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Glory Gray
Welcome to Women’s Wealth Canada. I’m Glory Gray.
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I’m a morning person. I like to have my morning coffee outside with my dog, Bandit. In early summer here on Vancouver Island, we barely have darkness, and the sun is full up and hot by 5am. But this time of year, it’s not really light out till 7:30. So when we got up this morning, it was dark, we’d had some rain the day before and there were a million stars out this morning. I love the clear, crisp skies of autumn. Do you have any morning rituals you have? Things that help you get more excited about jumping out of your cozy bed in the morning? Stop by our Glory Gray Wealth Solutions page on Facebook and let me know, I’d love to hear about it.
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What I wanted to talk about today was to clear up some of the confusion around financial advisors. I had someone come to me the other day, and say, “My spouse and I have big plans for our future, and we want someone who can help us figure out all the moving pieces. We’re thinking about moving to a warmer climate in a few years, we’d like to grow our businesses and we’d like to diversify the investments we have. We’re only invested in one thing. We’ve talked to our investment advisor and he doesn’t seem to be able to provide the kind of help we’re looking for. So, do all financial advisors provide the same things? The same products and services?” they asked.
The short answer is no, in Canada, the term financial advisor is used broadly to describe professionals who might be providing very different services and investments. I even have people who are under the impression that it’s their tax preparer who is providing investment advice when, if I dig a little deeper, that’s not the case, their tax preparer is not licensed that way, they’re only providing tax advice, not investment advice.
So, let’s back up a bit. Why do you need a financial advisor in the first place? One of the main reasons is, you don’t want to have to deal with this stuff yourself, right?
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Let’s face it, would you rather spend your days figuring out what investments will earn you money and not cause you to lose your shirt or would you rather head out for an adventure with your friends or spend quality time with your family? I’m going to go out on a limb here and say you’d rather do that. And so, you’d rather hire someone else who geeks out on economic news and fiscal budgets like I do. Someone who is in this game day in and day out to manage your investments for you. So that’s one reason to hire a financial advisor.
Another reason is to save you from your own human-ness. A financial advisor can help prevent you from making emotional decisions about money: Selling an investment at the wrong time, not understanding all the risks. And they should be there to generally help you build good habits around money.
And lastly, having a good financial advisor will help you earn more money. And there’s actually recent research in Canada that proves this to be true. Studies show that after 15 years or more, households using an advisor have 2.73 times more assets than those who go it alone.
For example, if you invested $100,000 yourself and 15 years later, your portfolio is worth $145,000, the research shows that if you had invested your money with an advisor instead, your portfolio would be worth closer to $250,000 instead of $145,000 after 15 years.
I’ll leave a link to that research in the show notes so you can check it out for yourself.
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Okay, so you say, “All right, Glory, we get it. But how in the world do I know which advisor to hire? The first step is to understand what kind of help you need. You might need only a little help or you might need help in a variety of areas. The two main areas of your life a financial advisor will help you with is Investment advice and financial planning. Investment advice and financial planning, and those are not the same thing.
So, let’s break it down. You’ve determined you need investment advice. You have a goal, you want to save money, you want to invest in something. Where do you find an advisor who can help you with that? In Canada, the investments an advisor can provide is dependent on the licensing they have. It depends on what license that advisor has. So, you might consider walking into your local bank, right? Well, recent legislation has been passed that is causing banks to rethink the investments they offer. Many banks will be limiting their products to only offering mutual funds owned by that bank. So, if you want to purchase an exchange traded fund for example, you’re not going to be able to do that at a bank. And also, banks have employees. They sometimes move, get promoted, you aren’t always dealing with the same person. Rarely do I find someone happy with investing at a bank branch unless they are just starting out in their financial journey. The service provided is just too limited.
Now, banks realized these limitations, so they created a separate entity for their financial advisors that are licensed differently. For example, RBC created RBC Dominion Securities. Those advisors are licensed to sell many different products from many different companies. So, if you want to purchase a particular exchange traded fund for example, they can help you. These advisors are employees of the bank, but they are compensated well and tend not to move very often, so you’ll likely deal with the same advisor until they retire.
