Financial Advisor Canada - Who should help you manage your finances?

Written by Tiffany Woodfield, CRPC®, Dual-Licensed Financial Advisor & John Woodfield, CIM®, FMA®, FCSI®, Portfolio Manager

Reading time: 8 minutes 30 seconds

If you're planning on retiring to Canada or have just arrived and need a financial advisor, there are various considerations. In this article, I'll share my thoughts on what you need to think about when selecting a financial advisor in Canada.

Table of Contents:

Which Designations Matter when Looking for a Financial Advisor in Canada?
Where Can You Find a Financial Advisor?
How Are Financial Advisors Compensated?
Questions You Should Ask Every Financial Advisor
Financial Advisor for Dual-Citizens or Green-Card Holders
How Exactly Can Your Advisor Help You?
The Benefits of Working with a Financial Advisor
How to Choose a Financial Advisor
Summary of Key Points
Next Steps

Which Designations Matter when Looking for a Financial Advisor in Canada?

When looking for and selecting a financial advisor in Canada, it's important to know the difference between all the designations. In Canada, financial advisors don't all have the same qualifications.

CFP®

A Certified Financial Planner is a professional who has passed intensive exams and demonstrated skills, knowledge and experience. They can examine their clients' entire financial picture. They can build financial plans with the highest level of complexity.

CIM®

Satisfies part of the criteria to be a Portfolio Manager. This qualification gives the basics to offer tailored complex strategies for affluent clients.

Portfolio Manager (PM)

Portfolio Managers are primarily responsible for creating and managing investment allocations for private clients who have accumulated assets that meet the minimum requirements. They determine an appropriate level of risk based on a client's time horizon, risk preferences, return expectations and market conditions. They are also qualified to manage a mutual or exchange-traded fund. Portfolio managers are primarily discretionary advisors which means the buy and sell decisions are made by the portfolio manager on behalf of the client

FCSI®

Fellow of the CSI is the pinnacle of the CSI’s offerings

CRPC®

Chartered Retirement Planning Counselor is someone who has completed a course of study encompassing pre-and post-retirement needs, asset management, estate planning and the entire retirement planning process using models and techniques from real client situations.

Dual-licensed Financial Advisor

A dual-licensed financial advisor is licensed and regulated in the US and considered a registered representative by FINRA. They are also licensed and regulated in Canada. They have taken exams in both countries.

It is also important to note here that if assets are held in a non-registered or taxable account the payment for services of some advisors, such as Portfolio Managers, is tax-deductible. The payment to mutual funds or trailer fees to financial advisors is not tax-deductible. Any fees for managing a registered account are not tax deductible.

Fiduciary Financial Advisor in Canada—Does this title matter?

A "fiduciary duty" means there is a legal responsibility for an advisor to put the client's needs and interests before their own. It means the advisor is held to the highest standard and must disclose any conflicts of interest. Essentially an advisor who has a fiduciary duty sits on the same side of the table as the client.

It is always important to seek out a fiduciary. However, once you have built more wealth and have increasing complexities in your financial planning and estate planning, making sure you are have a fiduciary advisor becomes even more important.

Where can you find an excellent financial advisor?

You can find investment advice in many different locations, including banks, brokerage firms, financial planning firms, and wealth management firms.

Each channel is quite different. Banks have front-line offerings from the tellers or internal advisors. These are generally either mutual funds or low interest guaranteed investments such as GICs. The banks also own a variety of brokerage firms offering a variety of services. Banks, and the brokerages they own, are not considered independent entities. They have their own product offerings that are generally the go-to product offered by the institution.

Mutual fund advisors are investment advisors licensed to sell only mutual funds and guaranteed investments. Their offerings look a lot like a bank's, though they will represent many mutual funds. Thus, the product offering tends to be wider. Fees can be high with this channel since a client pays for both the advisor's services and the fund management. Funds hire portfolio managers who typically manage for thousands of clients, so little personalization of investment holdings.

Financial planning firms focus on planning, and they outsource the management of assets. A share of the fee is often paid to the 3rd party manager. There are various designations within this group, and it is hard for clients to decipher which is best. But a CFP is the gold standard for financial planning.

