Financial Advisor

A financial advisor is someone who helps you with your investments, financial planning, or both. In Canada, the term covers a wide range of professionals, from the person at your bank branch recommending mutual funds to an independent fee-only planner building a comprehensive financial plan. The type of advisor you work with determines what you pay, how they’re compensated, and whether their recommendations are truly in your best interest.

Types of advisors in Canada

Commission-based advisors earn money when you buy certain products. Many bank advisors and mutual fund representatives fall into this category. They’re often paid through trailing commissions embedded in the MER of the funds they recommend. You don’t write them a cheque, but you’re paying through higher fund fees.

Fee-only advisors charge you directly, either a flat fee, an hourly rate, or a percentage of assets under management. They don’t earn commissions on products, which removes a major conflict of interest. Fee-only planners are less common in Canada but growing in number.

Robo-advisors are online platforms that build and manage a portfolio of ETFs for you, typically for a fee of 0.4% to 0.5% of your balance per year. They’re a middle ground between doing everything yourself and hiring a full-service advisor.

Why it matters

The advice industry in Canada can be confusing because different titles mean different things. “Financial advisor,” “financial planner,” “investment advisor,” and “wealth manager” all have different qualifications and regulatory requirements. Not all of them are required to act in your best interest.

Example

Say you have $100,000 invested through a bank advisor in mutual funds with an average MER of 2.0%. That’s $2,000 per year in fees, a portion of which goes to the advisor as a trailing commission. A fee-only advisor might charge $2,500 for a comprehensive financial plan, but then you’d invest in low-cost ETFs with an MER of 0.20%, paying just $200 per year in fund fees. After year one, the fee-only route is already cheaper, and the gap widens every year as your portfolio grows.

Understanding how your advisor gets paid is one of the most important things you can do as an investor. An advisor earning commissions on high-fee mutual funds has different incentives than one charging you a flat fee for a plan. For a deeper breakdown, see our guide to financial advisors in Canada and our comparison of robo-advisors vs. self-directed investing.