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There are two different kinds of investment advice. Most investors need both types. You may need help in deciding exactly which investments to buy. This is “specific investing advice.” But you often need to know more-general things first. This “general investing advice” includes:
- when to invest
- how much to invest
- what general types of products to invest in
- what registered accounts to use
- when and how to take your money out (disinvest)
Specific investing advice is regulated by the Nova Scotia Securities Commission (NSSC). Only people registered to sell you investments are allowed to help you decide which specific securities to buy. This can be helpful but can also be a problem because sometimes you want advice from someone who is not selling.
General investing advice is part of what is known as “financial planning.” Sometimes it is called “retirement planning,” since almost everyone who invests is saving for retirement. But financial planning is about more than investments and retirement. It can include advice about budgeting, paying down debt and managing your money. Financial planning can include a plan for investing, but does not involve advising on which specific securities to buy. It makes sense for you to have a financial plan before you get advice on which securities to buy.
In Nova Scotia, anyone can give you financial planning advice. And anyone can call themselves a financial planner. Financial planning advice is not regulated in Nova Scotia. There is no government agency like the NSSC to regulate the people who do this. Only specific investing advice is regulated. Some provinces are looking into regulating financial planning. Nova Scotia might follow this path as well.
Financial Planning by Advisors/Registrants
Advisors/registrants in Nova Scotia know consumers need and want general financial planning advice. Most will give you this advice when they work with you. But their main goal is to sell you investments. Financial planning advice from advisors/registrants is often offered as a free service. This means they do not ask you to pay them to do a financial plan for you. This can be appealing because everyone likes to get something for free.
Doing a good financial plan takes a lot of work and skill. So why would an advisor/registrant do this for you for free?
They do it because if you like the plan you are likely to let them carry out the plan for you. This means you will buy investment securities from them. They will help you decide which products to buy. When you buy, they make money. They might earn a commission for selling a specific investment product. Or they might be paid every year as long as you own the investment.
This can be complicated. It may not seem like you are paying them at all. Fees can be embedded in the cost of the investments where you can’t see them. Or they can be deducted from your account and not be noticed by you. But the more fees you pay, the less you earn in return on investment. This is an example of a conflict of interest we discussed in the Investor Rights section of this guide. We also talked about embedded fees in the Fraud and Other Concerns section of this guide.
You should be careful when you work with an advisor/registrant and take their advice. Think about talking with other financial professionals as well. In this section of the guide, we will talk about things to watch out for and how to find other financial professionals to help you.
Confusing Job Titles
People giving financial and investment advice in Nova Scotia can call themselves whatever they want. This is true for people who are registered to sell securities and for people who are not. You can’t tell from the title on a business card or in an advertisement whether someone is registered to sell securities. You can’t tell which products they can sell. You can’t tell what education or experience they have.
In the Investor Rights section of this guide we talked about different categories of registration. Someone might be registered in a category that only allows them to sell a narrow range of products. If their category of registration was on their business card, you would know what they can sell. Or you could find out by looking up the registration category on the NSSC website. But the category of registration is not on advisors’/registrants’ business cards, or advertised.
Different categories of registration also mean an advisor/registrant has passed certain courses or exams or has certain experience. Without knowing their registration category, you can’t tell if they simply passed the basic exam for selling securities or if they have more advanced education or experience.
This video from the Investor Rights section of this guide will remind you about the different categories of registration.
Almost 14,000 people are registered with the NSSC. More than 85 percent are registered as dealing representatives. This is a salesperson category of registration. But you will likely never see the word “salesperson” or “dealing representative” on their business card or in an advertisement. Many of these people work for firms that can sell only mutual funds. But you probably will not see this on a business card either.
