Questions and Answers

How to solve your most pressing financial issues

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IT COMES TO finances, there are all kinds of questions that leave people scratching their heads and then sending off an email to me asking for help. Here are the two most common queries I receive.

HOW DO I FIND A GOOD FINANCIAL ADVISER?

Most people realize that they need some help managing their money. The problem is finding someone they trust at a reasonable cost. There are a lot of financial advisers out there, some unscrupulous, but most of those I have met are dedicated professionals who have the best interests of their clients at heart.

But just because they are good doesn’t mean they are right for you. Here’s my seven-step solution to finding a good financial adviser.

1 The starting point is your personal priorities.

You want someone with expertise in the areas that are most important to you. For example, an adviser may be an expert stock picker, but you prefer to invest in mutual funds. Or she may be a top estate planner, but your lawyer has handled that to your satisfaction.

2 So before you interview anyone, define exactly what skills you are looking for.

An overall financial plan? Tax preparation help? Portfolio management? Retirement planning? Once you have your parameters in place you’ll know what questions to ask.

3 The next step is to identify three or four advisers to talk to.

I strongly recommend getting personal recommendations from family and friends. If they report good experiences, that person is likely worth your time.

4 When you go for an interview, have a list of questions ready.

Ask the adviser about his training and qualifications. Discuss her investing psychology – if you’re a conservative person, you don’t want an adviser that is focused on capital gains. Ask exactly what services he will provide and check them against your own priority list. Give her a list of your current holdings and ask what she would do differently.

5 Be prepared to disclose your full financial picture

– no adviser can operate effectively knowing only part of your story.

6 Be upfront about costs.

Advisers don’t work for free. Find out who pays the adviser, whether a bank, insurance company or mutual fund, and how much. Personally, I prefer a fee-based account where the costs are transparent. The charge is based on the

assets under management, and the percentage declines with the amount of money you entrust to the adviser. A fee of 0.75 per cent to 1.5 per cent annually is common.

7 Finally, don’t sign on with anyone who over-promises.

If the adviser spends the entire interview boasting about how good he or she is at beating the market, that should send alarm bells ringing.

HOW DO I CONVERT AN RRSP TO A RRIF?

Some people will tell you it’s easy. Just instruct your RRSP provider to make the change, sign some papers and that’s it. On the surface, that’s true. But if you stop there, you risk ending up in deep trouble before long.

The first issue to decide is timing. The law says you have to collapse your RRSP by Dec. 31 of the year in which you turn 71. I suggest you wait until that deadline to act with one exception, which I will get to in a moment.

The reason for holding off until the last minute is simple: an RRSP is much more flexible than a RRIF. Once you have converted, you cannot make any more contributions to a RRIF, plus you are legally obligat- ed to withdraw a minimum amount of money each year (and be taxed on it) whether you need it or not. As long as you retain your RRSP, you can withdraw whatever you need, or nothing. You are in full control.

When you convert to a RRIF, you should review and probably change the composition and asset mix of your portfolio. An RRSP should be invested for growth – you want to build as large a nest egg as you can for your retirement years. A RRIF, on the other hand, should focus on income and security. You want to own assets that generate the cash flow needed to meet your withdrawal requirements, without taking on undue risk.

Now for the exception to the “wait until age 71” rule. When you are 65, convert enough of your RRSP to a RRIF (partial conversions are allowed) to generate $2,000 of income each year. That is the maximum amount that qualifies for the pension income tax credit (line 314 of the tax return). Of course, if you are drawing pension income from some other source, you don’t have to worry about this.