The ongoing payments to the financial planner, especially if not disclosed, can taint the claim that the planner is impartial or independent. Thus, it is important to find out if there are any additional payments or fees.

Portfolio managers (PMs) generally work within brokerage firms. They are fiduciaries and typically work for a percentage of the client's assets. PMs at independent firms (ones not linked to any particular product or tied to a bank) can use any investment or product to build portfolios for clients. PMs are heavily regulated, and clients go through a strict process that is monitored and updated.

The PMs ability to act quickly when investments or market conditions change is one of the greatest benefits. Acting quickly is possible since a PM can make discretionary adjustments. The PM can adjust investments at a moment's notice, which is useful since markets can change quickly.

PMs make up a small percentage of the financial advisors in Canada. Those who achieve PM status can offer unbiased advice while creating portfolios unique to each client.

How Are Financial Advisors Paid in Canada?

There are multiple ways that your financial advisor may be compensated in Canada. Financial advisors can be compensated via commission per trade, trailer fees, or paid a percentage of the money in the accounts they manage.

Commission accounts offer a cost per trade. This can work for clients if they want some advice but do not plan on making a lot of trades. Note that these costs are not tax-deductible, and the client and the advisor have to connect before each trade is made. The major downside to this approach is that the financial incentive is on activity.

Trailer fees are a cut of the mutual fund cost that is paid to the advisor. Mutual funds have their own management costs where they pay the portfolio manager and all other costs to run the fund. When a fund is purchased through an advisor, an additional fee is paid for this advisor's services, which often doubles the cost of the fund. None of these fees are tax-deductible.

Fee-based accounts offer the chance for clients and advisors to be on the same side of the table. The advisor is compensated as a percentage of the assets under management, which means the financial incentive to the advisor is to conservatively grow these assets. Also, these costs are tax-deductible in non-registered accounts.

Utilizing a fee-based account for a Portfolio Manager's services is often much more cost-effective than paying per trade or having the extra costs associated with a mutual fund.

Questions You Should Ask Any Financial Advisor with whom You're Considering Working

Before you get excited and start transferring your investment accounts, make sure you do your due diligence. Get to know your financial advisor by asking them some important questions. In the ideal situation, you'll stay with your advisor for many years.

We have clients that have been with us for 20 years. So make sure you ask the following questions:

What do you see as your role as a financial advisor?
How do you measure your success? Is it returns, risk management or achievement of goals?
What level of experience do you have dealing with clients like us?
Are you a fiduciary?
How are you compensated?
What are your qualifications?
What are your focus and philosophy?
Who makes up your team?
How often would we be in communication?

I would then ask myself how comfortable I feel discussing my dreams, fears, and needs with this advisor. You need to feel you can trust the advisor and that they understand you.

The key to an effective client/advisor relationship is trust and understanding. You must feel that the financial advisor is entirely in your corner and cares about your well-being. You must feel understood.

There are inherent risks when investing, and each client has their own level of risk tolerance. Getting a great return is one thing, but leaving an effective strategy when the road gets bumpy is a recipe for long-term pain. A good advisor/client relationship will smooth these bumps and enable you to sleep well at night knowing your assets are protected.

Financial Advisor for Dual-Citizens or Americans Living in Canada

Anyone with a connection to the United States, such as a citizen or a green card holder, should employ a dual-licensed advisor. This need is driven by the rules and regulations around what a US person can hold and the need to maintain all registered investments as tax-free as possible.

IRAs, 401ks, RRSPs, and TFSAs are tricky and have to be handled properly. Also, there are Canadian investments that are considered a Passive Foreign Investment Company (PFICs). These PFICs will cause tax problems and potential audits on both sides of the border. Only a dual-licensed advisor can help you navigate these issues.

How Exactly Can Your Financial Advisor Help You?

The management of investments is only one part of the financial advisor's role. Financial advisors may do more to support you in building and protecting your wealth than managing your investments.

High-level tax planning, estate planning, financial planning, and retirement planning are all elements of financial planning with which your advisor may help you. As psychology plays a large role in investing, your advisor will also help you to make wise decisions rather than emotional decisions.

