How do I find a financial advisor?
January 17, 2004 1:35 PM   Subscribe

How do I find a financial advisor? [more inside]

Here are the basics of the situation. I live in Toronto. I am trying to save the money to buy a house or condo in 2-3 years, while still putting my money into my RRSP. I'd prefer an advisor who is more interested in advising me on how to balance decisions like "RRSP v. House fund" than on selling me whatever mutual fund he's getting the best commission on, and I'd be willing to pay upfront in order to get that.

Do such advisors exist? How much should I expect to pay them for their services? Would it make sense to then go and buy actual investment products somewhere else, to avoid the commission conflict of interest? How do I know if they're good or bad?
posted by jacquilynne to Work & Money (9 answers total) 1 user marked this as a favorite
It sounds like your needs would be better met by a financial planner, not a financial advisor.

My experience more closely related to portfolio management than financial planning, but if the only questions you need answered are "what proportion of my savings should I earmark for a down payment versus longer-term retirement savings" and "how should I invest these monies", then you might be better off researching those questions on your own than paying someone.

If you still choose to get professional advice, know these things:
1. In the US, at least, law prohibits employees of mutual fund companies like Fidelity and Vanguard from receiving different commissions for the same type of product. In other words, a Fidelity rep doesn't care which fund you buy, as long as you buy.
2. Most Financial planners would rather sell you a cookie-cutter $1000-$2500 financial plan than charge you $150 for the hour it's going to take to answer your questions.
2a. If you are unmarried and have no children, put away less than $10,000 per year, and have less than, say, $50,000 in assets, you probably don't need a financial plan.
3. If you buy a mutual fund from most traditional brokers, you will end up paying a 5-7% commission. You had better be getting some good advice for this kind of cut.
4. Your questions, if I understand their nature, can be adequately answered by any competent FP. You do not need to find an extremely experienced person.

Last, (I infer that you are Canadian, so these titles won't be 100% applicable) spending about 20 hours educating yourself will be the best investment you've ever made. The two best books for starters, in my very humble opinion, are:
Burton Malkiel's A Random Walk Down Wall Street, and
Jane Bryant Quinn's Making the Most of Your Money

Email is in the profile if you have more questions.
posted by trharlan at 2:02 PM on January 17, 2004

DO NOT purchase mutual funds.

Once you factor in management fees and the risk of choosing the wrong fund, the market indexes have outperformed the mutual fund industry.

Instead of getting badly burned like most of us Gen X canucks, purchase an index fund. They're not actively managed, so they have negligible fees. The markets are also expected to bound this year, so it's a good time to get in.
posted by five fresh fish at 2:51 PM on January 17, 2004

DISCLAIMER: I am not a financial advisor. My opinion should not form the basis for any investment decisions.
posted by five fresh fish at 2:52 PM on January 17, 2004

FFF, how does one find and purchase an index fund? It's indexed, so do I then have to choose what it's indexed to?
posted by theora55 at 6:00 PM on January 17, 2004

No, it's indexed to the market in general. If the market does well, you gain, but if the market does poorly, it'll just maintain its value.

And I'll second fff's opinion about mutual funds from my personal experience. The average gain for them is just over 2% - those figures that the bank employees show you are almost meaningless, because they indicate the fund's gain from the lowest point in a year to the highest, not how much you will gain by being invested in it all year. Mutual funds aren't good for the short term (i.e., less than five years) especially.

Jacquilynne, I am in almost the same situation as you. I live in Toronto and I just bought a condo two and a half years ago. I used to do a maximum RRSP when I was saving for my down payment, and it did pay off when I bought my place as I was able to use the first 20K of my RRSP as part of my down payment. I do have to pay it back, but I have 15 years to do it. Since buying my place I've been doing a minimal RRSP (over and above the $1500 of repayment, which doesn't "count" tax-wise) and concentrating on mortgage prepayments. I figure paying off my place IS saving for my retirement since real estate in Toronto is a terrific investment, plus I get to benefit from the money in the short-term i.e., I'll be mortgage-free a lot faster, which saves me money in interest, and if/when I want to trade up to a better place it'll be a lot easier.
posted by orange swan at 7:00 PM on January 17, 2004 [1 favorite]

There are a variety of index funds. You can index the TSE, the TSE techs, oil, bio, real estate, whatever.

You can also look into trust funds and income funds. Some of these can be disastrous -- I lost a fair chunk of change when my telco trust matured during the bust -- and some can be remarkably good.

I've had bad experience with so-called "advisors" who are nothing more than shill men for mutual fund companies. Rat bastards, the lot of 'em.

My hearty recommendation is to open a self-directed RRSP account with TD Waterhouse or other online broker. Toss a swack of money into it and move that immediately into money market fund (~2.5% right now) or laddered GICs or short-term corporate paper (~5%, IIRC). If you open a basic RSP account it'll only cost you about $25 a year; if you move it to an equities-capable account it'll cost more.

Then spend the next few months figuring out what you're going to do with the money.

(My actual more-hearty recommendation is to forget all about RRSPs. IMO there is little advantage to the tax sheltering: any losses you take in the RRSP do you not help you on taxes; and with capital gains being tax-free for the first 50%(?), the tax burden is probably lower outside the RRSP than inside it.)

As always, Your Mileage May Vary.
posted by five fresh fish at 7:24 PM on January 17, 2004

Oh, and jacqui, there's also a line of thought out there that figures you're better off renting: the money you would pay as downpayment may very well accumulate faster in the stock market than it will in property.

You might want to google for "Canadian MoneySaver" and read some of their online articles. Also worth a subscription for a year or two, just to become familiar with some lines of thought out there.

Finally, your library reference section will have a barrow-full of good newsletters and such.
posted by five fresh fish at 7:26 PM on January 17, 2004

Sigh. And finally, for the moment, to answer your question:

To find a financial advisor, shop around. You want someone who takes cash up front. This relieves the advisor from any conflicts of interest brought about by commissions and management fees. Go interview a bunch of 'em -- the first half-hour should be free -- and pick the advisor you like the best.

The same thing applies to realtors: go interview them.
posted by five fresh fish at 7:29 PM on January 17, 2004

i would say: a financial planner should be someone you trust implicitly, so, hen picking one, just extend your web of trust: ask a friend with similar financial goals or a similar temprament if he/she can recommend a financial advisor.

too bad my cousin moved from toronto, ca to barcelona, esp, or else i could recommend him.
posted by complex at 10:42 PM on January 17, 2004

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