Why Fee Only?

Have you ever gone to a bank or a financial planner looking for advice, and did you come away with a new RRSP, debt consolidation loan, or home equity line of credit instead?

In my banker past, I had a client list of over 6000 individuals, families, and small businesses. Those customers were coming to the bank for service and advice, while the bank thought they were coming in to buy something.

Banks and commission-based financial advisors and planners are in the business of selling, not servicing. Do you think management would have been happy if after a client appointment my report was “Mrs. Somebody has reduced the amount she spends in service fees, got help building her household budget, made a plan to pay down her debt within the next three years, and switched her investments to low-cost index funds, but she didn’t sign up for (yet another) credit card”?

Professional financial planners should be compensated for their knowledge, experience, and advice, not for the products they sell you, and a planner who charges a flat fee to discuss your goals, analyze your current situation, build a plan to get you where you want to be, and is compensated only by you is a “fee only” or “advice only” or “fee for service” financial planner.

Anyone offering “free” financial planning and who also conveniently sells insurance and investments is compensated by the investment or insurance company when they sell those products to you.

These people are – on balance – honest, smart, helpful people who really do want to help you. But if the only way they are compensated or can please their manager is if you purchase something from them, can the advice they’re giving you be completely free?

As you’d expect, I’ve written quite a lot on the topic of fee only and advice only financial planning on Spring (the blog).

Read more:

Sorry, who is it that’s suffering? Advocis doesn’t want embedded commissions banned, because financial advisors will suffer

Your financial advisor might be a nice person, but…

Dear big, enormous bank with little competition, please blow my mind

Your financial plan is not a slap-chop