How to work with a financial advisor

The responsibility of managing your money falls squarely on your own shoulders, but like anything in life, good decisions are made after seeking advice and gathering information. As a physician, your financial journey is different from that of other professions. Physicians begin their career later, often with significant debt, and they may have an incorporated business. It all adds layers of complexity that means physicians, no matter how many times they’ve read The Wealthy Barber, need expert financial advice. This is why most physicians seek out a financial advisor, often one who specializes in serving physicians. Read: 'How embarrassing': Doctors share stories of expensive lessons learnt WHAT IS A FINANCIAL ADVISOR? A financial advisor is a general term for anyone who provides financial advice. They have various credentials. The most recognized credential in Canada is certified financial planner (CFP). A CFP has three years’ experience, has completed an educational program and passed a national standardized exam. They must complete 25 hours of continuing professional education a year and adhere to a standard of professional responsibility and a code of ethics. As of April 2022, CFPs must also have a university degree. Qualified Associate Financial Planners (QAFP) also have to follow the standard of professional responsibility. CFPs and QAFPs have to adhere to a code of ethics that includes a fiduciary standard. This means they must put their client’s interest ahead of their own and have a duty to preserve good faith and trust. For example, they don’t try to sell clients an investment or insurance product just because it gives them a big kickback. It also means they listen to the client’s needs. Financial advisors may have other credentials, and it is wise to check what training, code of ethics and professional standards are behind each qualification. Read: Peer reviewing doctors’ views on money WHAT SHOULD THEY DO? Sebastien Chevrier, a Chartered Investment Manager (CIM), QAFP and senior financial advisor and portfolio manager at Physicians Wealth Advisory in Toronto, outlined six main services a financial advisor should provide. They are: Financial management, which includes cash flow, budgeting and setting goals. Investment management, which involves putting your money where it can grow. Risk management, which entails life and disability insurance. Retirement planning, which details your goals for retirement. Tax planning, which involves minimizing the amount of tax you have to pay. For example, you may use registered products such as a Registered Retirement Savings Plan (RRSP) or Registered Education Savings Plan (RESP). Estate planning, which ensures you have a will in place and you can distribute your assets efficiently to your beneficiaries. “Having a physician-focused advisor would be an added bonus to these services,” Chevrier said. “There are definite different aspects of their life and career that require special attention.” Every physician might not need all these services from a financial advisor. Some may choose to only consult a financial advisor for a financial plan, and then purchase insurance or investment products from another source. HOW OFTEN DO YOU MEET? There’s no fixed guideline on how often to meet with your financial advisor. The main time to meet is when there has been a change in your life that affects your finances: births, deaths, marriages, divorce, new jobs, new property or other transitions. Physicians may have to meet with their financial advisors more frequently at different points in their career. For a student, it may be a once-a-year meeting. For late residency, when there are a lot of transitions, it is likely more often, said Stephen Hunt, the national lead of financial planning advice and strategy at MD Financial Management. Read: Insuring your income? The ins and outs of disability insurance for physicians The number of meetings also depends on the level of knowledge the client wants, Hunt said. Some people want line-by-line calculations, while others seek only the big picture. “A client should be able to agree with their advisor what that contact is, what that cadence is like,” Hunt said. For regular updates, once or twice a year works best, said Alan Acton, a CFP and vice-president and portfolio manager at Polaris Wealth in Ottawa. “I found the biggest mistake physicians were making was not meeting with me for two, three, sometimes even five years,” Acton said. “After three, four, five years, your portfolio is misaligned, goals change, tax laws change. If you leave it too long then you’re missing opportunities to actually take the advice that a financial advisor can offer." Chevrier noted that lack of communication is the number one reason why people leave their advisor. There should be ongoing communication, even if it is just an email to reassure clients that their portfolio is safe at times of market upheaval. Read: Masterclass: 10 tips for collecting art from one of Canada's leading art advisors “The advisor has to be willing to meet with you as often as needed,” he said. At Chevrier’s firm, advisors provide quarterly reviews to discuss topics relevant to the client’s financial plan. For example, this may involve conversations about retirement planning before the RRSP deadline, cash flow and budgeting, or RESP contributions. “Communication, transparency and value: Those are three things physicians should look for in their services,” Chevrier said. WORK AS A TEAM Your financial advisor should not only work with you, but also with your lawyer and accountant. “What I’ve found very effective was working in teams,” Acton