How to vet a financial advisor

By Herman Chan, CFP, President of Crimson Financial Inc. in Toronto

As told to Ian Portsmouth

Here’s the answer to this week’s reader question.

In searching for help to manage my finances, I found a financial advisor but we’ve never met in person. How does one determine if the financial advisor is legit and competent? 

— Yvonne

How to find a good financial advisor in Canada

Choosing a financial advisor is one of the most important financial decisions you’ll make. Working with someone who is knowledgeable, exercises good judgment, communicates clearly and always acts in your best interests can both accelerate your financial progress and put your mind at ease. 

Although confidence in a financial advisor develops only through working with one over time, there are some simple ways to vet candidates for this crucial role—beginning with basic research long before you meet them.

What type of financial advisor do you actually need?

Before you start sizing up individual candidates, understand that the title “financial advisor” is commonly used to describe a wide range of service providers with varying qualifications and capabilities. Some provinces regulate the use of this and similar titles; others don’t. The term also covers numerous job titles, such as investment manager, mutual fund representative and even insurance agent. Some of these people are better equipped than others to address certain needs, so focus your search on the types of advisors suited to your situation. That said, some financial advisors hold multiple titles and provide broader services.

Maybe you need a financial planner first

It also helps to understand the difference between financial advisors and financial planners. Generally, advisors make investment and financial recommendations and have some expertise in investments, such as exchange-traded funds (ETFs) and individual stocks. Financial planners, on the other hand, specialize in developing comprehensive financial plans that cover building a retirement fund, assessing insurance needs, budgeting, tax management and more. The distinction is important because many people should have a financial plan before they start looking for financial products—just like seeing a doctor before you go to the pharmacist. However, many financial professionals work on both the product and planning side.

Whether you’re vetting a financial advisor or financial planner, the same general process applies. Here’s what you need to do.

Check the financial advisor’s credentials

When assessing the competence of your candidates, a good first step is to look at the designations they’ve received from recognized credentialing bodies. 

For planners:

• The Certified Financial Planner (CFP) designation is widely considered the gold standard because it requires extensive education and experience.
• And a Qualified Associate Financial Planner (QAFP) is a step below but still credible for simpler situations, such as someone with regular employment income versus a business owner. 

For investment expertise:

• Credentials such as Chartered Financial Analyst (CFA) and Chartered Investment Manager (CIM) are good indicators of competence.

For insurance and estate planning:

• The Chartered Life Underwriter (CLU) credential is a good sign. 

The Financial Services Regulatory Authority of Ontario provides a useful guide to the acronyms that actually matter, as well as a tool to help verify credentials.

Look for their licence

In the advisor world, a licence is required to sell financial products. To earn and maintain a licence, a financial advisor must meet certain requirements, such as prescribed proficiency and integrity standards. What’s most telling about a licence, however, is that it can shape the way the advisor will address your needs. Someone with only an insurance licence, for instance, will naturally gravitate toward life insurance policies or segregated funds (insurance investments). Ideally, you should find someone who holds an insurance licence and at least one investment licence, which will give you more types of options.

Check their work

If your advisor holds a relevant licence or credential, it means they are subject to the authority of the corresponding regulatory or credentialing body. Check the websites of these organizations for any disciplinary actions or sanctions currently applied against an advisor. (See examples from FP Canada and the CFA Institute.)

Also find out what other clients say about them. Online reviews can be helpful, but you can also ask the advisor to connect you directly with one of their clients. Finally, ask the advisor to share a sample investment recommendation and/or a financial plan. Among the things to look for: the sample should be detailed and tailored to the client rather than generic, and it should show how the advisor comes understand a client’s situation, rather than jumping straight to conclusions or recommendations.

Are they in it for themselves?

To gauge an advisor’s professional integrity, you should again check for formal complaints and disciplinary action. But also pay close attention to how the advisor conducts their first meeting with you. A strong advisor will ask lots of questions, because they need to understand your full situation before they can be of any real use to you. If someone starts suggesting products in the first or even second meeting, it suggests they’re prioritizing their potential earnings over your needs. Similarly, you should be skeptical of an advisor who leads with recent rates of return they’ve achieved for their clients, which implies they can do the same thing for you—even before they know your situation and despite the fact that past performance doesn’t guarantee future results.

You don’t need to meet your advisor in person—ever

When you’re near the end of the vetting process, a video call is as good as an in-person meeting with your prospective advisor. Avoid evaluating anyone exclusively by phone or in writing, because an advisor’s body language and facial expressions reveal whether they’re genuinely engaged with what you’re telling them as opposed to wondering how they can hook you as a client. But don’t worry if you never meet the candidate in person; today, many advisor-client relationships are both successful and exclusively virtual.

On that note, be sure to ask about the advisor’s ongoing communication methods. Someone who offers multiple ways to stay in touch—whether video, messaging platforms, or phone—is more likely to be genuinely accessible when you need them. Ask specifically what their response time is; within one business day is reasonable.

If you’re feeling comfortable with your advisor after all that, great. But you should always interview more than one advisor. It will give you a meaningful basis for comparison, especially if you haven’t worked with an advisor before.

Finding a financial advisor with both competence and integrity takes some time and effort. But considering the impact a good financial advisor can have on your financial future—and how long the relationship could last—carefully vetting a few candidates could be the best investment you ever make.

Ian Portsmouth is an award-winning writer and editor specializing in business and personal finance. He is based in Toronto.

Read more from this issue of The Get:

1. How to tell if you’re actually living within your means
2. Do you have to claim all your income? Like everything?
3. How to handle any situation—from homicide cop Hank Idsinga
4. Gig workers: Got a surprise tax bill? Here’s how to never get one again