The financial planning fee-for-all

Over the last few years there has been a huge focus on fees in financial planning. The general message: cheaper means better. While competition and fee disclosure is great for clients, the focus really should be on the value received for those fees. 

Look at the marketplace and consider the services of your advisor, if you have one. Ask yourself what your advisor does to earn those fees. You’ll likely think of things like wealth management, comprehensive financial planning, risk products (insurance), estate planning and taxation.

These are all important parts of financial planning, but the true value is simpler.

It costs how much?

When you leave a planning session with your advisor, you should feel confident, important, and in control. This hinges on you trusting your advisor, understanding why and how their advice relates to you, and being clear on the actions you need to take, even if it’s simply spending more. 

But the main system in Canada has relied on a hidden fee system built on commissions and some pretty large conflicts of interest. This can limit those feelings of confidence and control that I mentioned earlier. If you want to feel better about the advice you receive, knowing how your fees are paid is almost as important as what you receive in return. 

Know your fees

While both of the following options are rare in Canada, they are growing more common. Both involve you paying your advisor directly, but with a few small differences.

Fee for Service: The most direct and unbiased route to receive financial planning advice. You pay for your advisor’s planning services direct from your own pocket. 

Fee Based: In this model, fees are based on the size of your portfolio and paid direct to your advisor via your investments. 

While I haven’t elaborated on the pros and cons of each, knowing how your fees are structured is one of the simplest ways to build confidence in the advice you receive and in turn, receive more value, even if the cost to you is the same. 

The concepts of fee for service and fee based investing may be new to you, but they’re the way the industry is headed. I’ve adjusted pricing for my services to fit these models, which has made a huge difference in helping my clients feel confident about the fees they’re paying, and much more in control of their retirement.