What is reasonable when it comes to bank fees?


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Tags: Benefits Budgets Debt Financial Planning Investing Life Events Retirement Saving Taxes

What is reasonable when it comes to bank fees?

Tagged: Budgets Financial Planning

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Personal bank fees can be costly depending on what services are used. Fees are charged for services such as monthly withdrawals/cheques, on-line transactions, ATM withdrawals, credit cards, and overdraft protection.

Most consumers don’t review the fees they are paying, which could result in paying more than necessary.  Take a look at what bank services you are using and the associated fees and compare these to other banks.  Some banks have a no-fee account that may meet your needs, while others have a package that covers all fees.  Be an informed consumer and check out the ideas here on how to keep bank fees to a minimum.

ATM fees run upwards of $1.50 per transaction when using your own bank and as high as $5.00 for another bank’s ATM.  By planning and budgeting your cash withdrawals and spending, you can keep these fees to a minimum.  Try using cash back at a retail store as this allows you to get cash without having to pay a withdrawal fee. You can also use your credit card for purchases; however, it’s important to have the cash available to pay the credit card bill off at the end of the month. 

Paying your bills online or via telephone banking is usually free.  But if you do have to write a cheque, then look for an account that allows a limited number each month with no fees.

Some banks may charge lower fees, or may not charge fees at all if you maintain a certain balance in your account.  If you don’t need the funds on an ongoing basis, then this can be an economical way to reduce bank fees.  It is important to understand the terms and conditions to ensure that there aren’t any surprise fees if you go below the minimum balance.

If you use a lot of bank services and frequently travel, you may want to look into bundled services that allow you to manage your fees and ensure the services and fees meet your needs and budget.

Some accounts may have special services such as bank drafts, money orders, and certified cheques, which are not used very often and can be expensive on a transaction by transaction basis.  If you need to use these services, review the fees ahead of time so that you can manage the costs.

The Financial Consumer Agency of Canada has an Account Selector Tool that allows you to compare features for different bank accounts, monthly fees, transaction fees and services.  It helps you determine what services you need and what financial institutions provide the lowest fees.  Got to http://www.fcac-acfc.gc.ca/Eng/resources/toolsCalculators/Pages/BankingT-OutilsIn.aspx.

Many consumers stay with the same bank because of the amount of work to change banks. If you find fees lower at another bank, consider discussing this with your bank to see if they will match the fees. If you do decide to change banks, then make sure you inform any organization that automatically deposits or withdraws funds from your account to ensure that all your bills are paid on a timely basis.

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A friend recommended a financial planner to me and I'm meeting with them next week. I feel like I have a million questions and don't know where to start. What can I expect from an initial meeting? What aspects of my financial plan should I focus on first?

Tagged: Financial Planning Investing

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A financial planner looks at all aspects of your finances and works with you to develop a roadmap based on your definition of success and your financial goals.   Before meeting with a financial planner it’s important to review your financial goals, as well as what is important to you in a business relationship, both of which will help you select the best person. 

In the initial meeting, you need to start the process of determining if the planner has the qualities necessary to help you achieve your financial goals and dreams. You should consider their qualifications, business approach, and fee structure. Most importantly, you need to consider if you can work with this person – is the chemistry of the relationship right?  Here are a few tips for you to contemplate:

 Qualifications and experience of the financial planner:

  • Review the qualifications of the financial planner. In Ontario, there are no legislated standards in place for those who offer financial planning services, but there are professional associations with which you can check if they are in good standing. Take the time to verify the planner’s credentials.
  • Knowing how long they been practicing, and the typical clients they work with will provide insight into whether they will meet your needs and goals. 
  • Do they have any specialized training?
  • Do they understand the nature of being a self-employed contractor? Have they worked with midwives or other professionals with comparable pay structures?  
  • Financial planners selling products such as mutual funds and insurance or those providing advice are regulated by provincial regulatory bodies.  Ask which bodies they are members of, and if they have ever been subject to any disciplinary action.