said. “The lawyer, the accountant and the financial advisor are working as a team, not necessarily from the same firm, but working as a team and that’s the doctor’s team.” Financial advisors at MD Financial Management also work with professionals outside of their firm. “We do a lot of work with our clients’ accountants,” Hunt said. “We find that works really well when we’re providing services to the clients.” Read: Complicated but good: Why this ‘mind-boggling’ personal pension is gaining ground with doctors At MD Financial Management, there are some advisors that specialize in certain areas, and a team of advisors might work on your behalf. There are in-house specialists that focus on certain areas, such as estate trusts. “Things are complex these days and one person can’t know it all and have the depth of knowledge (needed). Certainly, a team makes more sense,” Hunt said. GETTING GOOD ADVICE Evidence-based advice is the best kind of advice for both medicine and finances. Good advice is never given on a hunch, but must be backed up by relevant research or data. “If your advisor is using an evidence-based approach to their financial advice, then you’re probably getting good advice,” Acton said. A financial advisor’s credentials can also help determine the quality of the advice they’re providing. Ensure that they are a fiduciary and will put your needs first. Inquire about their latest continuing professional education to see if the advice is based on current trends or knowledge. Make sure that the advisor is listening to your goals and needs and providing advice based on those goals and needs. One way to test if the advisor is listening is to see who is doing the most talking in your meetings. Read: Higher cottage values bring greater responsibilities “If I do more talking than the advisor, I think that’s a really good sign that the advisor wants to understand me, wants to understand my family and what I want to achieve,” Hunt said. HOW IS YOUR ADVISOR PAID? Financial advisors may offer a range of services, and the fees they charge depend on the service. For example, Chevrier and his colleagues charge a one-time fixed price for a personal financial plan. There’s also a fixed price for a financial plan and ongoing support. But for a full, comprehensive wealth management plan, where the assets are managed by the financial advisor, it is fee-based, where the advisor gets paid a fee that is based on a percentage of your portfolio. There’s a maximum fee in place, so you won’t get penalized for getting richer. “That minimizes the fee drag on the portfolio,” Chevrier said. Chevrier also keeps the price of fees low for residents and newly practising physicians. “They don’t really have the assets but they need a plan,” he said. Some wealth management companies don’t want to take on people without assets, especially if the advisors are fee-based. At MD Financial Management, advisors are paid a salary. At other firms, financial advisors are paid via commissions on products or MERs (management expense ratios). Read: Deferring CPP and OAS not a cut-and-dried case for doctors In a 2018 blog about choosing a financial advisor, the Loonie Doctor website suggested that physicians think about how an advisor is being paid, and if it might create bias for certain financial products or investment advice. For example, if an advisor is commissionbased, they might push certain products; if they are fee-based, they might not promote investing outside of a portfolio, such as in real estate. A fixed price for specific services or a flat hourly rate provides advice that is the most lacking in bias, the Loonie Doctor concluded. Address this potential bias directly. “The best approach is to ask the question to your advisor: Are you selling or recommending an internal product? If so, why, and do you have access to other products?” Chevalier said. WHAT IF INVESTING IS A HOBBY? Investing is an enjoyable pastime for many physicians. The Facebook group Physician Financial Independence Canada, which promotes self-managing investments, has 27,000 members. Even if investing on your own, you may still want to work with an advisor to develop a financial plan. You may need to consult about certain rules of investing and saving, such as the implications of early withdrawals from registered products or how much you can take out of a corporation, Chevrier said. Consider the opportunity cost of investing on your own, Acton said. If you were not working on your portfolio, what could you be doing? It is also something that should be sustainable in the long-term. “Make sure you have the time and the interest to dedicate to your efforts. A lot of people will try, but you have to make sure you’re in this for the long term,” Chevrier said. Read: Time for capital gains harvesting from your corporation? The November 2021 issue of the Globe and Mail’s Report on Business Magazine lists Canada’s most effective financial advisors. The top financial advisors featured in the magazine stressed the significance of a financial plan based on the client’s ambitions and values, created after they took the time to listen to their clients. They also earned their client’s trust by communicating regularly and paying attention to their clients’ portfolios and lives. But for them to be great, the client had to be an equal participant. As a client, you should demand competence, clarity and value, but you should also provide cooperation and clear ideas of your goals. When you have a successful working relationship with a good financial advisor, you should be closer to realizing those goals.

How to work with a financial advisor

Register for free access or login.

Related Topics