As Canadians finances are continuously under pressure, more are choosing to file a Consumer Proposal…
If you’re trying to stay on budget and repay your debt but you just can’t seem to get ahead, you might consider hiring a financial advisor to help to get your financial life in order. While it’s a great idea to research what kind of financial help is available, it’s important that you know the type of services different financial professionals offer before spending your hard-earned money.
This article will break down what a financial advisor does and the type of services they offer. It will also discuss what services a Licensed Insolvency Trustee (LIT) can offer and when an LIT might be a better fit for your financial situation.
What is a financial advisor?
A financial advisor is typically hired to provide financial guidance. Many people hire a financial advisor to help them invest their money and to create a long-term investment plan. Financial planners are similar to financial advisors but tend to focus more on financial planning tasks including long-term budgeting, tax planning, retirement planning, and even estate planning.
What to consider before hiring a financial advisor
Before you decide if a financial advisor is the right choice to assist you with your financial situation, there are a few questions you should ask to ensure you are getting the services you really want at a fair price.
One of the first questions you should ask a potential financial advisor is how they get paid. What is their pay structure? There are a few different ways a financial advisor is typically compensated. Three common examples include the commission-based structure, a fee-only structure, and a fee-based structure.
Commission. Using a commission-based structure, financial advisors are compensated by selling products including mutual funds and insurance products. There can be issues associated with this fee structure as commission-based financial advisors are often motivated to sell you particular products based on the amount of commission they will make. For this reason, it can be difficult to decipher if a commission-based financial advisor is suggesting a product because they have your best interest in mind or because they know it’s going to net them more money. This is not to say that all commission-based financial advisors have ill intentions but, it does happen and it’s important to be aware of.
Fee-based. A fee-based structure is when you pay a percentage of your total investments to your financial advisor. This amount is commonly referred to as the management expense ratio (MER). For instance, you might pay 1.5% of your total investments to cover the MER. Typically, the more money you have invested, the more room you have to negotiate the MER fee. Depending on how high the MER is, you can end up paying a good chunk of money out to your financial advisor. It’s not that they don’t deserve to be compensated, they do, but you should also know how much everything is going to cost you.
Fee-only. With a fee-only structure, you pay an hourly fee — this could be $60 an hour or $400 an hour, depending on your financial advisors’ rates. This can be a nice structure for clients because the financial advisor has no ulterior motive when it comes to giving you advice. They aren’t getting a commission from a particular product so they are free to give you objective financial advice. Additionally, you can budget for how much your advisor charges. If you know it will cost $75 an hour, then you can plan to get as much advice as you can afford.
When choosing a financial advisor you will also want to check their credentials. Anyone can call themselves a financial advisor or a financial planner so you want to confirm that this person has the appropriate combination of education and experience. Look for a financial advisor that has a professional designation including:
- Certified Financial Planner (CFP)
- Personal FInancial Planner (PFP)
- Registered Financial Planner (RFP)
When to consult a Licensed Insolvency Trustee (LIT)
If you are in a position where investing is not your top financial priority and instead, you are more concerned with keeping your head above water and paying down debt, then a Licensed Insolvency Trustee (LIT) might be a more appropriate professional choice.
An LIT is a federally regulated professional who can provide a number of services to those struggling with debt. Services include credit counselling, debt consolidation, Consumer Proposals, and Bankruptcy.
If you are in a position where you are trying to do everything you can to avoid filing for Bankruptcy, an LIT can work with you to create a debt repayment plan and help you to communicate and negotiate with your creditors.
If you’ve exhausted your debt management options, are insolvent, and are headed for Bankruptcy, an LIT can provide guidance and support you through every step of the process. An LIT is also the only professional who can perform a Bankruptcy proceeding. This is not a service that a financial advisor or financial planner is legally capable of performing.
Unlike a financial advisor, an LIT can not simply set their own fee schedule. Instead, LITs fees are based on a federally regulated tariff that is outlined in the Bankruptcy and Insolvency Act.
Before seeking the help of any type of financial consultant, it’s important to determine what services you really need. For those looking for assistance with investing and long-term retirement planning, a financial advisor or financial planner may be a good option. For those who are just trying to pay off student loans, credit card debt, and stay financially afloat, an LIT is likely a more suitable option.
If you have questions about the type of financial services or advice an LIT can offer, reach out to Admanson and Associated for a free, no-obligation consultation. You can reach us online or give us a call at 519-310-JOHN (5464).