What is a fee only financial planner?

Most have heard of financial advisors, but what exactly is a fee only financial planner? As the name suggests, fee only planners are compensated for their services through a flat fee. As opposed to a percentage, commission or hybrid model. Fee only financial planners offer similar services to other professionals. To learn more about fee only financial planners, what they do and how much they cost, continue reading below.

What does a financial planner do?

Using your short and long term financial goals, a financial planner helps you create a plan to meet them. A fee only financial planner offers the same services as any other financial advisor does. Your current debt, household income and timeline will all be considered when creating a plan. Common financial goals could be purchasing a home, investing for retirement, and setting aside funds for your children’s education. To meet these goals, a financial planner may devise a strategy to pay off debt, allocate retirement investments and advise on the best financial products to use moving forward.

Some financial planners may also be in the business of selling financial products, such as credit cards or mortgages. However, this is not true for every financial planner. When financial planners sell financial products, you should be mindful of conflicts of interest. Usually, they would make money off the sale of the financial product and therefore may not have your best interest at heart.

Do I need a financial advisor?

Everyone’s finances are different so the answer depends. Some Canadians are comfortable managing their finances on their own, especially if their circumstances are relatively simple. However, others may require additional assistance with their money which is where a financial planner comes into play. Here are some circumstances where consulting a financial planner may help:

• New money. If you recently inherited or earned a large sum of cash, but aren’t sure how to preserve it, financial planners can help. New money doesn’t need to be easy come, easy go!
• Income changes. If your income rises or falls significantly, a financial planner can help you adjust accordingly. This could be through a new budget or changes to your savings contributions.
• Upcoming marriage. Marriage is an exciting milestone, but it also comes with numerous financial obligations. Paying for a wedding is a big one. Once married, you may also need help from a financial planner to pay off debt between you and your spouse. In addition, you may need assistance planning for a home purchase or children.
• Upcoming divorce. Unfortunately, not all marriages work out which can result in divorce. As reflected in many aspects of society and pop culture, divorce is not cheap or easy to go through. Financial planners can help you prepare for what’s to come and work out the details, such as child support, alimony, dividing property and divorce taxation.
• Child adoption. Adopting a child has some unique expenses that families having their own children don’t need to account for. Financial planners can help you create a budget and plan for your adoption.

What are the average financial advisor fees in Canada?

Financial planners can vary in their fee structures in Canada. So what is a typical fee for a financial advisor? Factors that influence price are education and credentials, years of experience, specialization and the services you are requesting. On average, Canadians can expect to pay $10,200, or 1.02%, in financial planner fees per year when the assets under management are about $1 million. Naturally, there will be flex upwards or downwards as the assets under management increase or decrease. In terms of a percentage, the average rate in Canada is 1.5% of the assets under management.

Some financial planners come through a bank or other financial institution. Alternatively, you may work with an independent financial advisor directly. Below are three types of fees you may have to pay a financial planner. Keep in mind there can be hybrid payment models as well, where financial planners are charging various fees.

• Service fees. Some financial planners charge an hourly fee, transaction fee or portfolio fee.
• Percentage based fees. Some financial planners charge a percentage of the assets under management.
• Sales fees and commissions. Some financial planners charge for each transaction or by commission. Costs like these often reflect in the total price of an investment.

What is a fee-only financial planner?

Fee-only financial planners, sometimes referred to as a fixed fee financial advisor or fee based financial planner, are compensated for their advisory services by their clients directly. In addition, fee-only financial planners charge a set rate for their services, as opposed to per unit fees or commissions. As a client, this makes the cost of your financial planner more predictable and stable.

What do fee-only financial planners do?

Fee-only financial planners provide the same services that an ordinary financial planner provides. The main difference is how they are compensated, which is a flat-fee. Below is a list of services financial planners typically provide:

• Creating and implementing a realistic budget
• Retirement savings and investing plans
• Retirement planning, including home purchases and budgeting
• Planning for a home purchase, including saving and budgeting
• Determining appropriate insurance needs
• Marriage and related life planning
• Planning for children, including adoption and education savings
• Divorce and related financial planning services
• Devising tax planning strategies
• And anything else related to planning your finances!

Keep in mind that fee-only financial planners are not usually in the business of selling financial products. Fee-only financial advisors in Canada tend to focus on helping their clients navigate challenging money related issues.

What does a fee-only financial planner cost?

A fee-only financial planner usually costs between $1,500 and $3,000 per month. The cost will depend on the services you’re asking for, the planner’s experience and education, and other similar factors.

What do commission-based advisors cost?

Commission-based advisors don’t charge you until a transaction happens. This can range anywhere from 3% to 6% of the amount invested.

How do financial advisor fees work: Fee-only vs commission-based

Fee-only financial advisors charge a flat fee. On the other hand, commission-based advisors charge a per-unit transaction for their services, known as a commission. Some advisors may charge a hybrid model as well, a flat-fee plus a commission for each transaction. It all depends on the advisor and their revenue model.

Pros and cons of fee-only financial planners

Pros	Cons
No conflict of interest with selling financial products in addition to services; customers don’t have to be as vigilant	Can be more expensive than other financial planners since you must always pay the same cost, regardless of the activity
More predictable and transparent fees since they’re stable and consistent; not based on percentages, commissions and no hidden fees	May not be worth it for individuals with a smaller portfolio balance and/or lower volume of transactions
Objective, alternate opinion on your finances, plans and current position	Incentives are lower for the financial advisor since they get paid the same amount, regardless of financial performance

Are financial advisor fees tax deductible?

If you’re paying money to a financial planner, you might be wondering, are fees paid to a financial advisor deductible? In general, financial advisor fees are not tax deductible on your personal tax return. This is similar to other costs of living which are also not tax deductible.

The only way to deduct financial advisor fees in Canada on your tax return is if your main source of income is earned from investing. In this case, you would be considered self-employed (or in some cases, incorporated) and you can deduct expenses incurred to earn an income. A financial advisor would be an appropriate business expense since the cost would help you generate more income.

The only exception is for registered accounts, such as a Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). These accounts are not meant for earning business income and therefore should not be treated that way. If you try to deduct financial planner fees against investment income earned in accounts like a TFSA or RRSP, you may run into trouble with the CRA.

How to find a fee-only advisor

Choosing the right financial planner is typically a personal choice. Of course, their experience and education should be considered, especially in relation to the services you need. But beyond that, you should get along with your financial advisor and be able to trust them.

Hiring a financial advisor can take some time, similar to purchasing a house or buying a car. Be sure to meet with a few financial planners and take time to assess which one you like best. Good luck on your financial journey!

Find fee-only advisor

If you’re interested in a fee only financial planner, be sure to ask potential advisors what their cost structure is. In addition to their cost, make sure you like other aspects of their offerings and that your personalities align. Check out AdvisorSavvy’s list of financial advisors — you may find a great match through our portal!