A checklist to reach your goals

Have you discussed your goals with a financial advisor?   You should because the advisor relationship should focus on more than just investments.

Communicating goals with your financial advisor is essential as it helps to establish recommended savings levels and investment suitability.  Every person has a different set of goals and priorities.

If you have never formally written these on paper, then below we have a few steps to help:  .

Step 1 – Create a list of goals, using these examples as a guideline:

  • Reducing portfolio risk
  • Enhancing portfolio returns
  • Ensuring adequate insurance for family
  • Minimizing taxes
  • Planning for child or grandchild’s post secondary education
  • Creating a financial plan
  • Better management of cash flows
  • Buying a home
  • Increasing annual income (i.e. new job, working more)
  • Balancing work and leisure (i.e. working less or smarter)
  • Saving for a major purchase (i.e. boat, vehicle, home renovation)
  • Creating liquidity
  • Managing and paying down debt
  • Not worrying about money
  • Establishing an emergency reserve
  • Retirement savings
  • Retiring comfortably
  • Helping family or community
  • Planned donation strategies
  • Maximizing the value of your estate
  • Selling or buying a business

In order for this exercise to be valuable, your goals must be realistic.  This list should focus primarily on those items requiring financial resources.

Step 2 – It is nearly impossible to work on all of your goals at once.  From the list you create, rank each goal in order, from most to least important.  Beside each goal, write any comments that you feel are important in helping your advisor understand your total situation.  The second step can often be a more difficult exercise for many.

Step 3 – Most of your financial goals should be measurable.  By putting specific dollar amounts on your goals you will be able to monitor your progress.  As an example, if your goal is to be mortgage free in five years then your plan may involve setting aside the funds necessary to make extra principal payments each year.

Step 4 –What is your most urgent concern regarding your financial affairs?   From the list above, you should break your goals into short term (1 to 5 years), medium term (6 to 10 years), and long term (more than 10 years).   Depending on your time horizon, short term for you may be 1–2 years, medium term 3-5, and long term may be greater than 5 years.

Step 5 – Once the above steps are completed you should have a clearer understanding of your goals.  Are your goals reasonable?  It is now time to share the work completed above with your advisor, provided he/she provides financial planning advice.  Those advisors who do, should be in a position to comment regarding your goals.  The more “goals” you have the more important it is to create a financial plan.  Whether you have a formal plan or verbal discussions, we recommend outlining specific “actionable” steps.

Step 6 – Updating and monitoring your goals.  You should review the progress you are making towards your financial goals at least annually.  Keep in mind that your goals will be in various stages of development in the future, and that significant life events can often impact your financial goals.   It is important to make your plan flexible and open to change.

We feel that completing this process will mean that you have started immediate action.  This will make your goals more real to you, and increase the likelihood of them being reached.

Ten benefits of consolidation

Why do some people have their investments at multiple financial companies?  Was it the closest financial institution to make that last minute RRSP contribution?  Was it an inheritance that just seemed easier to keep at the same place?  Maybe it was a short-term advertised special that brought them into another institution.  It could be that you bought a proprietary product that could not be transferred after you purchased it.  There are many disadvantages for people not developing one good relationship with a financial advisor.

The following are a few benefits of consolidating your investments with one advisor:

Asset Mix

The most important component of investment performance is asset mix.  Consolidation can help you manage your asset mix and ensure that you have not duplicated your holdings and are therefore, not overexposed in one sector.   Unless your financial advisors have been given a copy of all of your investment portfolios, it will be difficult for them to get a clear picture of your total holdings.  Even if you were able to periodically provide a summary of each account to each advisor, as transactions occur you would still need to update every advisor with those changes.

Technology

Most firms provide access to view your investments online.  If you have accounts at different institutions, then you will need to get online access from each. It is unlikely that you will be able to transfer funds between these institutions online.

Tax Receipts

If you hold non-registered investment accounts at several institutions, you will receive multiple tax receipts.  By consolidating your accounts, you will receive a limited number of reporting slips for income tax each year.  Reducing the number of tax receipts may also reduce the amount of time your accountant will spend completing your tax return.

Managing Cash Flow

Projected income reports from different institutions will be presented in various formats and at different points in time.  For you to obtain a complete picture of your financial situation, you will have to manually calculate the total income from your investments.  In situations where you have instructed your financial institution to pay income directly from an investment account to your banking account, it becomes more complicated to manage when there are multiple investment accounts.