Financial planning approach and services:

  • The types of services vary between planners.  Do you want a plan that is all encompassing or are you focused on specific areas within your financial plan? 
  • Will the planner assist you in implementing your plan?
  • Some planners may be fee- for-service only while others may sell financial products such as insurance, mutual funds, stocks or bonds. Some planners may specialize in one area such as tax or estate planning.  You need to be clear about your needs before selecting the planner.
  • Do they work as an individual or are they part of a team or organization?  If they are associated with an organization, learn more about the organization’s mission and credo.

Compensation structure and fees:

  • Planners may be paid in various ways.  Fee- for-service is based on an hourly rate or a set fee for the service provided.  Some planners charge a percentage of the assets they are managing on your behalf.  Other planners may receive a fee for the products they are selling to you, such as insurance or mutual fund products, and so the cost of the financial plan is covered by these fees. 
  • The planner should provide you with the fee structure being charged depending on the services selected. Take time to review this information carefully.  

Documentation and evaluation

  • Ask the planner to provide you with a written agreement outlining details of services to be provided, including method of compensation and any business affiliations.

Communication skills and fit

  • As with any relationship, good communication is an important aspect to ensure your goals are met and the plan is relevant and updated as needed. Do you feel that this planner listens to you, understands your needs, and provides objective advice?

Remember though, it is ultimately your responsibility to manage your assets and important for you to remain aware of how your assets are being invested.  Choosing the right financial planner should assist you in achieving your overall financial goals and well-being. - JR

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What are the pros and cons of holding a non-arm's length mortgage for a rental property within my RRSP?

Tagged: Financial Planning Investing

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Most people are not aware that they can hold a mortgage in their RRSP.  It can be used to generate consistency and stability during periods of fluctuation in the equity markets, and when there are lower returns on fixed income investments.  This type of investment is considered a fixed income investment as it earns only interest income. Both arm’s-length and non-arm’s length mortgages can be held within your RRSP, but there are different rules for each.

It is important to understand the difference between arms-length and non-arm’s length. Two people are considered to be dealing at arm’s length with each other if they are independent and one does not have undue influence over the other.  However, the Income Tax Act deems some people NOT to be at arm's length with each other (non-arm's length).  This is the case with what the Income Tax Act calls "related persons": individuals connected by blood relationship, marriage or common-law partnership or adoption.  Blood relationships do not normally include aunts, uncles, nieces, nephews, or cousins for purposes of the Income Tax Act.

You must have a self-directed RRSP and a sizeable amount of money to make this type of investment worthwhile.  The fees to set up a mortgage inside of your RRSP are quite high, so to make it financial feasible you need to have a fairly large mortgage. There are also ongoing annual costs. The set-up fees range from $800 to $1,200, plus an appraisal fee on the property. Annual fees vary from $350 to $500, plus the mortgage insurance cost for a non-arm’s length mortgage. 

Any investment inside your RRSP must be a “qualified investment” as per the Income Tax Act. A non-arm’s length mortgage must be insured by Canada Mortgage and Housing Corporation (CMHC) to become a qualified investment.  The mortgage also has to be administered by an approved lender under the National Housing Act. Most major commercial banks no longer perform this service as it was not profitable for them. The rates and terms for the mortgage must follow normal commercial practices.  Mortgage payments are paid to your RRSP and are not considered contributions from you. 

The main advantage to having a mortgage inside your RRSP is the interest income.  The interest rates are usually higher than if you invested in a Bond or Guaranteed Investment Certificate (GIC). 

The disadvantages are the high fees, the dollar value required inside your RRSP, a potential lack of diversification inside your RRSP, and the probability of earning a higher return on other investments.

The time to consider this type of investment inside your RRSP is when the interest rates are high and the equity markets are extremely volatile. This is a specialized product that suits individuals with a high dollar value in their RRSP who are looking for a predictable rate of return.

In today’s economy, you can obtain a mortgage at a rate of 2.6% for a five year term. The TSX averaged annual returns of  4.7% for the last 5 years, and 6.7% over the last 20 years.

