Weekend Reading: The Cost Of A Financial Plan Edition

Weekend Reading: The Cost Of A Financial Plan Edition

The Globe & Mail’s Rob Carrick posed a question to his LinkedIn followers a few months ago asking about the cost of a financial plan. He quoted a reader who said:

“We recently received a quote of $4,000 for retirement and investment planning. This is a one time fee for service engagement. Seems high – is this the average cost now? And any guidance on what the report should include?”

There were some interesting responses from financial planners across Canada. Many claimed the $4,000 fee was well below what they would charge for a similar service. A few others said they charged less than $1,000 for this type of plan. 

The trouble is that from the client’s perspective most feel their situation is fairly straightforward and they think they just need some expert guidance to make sure they’re on track. From the financial planner’s perspective there may be any number of complications that would require much more careful analysis and planning, like whether the client is a business owner, are they a US citizen, has their relationship status changed, do they have stock options, a rental property, own property in the US or abroad, etc.

Some of the planners commenting on Rob’s question work exclusively with ultra-high net worth individuals. These folks tend to have much more complicated and robust planning needs. A $10,000+ fee might be reasonable given the amount of wealth and complexities they’re dealing with, not to mention the benefit of getting the planner’s own expertise and the expertise of the team around them.

For those with truly basic planning needs a fee of $4,000 might be too high, but a cookie-cutter plan for less than $1,000 without much detail or ongoing advice might not cut it.

Rob took that feedback and more to write a follow up piece on how much you should expect to pay for a financial plan that shows you’re on track for retirement (and more). The answer was a range between $1,500 and $4,000, or higher.

Fee-only advice is still a fairly new and unknown business model in Canada, so we shouldn’t be surprised that planners and clients have vastly different expectations on how much to charge or pay for a plan. 

Michael Kitces has done extensive research on planning fees and found that the median flat-fee price for a financial plan was $2,400 (US based research).

One of the challenges I’ve faced in my own fee-only financial planning practice is aligning the service I provide with the right type of clients who I feel will get value from that service. This includes charging a reasonable fee for the written plan and 12 month long engagement (currently $1,800).

My ideal clients are regular Canadians with regular planning needs. In most cases they are nearing retirement and want to know the answers to burning questions like are they on track to retire, how much can they spend, and how best to generate retirement income from their investments. Other clients may have recently gone through a major life event such as getting married, having their first child, moving into a new house, or changing careers, and want to know how to get their finances to match their new reality so they can achieve their goals. 

After an initial inquiry or discovery call we may find that the prospective client’s needs are much more complicated and don’t quite fit with the service I provide. In this case I would refer them to a larger fee-only financial planning firm like Objective Financial Partners or Spring Plans, where they have entire teams with expertise in certain areas of planning. Again, don’t be surprised to see that advanced financial planning may cost in the neighbourhood of $7,500+.

There are only 100 or so financial planners who are truly offering unbiased and objective advice for a flat fee. Each of them likely have a particular expertise and a ‘type’ of client they like to work with. That’s why there’s such a wide range of fees being charged across the industry.

One thing for prospective clients to watch out for is that several fee-based advisors (who charge a flat fee or percentage of assets to manage your investments) have co-opted the term “fee-only” or “advice-only”. They may offer a financial plan but what they’re really after is for you to invest your assets with them. 

It’s hard to pinpoint exactly how much value you could get from using a fee-only financial advisor. One answer is to measure the investment fees saved if you end up moving from a managed portfolio of mutual funds to a robo-advisor or self-managed portfolio. The difference in fees could easily be $10,000 per year or more. But how do you quantify the confidence that you’re on track to retire, or the increased financial literacy, or the help in defining and prioritizing your financial goals? 

When I first started offering this service I wasn’t sure how receptive people would be to paying upfront for financial advice. After all, the financial services industry typically bundles advice with product sales and so the fees come off of your investments not directly out of your pocket. But it’s clear the fee-only business model has been growing by leaps and bounds in the past few years. More and more people are realizing that there’s real value in financial planning and not so much in their advisor’s stock picking prowess.

We need to continue to bring more awareness to the fee-only financial planning model. For the advisors offering this type of service we need to be open and transparent about our fees and level of service provided so that prospective clients know where to turn for their situation.

This Week’s Recap:

No new posts from me over the past two weeks as we are in vacation mode and getting ready to head to Vancouver / Whistler for a short getaway. Our kids have been enjoying a variety of activities this summer including theatre camp, science camp, and volleyball camp. It has been nice to have a fairly normal summer so far. 

I’ve enjoyed a new podcast from Ramit Sethi called I Will Teach You To Be Rich. Ramit looks at real money stories from behind closed doors. The first episode was about a husband not trusting his wife to run her business (while he traded cryptocurrency as a “business”). The second episode was about a cheap couple who was worth more than $1M. And the third episode is about a husband going broke trying to pay for everything and be the “man of the house”.

From the archives: Stop asking $3 questions. Start asking $30,000 questions.

Weekend Reading:

Our friends at Credit Card Genius have the best credit card offers and sign-up bonuses for the month of August.

Should you always defer CPP if you’re working past age 65? Not always, explains Alexandra Macqueen.

Here’s the most important retirement planning question you need to answer:

“Are you retiring to something, or from something?

On a similar note, here’s Joe Kesler on The Humbler Dollar blog with a look at life’s two halves.

Of Dollars and Data blogger Nick Magguilli looks at the Coast FIRE movement where you go big, then stop. Here’s my own path to Coast FIRE.

Here’s a nice interview with My Own Advisor Mark Seed on the Modern FImily blog

Gen Y Money has an in-depth look at how dividends are taxed in Canada.

Preet Banerjee has partnered with BMO InvestorLine with two free courses to learn more about investing. Here’s the introductory video:

The latest investing fad: direct indexing. Morningstar explains what exactly it is, including the pros and cons of this investing strategy.

Everyone wants to talk about inflation these days. Here’s why investors should consider long-term trends, not pandemic ones.

Steadyhand’s Tom Bradley looks at the rise of free trading apps as an eco-system of failure.

What’s a better investment – real estate or stocks? Millionaire Teacher Andrew Hallam gives a thoughtful answer to this question.

Have a great weekend, everyone!

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3 Comments

  1. Tim Thiessen on August 6, 2021 at 4:27 pm

    We’ve found your advice so helpful and honestly a relief. We’ve been able to see our path and plan around it easily. So happy we’re clients of yours! You do a fantastic job!

  2. GYM on August 6, 2021 at 9:18 pm

    Thanks for the mention, have a great time out here!

  3. Sara on August 7, 2021 at 2:10 pm

    Not a very good experience from a planner. $800 (2% of portfolio) every month fee + Luke warm performance. 0% return. One common demand “Bring all your accounts to better manage it”. “Keep it for 5 years to see the results”. I pulled out my account and went to self directed. No Children, No ex-wife/Girlfriend, No US cross border issues, not a business owner etc. Compared to Dow jones and TSE they say it is like comparing Apples to Oranges?

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