Estate Planning

One of the steps in an estate plan is to deposit all physical share certificates and to reduce the number of investment accounts and bank accounts.  Having your investments in one location will certainly simplify estate planning and the administration of your estate.

Monitoring Performance

Some investors may be comparing the performance of one firm or advisor to another.  Investors should be careful when doing this to ensure they are really comparing apples to apples.  One investment account may have GICs while another may have 100 per cent equities, in which case we would expect returns to fluctuate during different market cycles.  It is easier to understand how all of your investments are performing when you receive one consolidated report from one advisor.

Conversion of Accounts

If you have multiple RRSP accounts and are turning 71 years old you may want to consider consolidating now and discussing your income needs.  It is easier to map out RRIF income payments when you have only one account.

Account Types

Fee-based accounts are usually suitable for a household that has total investment assets of $100,000 or more at one institution.  Consolidating allows these types of accounts to be an additional option.  As your account value grows, the fees as a percentage may decline in a fee based or managed account.

Service

In a perfect world, all clients at all financial institutions are treated equal.  The reality is that the largest clients get better service.  By having $50,000 at six different institutions you are probably getting minimal service at each institution.  If you consolidated these accounts at one institution we would suspect that you would get significantly better service.

Other Benefits

When individuals have all of their registered and non-registered investments at one location it is easier for financial planning purposes.  Consolidation enables you to fund RRSP contributions through in-kind contributions.  Sometimes it is recommended to swap investments between accounts to improve the overall structure from a cash flow and tax efficiency standpoint – this can only be done if your accounts are at one financial firm.

Note that consolidation takes time if investments are locked in at the different companies.  A plan should be created to consolidate investments on the respective maturity dates.

Notice of assessment useful in your overall plan

Canada Revenue Agency sends every taxpayer who has submitted a tax return a Notice of Assessment.  We encourage everyone to read the assessment thoroughly, including your accountant and financial advisor.

You may wonder why an investment advisor requests a copy of your assessment.  The bottom line is it is useful for planning purposes to reduce the household tax bill and to ensure you are managing your cash flows and paying the lest amount of tax possible.

Here’s some of the useful information we are ale to obtain from the assessment:

Income Levels

Individuals have several options to reduce their annual income tax liability.  Couples may have income splitting options not available to individuals.  Couples with children may save household tax by considering income-splitting strategies for all family members.  The annual Notice of Assessments for each family member helps monitor changing income levels over time.  Strategies and financial plans will change throughout time with income levels being a primary factor.

TFSA Deduction Statement

Your 2008 Notice of Assessment has a new section this year.  This section will be for your Tax Free Savings Account.  Included within this section will be your carry-forward amount of $5,000.  This year is easy as the 2009 room is $5,000.  For future years this schedule will be useful for your advisor to know how much room you have to contribute to the TFSA.

RRSP Deduction Statement

This statement is included on your assessment as a calculation of your RRSP deduction limit.  The start of this statement is last year’s RRSP deduction limit plus and minus some adjustments (relating to pensions, prior year earned income) to arrive at the limit for the current year.  The statement also includes all unused RRPS contributions.

Net Capital Losses

This amount is normally in the text of the assessment, which we noted above as being very important to read.  If you are unsure of the years in which you incurred the losses you may request these amounts from CRA or view them online yourself through My Account / ePass (free CRA service).  Net capital losses for individuals may be carried back three years and forward indefinitely.

Home Buyers

If you have participated in the RRSP homebuyers plan then you have to repay the amount back over 15 years.   Each year the repayment amount is approximately one-fifteenth of the total amount withdrawn until the full amount is repaid to your RRSPs.   Your assessment will tell you the required repayment each year.  If you do not make an RRSP contribution (and designate it as a home buyer repayment) then you will have to report that amount as taxable income.

Lifelong Learning Plan

Participants who withdraw funds from their RRSP under the LLP must repay the amounts over a period of up to ten years.  If you do not make an RRSP contribution (and designate it as a lifelong learning plan repayment) then you will have to report that amount as taxable income.

Instalments

One of the services we provide for our clients who have to make instalment payments is to arrange to make these payments directly from your investment account.  This ensures the payments are taken care of and that interest and penalties will not apply.  Another option to fulfill instalment payments for people who have registered income accounts (i.e. RRIF) is to arrange quarterly payments to coincide with the instalment payments and withhold extra tax on these payments.

