How Is The Fee-Only Planning Business Going?
I’ve written about personal finance and investing for the past five years and over that time received countless emails from readers asking for financial advice about their unique situation. That’s why last year we started a fee-only planning service after recognizing the glaring need for unbiased and objective financial advice in Canada.
As far as I know, I’m the only person offering fee-only or fee-for-service financial advice in the city of Lethbridge, Alberta, and I’m one of just 100-200 such advisors in the country. The reason for that is simple: advisors can make more money from selling mutual funds or managing investments for their clients than they can from charging by the hour or per project.
Related: Steak knives, yes. Financial advice, maybe not.
Fee-only advice is uncommon and many potential clients are not aware that the option even exists.
I offer this service on the side while maintaining a full-time job and studying to obtain my Certified Financial Planner credentials. That means taking on just one or two new clients per month – a pace that has gone reasonably well thus far as I’ve recently finished up the initial planning phase with my 22nd client.
Despite the initial success there are some major challenges to overcome in order for us to run a successful fee-only financial advice and planning business.
Lack of Credentials
How can you offer financial advice without holding some type of designation that is recognized by the financial planning community?
It’s true, you need a license in order to sell products such as mutual funds or life insurance, and anyone selling securities or offering investment advice needs to register with a securities regulator.
The system is set up so that most financial advisors holding a CFP designation end up working for the big banks and investment firms and so they have a direct conflict of interest when it comes to offering advice because they are paid to sell their own products.
Related: One simple test for your financial advisor
But anyone (outside of Quebec) can call themselves a financial advisor without a license and offer objective advice on goal setting, money management, debt repayment, asset allocation, and retirement planning.
If credentials are the top criteria for choosing an advisor then you would obviously feel more comfortable working with one of the many Certified Financial Planners at Investors Group, Edward Jones, or Industrial Alliance – advisors who are paid to sell you expensive products that are “suitable” but may not be in your best interests. Right?
Right.
As fee-only planners we don’t sell products or give specific investment advice on whether you should buy this stock or that fund. Instead, for a set fee determined up-front, we’ll review your current financial situation, give you feedback on areas to improve, and provide an objective opinion on the kinds of financial decisions that keep you up at night.
The value we provide on the investment side is an objective look at your portfolio in terms of performance and costs. We’ll then compare your portfolio to a benchmark of comparable index funds and ETFs and let you decide what makes sense.
Related: More ways the investment industry is screwing Canadians
All that being said; I am actively working toward becoming a Certified Financial Planner by taking the required courses online through the Canadian Institute of Financial Planning. I hope the designation adds credibility to the services that I provide and gives an answer for those who question the qualifications of a fee-only financial planner.
Paying up-front for advice
Consumers aren’t used to paying fees up-front for financial advice and so it can be a bit of a shock to fork over $1,000+ for advice and a plan.
I suspect this will become less of an issue as the financial industry is forced to become more transparent with the fees they charge. Professional services such as legal and accounting charge by the hour or project, so why can’t financial advisors get on board?
The fact is that most Canadians pay 2 percent commission or more every year for their investments. When I explain to my clients what they’re actually paying per year in dollar terms instead of percentages they usually end up grasping the value in paying up-front for objective advice.
One other note: The investment industry claims that banning commissions will lead to many advisors leaving the field because it will no longer be profitable for them. This will supposedly create an “advice gap” for smaller investors (with less than $50,000 in assets) because they won’t be able to find an advisor to take them on.
Half of my clients are what the industry would consider to be “small investors” and the fact that they are willing to pay up-front for independent financial advice means the tide indeed may be turning.
The media has also done a decent job of making people aware that fee-only advice even exists, and not just for high net worth individuals.
Location independent services
How can you establish trust with clients when you’ve never met face-to-face?
The requests we get for financial planning advice come from people living all across the country (we’ve even had a few inquiries from the U.S.). In fact, I’ve only ever met a handful of clients face-to-face.
It’s a challenge that I thought would be more of an issue, however most of the clients I’ve worked with have been fine communicating by phone call and email.
Maybe it’s because I have a public face in terms of my blog and Toronto Star column – people know that I actually exist! But I believe that more people are getting comfortable working remotely and frankly don’t have the time to schedule face-to-face meetings to go over matters that can be reviewed online and talked about over the phone.
Final thoughts
I’m pleased with the initial success of our fee-only business model and the leads that we continue to generate through our blog, the MoneySense directory, and now from client referrals. It’s such a rewarding feeling to help people save money and get on the right track with their finances.