One example would be to obtain a five year closed mortgage at 2.6% with a 25 year amortization outside of your RRSP and to invest your money in quality equities inside your RRSP.

As always, you should be consulting with a qualified advisor on your individual goals and needs. - J.R.

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What are the pros and cons of a fixed or variable mortgage?

Tagged: Financial Planning Life Events

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There are several factors to consider in deciding what the best mortgage is for your situation -  the pros and cons of a fixed or variable mortgage is just one.

Variable Rate Mortgage

With a variable rate mortgage, the interest rate is set monthly by the financial institution and fluctuates with the prime lending rate. When the interest rate changes, your monthly payments may stay the same and the amount of interest you pay changes, or your monthly payments may change. There is a higher level of uncertainty that may cause anxiety if rates increase and you’re on a fixed budget.

Fixed Rate Mortgage

With a fixed rate mortgage, the interest rate is set for the term of the mortgage. That means that your monthly payments will be the same regardless of the change in the prime lending rate.  Because there is no uncertainty, it offers you peace of mind and security for the term of your mortgage. However, the rate of interest is usually higher than a variable rate mortgage and the extra interest costs may not be worth the premium.

What factors should be considered when deciding on the best type of mortgage?

Factors to consider include:

  • Your budget
  • Risk tolerance
  • Interest rate fluctuations
  • How long you plan to be in your home
  • Future goals.

Take a look at your budget in order to figure out how much you can afford to pay each month.  The recommended percentage is between 30% and 35% of your take home income.

Tolerance for risk is a very personal consideration.  Do you prefer knowing what you’ll pay each month even if you end up paying more in the long run or can you handle the uncertainty due to fluctuations in interest rate?

If rates are going down, then you may want to consider a variable rate and to take advantage of lower interest costs.  If rates are increasing, then it will depend on your budget and how much additional payment you can afford. As rates increase so will your mortgage.

How long do you plan to be in your home? Based on current interest rates, if you plan on being  in your home for the next five years, a 5 year fixed rate is a good choice.  If you know that you will stay in your home for only a year or two, then a variable rate mortgage may work better because if rates started to increase dramatically, you could always lock into a fixed term at that time.  This would provide you with flexibility when the time to move comes.

What are you future goals? While you’ll always have housing costs, you may want extra cash to put towards achieving other financial goals, such as saving for retirement or a family vacation. In this case, you may want to consider locking in your mortgage to a five year term.  It is important to be able to afford your home and pay off your mortgage but make sure that you are enjoying your journey along the way and not just paying off your debt.

It’s important to work with a qualified advisor to discuss your situation to determine the option that will best suit your needs, both now and in the future.

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What is credit counselling?

Tagged: Debt Financial Planning

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Credit counselling is a service that helps you review your income, expenses, assets and debts (e.g., credit cards, student loans, and mortgages) with the intent of helping you solve your debt problems.  It can improve your finances without debt consolidation loans or consumer proposals. It also provides advice on money management.

If you are starting to notice that you are having trouble with money, the sooner you address the situation the better. You need to be honest with yourself about where you are financially in order to change.  Common signs that you may be having credit issues are:

  • Using credit cards to pay monthly expenses
  • Taking cash advances on credit cards to pay off another credit card
  • Borrowing money from family and friends
  • Worrying about how to pay the bills each month
  • Exceeding your credit card limit
  • Lying about the amount you spent to purchase an item

With credit counselling, it is possible to change your financial direction by developing strong money management skills..  You can get help reviewing your debt and how to pay it off a quickly as possible, how to develop a budget that works for you and allows you to pay off your debts, and how to save for the future and enjoy your journey today.

A budget should provide you with a breakdown of how much money you bring home each month, what your monthly expenses are, and how much is left over at the end of the month.  If you cannot balance your budget then you either need to increase your monthly income or decrease your expenses.

It’s important to understand the terms of all your debts.  In other words, what is the interest rate you are paying, how much are your monthly payments, how long will it take to repay the debt, and if there are any restrictions or hidden fees, such as charges for making early or additional payments.

