Mediaplanet What are some key ways in which financial literacy helps improve one’s finances?

Greg Pollock Working with a financial advisor can help increase a person’s financial literacy, as their advisor will inform and educate them about suitable products and market trends as they address the client’s financial goals through various stages of life. For example, an advisor working with a younger client in their 20s may explain the benefits or differences between using savings vehicles such as an RRSP versus a TFSA.

The relationship between a professional financial advisor and his or her client provides numerous benefits to  the client beyond financial stability or financial literacy. In a recent Australian survey [The Value Of Financial Planning Advice by the Queensland University Of Technology], clients of financial advice reported peace of mind, sense of security, and sense of control as the top psychological benefits they received from their relationship with their advisor.

MP What are financial trends that require careful attention?

GP A recent finanical trend that Canadians should be aware of is robo-advice. Robo-advice is a form of automated asset allocation where a computer algorithm finds suitable products such as exchange-traded funds (ETFs) for an individual based on his or her risk tolerance and personal goals. Robo-advice provides convenient access to investment advice because an investor doesn’t typically need a minimum balance to sign up. This could make it attractive to younger investors who may not have thousands of dollars to start with. However, this trend requires careful attention as in most cases, robo-advice does not take a holistic approach to planning — it is focused on wealth accummulation, and does not consider areas such as life insurance and critical illness insurance, for example.

MP How should you choose a good financial advisor? What value does a financial planner bring?

GP In my view, developing a relationship with an advisor is a long-term investment. You should choose a financial advisor who you feel comfortable with as the conversations you are going to have will be of a personal and sensitive nature. For example, you will discuss what should happen to your estate in the event of your death. You will discuss what should happen should you develop a critical illness, such as cancer. The value a financial advisor brings is that you and your loved ones are protected and prepared for life events — the good and the bad.

MP When should you choose to go with a financial planner? Is there a certain age, wealth level or debt scenario where it makes the most sense?

GP Financial advice is not just for the wealthy — everyone should seek advice from a financial advisor; it doesn’t matter how much money one has. In fact, studies show that most Canadians who use financial advisors started doing so with a very modest level of assets.

MP What are some of the most important questions to ask a planner?

GP A relationship with a professional financial advisor is built on trust. I highly recommend taking sufficient time to interview at least two or three advisors before making a decision to ensure the advisor is the right fit.

Firstly, I believe you should ask about the advisor’s qualitifcations. For example, how long has the advisor been practising? Does she have specialized training that meet your specific needs? Is he involved in continuing education? Does she have experience dealing with financial situations similar to yours?

Secondly, ask the advisor if he or she has liability insurance. This is to make sure that in the event there is a problem, like an error or omission on the advisor’s part, that you are properly protected.

Another important question to ask is about who will be working on your plan. When developing your financial plan, will the advisor be working on all of your financial goals or just specific areas? Will he or she be part of a team — and who is going to help you to implement the plan? As for the plan itself, insist on an easy-to-follow executive summary that includes a clear course of action.

MP How do you manage being cautious or risky when trying to grow investments to attain certain financial goals?

GP After determining your risk tolerance and your financial goals, your financial advisor  will decide what the most suitable products are to grow your investments. This relationship is built on trust and a deep understanding of the client’s needs. A financial advisor works in his client’s best interest to ensure they reach their financial goals.

If there is clear and consistent communication between the advisor and the client — there will be a conversation about the pros and cons of being too cautious or too risky, and how that could impact reaching goals.