Instead, almost all advisor/registrants use the terms “Adviser,” “Advisor,” “Planner,” or “Consultant.” Words like “Financial”, “Retirement” or “Wealth” are placed in front of these words to give titles like these:
These titles emphasize general financial planning advice, not sales of investment products. They make you think this person can help you get wealthy or meet other financial goals. Sometimes a word like “Senior” or “Executive” is used in the titles as well. “Senior” can make you think the advisor/registrant has a lot of experience. But this is not always true. “Executive” can make you think that you are important enough to be working with someone special.
Advisors/registrants do not advertise that they can sell only certain types of investments, such as mutual funds. Their job titles do not tell you if they can sell and advise on one type of investments or on many types.
If advisors/registrants used their category of registration in their job titles you would be better informed. For example, the title “Mutual Fund Firm Dealing Representative” would remind you of two things. First, that this person is a salesperson paid to sell to you. And second, that what they can sell to you is mutual funds.
Nova Scotia has not yet looked into the issue of confusing or misleading titles, but some provinces are doing this. For more information, you can read this August 2019 comment letter to the Financial Consumer Affairs Agency of Saskatchewan (FCAS). Read this if you would like to learn more about this topic.
Education and Certifications
Each registration category in Nova Scotia demands certain education or other experience, which is called “proficiency.” This document lists what education and experience is needed for each NSSC registration category.
Knowing an individual’s NSSC registration category can tell you the lowest qualifications they must have. But there can be big differences in the education and experience of advisor/registrants in the same category. Knowing registration category is important, but you need to know more.
For example, an advisor/registrant registered as a Dealing Representative with a firm registered as an Investment Dealer could have the lowest amount of education or experience to be registered. Another one registered in the same individual and firm categories could have more education or experience
Many advisor/registrants will show any extra qualifications on their business cards. But there are hundreds of different qualifications. They can be called “designations” or “certifications” and shown as just letters. And just like the business titles, the certification names or letters tell you little. Earning some might involve a hard course, exam and specific experience. Others might involve only a one-hour long seminar.
There is an online tool to tell you about these qualifications. It is on the Understanding Financial Certifications page of the website of the Investment Industry Regulation Organization of Canada (IIROC). This organization oversees one group of advisor/representatives. But the qualifications listed on this website can be for any financial professional.
In January 2020, the IIROC website listed almost seventy different financial certifications! You can quickly look at this list here.
You can look up what a specific certification means at this link.
Certifications with Higher Standards
A certification from a professional association with a high standard of conduct can be worth looking for when choosing an advisor/registrant. A standard of conduct is a guide of how anyone holding that certification must act.
For example, a registrant/advisor who holds the Certified Financial Planner (CFP) designation must follow the Financial Planners of Canada (FP Canada) standards of responsibility. These responsibilities include acting with care and skill, putting a client’s interests first and resolving any conflicts of interest in the client’s favour. This means an advisor/registrant who is a CFP must give you advice that is in your best interests. This is a higher standard than the “suitability” standard which applies to all advisor/registrants.
You can read the CFP standards of responsibility here.
The CFP is just one example of a designation that has high professional standards for the people who hold it.
The Financial Planning Standards Council (FSPC) explains the issue of certification and titles in more detail in this document. Read this if you would like to learn more about this topic.
Knowing Your Advisor/Registrant
The Canadian Securities Administrators (CSA) and NSSC both recommend that you ask questions before you choose an advisor/registrant. Whether you are considering someone from your bank or financial institution, someone recommended by a friend or family member or someone you found through an advertisement, do your homework. Make sure you understand and are comfortable with the advisor/registrant’s credentials, competence and the fees you will pay. These checklists and this booklet can help you do this when choosing a new advisor/registrant. They can also be used to learn more about an advisor/registrant you are already working with.
Fee-for-service/Advice-only Financial Planners
An advisor/registrant can make a financial plan for you and put the plan into action by selling you investment products. This is the way most investors use advisor/registrants. But it might not be the best way because of the conflict of interest problems we talked about.
Let’s go back to the example of buying a car from the Investor Rights section of this guide.