Notice of Changes

If CRA has reassessed your return or made changes they will outline these changes in your Notice of Assessment.  We encourage you to provide a copy to your tax preparer to ensure the changes made by CRA are correct.

If your investment advisor has tax knowledge, they may be registered as a representative with Canada Revenue Agency.  The easiest way to grant a representative (accountant or investment advisor) the ability to view your tax information online through a secure website is to sign a T1013 form.  Once CRA processes this form, your advisor may factor the above information in prior to making investment recommendations or creating tax minimization strategies.

 

Timeline shrinks entering risk zone

Stock markets are unpredictable and at times completely irrational – at least in the short term.  By short term we mean five years or less.  Investing can be a very frustrating experience for people seeking instant gratification or short-term results when markets decline.

Prior to any investing with our clients we ask a series of questions to obtain an understanding of risk tolerance, time horizon, and cash flow needs.  We have listed three of these questions below and outline the reasons why we ask these questions.

Question 1:  What is your investment time horizon in years?

A)    1 to 2 years

B)    3 to 5 years

C)    6 to 10 years

D)    More than 10 years

The main reason why we ask the above question relates to how conservative our recommendations will be.   If someone has a time horizon of one to two years our recommendations will focus on cash equivalents and bond type investments.  If someone says more than ten years, then a portfolio could have a balanced approach with a greater percentage in equities.  As time horizon decreases so should the percentage in equities.

An interesting exercise for investors is to go through and look up the worst one-year returns in the stock markets.  One would discover many negative one-year periods in the markets.  Significant one-year declines would have seriously impacted someone that was incurring too much risk based on their time horizon.  By looking at the worst ten-year historical period of returns in the Canadian stock market, investors would realize that these longer periods are actually positive.  History may provide some comfort for people who are holding high quality investments and feel they will recover over their time horizon.

Question 2:  As a percentage, what is your household’s annual income requirement from your investment portfolio?

A)    10 per cent

B)    7 – 9 per cent

C)    4 – 6 per cent

D)    1 – 3 per cent

E)     0 per cent

We receive a variety of responses when we ask this question.  Some people are fortunate not to need any income from their investments because of age or other sources, such as pensions or rental income.  Most retired people require some form of income from their investments.  If investment income is the only source of income it becomes important to balance capital preservation with income.  If income needs are five per cent or less then the portfolio should be heavily weighted towards bonds, GICs, and other lower risk investment options.

Question 3:  Will you need to liquidate a portion of your investment portfolio over the next five years?

A)    More than 20 per cent

B)     11 to 20 per cent

C)     zero to ten per cent

D)    No requirement

The reason we ask this question is to get an understanding of significant purchases that are planned.  This may be a personal residence, vacation home, vehicle, boat, motor home, travel costs, renovation, etc.   These one-time items should be itemized and timing should be noted.  We recommend keeping an amount equal to these costs liquid and secure.  This ensures that specific goals can be met and that short-term equity markets do not impact plans.  The remaining assets can then be looked at for a longer-term strategy.

The risk zone that all investors face is the period immediately before retirement.  As an example, this may be the five-year period before you begin living off of your investments.

A typical investor may have been focused on growth for 30 years or more.  As an investor enters the risk zone it is important to look at shifting your portfolio to provide a future income need and capital preservation.

Change financial institutions carefully

There are many reasons a person changes financial institutions, including – a financial advisor retires, investments have to be consolidated or changed for a number of reasons or the service is simply inadequate.

Whatever the reason it is important you understand the process and your options.

A transfer begins with signing paper forms. The rest of the process is primarily electronic.

Canadian investors do not tend to hold physical certificates for the stocks and bonds they own.  They are mainly held in electronic form with the Canadian Depository for Securities, a reliable depository as it is subject to legislation and regulations under both federal and provincial jurisdictions.  Because it acts as the principal depository for securities traded between investment dealers, CDS is able to facilitate a quick transfer between institutions.

Investments are generally transferred either in-cash or in-kind.  In-cash means that all of your assets not currently held as cash are to be liquidated, sold or redeemed.  In order for your account to be transferred to the receiving institution in the form of cash.  It is important to note that if you have indicated an “in-cash” transfer of your account, all trades will be executed at market.  All trades will be placed on a best efforts basis subsequent to the receipt of the transfer form and may be subject to commission charges.  Care should be taken to understand all fees and tax consequences for choosing an in-cash transfer.