Once you have your budget and debt repayment under control, part of credit counselling should include how to save for future goals such as an emergency fund, vacations, buying a home or new car.

There are various organizations that provide credit counselling services. Take a look online, ask your accountant, or check with the Better Business Bureau (BBB).  There are many Not-For-Profit organizations that offer credit counselling services.  It’s important to ensure that the organization is licensed in Ontario and that their advisors have appropriate qualifications.

You should be offered an initial free appointment by the organization to explain their services and the options that may be best for you.  Be sure to discuss the fees the organization charges and how they will be paid. You can also ask them how successful they are at educating clients to ensure you don’t get back into the same financial situation that brought you there in the first place.

Working with a qualified advisor will enable you to improve your situation and reach your goals for the future while enjoying the journey each day. - J.R.

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What is debt consolidation?

Tagged: Debt Financial Planning

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Debt consolidation takes all of your various debts, credit card balances and loans, and combines them into one loan with one monthly payment. The intention is to pay off your debt faster with lower interest rates. It’s also about maintaining a good credit rating; your credit score will decline if you miss payments.

Debt consolidation is a good option if you are trying to pay credit cards or other consumer debt with high interest rates and you have equity in your home. It doesn’t make sense to use a debt consolidation loan if you are trying to combine several small loans that already have low interest rates or if you have too much debt.

A debt consolidation loan requires that you are working and have a regular income.  You need to have your expenses under control and are manageable. The bank will review your expenses to ensure that you are within certain limits (e.g., housing costs are about 30% of your take home pay).  Your credit rating must also be at an acceptable level. 

If you have existing assets such as a home, you can use your assets to secure the loan and obtain a lower interest rate. If you don’t have any assets to use as collateral then it may be more difficult to obtain a debt consolidation loan, and if you are able to obtain one, the interest rate may not be as favorable. You may wish to consider having someone else co-sign the  loan or secure it with their assets.

There are times when debt consolidation is a good idea, and there are times when it is not in your best interest.

The advantages of debt consolidation are:

  • All your creditors are paid in full.
  • If you act quickly before missing further payments, you can maintain your credit rating.
  • You have only one monthly payment, which makes it easier to budget.
  • You will pay less interest, which will allow you to pay your debt off faster.

However, debt consolidation has some disadvantages you should consider:

  • You still have your credit cards, so need to control your spending.
  • The loan must be paid regularly, so you’ll need sufficient cash flow to make your payments.
  • If you have a co-signer and you can’t make payments, then the co-signer will be required to make the payments
  • If you have used your home as collateral and you can’t make the payments, it can put your home at risk.

If you don’t qualify for a debt consolidation loan, then a debt settlement or a consumer proposal may be an option.  While they result in a reduction of the amount of debt, they have serious consequences. Both will impact your credit rating for a period of 5 to 7 years. It’s important to get advice from a knowledgeable expert about whether or not these options that will meet your needs. 

I recommend reviewing What is credit counseling? for information about how you can manage your debt to avoid debt consolidation, debt settlement, or a consumer proposal.

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What are the differences in income tax considerations between when I am working and when I am retired?

Tagged: Financial Planning Retirement Taxes

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The biggest difference between working and retirement is often the sources of your income, which have different tax withholding requirements.

Most often, midwives are self-employed, and income comes from billable courses of care.  Self-employed midwives usually make installment payments each quarter, settling with the government each year when they finalize their personal tax returns. When you are working,  you may be living on 100% of your income – paying for expenses such as taxes, your children’s education, mortgage payments and other discretionary spending.  Hopefully, you are also saving for retirement as well.

