everyone should have a financial advisor, someone who counsels on financial matters, asses the needs and comes up with solutions. it is best to centralize all mutual funds, segregated funds, insurances, RRSPs, investments with the same advisor. however, not all advisors are equal. since all advisors, except some financial planners and some higher-end investment specialist, work on commission, it is important to know if your advisor is biased towards a certain product or a certain company.
for example, captive agents from companies such as industrial alliance, manulife, sun life, clarica, ing and the banks have incentives to sell products from the companies that employ them. their bonuses and commissions are higher for thos products. they can offer others, but generally wont, since they would be loosing money.
the best advisors are either accredited financial planners or independent financial security advisors. financial planners work partly on commission, and partly on pay. a financial planner can bill you for all his advice, whether you take it or dont, make you sign an exclusivity aggreement with him, so that you dont implement his planning advice with someone else.
some speciality brokers that manage solely investments for clients take off a trailer fee for themselves, an additional 1-3% every year as their pay. to work these brokers there always is a minimum investment, varying from 100000$ to 500000$.
independent financial security advisors are like unaccredited financial planners. they can not bill you for advice, nor can they make you sign an exclusivity aggreement. however, they are mostly unbiased. they have aggreements with a multitude of insurance and investment companies. most commission from these companies is standard, so there is no incentive to sell one product more than another. which is good for the client, since he gets the best of both worlds. independent unbiased advice, that wont cost money each time new advice is given.
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How do financial planners make their money?
They make their money managing money for others. For financial planners and advisors, especially for families, they make a certain percentage point off the sale, or charge for their service and take a lesser percentage point. We are a far cry from hedge fund managers as well as investment specialists that directly manage the money. A planner will invest into funds, segregated funds and bonds which are managed by professional companies. An update every year is recommended. Most successful financial planners work 3-4 days a week, have a secretary that takes care of all the office business and have between 1000-5000 clients.
Why do the planners continue working? Well, everything boils down to the sales volume of the client base that you have. For example, let’s say my block of 1000 clients generates 20000$ in renewals every year. So every year, I would receive these renewals, plus the commissions on any new business that I’ve generated that year. Having a financial planning practice is like having any other practice. The quality and quantity of the clients make up your salary. Most planners try to get to the point where most of their salary comes from renewals and investments, since renewals on investments are the rest of the life of the investment where as the renewals from insurances lasts between 10-20 years. Some american companies still allow lifelong renewals.
On the other hand, investment specialists are people who have a stock broking license and would directly invest your money into some stocks. There are always minimus to invest this way, between a 150000$ to 500000$ total. Also, they can ask that these investments are out of RRSP or the 401(k) plans. This type of specialist would get a management fee on the investment, normally between 1% and 4% on the total volume that you invested.
Just to give you an idea, for a planner to make 100000$, he or she would have to sell for around 60000$ worth of insurance premiums and investment commissions. when you calculate that the average premium per policy is, let’s say 800$, that’s about 75 policies, which is about 1.5 per week. The downside of this is that your revenue is directly tied to your sales. If you have a few weeks without sales, well there is no money coming your way. Its a delicate balance. Some people prefer the security of a regular paycheck, others prefer to be paid for what they work for.