By far, the most useful part of having a trusted financial advisor is having someone who will keep you in the game. This is where the psychology part comes in. Advisors are generally well-versed in what it takes to keep their clients in the recommended strategy when times get tough. Some people are prone to listening to friends or media. This hearsay may lead them astray unless their financial advisor's voice of reason is there to put them at ease.

Great advisors have seen it all and are there to protect you.

The Benefits of Working with a Portfolio Manager

There are a variety of designations in the financial services industry. The Portfolio Manager (PM) is one of the highest designations and means the team you are working with is governed by fiduciary duty. Your PM has a legal obligation to do what is in your best interest.

In addition to the security that working with a fiduciary brings, a portfolio manager is able to make changes to your portfolio based on your risk tolerance and a document called an investment policy statement (IPS). Your IPS and supporting documents that determine risk are what guide decisions even when you are unable to be contacted.

A PM makes decisions for you to achieve your goals without having to wait for your confirmation. Markets move quickly, and there are only so many calls an advisory team can make. PMs quickly make the necessary changes to their clients' investments to keep their clients safe.

How to Choose a Financial Advisor

Not everyone can hire a portfolio manager since most portfolio managers have minimum asset levels. Many portfolio managers also specialize in working with particular types of clients.

The first step in selecting a financial advisor is to understand the basics of your options and where you are in your financial journey. If you are near the beginning of your investing journey, you may want to consult a financial advisor who will likely diversify you into managed products like mutual funds. In this case, you typically pay higher fees. Also, these fees are not deductible from your taxes. However, if your assets are less than $500,000, this may be your best option.

As your wealth builds, you can move your investments and have them managed by a portfolio manager. You will have a portfolio built specifically for you. Moreover, this will likely reduce your costs. It will also enable the tax deductibility of these costs and gives you direct access to a fiduciary working on your behalf.

Commonly Asked Questions

What is the best financial advisory firm in Canada?

To identify the best financial advisory firm in Canada, you need to know what you are looking for. There can be arguments for various firms. The most important question is, “What is the best financial advisor team for me?” Look at a firm and identify whether they specialize in helping clients in situations similar to yours. Are they fiduciaries, and what services can they offer to you?

In Canada, many people are more familiar with the large banks, while in the US, this isn’t necessarily the case. At SWAN Wealth, we chose to partner with Raymond James because it is one of the leading full-service independent investment firms in North America. By working with Raymond James, we can offer independent advice and not “sell” proprietary products. Raymond James puts the clients' needs first and has a substantial presence across the US and Canada.

What does a financial advisor do in Canada?

What a financial advisor does in Canada can vary from company to company and team to team. It is essential to do your research, check an advisor’s accreditation and ask questions.

Some of the services financial advisors offer in Canada include

- managing and choosing investments

- creating an ongoing financial plan

- offering estate planning

-covering insurance planning

-coordinating tax consultations

The services an advisor offers depends on the advisor’s licensing and their team.

Does working with financial advisors cost money in Canada?

Working with financial advisors in Canada does cost money. What you pay and how you pay varies from firm to firm. The cost of working with a financial advisor can come in different forms, such as commissions charged on transactions, a fee based on a percentage of assets under management, and MER management expense ratios in a mutual fund which are not paid directly to the financial advisor but to the mutual fund firm. These are some of the most common costs, but there are other costs you may be paying. Check with your advisor to find out what the costs of working with them are.

Summary of Key Points:

Seek out as much knowledge as you can about designations and who offers what services.
Utilize the level of advisor most suited to your level of assets, age, and risk level.
If you qualify, a portfolio manager is generally the best combination of cost, services, and customization.
Be ready to trust your advisor fully. During times of stress and market volatility, this will enable you to sleep well at night.

Next Steps

If you’re planning a cross-border move or you’ve already moved from the US to Canada and need help simplifying and optimizing your finances, then please get in touch. At SWAN Wealth we specialize in cross-border financial planning and wealth management. We would be happy to ensure that you’re onside with the IRS while protecting your investments and retirement assets.