On retirement, your income will come from different sources:

  • Canada Pension Plan: you have to apply for benefits, and can do so as early as age 60 (with a reduction) or as late as age 70 (with increased benefits).
  • Old Age Security: you have to apply for benefits at age 65.  Be aware of potential clawbacks; if your total income is too high, you have to repay OAS benefits.
  • Registered Retirement Savings Plans (RRSP) withdrawals: the RRSP money that you have saved for retirement can be withdrawn to supplement your income. 
  • Registered Retirement Income Funds (RRIFs): At age 71, your RRSP must be transferred to a RRIF (which can be an annuity, a stock portfolio, or a variation of both), and a minimum amount must be paid to you each year.
  • Income from non-registered investments like interest, dividends, and/or possibly capital gains.
  • Pensions or other income from your spouse (they may still be employed).

Pension splitting is also available to those who are retired.  This means that you are able to split your pension (and RRSP withdrawals if you are over 65) with your spouse, to minimize the amount of tax that you pay as a couple.

The issue that people in retirement often face is that each source of income assumes that they are your only source of income, and therefore they withhold tax on that basis.  The result is that minimum amounts of tax are withheld, causing large balances of tax owing at the end of the year when taxes are filed.  This may result in requiring to pay tax installments. 

The good news is paying installments is not new for many midwives. Therefore, the main goal is to estimate what your income will be.  A financial planner can work with you to plan and save accordingly.

To learn more about planning for retirement and how your GRSP can help, click here to access a video and presentation from Desjardins. -RMI

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I'm approaching retirement. What steps do I need to take to prepare and when?

Tagged: Financial Planning Retirement

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Retirement planning should be done at all stages of your career.  However, as it draws closer, you need to plan with accurate information to determine if your resources will support the retirement lifestyle that’s right for you.

The first step is to calculate your expenses. Start by keeping a record of your spending for at least six months.  Write down everything you spend, including groceries, utilities, mortgage payments, bank fees, clothing, entertainment, eating out, gifts, etc. A general rule is that your expenses in retirement will be about 70% of your pre-retirement spending. However, there may be other expenses to consider such as:

Debt - a mortgage, credit cards or other debt that has not yet been paid off before retirement.
Health care - extra costs not covered by the government health plan (starts when you are 65).
Income taxes - rate of income tax on your investment income

The second step is to assess your income and investments.  Many Canadians plan on receiving the 2 basic sources of Government support: Canada Pension Plan (CPP) and Old Age Security (OAS). Go to the Service Canada website (servicecanada.gc.ca) to determine what you will be eligible to receive and what options you have. You can also review our library of past Ask the Expert answers about retirement, including information on how to calculate your potential Government benefits and the impact the age at which you retire will have on your benefits here

Where will the rest of your retirement income come from? Do you have a work pension plan? What about your assets, such as your registered retirement savings plan (RRSP), tax free savings accounts (TFSA) and/or other investments? It is important to have current statements to determine your yearly income will be.  Many Canadians consider their home as a retirement asset; however, you still need a place to live and your home does not provide a source of regular retirement income.

A third and equally import step in retirement planning is how you’ll manage your resources during your retirement. You should not only plan for how your assets are invested but also how you’ll be withdrawing them.  Withdrawals will impact the amount of taxes you pay so it’s important to review the various tax treatments and ensure you are minimizing the amount of tax you pay while maximizing the income in your pocket. There also may be income splitting opportunities with your partner.

A few other areas you may want to consider before retirement are:

Do you have family members to support, such as an aging parent or children that are completing their education and/or are not able to fully support themselves?
Have you fully investigated what time and resources your dream vacation or hobby will require?
Have you prepared yourself for what your retirement lifestyle will look like and how you will stay active and engaged in life?

Planning ahead for retirement by calculating your expenses, assessing your income and investments, and knowing how to manage your retirement are important first steps. Working with a comprehensive financial planner will help to ensure that you have covered all areas so you can have the retirement you’ve always dreamed of.  

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I’ve been married for over 8 years, but my partner and I still keep our finances separate. I know it’s a personal decision, but are there any benefits to combining our finances?

Tagged: Budgets Financial Planning

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To be clear, this discussion focuses on finances and does not address tax issues. There are many potential benefits of combining finances:

Trust: Learning to trust each other with money is a great start to earning trust in other areas.  If either partner is unwilling to combine finances, it is an indicator of hesitancy to approach decisions with a ‘team’ mindset.  If keeping separate finances means there is no communication, there is a much bigger chance of failure in either your personal or financial life.  If you reason to keep separate finances is to have a financial backup plan in case things don’t work out, what you are saying to each other is “I mostly trust you, but not with my money.”