In-kind means that you want the assets in the account transferred, as is. If you hold investments and a cash balance, then the investments will be transferred as well as the cash balance in their current state, if the assets can be transferred.  The time required to transfer an account depends on the types of investments transferred.  Different types of investments may transfer at different times.  As an example, mutual funds may transfer on a different day than bonds or individual equities.  The types of investment products in your account will impact how long the transfer will take.  The following provides a general overview:

  • Stocks and bonds are generally transferred between 10 – 25 business days.  The Investment Dealers Association (IDA) has guidelines with respect to transfers between institutions.  Transfers from non-IDA member institutions may or may not observe similar guidelines.
  • Mutual funds from other financial institutions are generally transferred within 5 – 10 business days from the time all necessary documentation is received.
  • Guaranteed Income Certificates (GICs) and Term Deposits are generally not transferable “in kind” (as is) prior to its maturity.  Most GICs can be transferred in cash on their maturity.  There are some exceptions, you will need to check the terms and conditions with the institution which issued your GIC.
  • Proprietary investments are those sold only by the relinquishing institution.  Many of these investments may be nontransferable, non-redeemable or delay the transfer of your account.

An account transfer request may be rejected by the relinquishing institution for a number of reasons, such as, insufficient cash to cover fees, under-margined, outstanding short position or incorrect account designation.  If your transfer has been rejected for any reason by the relinquishing institution, they may return the transfer to the receiving institution unprocessed. When the reason for a rejection has been rectified, the transfer process will begin again and the relinquishing institution may then have 10 – 25 business days, from the date of receipt to process the transfer documents.

Many relinquishing institutions charge a fee, the cost of which may vary.  Normally this cost is approximately $125 plus tax per account and some receiving institutions or advisors may reimburse these fees.

Transfers of registered accounts should always be done through a transfer form.  Direct transfers of RRSP and RRIF accounts are allowed the Income Tax Act.  Canada Revenue Agency has a transfer form (T2033), but most financial firms have their own, which ensures your RRSP or RRIF is not deregistered and that you are not taxed on any withdrawals.  The receiving institution submits the transfer form, along with a copy of your last investment statement from the relinquishing institution.

Taxable accounts, including joint accounts, cash accounts, margin accounts and corporate accounts should generally be transferred in-kind.  This allows the receiving institution and advisor time to gather information relating to your investments, such as the tax consequence for any sells that you make.

Mutual funds within registered accounts or taxable accounts should generally be transferred in-kind.  This is especially important if the funds have been purchased on a deferred sales charge (DSC).  An in-cash transfer may result in the mutual fund company charging you fees to sell the funds.  Transferring the funds in-kind allows the receiving institution to obtain information from the fund company.  Typical information that is released to the advisor on record includes adjusted cost base, 10 per cent free portion (if applicable), matured units, final maturity date, and the deferred sales charge if the investment was redeemed.

Other important items to note:

  • Characteristics relating to your investments (deferred sales cost schedule, final maturity, adjusted cost base) remain the same once transferred
  • If your account holds individual equities, insurance type products. then you should ensure that the receiving institution and advisor are licensed to trade these types of investments
  • Partial transfers are permitted by specifically listing the securities you wish to transfer
  • Mixture of in-kind and in-cash transfers is also possible by attaching a schedule to the transfer form
  • Before a relinquishing institution may transfer a RRIF they are obligated to pay you the minimum annual payment if it has not already been paid during the year
  • Adjusted book costs for non-registered accounts should always be verified after the transfer

 

Evaluating Your Financial Advisor

Ultimately everyone is responsible for their own financial well-being.  If you are one of the many individuals who choose not to take an active role in their finances for lack of time or interest, it’s important to acquire enough knowledge to determine whether the advisor you have entrusted is doing – at a very minimum – an acceptable job.

Many investors work with one or more of the following:  investment advisor, stockbroker, financial planner, mutual fund agent, or insurance agent.  Other individuals may have investment accounts with a chartered bank, credit union, or trust company.  Regardless of the advisors that are handling your investments, it is important to periodically evaluate the service you’re receiving and the performance of your investments.  Many people are unaware of the services that some investment advisors provide outside of investment selection.

Performance

How do you monitor the performance of your investments?  Unfortunately the tide of the market often affects investors’ opinions of their advisor.  One of the most widely used equity indices in Canada is the S&P/TSX Composite Index.  The Dow Jones, Nasdaq, and S&P 500 are also popular U.S. indices.

The single biggest factor that determines investment returns is asset allocation (percentage of cash, fixed income and equities).  The most common type of equity is common stock.  Stocks are exposed to the fluctuations in the indices noted above.  Fixed income investments such as guaranteed investment certificates, or bonds often provide investors with more assurance regarding the return of their capital and the income that they will be receiving.  Each investor should decide how much risk they are willing to take.

Risk Assessment

Do you have an idea of how your portfolio is structured from a risk standpoint?  What is your percentage of cash, fixed income and equities?  What is the quality of your equities?  Let’s look at an illustration of a typical investor with $200,000 and an asset mix of 30 per cent cash/fixed income and 70 per cent Canadian equities.  If we know that the fixed income investments earned four per cent last year then we can easily calculate that portion to be $2,400 ($200,000 x .30 x .04).  For 2005 the S&P / TSX Composite Index returned 24.13 per cent.  Provided the investor had investments that were similar to those in the index, the equity return would be $33,782 ($200,000 x .70 x .2413).  As a reasonability test, the combined portfolio should have earned approximately of $36,182 (18.09 per cent) less commissions and/or fees.

Using the same information from above, an investor with 100% guaranteed investment certificates earning four percent should not expect to earn more than four percent.  Investors that have taken the risk and have 100 per cent equities should have seen some reward last year for the risk they have taken.  Certainly some foreign markets did not fair as well as Canadian markets in 2005 and should be factored in if a portion of your equities were outside of Canada.  Individuals will also need to look at their individual equities to see the risk profile of their portfolio.

Other Services

A characteristic that should be admired in financial advisors today is the ability to communicate effectively and provide services beyond basic trade execution.  An advisor should have the expertise to deal with an increasingly complex financial and regulatory system.  The value added component is when your advisor is able to identify issues that should be proactively addressed.  Unless you speak with your advisor about issues that arise it may be difficult for your advisor to be proactive in providing you the best advice.  In many cases your financial advisor may not have the expertise to assist in all questions; however, they should have the knowledge to guide you in the right direction.

Over the 2005 fiscal year, did your financial advisor:

  • Review your plan at least once to ensure that the overall strategy is on track?
  • Discuss your asset mix to see if you were still comfortable with the amount of risk you were taking?
  • Incorporate any new personal information into your financial plan?
  • Provide you with regular updates on how your investment portfolio is performing?
  • Make themselves available to answer all of your questions or address your concerns?
  • Provide you with information to complete your taxes?

Over the 2005 fiscal year, did you:

  • Review the investment recommendations provided by your financial advisor?
  • Keep your financial advisor up-to-date on any changes to your personal situation?
  • Notify them when you could not be contacted (i.e. holidays)?
  • Review the performance of your investments?
  • Review your asset mix and discuss any concerns with your advisor?

Investors should periodically look at their asset allocation and returns over a period of time.  If you compare this information to the appropriate benchmark indices then you will be able to monitor the relative performance of your financial advisor.   We encourage those investors that have not spoken with their advisor recently to book a meeting to review their accounts.  Taking an active part in your finances may be one of the smartest investment decisions you will make.

Advisor choice not easy

Selecting a Financial Advisor

Choosing a financial institution and advisor has become an increasingly difficult decision for many individuals to make.  Finding the right advisor was not always this complicated.  Prior to the deregulation of the financial services industry in the early eighties, there were four distinct business units: banking, trusts, insurance and investment dealers.

Today, each of these business units may offer multiple services overlapping into the other pillars – the clear distinction is gone.  Adding to the complexity is the sheer growth in the number of investment dealers and advisors.  Spending the time to find the right financial advisor based on your needs may be one of the most important investment decisions you will make.

We recommend that individuals looking for a financial advisor visit at least three different financial institutions.  The more time that you spend at this stage the more likely you will find an advisor that is most suitable for you.  When you meet with each advisor, we suggest that you are prepared with a list of questions.  By obtaining answers to these questions from at least three advisors, you can make a better comparison.

