If you have any financial knowledge then you should probably manage your money on your own. That being said, it’s definitely worth seeking out an advisor or planner if you have certain goals, such as retirement or estate planning or you want to make sure your portfolio is on the right track. Here are some quick tips on how to find a good financial advisor.

Understand that titles don’t mean a thing

You might think you’re in good shape since you work with a financial planner at your local bank or at an investment firm, but those people are often just salespeople trained to sell you their company’s product while getting rich on fees.

Markus Muhs an Investment Advisor and Certified Financial Planning professional with Canaccord Genuity Wealth Management confirmed with me that job titles generally are completely meaningless.

“A Financial Advisor can be anything from a personal banker to an investment banker making multi-million or billion dollar decisions. Outside of Quebec anyone can call themselves a Financial Planner.”

Be weary of some designations that some people put on their business cards: PFPC, CSC, IFIC are not designations, they are courses. If you see these on a business card, RUN, as it says something about the “advisor’s” desperation or their company’s lack of standards.”

Know how your financial advisor is getting paid

Financial advisors aren’t cheap. Your initial consultation could cost a few hundred or even a few thousand dollars. Some advisors charge a flat fee (“fee only”), while others charge a commission or fee as a percentage of assets (“fee-based”). You need to look at your individual situation to decide what the best solution is.

For example, if you have a moderate portfolio of say $100K, it probably makes more sense to just find a fee-only planner to set you up with a financial plan. On the other hand, those of us with a vault full of money ($1 million+), could benefit from a fee-based advisor according to Muhs.

“Because of their high net worth they can negotiate a lower percentage fee (1%, possibly less) and they can attract the truly top-notch advisors/portfolio managers/planners out there.”

If you’re a first-time investor with zero knowledge, I guess it’s okay for you to purchase mutual funds, however, you need to be aware of any upfront fees and possibly trailing commissions. “If investing in a discount brokerage you should ensure you choose the D-series version of the fund, which has a reduced trailing commission built into the MER, or the completely commission-free F-class, if available.”

Do-it-yourself investors are better off using Tangerine or TD e-Series funds which are low-cost index mutual funds. You can also very easily build a diversified portfolio with just a single ETF purchase, using Vanguard’s asset allocation ETFs.

Where to find a financial advisor

A couple of directories exist to get you started finding a financial advisor. If you’re looking for a fee-only advisor near you, Holy Potato’s directory is a simple Google Docs spreadsheet where financial planners have entered their own details of their practices. Another option is checking out the Financial Planning Association of Canada. They have a wide array of qualified, experienced advisors who are vetted based on their commitment to always act in their client’s best interests.

Generally speaking, I would avoid advisors associated with a bank or any investment firm which creates and sells its own mutual funds since they are primarily commission based and incentivized to sell their own products. Admittedly some of them can be great but I would only work with them if you knew for sure they are superstars (for example, through a referral from a friend or family member, not a referral from a bank rep). You should never walk into a bank and blindly ask to speak to a financial advisor.

“For the vast majority of us, looking for help both on the financial planning side and managing our investments, a commission-based advisor might be the only choice” says Muhs. “In that case, make sure their compensation aligns with your goals: that at all times they’re able to recommend the products that are best for you and not the ones that pay them the highest commissions or that bear the branding of a parent company.”

Final thoughts

A Chartered Financial Analyst (CFA) is the gold standard when it comes to designations but if you know someone who’s obtained their CFA they’re probably only managing multimillion-dollar accounts so they’re out of reach for the majority of us.

Generally speaking, the designation most commonly seen behind good, qualified advisor’s names in Canada is the CFP (Certified Financial Planner) and/or CIM (Chartered Investment Manager designation. If you find an advisor who has achieved both, you can be sure that you’re in good hands. Either way, you want someone you can build a relationship with.

“Advisors in Canada are not bound to a fiduciary duty (not required to put the client’s interests ahead of their own or their company’s) in Canada” says Muhs. “However, holders of some designation are encouraged (based on codes of ethics) to put the client’s needs first.”