Budgeting: Combined finances increases visibility of spending habits, which can lead to better overall decisions for the household.   If you have to be accountable to one another, you may actually have to change some habits to benefit the team.  Unified budgeting and goal setting  (i.e. to eliminate debt ) can be more effective and help you get to your goal lines quicker.

Ease of access: Paying bills and moving money is just simpler when either spouse can easily access the money.  If you have several separate accounts, it actually complicates the process because there are simply more moving parts.

Discounts and bonuses: If one of your goals as a couple is to reduce bank changes and fees, then combining some banking and investment accounts gets you to the minimum balances for preferred rates that much faster.  You could be eligible for premium services that institutions offer only to clients with larger account balances.

Credit score: While credit rating is always single, never joint, scores are based on the history of account payments including paying bills on time.  Building a strong credit score of your own is an important component of your financial stability. Combining your loan accounts and credit cards and making timely payments will improve credit scores for both of you.  In the event of becoming widowed, divorced or starting a business, borrowing money is only possible with your own strong credit score.

Many couples point to financial conflict as the reason leading to divorce.  I would challenge that belief as I have found that financial conflict is usually a symptom of other underlying trust and communication problems that exist in the relationship. More important than the mechanics of keeping joint accounts, separate accounts or a combination of the two is healthy transparency and decision making together as a couple. The best financial health will inevitably involve tracking how you are spending money (no secrets), setting your financial priorities together (reducing debt as a family) and discussing finances together on a regular basis. Combining finances does not mean exclusively joint accounts but rather about combining your decision making and harnessing the power of ‘team’ rather than individuality. - SM

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How can I be sure that a financial advisor or planner is working for my best interests? How can I assess their qualifications?

Tagged: Financial Planning

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In order to determine if your financial advisor is working for your best interests, you will need to be prepared to ask some questions.  

  1. Needs

    What are your own needs?   Do you expect an advisor to help set goals, build a plan, give basic investment advice, or more complex estate and tax planning?  You will find it easier to determine a good match if you have clarity about your own expectations.
  2. Listen

    Does your financial advisor listen carefully and ask good questions?  At the core of good communication is the ability for your ideal financial planner to understand your values and goals before jumping in with advice. 
  3. Concept

    Can your financial advisor explain a confusing concept to you?  A great tool when seeking a financial planner is a short list of standard questions to use for interviewing candidates. Ask the same question of each advisor to get a feel for how skilled they are at explaining a financial concept in a way that you can understand.  As an example, you could ask how RRIFs or annuities work. 
  4. Compensation

    How transparent are they about compensation?  The traditional model of commissions, with transaction costs for buying and selling securities, as well as commissions embedded in the cost of products like mutual funds, has long been dominant. While appropriate for novice investors with small amounts to invest, as asset levels rise, fee-based models are more common such as MER (management expense ratio). Honest disclosure about remuneration allows you to make wise choices about your investment plans.

  5. Bias

    Is your financial advisor free from bias and sales pressure?  An independent planner has access to a wide range of products and tools from a variety of companies.  It would be in your best interest to know that your advisor does not benefit from ‘selling’ certain investments or is not limited to products from one company.

  6. Experience

    What are the qualifications and experience of your financial advisor? You could ask how long the planner has been in practice, where they have worked and how their work experience relates to their current practice. Inquire about what experience the planner has in dealing with people in similar situations to yours (for example, if you are self-employed) and whether they have any specialized training.  You can also ask about what they do for professional development to stay current in their industry.

Whether your financial advisor is working for your best interests is not always evident immediately. Make sure you shop around and do some research as well as ask the advice of people who are familiar with the advisor, or the advice of people you know and trust. Do your homework; getting references and reviewing an advisor’s history and qualifications is key. - SM

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