for a good personal family doctor. I did not imagine that the 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 an 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 this 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 development 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 term
There was a time when life insurance agents sold life insurance; banks sold bank accounts, and stockbrokers 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. Stockbrokers 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 stockbroker, 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 a lot of great questions to ask advisors before you start working with them. Good luck!
your article is really great..
and explanations also good… thanks for sharing…
It is important when dealing with a financial advisor that they come highly recommended. The last thing you want to do is hand over your hard earned money to someone who has no reference.
As a fee-based Financial Planner (CFP) I need to address many different aspects of a clients financial situation including risk management (insurance), taxes, investments, budgeting (mortgages play into this), estate planning etc. I don’t think you can do proper Financial Planning if you are not a generalist. Having a valid license for mortgages, insurance, investments etc means I have to keep up to date on the nuances of each of these areas. For example, I often advise clients to pay down their mortgage more aggressively and show them mortgage alternatives they were unaware of that will facilitate this process. Providing tax return preparation to clients also keeps me up to date on tax rules and changes which helps me with tax planning and estate planning.
I am not suggesting a generalist is bad. My example is to poke fun at people who use the word “specialize” and then list a myriad of things. It’s just fun.
Just like doctors, there are specialists and generalist and there is a need for both. The other problem is sometimes advisors who mostly sell insurance products try to dabble in investing can actually be dangerous (and vice versa). I just want the public to be aware of the problems with the term financial advisor so when they go to hire one, they can ask appropriate questions.
Thanks for your comments!
Another great article, thanks! If I could just add – aside from ‘shopping’ for a financial advisor that comes recommended with a good reputation, it’s also critical to do your homework. Blindly accepting advice from anyone in any field is never a good idea. Know what type of financial products or investments you’re getting into by doing your own research before you write your check. Your financial advisor will provide you with a map, but you are behind the wheel. Drive carefully!
Great point Anna! Even if you are working with someone your trust, don’t blindly trust. No body care about your money more than you care about your money.
I was with an RBC advisor for near 20 years…..he made money off my RRSP portfolio not I….he bought in to Bank of America, ING and Citi Bank just before the financial bubble burst a fews years back….how could he have been so wrong and I so stupid….I fired him and now doing things on my own…..after all no one could care more than I about my very hard earned life savings!!! Anyone trusting an advisor with their savings better have money to lose. Financial Advisor seekers beware!!!