Markus Muhs, CFP®, CIM® (www.muhs.ca) is a Portfolio Manager at Canaccord Genuity Wealth Management, located in Edmonton, Alberta. He provides comprehensive financial planning and wealth management to families with assets over $300,000 across Alberta, British Columbia, and Ontario. Markus alternatively provides fee-for-service (fee-only) financial planning to non asset-based clients.

For many people, RRSPs feel like a foreign language. They have no idea what it stands for or how the account works. Heck, many people struggle to manage their monthly expenses so thinking about their retirement savings may be the last things on their minds. Regardless of what your current financial situation looks like, it’s in your best interest to understand how an RRSP works and how you can take advantage of it.

What is an RRSP?

Registered Retirement Savings Plan is the formal name but it’s not very sexy so we all refer to it as an RRSP. Despite what you may have been told or been led to believe you don’t buy an RRSP. Our RRSP is actually a savings vehicle and we’re allowed to put just about any investment we want in there such as ETFs, mutual funds, stocks, and bonds. RRSPs are exclusive to Canada and they’re registered with the Canadian Revenue Agency (CRA) which is how you get a tax break.

Don’t worry if you’re a new immigrant or not a Canadian citizen, as long as you’ve filed a tax return with the Canadian government you’ll be allowed to make RRSP contributions the following year. If you plan on retiring in Canada, then you’ll likely want to set up an RRSP.

RRSP Advantages

The biggest advantage of an RRSP is the immediate tax refund. This is the main reason why people love using their RRSP to save. When you make an RRSP contribution, the government allows you to deduct this amount from your total income for the year which in return gives you a tax refund. Let’s say you earn $45,000 a year, your company would deduct taxes for the CRA based on that amount. If you made an RRSP contribution of $3,000 you would only be taxed at a total income $42,000 ($45,000 – $3,000) because we’re allowed to deduct that contribution. For many people on a salary, you’ve already paid taxes on that income so there’s a good chance you’ll get a refund from the CRA.

As you can imagine, using your RRSP contribution room can be handy for people who have just crossed the threshold into a higher tax bracket. Your RRSP contributions could put you in a lower tax bracket which is great since it means more money in your pocket.

When you hold investments inside your RRSP they are not taxed. It doesn’t matter what you hold in there as their tax implications no longer apply; this is known as a tax shelter. If you hold your investments in a non-registered account you would get taxed based on the type of investment. Interest, dividends, capital gains, etc. they would all be taxed at their normal rates. Although you can invest in many things within your RRSP, not all investments can be purchased within your RRSP. For example, you can purchase Bitcoin or penny stocks inside your RRSP.

I know a few of your eyes lit up when you read no tax, but the reality is you will have to pay tax on your RRSP eventually. You only get taxed when you withdraw your money at retirement since it would now be considered income. This is still a good thing though because in theory, when you retire, your income will be lower than in your working years so you’ll be in a lower tax bracket.

RRSP contribution limits

There is a limit to the amount we can put into our RRSP. Our contribution limit is calculated at 18% of our earned income from the previous year. If you made $45,000 last year, you would have earned $8,100 in RRSP contribution room. Also note that there is a maximum every year; in 2013 it was $23,820 but you need to be making some serious dollars if you’re getting that much room. You start accumulating RRSP contribution room as soon as you earn an income and file a tax return reflecting that income. You can find out your personal limit by looking at your latest letter of assessment. Don’t worry about not maxing out your limit every year as any unused room gets carried forward indefinitely.

If you’re not sold on an RRSP yet or you don’t think saving is important, let me introduce you a wonderful thing called compound interest. If you saved $1000 a year starting at the age of 25 your money would grow to $228,116.56 when you retire at 65 based on a 7% annual rate of return. Now if you waited until you were 39 before you started saving that same $1,000 you would only have $77,232.18. Time is the key factor when it comes to compound interest. The more time you have, the more your money will grow.

Final word
This is just an introduction to RRSPs so if you need more information check out the CRA website. Also don’t forget your RRSP is just one savings vehicle that you have access to so don’t ignore your Tax Free Savings Account (TFSA) or any kind of company match that may be offered to you especially pensions.