What Is Fee-Only Financial Planning

There are three main types of financial advice. Most people are familiar with the traditional financial advisor. This arrangement is where a financial adviser works for an institution to sell product. This is considered part of the selling of these products and financial advice is provided "freely". A fee-based advisor is the second type of advisor. The fee-based advisor charges a flat percentage fee, based on assets managed and not by products. Although the cost may be lower, it can still add up over time as the fees are based upon a percentage of your assets. Advice is still included in the service and is considered "free". This last option is either a fee-only, or fee for financial planning. This planner does not sell products, but only provides advice. Based on the complexity of the project or the amount of time spent, the flat fee for advice is one dollar.

What are the advantages and disadvantages of each type?


The traditional advisor is usually the most costly. Fees are calculated based on how many products you purchase. If you have $100,000 in mutual funds, and you pay 2% fees, that means you will be paying $2000 annually for the life of these funds. The average Management Expense Ratio (MER) is based on a mix of fixed income (stocks, bonds), and equities. Other fees may include account fees, trading fees and trailer fees. There could also be referral fees and administrative fees. Penalties for early redemptions or switching might apply. You will need to add up all costs depending on your situation in order to determine the true cost.

A fee-based advisor might have lower fees because they charge a flat percentage rather than a MER plus other costs. The fees for an entire account are reduced by anywhere from 1% to 1.5%. This option is only available to those with greater assets as the fees must be high enough to make it financially viable. The minimum asset threshold is usually $500,000 in investable assets (assets in trading accounts). This fee could be anywhere from $10,000 to $15,000 annually if you have $1,000,000 invested.

A flat dollar fee is what the fee-only financial advisor charges for a project or plan. You would be charged between $1,000 and $5,000 for a plan.

Do not fixate on the titles or names of the people you deal with. Financial planner versus financial adviser. These titles and names are interchangeable in Canada. They do not indicate a specific service or accreditation. You can also call them portfolio manager, financial advisor, portfolio manager, and investment advisor. To understand what you are getting into, ask "What are the fees in dollars?" This should be clarified to you. You will be able to determine the fee structure based on what you hear.

Conflict of Interest

Traditional advisors must serve multiple masters. The client is responsible for paying the bills. This must be addressed. There's the boss and the institution who want to make as much money from client fees. The regulator/compliance team ensures that the advisor is providing the best possible service to the client. Your advisor will be conflicted if your company produces sub-standard products. Your boss can make the client happy by selling them a sub-par product, or you can tell the client to find a better deal at a competitor. It is difficult to please everyone unless you are an experienced advisor who has a large client base or you are not required to do the job.

If the advisor is paid a fee, it can be a similar problem. You can also consider buying real estate, paying down debt, or using your money to purchase a business.

These conflicts are not present in a fee-only planner because there is only one master: the client. There are no products or assets. The advisor is only responsible for the legal system and ethics of the organization to which he/she belongs.

A range of services

The traditional advisor holds the advantage in this area. The traditional financial advisor can help you if you need an accountant, an attorney, an estate trustee, mortgage broker, or other services. You can also get help with the administrative aspects of these services: opening accounts, trading and rebalancing your portfolio.

These extra services may be offered by a fee-based financial advisor, but this will depend on how large the company is. Smaller boutique firms might specialize in portfolio management and investments, but you will still need to find professionals for more complicated situations.

This applies to a fee-only financial planner or a fee for service one. Individuals and small businesses are more likely to do fee-for service planning than those who have the resources to create a network of professionals.

Minimum Asset Level

The fees you pay to manage assets or sell products are a percentage from the money used to buy products. At 2% fees, $100,000 would equal $2000 annually. Products would most likely be selected from a pre-selected list. An "know your customer" survey (KYC), would be completed and the products selected. This is in place of a complete plan. A financial plan's asset minimums are typically $500,000 in product purchases and assets. However, some firms may offer plans with lower asset amounts. A plan can be made using software, but not all the scenarios, as software is incomplete and cannot be compared to talking to a person.

Because the revenue generated by Fee Only Financial Planners is not tied to product sales, there are no asset minimums. Revenue is linked to the time and work put in. Whether there are $1000 or $100 million transactions in purchasing a product, the work involved in creating a plan, allocating assets, and maintaining it will be the exact same.

What advisor type is best for you? It all depends on your financial situation, your needs, the amount of work you do yourself and your comfort level with finances.

Are you looking to learn how the world of money works without having to take a long or costly course of study? Talk about what you are looking to accomplish according to your goals. To achieve your goals, restructure your finances. Advice that isn't affiliated with any institution, product or service - an independent opinion

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