My mom and I have written more than 1,000 articles on personal finance and investing over the last three-and-a-half years. The articles speak, for the most part, to the general “you” but aim to make readers think about their own finances and how it can apply to them. We receive countless emails from our readers asking that very question – what about me and my unique situation?
Reading those emails, and the comments on our posts, is by far the most enjoyable part about writing this blog. What we’ve learned is that many people aren’t getting the type of advice they need from their financial advisors – the ones who focus more on selling products rather than developing a financial plan for their clients.
The financial services industry has done a poor job addressing this problem. Clients walk into their bank, sit down with a financial advisor, fill out a boilerplate questionnaire assessing their tolerance for risk, and then get sold investment products which are suitable, but may not be in their best interest over the long term.
This experience drives many to go the do-it-yourself route, but again, the focus is on investments and not goal setting and planning. The trouble for those who go it alone is that many are not capable of handling the ups-and-downs of the market and could use a financial advisor to provide a sober second opinion before they push the panic button.
If fact, Nobel Prize-winning economist Robert Shiller said that everyone should have a financial advisor and that “a lack of good financial advice was one of the problems that led to the financial crisis.”
An alternative to the commission-based bank advisor is to look for a fee-only planner, a role that has been talked up in recent years, but is still difficult to find in Canada. A fee-only planner works with you to develop a financial plan and offers investment advice for a set fee, often charged per hour or per project. They don’t sell products and won’t execute trades for you, which is a good thing because it means there’s no conflict of interest in this relationship.
As Preet Banerjee wrote in his excellent piece for MoneySense on how to find the perfect financial planner, “low-cost couch potato strategies coupled with planning and coaching from an adviser is a model set to grow by leaps and bounds in the next five years.”
The article goes on to describe why the fee-only financial planning model has struggled to catch on. It’s not that there’s a lack of demand from consumers, it’s that advisors make far less money in this model than they would make by charging commissions or a percentage of your assets.
“For advisers, the pure fee-for-service model is economically unattractive. A commission-based or fee-based practice has tremendous scalability. The heavy lifting in a relationship is performed early on. Aside from moderately intensive reviews every three to five years, an established relationship becomes less work and is more lucrative for advisers as time marches on. Assets grow and compensation models tied to asset growth clearly exhibit ever-rising compensation. By contrast, a pure fee-for-service model implies a direct relationship between an adviser’s work and compensation and is effectively capped by the number of hours an adviser can work.”
Our New Fee-Only Financial Planning Service
Too many consumers are now aware of the outrageous fees and conflict of interest present when they deal with a bank advisor, yet they don’t have enough assets to meet the minimum that many fee-only asset-based planners require. That leaves them in limbo and prone to make the kind of mistakes that can derail even the most steadfast do-it-yourselfer.
Consumers are ready for and deserve a change. That’s why we’ve added our names to the “rare” list of fee-only financial planners in Canada who operate purely on a fee-for-service model. We separate the advice from the product sales and will help you create an unbiased financial plan that gets you on the right path to achieve your financial goals.
Visit our fee-only financial planning page to find out more about our service and see if it’s the right fit for you.