This is where your finance takes place

Previously in July, the Canadian Government decided to restrict the mortgage environment by shrinking the maximum amortization period to 35 years instead of those huge 40 years mortgage term. Then, they imposed minimum cash down of 5% compared to the $0 cash down offer we used to have for a few years. Some people might say it’s bad news since these measures will surely add more pressure on economic brakes.

Well I am part of people who think that a little bit of common sense will certainly not hurt our economy. By looking at what is going on in the States, I can only applaud what was done up north. We would be pretty stupid to not try to learn from our neighbour’s mistake! We are certainly not smarter but at least, this time, we have a chance to avoid the catastrophe.

The government is trying in every way to keep the inflation down while not increasing our interest rates. If interest rates go up in a near future, this will obviously slows down our economy but probably create more bankruptcies as well. In addition to that, we would get a stronger dollar which would contribute to reduce our exportations. Since Canada is a country where most of its economy is based on resources and exportations of them, we would be in a bad shape!

By restricting the mortgage industry, the government will create a chain of good events for the population:

#1 People will be forced to save in order to buy a property which will temporarily help increasing the amount of liquidity on the market.

#2 They are more likely to revised their budget in order to fit bigger mortgage payments. Chances are that they will think twice before buying a property.

#3 Bank will become more reluctant to “B class” lender as the lending industry is slowing down.

#4 We are decreasing the chances of having couple buying properties they can’t afford since they will have to take time to save money (therefore develop good habits and the ability to master a budget).

In fact, the best thing would probably be to go back to 30 years with 7 or 8% minimum cash down for a few years. This would result into a drastic measure but will surely take people away from wasting their money and going back to common sense. My biggest fear is to see 40 year mortgages and 0% cash down offer coming back right after the recession in order to “help people buying a property”. If it’s the case, those actions would have been based on fear and not on common sense. Let’s hope that there are some people with good thinking in our Government!

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Managing your money can be very time consuming and you might make mistakes or you may miss opportunities (and not only on the investment side) due to your lack of knowledge in specific fields. I started this series talking about honesty and integrity, then I suggested your advisor should be proactive. Then I got more specific in the type of questions you could ask your financial advisor. This post is about knowing what you are looking for and asking for it.

The financial services industry is no different than any other service; both parties must be clear as for what is their expectation. If it’s not the case, the clients or the service provider will be frustrated. Providing a service (especially in regards to finance) should represent a win-win situation.

What are you looking for?

It is important to think about which kind of relationship you are looking for. In fact, having a financial advisor is like having another person in your life. Sometimes, clients are disclosing secret to their financial consultant that even their spouse ignore! However, you don’t have to get there to find a good advisor

Do you expect him to call you every trimester, once you receive your investment statement?

Do you expect him to send you information letter or news letter via email?

Do you expect a written plan with investment project?

Are you looking for tax advice?

Do you want to work with a team or a single individual?

Do you want a financial consultant that will give you hint on stocks? Or will manage your entire portfolio for you?

Do you want to meet with your financial agent only once a year to make sure you are on track? Or do you want to hear from him months from months?

Do you expect a call when markets go down or up significantly?

Are you looking for a personal finance expert? Investment broker? Life insurance agent? (note that it’s almost impossible to have the 3 within one person, you would have to refer as a team to get this type of expertise).

These are only a small list of questions you need to answer before meeting with a financial advisor. Once you know what you are looking for, communicate this information during the first meeting. This will establish a clear and straight forward relationship. Then, it will be up to the advisor to meet your requirements or simply tell you that he/she cannot work this way.

Basically, I wanted you to understand that a good financial advisor will not be perfect, but he/she will answer your specific needs. You might not get along with all the good financial advisor, you need to find yours.

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I have created this series on how to find a good financial advisor since many people are looking for advices on their financial situation and can’t find a trustworthy consultant. Since I have worked with hundreds of consultant of any kind (private financial planner, investment specialist and life insurance agent), I have a good idea on how to select the good cherries from the rotten tomatoes! The sad truth about this industry is that financial institutions are putting a lot of pressures on sales.

Therefore, they are more likely to hire car salesmen than real good financial agents. In addition to that, there is a huge part of the pie taken by independent / self employed individual who are able to pay their bill at the end of the month only if they are able to sell something to someone during that time frame. Unfortunately, you will find a lot of crook in this industry.

However, I don’t think it is worst in the financial industry than any other one. The only difference is that the way you manage your money has a much bigger impact on your life than the way you buy a dishwasher!

Taking the decision of giving away a part of your money to be managed by somebody else is a really important choice in your life. Therefore, you should see more than one person before deciding who will be in charge of your portfolio. For your first meeting, I think you should prepare yourself as you were a manager hiring an external consultant. After all, this “money specialist” will work for you. You will give him the important mandate of managing your investments, looking over your budget and maybe answering your needs in term of life insurance. Don’t forget that he is working for you. So you are in right of asking him any questions you find relevant.

For example, I wrote a few ones in order to give you an idea as of where to start your investigation:

- For how long have you been in this industry?

- Do you have any financial education background? (ie. CFP Title, Bachelor degree in finance, MBA, etc.)

- Why are you working for this Bank / Investment Firm / Insurance Company?

- Have you ever work for Primerica? (just kidding! The Company has nothing to do with the quality of your advisor, there are good financial consultant everywhere)

- Why are you working as a financial advisor?

- What is your investment philosophy?

- What is your income structure? (by law, they have to tell you if they are commission based, salary based and if they have any incentive to sell one product more than another)

- Can I get reference from 2 of your existing (and hopefully satisfied!) clients?

- What would they tell me about you?

- Why should I choose you and not another one?

- What is your “unique value” proposition? (what are you offering, what is your added value as a financial consultant)

- What are your work methods (how often you do your follow-up? Are you going to call me when my investments are up? Are down?)

Tricky question:

“I’m ready to invest now, what is the best product you can offer me?”

If you financial dude answer to this question right away on the first meeting, show him the door right away. The first meeting should be one to get all the information on your financial status, your investment profile, your personal financial goals and answer your questions. An advisor offering you investment product as soon as you open the door is there to sell you something, not to look over your financial situation.

One last point is to mention that if your financial consultant is not giving you straight answers, keep asking the same question until you get the answer. If he does it too much, it probably means that he has something to hide… I don’t think this is what you are looking for!

I have still more things to say about how to find a competent and honest financial advisor but I will keep it for other posts. Stay tuned!

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