Average debt per Canadian household keeps increasing year after year. In 2019, the average household held debt of 177 percent of their annual disposable income, according to the Canadian Financial Capability Survey of that year. Much of this personal debt comes from poor financial planning.
According to mrgwealth.com, you should consider working with a financial planner to improve your personal wealth. But what are these planners and when do you need one?
What is a financial planner?
A financial planner is a professional who helps people just like you improve personal financial standing. They show you how to better manage your money and develop wealth, or provide wealth management services if you already have surplus funds. They can help you create a retirement savings plan, plan your estate, fund your children’s education and understand your insurance needs, such as how to prepare for a life insurance interview.
Overall, below is the assistance a financial planner provides:
- Clarifies your current financial situation and goals
- Develops plans for retirement, education funding, insurance and taxes
- Helps you get through complex financial issues
- Invests funds for you or sets up your investment accounts
- Finds financial programs for you, such as insurances or mortgages
The field of financial planning is widely unregulated. This means it is very important that you check your planner’s credentials before entrusting them with your financial future. Ask about their certifications before developing an ongoing relationship.
When You Need a Financial Planner
You can learn a great deal about financial planning from books, media and websites providing personal finance information. So, when do you need a financial planner?
The reality is that most people do not have the time to build a solid knowledge base about investment management, wealth management, retirement planning or estate planning. Even with a great deal of time and study, you will still have gaps in your learning about how to best put your money to work. This is where a financial advisor comes in. They cut through the detailed and often dry subject matter to explain finance and investing to you in simpler terms. They provide expert advice in financial instruments and portfolio management, developing and monitoring these instruments for you.
Certain life events make having a financial planner even more important. These common circumstances include:
- Approaching retirement and needing to evaluate existing plans
- Inheriting money and needing to invest the funds
- Getting married and transitioning from single financial plans to marital plans
- Divorce or death of a partner
- Aging parents’ financial management
- General need for financial advising to prepare for the future
Do I need an advisor full-time?
Many people only need a financial planner for the short-term or limited advice. But you should also consider hiring a financial planner for full-time money management.
Each financial advising firm works in its own way. But once you start working with a planner, you are bound to require additional services. For example, if you work with a planner for investment management, you will likely need advice about how to better manage the rest of your financial portfolio, plans and instruments. Many Canadians with investments also need estate planning, insurance instruments, tax planning, retirement planning, educational savings and other financial programs.
Financial planners are paid through one of two methods. The first option is a percentage of investment assets. These assets are collectively called assets under management (AUM). The second method is a flat retainer. A retainer typically covers two to four in-person or virtual meetings per year, for planning and reporting purposes. It also usually includes additional access to the planner throughout the year for quick questions, answers and advice.
By having a full-time financial planner, you carry less financial stress on an ongoing basis. The professional maintains watch over your financial assets and investments so you can focus on other things. They also provide advice you need when issues arise.
Who uses a financial planner?
An increasing number of Canadians seek to improve their financial standing through the services of a financial planner. This is true among all age groups, although people over the age of 65 tend to seek the most advice.
Of Canadian adults 18 years of age or older, 49 percent seek the help of a professional financial advisor, according to the 2019 Canadian Financial Capability Survey. Of these, 41 percent seek this advice because of a specific interest or need, such as one of the following:
- 24 percent for general financial plans
- 19 percent for retirement planning
- 12 percent for insurance programs
- 11 percent for tax planning
- 7 percent for estate planning
- 6 percent for children’s educational planning
The services individuals seek from a financial advisor typically depend on that person’s position in life, such as whether they are a retiree, have young children, are recently married or are mid-career and seeing greater financial success. About half of Canadians have developed estate plans and have a will. Forty percent have a power of attorney in place.
The services people under the age of 35 tend to seek from a financial planner include creating an estate plan. But in this age group, only about one-fifth have a will and only nine percent have a power of attorney in place. Financial needs often change when young adults have children or other financial dependents, such as aging parents or a dependent sibling. Then, wills, estate plans and powers of attorney become more of a priority.
Retirees face a bigger need of keeping their estate plans and wills updated. In this age group of 65 and older, 95 percent have wills. Sixty-eight percent have a designated power of attorney. But more than half of these people have not updated these documents in at least five years.
Although major life changes create more urgent need for the assistance and advice a financial planner provides, anyone can benefit from these services. After all, it is best to plan ahead and not wait until urgency strikes before making plans or putting your money to work. The better path is to prepare for the future and ensure your financial standing is healthy and secure.