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Next, we have financial advisors who are licensed for insurance products only. They cannot offer exchange traded funds NOR mutual funds...they can only offer segregated funds, which are basically mutual funds with a life insurance wrapper. We’ll talk about those in a future episode. You will know if they are only licensed for life insurance because there’s often no particular broker dealer mentioned on their website anywhere. If they were licensed to offer mutual funds or exchange traded funds or stocks, they would have to have that broker dealer that they’re affiliated with listed on their website. Life insurance only advisors don’t have that requirement, so they don’t have to list it. Life insurance only advisors often provide excellent financial planning advice, it’s just that their available investment products can be more limited.
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Okay, we’ve talked about banks and we’ve talked about insurance only advisors, what if you want to have access to many different types of investments? Then you’re going to want to go with an independent financial advisor who is affiliated with an independent broker dealer, such as Odlum Brown or Portfolio Strategies Corporation, which is my broker dealer. These advisors are usually licensed for both insurance and mutual funds ETFs and often provide other investments as well. Another difference is that they're self-employed, so the advice and the investments they provide is not dictated by a corporate employer looking over their shoulder. If you like the idea of having a long term, personal relationship with a financial advisor who can also offer many different types of investments, you may want to go with an independent financial advisor.
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Okay, let’s review for a second. You’ve determined you need financial advice. As part of that advice, you’ve determined you need someone to manage your investments. We’ve just reviewed what type of advisor offers what type of investment and what kind of a relationship you’ll have with them. Now, let’s talk about the other advice an advisor provides, financial planning advice.
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The type of financial planning advice an advisor provides varies widely and the only way you can find out what an advisor provides is to ask them.
Here are some ways they might be able to help you:
Let’s say you’re spending too much on income tax. An advisor can work with your accountant to find ways to reduce the taxes you pay.
Are you thinking of retiring soon but you’re not sure if you have enough money yet to do so? A financial advisor can help you get the answer to that.
Do you have business partners and are concerned about what will happen if you were suddenly gone or unable to work tomorrow? A financial advisor can help you identify risks you might not have thought of and find ways to reduce them so your family is taken care of. For example, if you were to pass tomorrow, would your spouse have to immediately become a business partner? Do they want that? If not, an advisor can help.
Would you like to provide money to pay for your child’s education or the special needs of a child with a disability? A financial advisor can help with that.
And always, we come back to that financial coaching. When life happens and you have a personal relationship with a financial advisor you trust, it’s such a relief to be able to come to that person for advice. Remember, we have the benefit of not only working with you but dozens of other people who have gone through your same situation.
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So now you can see that a financial advisor can help you with investment advice as well as financial planning. One of the things that may happen as we go through life is that we have too many accounts at too many financial institutions. Here’s a word of advice:
As you near retirement, pick one. Pick one financial advisor who can provide investment advice AND financial planning advice and move your accounts with them. Your financial situation gets more complicated as we age. Spreading your assets over several different advisors is not diversification. Would you use two different family doctors? Two Accountants? Not only can having two financial advisors make preparing your taxes complicated and controlling your money complicated but it will make things complicated for your executor when it comes time to distribute your estate. I don’t recommend it.
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So now that you know what kind of help you need, I hope that helps whittle down the names of the financial advisors you’re considering working with. The next step is to interview them and see if they’re a good fit. You’re in luck, because I have just the tool to help you through this process. It’s my list of “12 Smart Questions to Ask When Interviewing a Financial Advisor.” And it’s totally free. All you have to do is go to the link in the show notes or go to my website, GloryGray.com, and download your copy. It has all the questions you should ask and why you should ask them.
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That’s all for today. If this podcast helped you, please subscribe and please let others know about it so we can help them too.
If you have financial questions, You can schedule a free 30 minute phone call with me where you can get answers to your specific questions. Just pop over to my website, GloryGray.com and contact us.
Until next time, this is Glory Gray, your personal trainer for financial fitness telling you to take charge of your finances, plan for the future but most of all, enjoy today. Bye for now.
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This podcast is for informational purposes only and should not be construed as investment, tax or legal advice. It is not an offer to sell or buy or an endorsement, recommendation or sponsorship of any entity or security cited. Mutual funds offered through Portfolio Strategies Corporation. Other products and services provided through Glory Gray Wealth Solutions.