There comes a point in your working life -- and hopefully this happens early on -- when you will start to have a positive balance sheet.
And this is no easy feat, considering tuition rates are at an all-time high and the cost of living continues to increase. Honestly, there is a reason members of Generation Y move back in with their parents. And no, it's not laziness. Anyways, I'll save the generational debate for another article.
So, once your debt is behind you and you're making a decent salary, your sudden budgetary surpluses come with their own set of challenges, and sometimes that can be overwhelming. Before this you were focused on eliminating debt, but now that you're out of the red you're going to have to adjust your thinking.
And you're going to need to figure out how to invest your money.
The opportunities are endless. GICs, bonds, stocks, mutual funds or ETFs? And that's just the beginning. For each investment vehicle that you consider, you need to investigate it and figure out if it's right for you. There are countless questions to ask yourself; How risky is it? Will I be able to sleep at night or will the volatility drive me crazy? How has it performed over the past 10 years? Has it even been around for 10 years?
Fortunately, there is an entire industry dedicated to helping people in this predicament: financial planners. But of course they aren't cheap, so you have to figure out if hiring one makes sense for you.
Age
Deciding whether to look for a financial planner or invest on your own has little to do with your age.
"The age depends on when the person starts making money," says Cathy Curtis, a financial advisor with Curtis Financial Planning in Oakland. For Curtis, it doesn't matter if the person is 17, 27 or 67. However, if you are under the age of 18 you will need a custodian to sign off on any investments.
Scott Sather, an investment advisor and financial planner at RBC Dominion Securities in Regina, agrees and says age doesn't play a factor, but how much capital you have does.
Capital
"There is no solid number for how much wealth accumulation you need before an advisor will take you on. For me it's $250,000," Sather says. Curtis doesn't publish a minimum base.
But don't let these numbers dissuade you. A 2011 study from the Investment Funds Institute of Canada shows that 37% of mutual fund investors had less than $10,000 in total household savings and investments (excluding their primary residence) when they first started using a financial advisor, and 57% had less than $25,000.
And if you bank at any of the major banks in Canada, some type of financial planning services will be offered, regardless of how much money you hold with the bank. And generally it's offered for free.
Cost
One of the primary services that a financial advisor will provide is a financial plan, which is never free. As explained in this article it may seem like it's free because the financial planner has told you there's no upfront out-of-pocket expenses. In reality, a commission-based planner is paid by any investment or insurance products you buy to implement the plan.
For other services, financial planners are compensated in three ways:
- Fee-for-service: Planners paid on a fee-for-service basis may charge an hourly rate, set a flat rate for a specific service or be paid a fee based on a percentage of assets or income. In some cases, compensation would be a mix of fee and commission.
- Commission: The planner is compensated if you purchase financial products to implement a financial planning recommendation. In some cases, the commission is paid by the suppliers of financial products such as an insurance company. In other cases, you pay the commission, for example, if you buy shares of a publicly traded company.
- Salary: The company for which the planner works pays the planner a salary. The planner's employer may get its revenues from fees paid by clients or in commissions paid by clients making a purchase, or by the suppliers of financial products.
Because of the fees associated with a financial planner, a lot of young investors prefer to use the services of a discount broker to buy their products. Discount brokers are convenient -- trading is done online, so the tech-savvy generation generally find this environment easy to navigate – and they're relatively inexpensive. The downside of going this route is you will be in charge of your own finances. You will have to come up with your own plan, do your own research, and execute your own trades.
Conversely, if you decide to hire a financial planner, make sure that they have the appropriate credentials, such as the Certified Financial Planner designation. In Canada anyone can call themselves a "financial planner."
There are two exceptions to this rule. In British Columbia financial planners must hold either the certified financial planner designation or another financial services industry designation, such as the CFA charter, registered financial planner or chartered life underwriter.
In Quebec financial planners must get a diploma from the IQPF and obtain a permit from the Autorité des marchés financiers in order to use the words "financial planner" in their title.
