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Financial Advisor Advice: How to Find a Good Advisor
All major banks and credit unions in Canada employ financial advisors who help clients manage their money, investments and assets.
Advisors can be a great resource for busy consumers and those who prefer to avoid the complexities of financial management. However, recent allegations against employees of major Canadian banks raise questions about the integrity of financial advice.
Some suggest that high-pressure sales tactics are not uncommon, leading consumers to wonder whether financial advisors are merely glorified salespeople. I worked as a financial advisor in Canada and will address some of these concerns and highlight the distinction between unethical practices and the genuine value that good advisors can provide.
High Pressure Sales Tactics Used in Banks
First, let’s discuss how financial advisors get paid.
While some advisors are salaried or paid hourly, many also charge asset management fees or earn commissions selling certain financial products and services. They may also have aggressive sales targets to meet in order to earn a certain bonus or to avoid being fired.
Since many advisors earn commissions and charge fees based on the number of assets they manage, this can create an incentive to upsell and often oversell certain products and services. This is where your advisor’s integrity comes into play.
Here, a greedy consultant may try to use high-pressure sales tactics to push products that you may not necessarily need, similar to some of the dishonest tactics used by car dealerships of dubious reputation.
Some of them include:
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Upselling unnecessary products: Encourage customers to purchase additional financial products that they may not need. -
Misleading information: Providing incomplete or misleading information to make a sale. -
Unauthorized account changes: Opening new accounts or changing existing accounts without the customer’s explicit consent. -
Scare tactics: Using fear-based language to lead customers to make quick financial decisions. -
Persistent follow-ups: Too many follow-up calls and emails pressuring customers to take immediate action.
Recent reports have highlighted the prevalence of high-pressure sales tactics among employees at major Canadian banks. Independent investigations reveal that employees often face significant pressure from their superiors to meet sales targets, which can unfortunately lead to unethical practices.
The dual nature of financial advisors
I used to work for a large bank as a financial advisor, and most of the financial advisors I met were honest people. Not all financial advisors are untrustworthy. While there are some bad actors, the sad reality is that unethical management practices and unrealistic expectations placed on their staff by management can put honest financial advisors in difficult situations.
Many consumers are beginning to work with financial advisors who charge a fee-for-service fee. Instead of receiving a commission for selling a specific type of product, the advisor charges a fee for the financial planning or other services provided.
This isn’t to say that all advisors employed by banks are bad. But if you’ve had a bad experience, it may be wise to seek a fee-only arrangement.
This is a way to ensure that the financial advisor has less conflict of interest when recommending a particular investment product or service.
Qualities of a good financial advisor
The Investment Funds Institute of Canada (IFIC) has a long list of great success stories that show the positive impact of financial advisors. Some green flags to look for when evaluating a financial advisor or wealth management firm include:
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Customer-First Approach: Prioritizing the client’s best interests and financial objectives. -
Transparency: Clear information about fees, services and potential conflicts of interest. -
Qualifications and experience: They have relevant certifications and a proven track record of success. -
Personalized advice: They tailor their advice to suit each client’s individual needs and circumstances. -
Ongoing support: Provide ongoing support and adjustments to financial plans as life circumstances change.
Warning signs to watch out for
In contrast, here are some warning signs to watch out for:
- Heavy focus on product upselling: Focus on selling products for commissions rather than providing unbiased advice.
- Lack of transparency: Hide or minimize fees, commissions, and conflicts of interest.
- A one-size-fits-all approach: Provide generic advice that doesn’t consider each client’s unique financial situation.
- High-pressure tactics: Use aggressive sales tactics to promote products that may not be in the customer’s best interest.
- Neglect: Failing to provide ongoing support and regular updates to the financial plan.
The positive impact of a good consultant
Becoming a financial advisor in Canada is not easy. To become an advisor, you must complete training to become a licensed and certified.
That said, a good advisor can really help those with financial needs. They understand the complexities of the financial space and help you make the best decisions with your money, allowing you to take a more hands-on approach to managing your wealth.
Working with a good financial advisor can give you considerable peace of mind, mitigate some of the risks associated with investing in financial markets, and allow you to make more confident decisions with your money.
Should I work with a financial advisor?
Whether you’re choosing a new doctor, mechanic, accountant, or financial advisor, there will be people who are great at their profession, as well as bad apples who are looking for a quick buck. It’s up to you to sift through the crowd and choose the one that’s right for your needs.
Working with a financial advisor is not always a necessity. For those who are more financially savvy, Do-it-yourself investment in ETFs through a TFSA or RRSP can be a great way to invest for your future.
However, if you are working with large sums of money or are planning to diversify your assets, buy a property, start a business, make large investments, or simply want a professional to help guide your financial future, a trusted financial advisor can help you plan and invest with clarity and confidence.
Not sure where to put your money? Read on to find out more wealth management tips for high net worth individuals.
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of Canadian readers daily at Financial Project.
Do you have a question, tip, or story idea about personal finance? Send an email to dotcom@bellmedia.ca.