When do I need a financial advisor?
The short answer is: anytime. Everyone can benefit from professional financial advice throughout their lives. In Canada, financial advisors are the top source for financial advice and guidance for those born in the country or who have been in the country for several years. More recent immigrants are less likely to use this resource, which means they’re left figuring out the system on their own. Unfortunately, this can leave you at a greater risk of financial fraud and abuse.
Of course, not every Canadian regularly works with an advisor. In fact, while nearly half are interested in seeking this type of guidance, only about 30% actually make an appointment. The reason for the gap? Price. But this is a common misconception, thinking that financial advisors are only for the wealthy. Actually, many employers offer access to an advisor at no extra charge as part of their employee benefits programs. And many advisors have experience specifically with helping immigrants in Canada manage their finances.
Navigating Canada’s financial system
The Canadian system for taxes can be confusing even to those who’ve lived here their entire life. The Income Tax Act explains each rule, credit, and benefit of our tax system, and it has hundreds of parts, totaling thousands of pages, and is updated often, sometimes multiple times in the same week. That’s why many families—newcomers and long-time citizens alike—rely on a professional to assist with financial matters.
For new Canadian residents, filing taxes for the first time can be difficult. Your advisor can provide insight into some of the credits and benefits applicable to your situation, such as the Canada child benefit or GST/HST credit, which can lower your taxes. Aside from just taxes, advisors can help you understand how to establish a credit history, which is essential to be able to get loans like mortgages in the future.
You need to begin filing taxes during your first year in Canada, even if it hasn’t been a full 12 months, for a variety of reasons. While you can start receiving benefits and credits before you first file, you’ll need to complete a tax return to continue these benefits after your first year. You also cannot join your group RRSP until you send in your first tax package. This is because your RRSP contribution room is calculated as 18% of your previous year’s income. If you open an RRSP account and add money, you risk going over your limit and that can lead to a 1% tax penalty on the account—every month.
Investment advice for newcomers to Canada
As a newcomer to Canada, investments might be the last thing on your mind. But if you have financial goals, such as buying a house and saving for education and retirement, investing your money can help. You don’t need a large amount of money or financial expertise to get started.
In fact, one of the best ways to invest is to start early, even with a small amount. When you have a long time to reach your goal, you don’t have to worry every time the stock market shifts. Your financial advisor can provide more detailed information on your investment options, but we’ll help by explaining a few basics.
Risk and reward: Investments come with the potential of reward and the risk of losing value. Your own personality and how far you are from reaching your financial goal affect how much risk you can accept in your investment strategy.
Types of investments: The investments you can purchase on the stock market or include in your retirement or other savings plan come in three key categories, called asset classes:
- Cash—The least risky asset class is cash and cash equivalents (which means investments that are very similar to cash). They don’t have the ability to grow much or at all over time, but they generally hold their value.
- Bonds—Also called fixed income, bonds aren’t as safe as cash, but they’re also not as risky as stocks. They’re not guaranteed to hold their value, but generally, they offer a moderate return and have a smaller chance of losing value.
- Stocks—Also called equities, stocks are the riskiest asset class, but they also offer the most potential growth over time.
Mixing up your investments: This is also referred to as diversifying your investments. By choosing a mix of different investments, you can try to find a balance of risk and reward that you’re comfortable with.
Taxes: Some accounts are taxable, some aren't taxable, and some are taxable in the future. A financial advisor can explain all of these concepts in greater detail and help guide you to the right strategy for you and your goals.
Goal setting and planning
A financial advisor can give you guidance and tips for all types of life events—and you can even plan for a few at the same time!
- Homeownership: An advisor can help you assess the market, start budgeting, and understand if the new first home savings account is right for you.
- Education: An advisor can explain the costs involved in higher education costs, as well as ways to save and grants you can get from the government.
- Retirement: Working with an advisor can help you make the most of your company’s plan, while managing the amount you contribute and helping you optimize your taxes.
How a financial advisor can help newcomers settle in
Living in a new country is a huge change and there’s a lot to learn. It’s a new government, culture, and norms, and getting settled can take a while. Finances can pose another challenge, and it can be tempting to delay financial planning due to lack of time or confusion about the Canadian system.
Working with a financial advisor can help you feel more comfortable with your finances faster. They're professionals who understand the unique challenge faced by newcomers and some may even speak your native language. Working with an expert can reduce your stress and confusion and help you achieve your financial goals. Not only can financial advisors explain the basics of the Canadian system, but they can also help you create a realistic plan to save for the future and adjust it over the years as your plans change.
The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.