It’s exciting to see the potential in this business after working at it for just over a year. There will always be challenges to overcome with this business model, but with experience we’ll keep getting better at delivering it and exceeding our clients’ expectations.
Well, I’ve never met Robb face to face by I have thoroughly enjoyed the relationship we’ve developed over the last year. I was looking for unbiased financial advice and trying to find confidence in what my future looked like. I have that now, which feels pretty damn good. I have inundated Robb with emails and texts at all hours with some pretty inane questions, but I’ve always gotten a great (and fast) response. It’s a little strange seeing some of our conversations turn into blog posts (inspirational discount perhaps?) but I love the fee only model. It was also nice to see you actually embrace index investing too Robb…
Hi Kurt, I couldn’t ask for a better client testimonial – thanks!
Your point about how $1000 isn’t that much compared to hidden fees really hit home for me. Thanks for sharing this post — food for thought!
I agree with every comment made.
Robb, you are working towards your CFP. If I am correct you are in the initial phase of CFP training to obtain your designation. Since you do not have your designation, what gives you the qualifications to provide fee on advice basis or are you having a colleague that has their CFP designation (who isn’t renumerated through sale of investment products) reviewing and signing off on your recommendations to clients you are serving on a fee for advice basis?
Hi Scott, thanks for your comment. As I mentioned in the article, outside of Quebec there is no regulation of financial advice in Canada. I don’t work for a bank or investment firm – I believe in objective, independent, and unbiased advice. Quite frankly that is rare in the financial services industry today. It’s an unusual service, in that there are fewer than 200 advice-only planners in Canada, but I expect that to grow in the coming years as more clients demand transparency from the industry.
Ultimately, I don’t get paid in full unless my clients are satisfied with the plan and service that I provide. Happy clients giving testimonials and referrals will dictate whether my business succeeds or fails. So far, so good.
I also was looking for a fee only financial planner.I went to Money Sense and looked in their archives. They listed a few years ago every fee only financial planner in Canada.
I copied the list and went over qualifications of the individuals.
Shortlisted and had phone calls initially.
Found the right fit for our family.
We live in the west and have had most of our sessions via Skype to an eastern individual.
You can ask for references , I did and followed up.
Glad it’s working out for you!
Here is the up-to-date MoneySense Directory of Fee-Only Planners – http://www.moneysense.ca/directory-of-fee-only-planners
Robb,
There are other options re: fee-only advice in Lethbridge – I have that option that I provide my clients. Very few of them take it, but it’s an option that is provided to them. I’m not the only advisor in the Lethbridge area that does it. There are also a couple of fee-only advisors with a couple of the accounting firms in town.
Hi Rob, that’s good to know. I checked out your website and didn’t notice anything specific about your fee-for-service option. Would you consider adding your name to the MoneySense directory?
I’m curious how that option is presented to your clients.
Wow. Did I read thar right? there are only 100-200 fee-only advisors in Canada? That’s mind boggling.
Hi Ben, it’s a pretty sad state of affairs. 125,000 commission-based advisors, 17,000 CFPs (of which just 1,275 are classified as fee-based) and less than 200 fee-only advisors. Looking at the MoneySense directory, there are about 75 fee-only advisors / money coaches listed.
Any idea of the breakdown in the U.S.?
I don’t have the numbers offhand but I’ll take a look and see if anyone I know has a rough estimate. Those numbers are crazy to me. Less competition for you I guess.
It is concerning there are so few truly qualified individuals with designations to give advice on a fee only basis.
I don’t know which is worse individuals that are not qualified giving advice on a fee only basis or advisors with a vested interest providing advice. They both can have disasterous consequences.
You wouldnt take your car to the garage to a mechanic who only knows how to do brakes to rebuild your engine. This analogy is comparable to having an individual that isn’t fully qualified providing you a full financial plan on a fee only basis when they aren’t qualified to do so.
Scott- Spit it out. Are you trying to say something or just musing? Right now it looks kinda like a passive-aggressive attack on Robb’s abilities as a financial advisor. Don’t know if you’re meaning to or not, but your coming off like a dick… And nobody likes that guy. So, I’ll say it again. What’s your point?
Hello Kurt,
My comments were not personal. Take them at face value about seeking advice from individual’s that are not fully qualified to provide it. You wouldn’t go to a Doctor for treatment if they weren’t qualified to provide it would you?