The following are suggested questions that you may want to ask a financial advisor before entering into a relationship:

Experience / Education

  • What is your educational background?
  • What professional designations do you have?
  • How long have you been in the financial services industry?
  • When do you plan to retire?
  • Are you licensed as a securities dealer?
  • Are you licensed as a mutual fund dealer?
  • Are you licensed to sell insurance products?

Service Overview

  • How many clients do you have?
  • Do you have a minimum account size?
  • How often do you contact your clients?
  • Do you have support staff?
  • What are the types of services you provide?
  • What makes your service offering unique?
  • Do you work with other professionals, such as lawyers and accountants?

Investment Process

  • What is your investment selection process?
  • Do you sell proprietary products?
  • What type of products do you primarily sell (i.e. individual equities, mutual funds, bonds)?
  • Are there any restrictions on the types of investments you may offer?
  • How liquid are the investments you are recommending?
  • How do you monitor the investments?

Compensation

  • How is the firm compensated?
  • What are the fees to sell and buy the investments you recommend?
  • What portion of the fee paid to the firm is paid to you as the advisor?
  • Do you offer fee-based options?
  • Do you offer managed accounts?
  • Do you offer commission only accounts?

References

  • Do you have clients willing to speak with me about your services?
  • Do you have professionals that may be willing to speak with me about your services?
  • Have you ever had a complaint filed against you with the BC Securities Commission, IDA or any other professional or regulatory body?
  • Have you ever been disciplined by a professional or regulatory body?

We recommend that you call any references provided and that you visit the BC Securities Commission website at www.bcsc.bc.ca.  For a nominal fee you can conduct a background check through the website and search for any disciplinary action since 1987.

The decision to select the right financial advisor is an important one.  Doing your due diligence could prevent an unfavourable outcome.

Diversification a key component

The words diversification and investments go hand-in-hand.  The term diversification generally refers to owning a number of different investments.  Investors should generally diversify by asset class, sector, geography and capitalization.   Some investors may feel they are diversifying their holdings by having investment accounts at several financial institutions.

In our opinion, diversifying between financial institutions is not necessary.  The following are a few benefits of consolidating your investments with one advisor:

Asset Mix

The most important component of investment performance is asset mix.  Consolidation can help you manage your asset mix and ensure that you have not duplicated your holdings and are therefore, not overexposed in one sector.   Unless your financial advisors have been given a copy of all of your investment portfolios, it will be difficult for them to get a clear picture of your total holdings.  Even if you were able to periodically provide a summary of each account to each advisor, as transactions occur you would still need to update every advisor with those changes.

Technology

Most firms provide access to view your investments online.  If you have accounts at different institutions, then you will need to get online access from each. It is unlikely that you will be able to transfer funds between these institutions online.

Tax Receipts

If you hold non-registered investment accounts at several institutions, you will receive multiple tax receipts.  By consolidating your accounts, you will receive a limited number of reporting slips for income tax each year.  Reducing the number of tax receipts may also reduce the amount of time your accountant will spend completing your tax return.

Managing Cash Flow

Projected income reports from different institutions will be presented in various formats and at different points in time.  For you to obtain a complete picture of your financial situation, you will have to manually calculate the total income from your investments.  In situations where you have instructed your financial institution to pay income directly from an investment account to your banking account, it becomes more complicated to manage when there are multiple investment accounts.

Estate Planning

A couple of weeks ago we highlighted the benefits of registering your physical share certificates in a nominee account.  Another helpful estate planning measure is to reduce the number of investment accounts and bank accounts.  Having your investments in one location will certainly simplify estate planning and the administration of your estate.

Monitoring Performance

Some investors may be comparing the performance of one firm/advisor to another.  Investors should be careful when doing this to ensure they are really comparing apples to apples.  One investment account may have GICs while another may have 100% equities, in which case we would expect the returns to be different.  It is easier to understand how all of your investments are performing when you receive a consolidated report.

Conversion of Accounts

If you have multiple RRSP accounts and are turning 69 next year you may want to consider consolidating now and discussing your income needs with an advisor that you trust.

Account Types

Fee-based accounts are usually suitable for a household that has total investment assets of $100,000 or more at one institution.  Consolidating allows these types of accounts to be an additional option.  As your account value grows, the fees as a percentage may decline in a fee based or managed account.

