7 questions your clients may be too embarrassed to ask
Nobody is born knowing how to compose a symphony, so it’s only natural that composers spend years learning how to make beautiful music. When it comes to investing, we are born equally unaware of what to do, yet few of us get the lessons we need.
Worse, when you are unsure of yourself, it can seem like everyone else knows exactly what they’re doing. This can lead to shame or embarrassment that makes it even harder to ask questions.
As a financial advisor, you are in a good position to let your clients know two things. First, many of the know-it-alls are actually overconfident and even mistaken in their investing knowledge. And two, there is no shame in asking a professional to explain the basics, no matter how silly you think your questions might be.
With that in mind, let’s look at seven questions that your clients may be wondering about right now, but feel too embarrassed to ask.
#1 How much does a financial advisor charge?
There are two main ways that financial advisors charge, each with advantages and disadvantages. The most common way is by charging a commission that is based on a percentage of the value of your account. A nice thing about this approach is that you pay for your advisor’s ongoing service and advice and never receive a lump sum invoice. A less common way is known as fee-only. In this scenario, you pay out-of-pocket for your advisors’ services based on a set fee or hourly rate.
#2 What is the difference between saving and investing?
Saving means setting money aside somewhere safe and convenient, like a savings account. This is typically done to pay for large expenses, whether it’s something expected, like a vacation, or to be prepared for something unexpected, like a home or car repair.
Investing means putting money to work for you by owning stocks, bonds or other assets that have the potential to create wealth over time. Investors are often working towards major life goals, such as paying for a child’s post-secondary education or funding retirement.
#3 What are stocks and bonds?
Stocks, which are also called shares or equities, represent ownership. When you buy a share of Royal Bank, you own a piece of the bank. As such, you are entitled to receive a share of the profits in the form of dividends and to vote on significant corporate decisions.
Bonds represent debt. When a company or government wishes to borrow money, they often issue bonds. As a bondholder, you are lending your money to the bond issuer, and in return, you will receive interest payments until the bond matures and you receive your money back.
#4 What is the difference between a mutual fund, a segregated fund and a guaranteed investment account?
A mutual fund allows investors to pool their money together and have it managed by a professional portfolio manager. It’s a great way to own a broadly diversified, global portfolio of stocks and bonds, even with a modest investment amount. Segregated funds and guaranteed investment accounts are very similar in terms of the investment benefits, but they add an extra layer of protection by using insurance contracts to guarantee some or all of your initial investment amount.
#5 What is the difference between registered and non-registered investments?
Registered investments are regulated by the federal government, such as Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). They follow strict rules and offer unique tax advantages. Non-registered investments are not regulated in the same way and do not offer tax advantages. One of the roles of a financial advisor is to help you choose which types of accounts to use in order to make the most of the benefits that come with each.
#6 How can I open an investment account?
You can start do-it-yourself investing by opening an online account with your bank or through a variety of mobile trading applications. However, these options generally do not come with professional advice. If you would like to work with someone who can develop a financial plan and optimize your investment strategy, a financial advisor will walk you through the process of opening up the registered and non-registered investment accounts that work best for your situation.
#7 Do I have to invest a minimum amount?
If you are working with a financial advisor, the minimum investment amount is usually modest. Depending on the types of investments that are recommended for you, it’s usually possible to get started with a lump sum of $500 or an automatic savings plan of $50/month.
Becoming a confident investor is a bit like becoming a good musician. You need a teacher. As a financial advisor, you can help demystify the way you deliver advice and Beneva’s approach to investing so that your clients can build long-term wealth without hitting too many wrong notes along the way.