If the salespeople at car dealerships were the only people allowed to help you decide what car to buy, you would have to go to them for this kind of help. They would help you choose a car and then you would buy it.
This is how it works with investment securities. Only advisor/registrants can give advice on specific investments products. They are the only ones who can help you with this decision. Your choice here is:
- no advice or
- advice from an advisor/registrant.
But if you are not sure you even need a car, would you go to a car salesperson to figure that out? A car salesperson would probably not tell you that you do not need a car at all. They would probably not tell you that you need a car, but not the kind that they sell.
The salesperson can only make money if you buy a car from them. You would probably rather have advice from someone who is not paid to sell you one type of car. If you needed more general advice about buying a car, you would likely not ask a salesperson at the dealership, even if this general advice was “free.” You would likely question if it was really free at all. You would also wonder if the advice was what was best for you.
This is how it can work with financial planning advice. You cannot get specific investment advice on which products to buy from someone who is not registered. But you can get general financial planning advice from someone who is not registered. If they are not registered, they cannot sell you investments. They will not have the conflict of interest that comes from giving you advice while being paid to sell to you.
Paying for a Financial Plan
Giving good financial planning advice takes time and skill. Professionals who do this will expect to be paid for their work. They are not paid by commissions or through fees embedded in investments. You pay them a fee for the service of giving you financial planning advice.
Financial planners who work this way are called “fee-for-service” financial planners. If they are not registered and do not advise on or manage specific investments, they are called “fee-for-service/advice-only.” You usually pay a set amount for a plan or an amount for each hour of their time. But if their advice is better than you would get from someone being paid commission, it may be worth the cost.
What kind of “better advice” might you expect when you pay this way? A fee-for-service/advice-only financial planner might tell you to pay down some debt before investing at all. They might tell you about investment products with lower fees. They might tell you about “do-it-yourself” or “DIY” investing. This way of investing has the lowest fees possible.
John Robertson is a scientist, author and teacher. He teaches people how to invest in a way that is easy to understand. In his Simple Investing presentation, he explains why you may want to pay a fee-for-service/advice-only financial planner. Watch his video here.
As of 2021, no fee-for-service/advice-only financial planners worked in Nova Scotia. But investors in Nova Scotia can work with fee-for-service/advice-only financial planners in other provinces. Technology makes it easy to share documents and to meet online. Recent social distancing practices makes this option more comfortable than ever for most people. Unlike investment sales, financial planning in Nova Scotia is unregulated so there are no legal implications for using a financial planner from another province.
John Robertson created a list of fee-only financial planners with details about each one. All of these planners charge a fee for doing your financial plan. Some of them are advisor/registrants and some are not. This link will bring you to the list he created. This list is updated but is not an “official” list so you should always check the information before you use it.
Choosing a Fee-for-service/Advice-only Financial Planner
Some fee-for-service/advice-only planners who do not provide specific investment advice may recommend an advisor/registrant to help you put this part of your plan into action. Some advisor/registrants pay planners a referral fee for sending them business. Some of the money these planners earn is tied to the sale of specific investment products, so there is still a conflict of interest. This is less of a conflict than when the same person is doing the general planning and the investment selling, but is still a concern to keep in mind.
Other fee-for-service/advice-only financial planners earn no money related to the sale of specific investment products. They may refer their planning clients to advisor/registrants, but do not accept any money for doing this. These planners are the most likely to give you unbiased and independent planning advice.
Advice Only Planners is an association of fee-for-service/advice-only financial planners in Canada. These planners earn money only from creating financial plans for their clients. You can learn more about them on this website.
The independence of the advice you get is only one factor to consider in choosing a fee-for-service/advice-only planner. You should find out about the planner’s education, experience, area of expertise and whether they have helped clients similar to you. For example, some planners work mostly with young families, others work more with retirees. You should find out the cost and if you will get ongoing help or just a one-time plan. Most planners have websites with this information.