Q.             I would like to engage a financial advisor to help me plan my family’s future.  How do I go about finding someone? How do I know if a financial advisor is qualified.  How are advisors paid for their services?  

A.             The best way to retain the services of any professional person is by personal reference.  Ask your friends and colleagues for advice.  If you have no other sources, The Financial Planners Standards Council      provides a listing of financial advisors who have qualified for the CFP designation.  You may also decide to try the local Yellow Pages where most advisors are listed.  Make sure that you speak with anyone that you are considering.   Most advisors will be happy to meet with you without any obligation or cost.

            You do not have any guarantee of competence or ability.  Some organizations have established programmes which mandate a course of study and require candidates to pass an examination and to engage in continuing legal education to maintain their designation.  Two of the best known are the Financial Planners Standards Council  (CFP) and the banking industry (PFP)

           Generally private financial advisors are paid either by commissions on products which they sell to you or by fee for service or by a combination.  Many experts feel that you are better off in a fee for service arrangement since you can be assured that the recommendations which you receive are not influenced by any other considerations.  The fee is agreed in advance and is confirmed by letter of engagement signed by both of the parties.

Q.              I have recently inherited a sum of money and I would like to know whether I should use it to invest in my RRSP or pay off my debts.  Which is the better option.

A.             Without a doubt, the best use of available cash is to pay down those high interest credit card debts.  Eliminating debts on which an interest rate of 18-25% is being charged is the same as an after tax return at this rate.  No reasonable investment can project this sort of return.

            Whether you should use available funds to pay down a mortgage or invest in an RRSP is not as clear.  Here the mortgage interest rate may only be in the 6% range and the savings are less when compared with the RRSP contribution which allows an immediate tax advantage and tax free accumulation of the capital.  Since each case is different, consult a professional for advice. 

Q.             My mortgage is coming up for renewal and I am thinking of changing to a new institution.  What about those advertisements I have seen for instant cash if I change mortgage companies?

A.             Before you make a decision, make sure that you have all of the facts.   Check with your existing company to find out the lowest rate that they are willing to offer.  Many institutions will reduce the posted rate by ½% or more to retain your business.

               If you are planning to change, make sure that you know all of the costs.  Sometimes the legal and administrative costs of changing can exceed the savings from the change.  You must also ensure that the interest rates and prepayment privileges are competitive before you make a decision.  If you are in doubt, a financial planner can assist you with the calculations.

Q.             My old clunker is on its last legs and I will shortly need a new car.   Is it better to buy or lease the new one.

 A.             There is no easy answer to this one as it depends very much on the individual.  Buying is generally the superior option for those who can afford the higher monthly payments and who generally drive their cars for many years rather than trading regularly.  For these individuals, the advantage is a number of years of payment free driving after the car is paid for.

             Leasing is often more appropriate for those who wish to trade their cars for a new one regularly and who prefer the lower monthly payments of a lease to the costs of ownership.  The disadvantage, of course, is that the payments never end.

 Q.             I will shortly be ending my employment and I have the choice of receiving a lump sum or monthly payments from my pension plan. Which is the better option?

A.             There is no right answer for everyone.  A financial advisor can calculate the value of the pension versus the lump sum, depending upon the rate at which you anticipate that you can earn on your investment of the lump sum.  After that, the answer depends upon whether you want the security of fixed payments which will end upon your death or whether you wish to be more aggressive ( and accept more risk), in which case you may be able to gain a greater return and leave an estate upon your death.

Q.        I have insurance for twice my annual salary through my employer.  I have no idea whether this is enough to support my family if I die prematurely.   How do I know how much life insurance I need?  

A.             Determining the amount of life insurance which your require starts with an analysis of your current expenditures and those which you project.  You must take into account immediate payment of debts such as mortgage and bank loans and future costs such as post secondary education of children.   Finally, you will consider sources of income such as survivor benefits from the employer, CPP benefits and the ability of the spouse and children to earn.  With this information it is possible to calculate the amount of life insurance which will be required to meet the shortfall.

Q.        I have sufficient life insurance but I am very concerned about what will happen if  if I become disabled and unable to work.

A.            The chances of becoming disabled either permanently or for a period of time during the employment years are much higher than the chance of dying yet most people have little or no idea of their present coverage, if any.  The analysis is more complicated since it is necessary to look at the type of coverage, cancellation terms, disqualification for certain types of  disabilities and, most importantly, whether or not the payments from the plan will be taxable. Calculation of the actual amount of disability insurance which you require follows somewhat the same methodology as for life insurance.

            It would be well worth your while to investigate your coverage and see whether it is sufficient.  Failure to plan in this most important area can bankrupt a family if either of the income earners suffers a disabililty.