Finding and hiring the lowest cost solution is not a good way to manage your personal finances successfully.
Instead, consider the value of financial advice—what you get in return for what you’re paying—as well as you and your family’s needs as financial consumers.
Common Financial Planner Compensation Models
When looking for a financial advisor, be sure to ask about fees before you hire them. A professional planner will answer your question clearly. If they don’t answer directly, or suggest their services are free, look for someone else to help manage your money.
There are typically 4 ways financial planners charge for their services:
FEE-BASED: Some financial advisors (including me) earn a fee based on a percentage of the assets in your portfolio. The percentage typically varies on a sliding scale depending on how much money you invest. The fees are tax deductible for non-registered accounts. With this model, you’ll receive unbiased recommendations since your planner does not receive a commission.
The other advantage is access to a full product offering including stocks, bonds, ETFs, mutual funds, and GICs.
SALARY: In this case, the company employing the planner pays them a salary. These advisers usually work for a bank, trust company or credit union. They only provide advice about the products their financial institution offers, limiting the investments they can recommend to you. Costs are embedded into the financial products you purchase, making it challenging to understand how much you're really paying for investment advice.
COMMISSIONS: Many financial planners earn a commission when they buy or sell an investment. When you purchase a mutual fund, your planner may also earn a trailing commission for as long as you own that investment. If your financial planner makes a commission, be sure to ask if there’s a conflict of interest (e.g. they earn more money recommending one investment over another).
FEE-FOR-SERVICE: While rare in Canada, there are some advisors compensated on a fee-for-service basis. They may charge an hourly rate or set a flat rate for specific financial planning services.
Financial Planning is About More Than Fees
Effective financial planning is about finding an advisor who answers your questions directly and honestly, will work with you to identify your life goals and develop a plan to reach those goals.
While your advisor’s compensation is important and you should understand how they make money, it’s just one factor to consider when hiring a professional to manage your money.
To learn more about Brett's financial planning services, get in touch.
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