Fee Only Financial Planners – What is Fee Only?
February 2016
I am an hourly-based, fee only financial planner – sometimes called a fee for service planner. I sell no product, receive no commissions and taken no referral fees for sending clients to other advisors selling products. However, not all fee only planners are the same. You need to exercise caution as the term “fee only” can be interpreted several ways.
There are financial planners and investment advisors who sell products on a “fee only” basis, but the fees are based on a percentage of the asset value in your account. For example, if you have $100,000 of investments with this type of fee only advisor, your “asset based” fee may be 2.00% per year, regardless of the number of investments you own or the amount of time you spend with your advisor. If you have more money, such as $1 million of investments, you may only pay 1.75% per year. Each advisor or firm will have their own rate structure. This fee structure differs from those who charge a commission based on each time you buy or sell a security. However, both of these types of advisors receive money based on selling you investments, and you therefore need to exercise your own due diligence to see if you are being aggressively sold securities which are not appropriate for you. See my other articles for investment strategies and questions to ask your advisors for more information on what is appropriate. Also, be careful when you have an advisor charging you an asset based percentage fee, but also sells you GICs and mutual funds. Determine whether the GICs and mutual funds are included in the base for the fee calculation. There should be no fee on GICs, and unless the mutual funds of a special type (e.g. F Class or I Class), your advisor (or your financial institution) is likely paid by the mutual fund directly on your behalf.
There are also financial planners who will charge on an hourly basis, like me. However, upon completion of their financial plan, they also sell investments and receive fees or commissions for the sale of those investments. In these cases, you need to second-guess the objectivity of the hourly based financial plan to ensure that the recommendations were not biased toward the selling product from which future fees or commissions would be obtained.
Finding an hourly based fee only financial planner can be a challenge, because most advisors realize that more money can be made from commissions and asset based fees than by hourly based fees. In past years, without having my underlying tax and accounting practice on which to generate much of my revenue, I could not have carried on an hourly based fee only financial planning practice (sometimes called a fee for service practice). For someone who is not a Chartered Professional Accountant, like I am, (or otherwise employed) offering other services, operating an hourly based fee only financial planning practice in low population areas such as Atlantic Canada would be challenging.
Although the link was no longer working last time I checked (July 23, 2018), MoneySense magazine may provide a listing of MoneySense Approved Financial Advisors, with a category for fee only advisors. (These names are trademarks of Rogers Media.) As they state on their website, “To be included in this program, advisors also pay a fee to MoneySense but only those with top marks make it onto our list.” Until 2015, this was a free website listing and I was included. However, I declined to pay, and therefore to be listed, when the fee was introduced in 2015, which has an annual value of $2,499. I have a policy of not paying other parties to obtain my clients, but I also I consider the pricing to be rather expensive. I also think the price should be disclosed to users of the web site, in the same way that I think investment advisory fees should be disclosed to investors. However, use of their website is an option available to you, particularly in the larger centres. Otherwise, word-of-mouth by asking your friends and colleagues may provide you with leads.
If you are dealing with advisors that sell products, another way of ensuring objectivity is to obtain a second opinion from another advisor. I strongly recommend that you use financial planners with professional designations, such as the Registered Financial Planner (R.F.P.), Certified Financial Planner (CFP), Personal Financial Planner (PFP) or Chartered Financial Consultant (Ch.F.C.). These are financial planning designations, all of which are accompanied by professional associations governing a code of ethics for their members. If you are dealing with investment advisors or insurance advisors, etc., there will be other appropriate designations for those specialties. However, it is the financial planner that looks at the high level scenarios, those dealing with many different aspects of your life, including retirement, investing, insurance, taxes, estate planning, etc. Following a meeting with a financial planner, you may very well need to speak to other specialty advisors to implement the recommendations. This is the case when you work with me, because I do not sell product and you would need to deal with, for example, an investment advisor to acquire investments (unless you are comfortable doing it yourself).
Remember – buyer beware. If you have some money, it is likely someone else wants at least a piece of it – protect it wisely because it is your future.
Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum