Financial planning is the integration of all aspects of your family’s finances, including retirement, tax and estate planning, coupled with investment and insurance strategies. True financial planning is a process, not a product.
Fee-only, advice only, fee-for-service financial planners are comprehensive advisors who can help you fit together all the different pieces of your financial puzzle and don’t sell any products whatsoever. It is estimated there are 150 financial planners (individuals, not companies) providing fee-only financial planning in Canada, though unlike us, some of these individuals do also sell products. In contrast, there are 18,000 Certified Financial Planners (CFPs), 25,000 financial planners and 90,000 financial advisors. That means about 1/6 of 1% of Canada’s financial advisors provide fee-only financial planning and even less are completely independent, selling only their advice.
For most Canadians, investment advice is the only real financial advice they get. Even tax planning advice is elusive, given that most people’s accountants simply do their tax return and nothing more. Fee-only financial planning brings the integration of all areas of personal finance to the forefront and makes it the sole goal of the client-advisor relationship. True fee-only financial planning ensures that the planner and their company are compensated solely by agreed-upon fees paid by the client. This means there are no hidden costs, third party financial motivations or kick-backs – the planner represents the client and only the client. Objectivity is the name of the game, which is important in a global financial market that can be fraught with conflicts of interest.
Fee-only financial planning should not be confused with fee-based investment management, where an investor pays an annual fee to their investment advisor based on a percentage of their investments. A fee-based approach is simply a way to pay your investment advisor.
Fee-only financial planning keeps advice and potential products separate, so most clients who work with a fee-only financial planner will also have a separate investment advisor and insurance agent.
Some people are reluctant to add another advisor to their repertoire. They already meet with their investment advisor in February to make their RRSP contribution. They meet with their accountant in April to get their income taxes completed. They have an insurance agent who has arranged their insurance policies. They have a lawyer who updates their wills and powers of attorney from time to time. The problem is, even though these various professionals may be great at what they do individually, collectively, there is often little or no integration of their recommendations.
Fee-only financial planning fees are charged for comprehensive financial advice and are based solely on time. Fee-only, advice-only financial planners are professional and charge their fees much like other professionals, like lawyers or accountants. The average hourly rate of fee-only financial planning in Canada is approximately $200 per hour, so comprehensive planning costs are typically into the thousands of dollars. In some cases, the fees may be tax-deductible. They have nothing to do with a client’s income or assets, meaning every client is just as important as the next. This is in stark contrast to most financial advice, where minimum investment levels apply and different compensation is paid to the advisor for different product choices. It means fee-only financial planning is accessible by anybody and everybody on a level playing field with no conflicts.
What’s the return of investment from working with a fee-only, advice-only financial advisor? It’s hard to say, because we never know what we’re going to find under the hood until we get started. In many cases, there are explicit returns by achieving goals like better tax efficiency, but most clients would also tout the implicit benefit of working with a trusted advisor with no conflicts of interest who can answer many of the questions that others cannot.