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What Credentials Does Your Financial Planner Have

Nov 9th 2016 - Betty Anne Flynn

Did you know that in Canada (excluding Québec) anyone can call themselves a financial planner or financial advisor?  No qualifications or credentials are required. This is not the case for a Certified Financial Planner® (CFP®). This certification represents the standard of financial planning and requires stringent education, experience, competence and ethics requirements.

After 3 years of part-time studies and many gruelling exams, I became a Certified Financial Planner in 2004. While working full-time managing a credit union and having more than 20 years’ experience, I felt I had a vast amount of financial knowledge and questioned the value of the CFP course. 

I was already licenced to sell mutual funds but decided to give the first CFP course a try and I couldn’t believe how much I learned!  There was no doubt that I would proceed with the rest of the studies to get my CFP designation.  The wealth of knowledge that I gained from these studies was incredible. 

Many of you likely deal with a financial planner or advisor for your own personal investments. Many of them may have chosen investments for you, then made a commission on the investment they sold. They have a licence to sell mutual funds and/or securities.  They are sellers, but where does the “planning” come in?

Some advisors may not know about taxation, estate planning or other elements that may affect your financial future. It is a concern that some financial planners may not be aware of how to create a financial plan or may not understand whether a certain investment is best suited for that individual. It is important to be aware and educate yourself before seeking financial advice.

Example:

A member of ours, who we will call Jane, speaks to her financial advisor from a well-known investment company every February regarding RRSP contributions. The advisor suggests each year the amount to contribute, usually in the $10,000 range.  The advisor does not look at Jane’s RRSP contribution room and is unaware that Jane has a very good pension plan and survivor pension. There is no mention that Jane should be saving some contribution room for her upcoming retirement severance payout. Jane will likely pay a higher tax rate when withdrawing the RRSP funds than she benefited from when contributing the funds in the first place and it is likely she will have her Old Age Pension clawed back when including her RRSP withdrawals in her income. In this scenario, the advisor is making a commission on the $10,000 RRSP contribution, essentially being the only one benefiting from this transaction. This advisor is working for their own retirement, not Jane’s. Unfortunately, there are many scenarios just like Jane’s happening all the time. 

The next time you deal with a financial planner or advisor, ask them if they are a CFP. Don’t be afraid to ask them about their education, experience and compensation structure - all things as their client, you have the right to know. If you are going to take advice from someone about planning your future, take the time to choose someone with credentials and someone who you can trust.