Good answer Scott… I should learn to have more faith in people. I might not go to a doctor that wasn’t qualified, but I would hire a carpenter to build my house if his previous builds showed skill and talent. Sometimes a piece of paper is just a piece of paper. We live in a buyer beware world. I don’t make my decisions based on someone being certified by some organization, I make them based on my research of the performance and abilities of an individual or company in a given field. Banks and Insurance companies are full of “certified” people… And look where that has got us.
There is little doubt that you don’t have to look far to find someone who has been the victim of bad advice. Sadely, there are still lots of advisors using a DSC and showing their true colours by taking advantage of unsuspecting clients.
That being said, I’m a bit disappointed in your post. I feel that you are painting an entire side of the industry with the same brush. There are businesses out their that are very clear with their clients about commission, include estate and tax planning/preparation as part of their overall client package and create a much better financial outcome for their customers.
And to say that there are fewer then 200 fee-only advisors in Canada is off the mark. Many planners are offering their services in a variety of methods, including fee-only advice as part of their business model.
Using my knowledge to help people is why I started and why I will remain in this business. Changes and new opportunities will present themselves in the future with CRM2.
I respect the majority of what you have to say and what you are doing but I’ve seen a few posts that look like a marketing piece. I sincerely hope you choose a bit more of a moderate opinion, but this is your platform and my humble opinion.
Hi Chance, according to this Advocis report there were 150 fee-only planners in Canada in 2011 – http://www.advocis.ca/pdf/Financial-Advice-Industry-Economic-Profile.pdf. I doubt it’s changed that much in the last 3-4 years.
It’s true, you can find many good advisors out there (yes, even at IG, IA, and EJ) who look out for the best interest of their clients. Sadly, the industry is designed around the inferior suitability standard and brazen conflict of interest – the average investor doesn’t stand a chance.
Just think how many more fall prey to the secondary providers like prime america or WFG MLM style offerings? A step below the ones you mention above.
People just starting out would never know the difference between any provider and understand how a poor choice affects them.
That is unfortunately true indeed. My whole poibt was there are lots of independent businesses who dont follow the sleezy model of many of those mentioned earlier in the post. Its possible to make a decent living and offer a service that actually bemefits the clients without deceiving clients.
I have to admit, I’m a bit on the fence about you providing fee-only advice without credentials but my experience in the business world has sometimes proven that those with credentials are crappy and those without sometimes do a good job. Like what Kurt has said, “sometimes a piece of paper is a piece of paper” but credentials does add value sometimes. It puts you ahead of those who pretend to be “certified”.
So, I often tend to look at those with credentials first (depending on what it is) and then research further into that individual.
In your case, you’ve been very upfront with your experience, have several years of blogging (backed up with facts), and providing real-life scenarios of some of your clients (obviously with their permission) and you’re trying to boost this with your CFP education. You’re looking good so far and I do give you strong consideration as a potential advisor.
I do have an advisor who is also in training with his CFP (will receive this within the year) but has lots of experience (including teaching finance and investments at a local college for almost 10 years) and has been very upfront with me with the fees. In addition, he is actively working with me on my personal finance plan despite me not having much assets with him because he knew I would have more eventually. His goal is to ensure that his clients are on the right track regardless of their investments. He treats every client the same which is my kind of advisor.
Good job and keep up the good work. Thank you for sharing your experience.
Hi KC, thanks for your candid feedback. I understand your reservations about working with someone who doesn’t have traditional industry credentials. One thing to remember is that I don’t manage anyone’s money – I only provide advice. It’s up to the client to put my recommendations into action and decide whether my fee is worth paying. There’s zero risk that you’ll end up in a Madoff-style ponzi scheme, or that I’ll put your money into investments that compensate me the most, or that I’ll “churn” your account to generate more commissions and fees, so the implied trust is much different than with someone who manages your assets.
My main objective is to help people with their finances and make sure my clients get their money’s worth from the service. Ultimately, I’ll know whether I’ll succeed or fail if my clients continue to work with me and tell their friends to do the same.
You had mentioned in the article that you are taking courses to attain the Certified Financial Planner (CFP) designation. Is there work experience required with an institution to get the CFP designation? Is it possible to do this as a fee-only financial planner working independently? I was not able to get a clear answer from the CIPF.
Hi Joe, thanks for your comment. This question is addressed by the Financial Planning Standards Council here – http://www.fpsc.ca/beaplanner/work-experience
“For fee-only planners with no financial institution affiliations, you must provide a letter from two personal financial planning clients which includes a detailed description of financial planning services provided, the length of time you have provided these services and the client’s contact information.”