Other Benefits

When individuals have all of their registered and non-registered investments in one location an advisor may be able to fund RRSP contributions through in-kind contributions.  Your advisor may also be able to swap investments between accounts to improve the overall structure from a cash flow and tax efficiency standpoint.

Building Relationships

Building trust between advisors and their clients goes both ways.  Clients want their advisor to have the expertise and ethics to do what is in their best interest.  Advisors want to be able to trust their clients and ensure that the effort they are dedicating is appreciated.

As you’re looking through all your individual account statements you may want to give some thought to the level of service you’re currently receiving.  If you are happy with one of your advisors, the best compliment you can give is to consolidate your investment accounts with them and this will provide you with all the benefits described above.

The value of knowledge

Do you need a Financial Advisor?

There used to be a time when investors who wanted to purchase stocks and mutual funds had only one way to go – through a financial advisor.  But since 1984, when Toronto Dominion launched its discount brokerage services have appeared allowing individuals to choose to continue working with an advisor or execute trades themselves by phone or online.

Many investors are unclear about what financial advisors do and how they are compensated.  This is understandable as every advisor has a different skill set and offers various services.  Spending some time this spring to understand the services and options available may provide clarity on the benefits of working with an advisor.

The decision for some investors to do their own finances may come down to wanting to save money.  Another reason may be that individuals feel that it is easy to take control of their own investments.  These individuals may also be unaware of the services offered by financial advisors.  The more time you dedicate to your financial needs the more likely you are to realize the benefits of working with a qualified financial advisor.

Is It Too Expensive?

When fees are charged on a per transaction basis, the value of the service is directly linked to the cost of the trade.  Unlike an accountant or lawyer that charge a fee based on time, financial advisors historically have charged on a transactional basis.  The premise being, the more trades you are doing, the more work the financial advisor is doing on your behalf.  This is only partially true as the majority of the services that many financial advisors provide are not billed in this traditional way.  The industry solution to this issue was to develop a fee-based platform.  Fee-based advisory services are charged a flat fee that is based on your total investment assets – these types of accounts provides free trades up to a reasonable limit.  This places the focus on all of the services provided by the financial advisor including transactional costs.  This also highlights the other services that financial advisors do, such as structuring your total finances in a way that saves you money.

Past Experience

Some individuals may have received poor advice from an advisor in the past leading them to question why they are paying fees when they may not perceive value in return.  In these cases, we encourage investors to consider the following:  How much effort did you put in to finding the best financial advisor?  Did you stay the course when things got volatile?  Did you take unnecessary risks?  Did you have a plan?

Easy to Do Yourself

A discount brokerage representative does not provide advice on individual investments or offer other value added services that an advisor does.  Some discount brokerage firms are beginning to provide their clients with limited access to research.  Will you have the time to read through research reports and understand the financial jargon?  Are you able to develop a diversified portfolio that optimizes returns while minimizing risk?  Financial markets have become more complicated and staying on top of all the changes and financial news is more than a full time job.

Taking Out Emotion

Removing the emotions from buy and sell decisions is important.  All too often when individuals are making their own investment decisions, they are based on emotions such as anxiety about not being in the markets, or being nervous about overexposure in the markets.  An advisor can offer guidance having experienced several market cycles.

Limited Time

Many savvy investors use the services of a financial advisor.  Having a trusted advisor to discuss your total financial picture with can give you more assurance that the decisions being made are the correct ones.  Individuals that are busy at work often have limited time to attend to financial affairs.  Others may want to enjoy retirement without the daily work of monitoring their investments.  Regardless of the individual’s stage in life, they can be comforted by having an advisor that knows about their personal situation.

Other Services

There are many things that some advisors do for clients that can easily go unnoticed.  An investor that gets fixated on the cost of a single trade may decide that doing trades themselves through the internet is a prudent move.  What is the big picture here?  Is it time to cut corners when it comes to your finances?  What is the value lost by not having an advisor on your side to help you achieve your goals?  A simple strategy recommended by your advisor may increase returns, reduce risk, save taxes, and simplify your life.  An advisor can provide clarity when you receive conflicting advice from friends and family.

A trusted financial advisor is dedicated to keeping up-to-date on regulatory changes and financial news.  Financial advisors have resources and a network of professionals that provide solutions to the most complex of financial questions.  Most individuals are more likely to achieve their financial goals if they work with a knowledgeable advisor.