7.4.1 Choosing an advisor

From: Financial Consumer Agency of Canada

Types of investment advisors

Many people will freely offer you their opinion about how to invest your money. Usually, their opinion is worth what you pay for it. For knowledgeable advice that you can rely on, you should look for trained and registered experts. Not only do they have the training and experience to offer advice, but registered advisors have professional standards and supervisory bodies that regulate their conduct. And in some cases, advisors must be registered (for example, advisors must be registered with the securities regulator to buy, sell or advise in most investments).

Five types of financial professionals can help most beginning investors.

Advisors at work

This type of advisor will be able to tell you all about the plans your company offers. If they are only offering advice, they do not necessarily have to be registered. For example, they can advise you about:

  • how to join a payroll savings plan for saving or investing
  • how to buy life insurance at a better price than you could get on your own.

Cost: If your company employs or contracts with the advisor, the advice they give you is usually free. 

Advisors at a financial institution (bank, trust company, credit union, caisse populaire)

Customer service representatives can often give you some types of investment advice at the financial institution where you have an account or a credit card. They can help you with basic things like:

  • setting up a savings account
  • saving money in products like term deposits and guaranteed investment certificates (GICs).

Cost: Customer service representatives get a salary from the institution where they work so there is no direct cost to you, but their advice may be limited to products they sell.

Personal bankers at banks or trust companies may be trained and registered to sell investments including:

  • GICs
  • government savings bonds
  • mutual funds.

Cost: Personal bankers get a salary from the institution where they work, so there is no direct cost to you, but their advice may be limited to products they sell.

Advisors at mutual fund companies and investment dealers

Mutual fund sales representatives must be trained and registered to sell mutual funds, and they are also trained to help you choose the best funds for your financial goals.

Cost: You may pay a flat fee for advice or pay through sales commissions that are usually a percentage of the value of the fund. There may be no direct cost to you, but some of your money goes to your advisor's company as a sales commission, and some is also passed along to your advisor. There may also be other costs involved in buying or selling mutual funds, such as "back-end fees" that apply if you cash in your mutual fund before a set time. Your advisor should explain the full costs to you in a way that you can understand. Be sure to ask how your advisor is being paid so you can decide if the product really suits your needs. (See the section on Fees and costs for more information.)

Stockbrokers are advisors who are registered to buy and sell stocks on your behalf. The companies they work for are called brokerage firms and are also registered. Stockbrokers can sell you other products as well, such as mutual funds and bonds.

Cost: Stockbrokers make money by charging a commission when you buy or sell an investment. They can make money in other ways too. Always make sure to ask your broker about the costs that you will pay.

Advisors at insurance companies

Insurance brokers and agents are trained and registered to give advice and sell insurance. Some get extra training so that they can also sell investments, if they are registered to do so. You may need more than one agent unless you find one that sells both insurance and investments.

Cost: Insurance agents get paid by the companies whose products they sell, so their advice may be limited to the companies they represent. Insurance brokers do not represent a single company and give you a wider selection to choose from. They receive a commission by selling you certain products. If you decide to buy, the cost of their commission is built into your insurance payments.

Advisors for investors with a large amount of money

Professional investment advisors tend to work with people with a lot of money to invest. Your banking institution may be able to help you find one, or you can contact an investment counselling company. These companies have trained and registered advisors who work with clients with larger sums to invest, generally more than $250,000.

Cost: Sometimes investment advisors charge a flat fee for their services; others earn a commission, or may charge a yearly fee equal to part of the value of your account. The more your investments grow, the more your advisor earns. Go to a registered dealer to make the investments they recommend.

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