Independent Financial Advisors are professionals who offer independent advice on financial matters to their clients and recommend suitable financial products and services from a wide range of suppliers.
The Canadian financial services industry has many types of individuals that call themselves financial advisors but depending on the services they offer and the organizations they represent, many cannot call themselves truly independent.
A truly independent financial advisor is an individual that is not bound or motivated by quotas, minimum desk production and other production targets that may result in exotic trips and prizes for the advisor or conversely, immediate dismissal if targets are not reached. As well, an independent financial advisor must have access to a very broad shelf of products and services so that they can easily “shop the market” for the best possible option for their clients.
Some financial service organizations aggressively recruit their own sales force of advisors to promote only the organization’s limited product shelf. Having access to 3rd party products and services is not allowed and discouraged. These organizations typically encourage their sales force to promote the company’s most profitable products and tie incentives to reaching specific targets. It is comparable to walking into a Loblaws Superstore to see that thousands of 3rd party products have been removed from their shelves and only No Name products are offered. While No Name may offer good value, they may not always be the best choice!
Do Professional Designations Matter?
Yes, professional designations such as the Certified Financial Planner (CFP) do matter and demonstrates that the advisor has the knowledge to create and monitor a financial plan. However, the fewer product and service options that a CFP has means that their client may not receive the best features and pricing to the solutions recommended.
The Perfect Independent Financial Advisor
In my opinion, the perfect independent financial advisor would be an advisor that holds a professional designation such as CFP and demands that all new clients receive a written financial plan. The perfect advisor would hold more than one industry license such as a life insurance license, mutual fund license or securities license. Multiple licenses would allow them to shop the investment and insurance market for the best possible options to meet the client’s needs.
As an example, if a written financial plan presents a need for the client to obtain life insurance, disability insurance and set-up a monthly investment plan to save for retirement or a rainy day, then these products must be “shopped around” by the advisor to ensure that the most comprehensive and cost effective insurance is purchased and the best money managers are selected based on risk tolerance and other objectives. Rarely would any one company have the best solution available for each distinct product offering.
The perfect independent financial advisor would have access to a large variety of money managers, insurance companies, banks and other financial institutions such as investment counselors. Depending on the size of an investment plan, my perfect independent financial advisor would work with other 3rd parties as my “quarter-back” to find alternatives for my specific needs.
The perfect independent financial advisor would be associated with suppliers, investment dealers and brokers that would respect their independence and allow the independent financial advisor to own their book. Many organizations do not permit an advisor to own their client base and must leave their clients behind if they leave the organization. These individuals are purely “renting” client relationships rather than having a long term ownership stake in the well being of their clients. I think you would agree that an owner takes a greater pride in their work than a renter would.
Lastly, my perfect independent financial advisor would provide me with an engagement letter or document to help me understand any fees, commissions or charges that I would be faced with. With transparency in any relationship comes trust and I would rather work with my advisor knowing that all avenues and options have been explored rather than question their integrity and have doubts that my financial future is not properly safeguarded.
In my past 20 plus years as the president of Independent Planning Group Inc., we have developed an environment where financial advisors can be truly independent and offer unbiased advice. We have promoted the benefits of comprehensive financial planning to all of our independent associates and encourage them to offer this important service to their clients.
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