What is a financial advisor?

Navigating the world of finance can be challenging without the help of a financial planner or financial advisor (used interchangeably in this article). A financial planner should be a qualified individual who can help you understand your financial situation, define your financial goals, assess your risk tolerance, and identify strategies to help you achieve them. To do this, your financial planner will work with you to build an actionable plan that will include key elements such as budgeting, saving, investing, retirement planning, estate planning, tax planning, and portfolio management.

Types of financial planners

There are three basic types of financial planners in the industry: Robo-advisors, fee-only financial planners, and traditional advisors such as commission-based financial planners and financial planners who charge a percentage of assets under management. Each of these types of financial planners does have the same basic goal: to help optimize your finances and make sure you can achieve your financial goals. However, the delivery method is quite different.

A Robo-advisor is an algorithm that determines the optimal strategy based on the numbers that you provide for your goals. Robo-advisors are compensated based on a percentage of your assets (usually around 0.5% of your portfolio value on an annual basis). A fee-only advisor provides unbiased financial advice and he is only paid for the time he spends on your plan (on an hourly basis or for the project), and a traditional financial planner usually makes a commission on the sale of investment products or is compensated based on a percentage of your assets (for example 2% of your portfolio on an annual basis).

Why do you need a good financial planner?

Regardless of your wealth, a good financial planner can help you understand your financial situation and help you navigate through the complexity of available financial products and services to achieve your financial needs. It is important to find a financial planner that you feel comfortable to work with and to disclose your financial information. This is necessary for building a strong client-advisor relationship that will help you build a solid financial plan that is tailored to your financial needs.

Ottawa Financial Advisor

What areas can a financial planner help you with?

Saving: Before we dive into investing, it is important to have a saving strategy in place. The saving strategy will help you answer questions such as: What should be my target savings rate? Where should I allocate my savings? Which expenses can be eliminated or decreased to increase my savings rate? Saving is something that people all over the world struggle with, but a financial advisor in Ottawa can help you with some great strategies that ensure your savings are healthy and consistently growing.

Investing: If you want to grow your wealth and invest in assets that increase in value over time, then it’s important that you consult with a financial planner, especially if you have never invested before and have no experience dealing with investing in various types of assets. A financial planner in Ottawa will help you understand investing, build an investment plan according to your risk tolerance, and ensure that it is well-balanced and aimed towards your long-term goals.

Portfolio management: It is important to take a big picture approach when managing your portfolio. A financial planner should get to know you and your financial situation should take a holistic approach when it comes to helping you manage your wealth. Portfolio management does not only include investment management, but also cash-flow management and debt management.

Insurance needs: The concept of insurance is quite simple: You pay a premium (usually monthly) and for that premium, you transfer risk to an insurance company. The risk of being transferred could be passing away prematurely, or losing your job due to a disability. It can be challenging to know how much insurance you need and to ensure that you do not overspend on unneeded coverage or don’t have adequate coverage. A fee-only financial planner in Ottawa can help you determine your life and disability insurance needs with evidence-based recommendations. Having a financial advisor who does not sell insurance to determine your insurance needs, will give you more confidence that you are getting unbiased advice.

Tax planning: You work hard to earn money and you want your money to work hard for you with sound investing. It is therefore important to incorporate tax planning strategies to ensure that you do not give more money to the taxman than you have to. An Ottawa financial planner can help you with tax planning as part of your overall financial plan. Your fee-only financial planner can work with your accountant, to help you minimize taxes at different stages of your life. Tax planning becomes more important when you enter retirement and begin withdrawing from your various investment accounts to fund your life and retirement goals. Retirement planning and tax planning go hand in hand!

Estate planning: We will all pass away one day. Therefore it is important to ensure that your money and other assets will go to your loved ones or charities without paying unnecessary taxes. That’s why estate planning is important. Early in life, estate planning could be as simple as having a will and sufficient life insurance to help your dependents if you were to die prematurely. However, later in life, you might have a more complex financial situation which makes estate planning a significant part of your overall financial plan. Again, you do not want to give away money to taxes instead of your children or grandchildren. Estate planning is a plan that you can do now, especially if you are approaching retirement, to minimize taxes, and enjoy the gift of giving to your loved ones!

Key take away

As we can see, financial planning involves many key areas that evolve as you go through the different stages of your life. It is important to have a knowledgeable and trusted financial planner in Ottawa to help you achieve your goals and make the most of your hard-earned dollars. Having a fee-only financial planner on your team helps you maintain control of your finances with transparent costs (usually an hourly rate) while having help from an expert in the field of financial planning. Our professionals at Forest Financial Planning provide unbiased advice and education to their clients. Clients can expect to walk away with a financial plan as well as financial knowledge that they can keep with them forever. Now, that is valuable!