At the small school, students are encouraged to ask questions by telling them that the answers will help their classmates who are too embarrassed to raise their hands. The same principle applies when the emails you send me turn into columns. Here are three that caught my attention.
“Despite higher education up to master’s degree, I am completely financially illiterate. This causes me a lot of frustration and anxiety, because I don’t know how to take charge of my finances,” a 35-year-old reader who I will call Annick wrote to me. She is therefore looking for a financial planner. So far, she has met with potential candidates at three companies.
But she doesn’t know what criteria to base her decision on. “Should I base my choice on know-how or interpersonal skills? Shouldn’t I simply be advised by a professional from my bank? »
From the outset, we must say congratulations to this thirty-year-old who wants to take control of her finances with the help of a financial planner. These professionals are the only ones to cover all areas of our financial life: insurance, taxation, investments, retirement, lark. Throughout her life, Annick will have to make important decisions that will require sound advice. She must therefore be able to build a long-term relationship, in a climate of trust free from judgment.
Even if it takes time, the idea of meeting potential candidates is excellent. It has to click!
Since Annick’s level of financial literacy is low, she should pay particular attention to the information popularization ability of the professionals she evaluates. She should also ask to see a sample of the statements, as some are difficult to decipher. Remuneration must be addressed, and can be negotiated.
The big problem is that you have to have fairly large assets to have access to this type of personalized service. One option, for a relatively young person like Annick, is to see if her parents’ financial planner could take her under his wing. The accounts would be managed separately, but all assets would be added together to calculate management fees.
At bank branches, everyone can get advice. But here too, you sometimes have to hold a minimum amount to obtain the services of financial planners in due form.
Otherwise, advisors who hold other titles (financial security advisor, group savings representative, etc.) can recommend investments.
“Most financial planners are associated with a brand. So the important question to ask is: are you self-employed, are you paid by the financial institution and can that institution decide which products to recommend to customers? “, believes Simon Houle, independent financial planner and member of the board of directors of ÉducÉpargne, an NPO whose mission is the development and maintenance of good savings habits.
Independent professionals (who pay a brand to use its technological platform) have access to the entire range of financial products. They should not favor their employer’s mutual funds which may be very good, but not necessarily ideal.
Consult this guide to choose a professional
Luc’s mother-in-law is a 93-year-old widow with a fairly frugal lifestyle who lives in a paid-for condo. A stockbroker handles his investments which total approximately $1 million. Luc examined his account statements for the last 10 years to find that his broker did not make any transactions, other than the mandatory withdrawals of the sums from his RRIF. Management fees are based on a percentage of assets, which equates to approximately $10,000 per year.
“I find it dearly paid for so little work, given that no transactions take place in his account,” confides Luc. Although he agrees with the idea of not making any trades, he wonders: “Is the level of fees his broker charges him normal for such little work and is there any an alternative solution to avoid these fees? »
A 1% management fee is not unusual. It’s even quite cheap.
On the other hand, the absence of transactions for an entire decade raises eyebrows in Simon Houle, independent financial planner and member of the board of directors of ÉducÉpargne. Is it time to rebalance the portfolio? We need to understand what explains such a long status quo. Luc could ask questions, if his mother-in-law wishes. He could also try to negotiate a better price.
What are the other options? They are not numerous.
To reduce the $10,000 fee bill, Simon Houle raises the possibility of using the services of a robo-advisor who will create a portfolio with very inexpensive exchange-traded funds (ETFs). “But the level of service will not be the same,” he warns, particularly following the death of the nonagenarian.
PHOTO CHARLES WILLIAM PELLETIER, ARCHIVES SPECIAL COLLABORATION
Simon Houle, independent financial planner and member of the board of directors of ÉducÉpargne
If the money was transferred to a bank, the bill could be worse. Suggested mutual funds will cost 1-3% in management fees, with an average of around 2%.
There remains the option of a discount brokerage account, but Luc was told that his mother-in-law was not eligible for it because her financial knowledge was too poor. And this, even if she signed a power of attorney. In-depth investment knowledge and a great deal of autonomy are indeed required, but some banks assured me that they were more flexible (than others) in such circumstances.
Luc does not mention what the average annual return on his mother-in-law’s investments has been over the past 10 years. By comparing the earnings recorded to the amounts paid in management fees, perhaps he would be less irritated by the bill.
Guy recently recommended a friend with over $350,000 to invest to his investment manager “because of his dissatisfaction with his current manager.” What was his surprise to learn that this 78-year-old friend was not of interest to the manager. “The manager’s policy was long-term investment, and he saw no interest in it for him. Can we refuse the service based on age? »
It’s hard to believe an investment professional would turn up his nose at $350,000, but it’s a good sign. Simon Houle points out that the manager has a “fiduciary responsibility towards his clients”, which means that he must act with honesty and good faith. “If the manager believes that his type of management is not good for the client, his duty is to tell him no. »
In all likelihood, it was therefore the investment objectives and not the age of the friend which justified the refusal. Other professionals will definitely be happy to serve it.