Q: Our parents farmed for many years, but due to age and health have recently retired and rented their land. They have talked to a so-called financial consultant and he recommended they sell the farm and invest in certain other things he was promoting. Frankly, we think this is a bad idea.
What is the role of a financial consultant? Is there anything we can do to stop our parents from proceeding with this plan?
A: First and foremost, it is your parents’ farm and they are entitled to deal with their property as they choose. There is no legal requirement that they consult with family before making any decision.
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Undoubtedly, there will be cynical readers who will believe that in this case the children are simply worried about their inheritances. However, in my view, for the sake of good relations it is advisable for families to discuss such major events as sale of the family farm.
There is certainly nothing wrong with children diplomatically questioning parents to ensure that they are getting the best advice possible. While there are many skilled and competent planners and advisers, there is the occasional scam artist as well.
There are a range of people who offer financial advice. Those include lawyers, accountants, bankers, stockbrokers, pension advisers, life insurance underwriters and financial planners.
In dealing with any financial adviser, the first thing you should determine are the qualifications and experience of the individual. Has he dealt with farm operators and retiring farmers? Is he aware of income tax rules dealing with farming operations and in particular capital gains exemptions that might be available?
Questions to ask
If the person is not a lawyer or accountant, what designations has he achieved? How will he be paid? Will he charge a flat fee, an hourly rate or will the fees be based on the commissions earned from stocks, bonds and funds sold?
Under securities law in each province, anyone who buys or sells shares, bonds or mutual funds for others or provides advice on the purchase and sale of such securities, must be licensed.
To be registered the salesperson will have to complete the Canadian Securities Course or the Investment Funds Course, and in most jurisdictions there is a bonding requirement.
In most provinces, including Manitoba and Saskatchewan, financial advisers who do not advise on shares, bonds or mutual funds are not required to be licensed.
However, there is a national voluntary organization, Advocsis, or the Financial Advisors Association of Canada, committed to developing and improving national standards for the job.
The organization offers programs of study for individuals to become certified financial planners, chartered life underwriters, chartered financial consultants and other designations.
In many instances a financial planner will also be licensed to sell stocks, bonds or mutual funds under securities law.
Quebec, British Columbia and Alberta have legislation dealing with financial planning.
In Alberta, the Financial Consumers Act requires certain suppliers, agents and planners to disclose the cost of their services, whether the planner receives a commission for recommending a particular investment, whether there is any plan to cover losses, and whether the planner might be in a conflict of interest.
Applications and agreements for investments are required to be “in readily understandable language and form.” Finally, the act requires arbitration of any dispute unless the consumer decides to go to court.
Next week: when things go wrong.
