The use of titles by financial professionals in Canada is not very well regulated. As a result, determining the difference between someone providing advice-only financial planning and fee-based investment services is difficult. But the differences are significant.
In the past, financial planners providing fee-for-service financial planning typically referred to themselves as fee-only financial planners. Consumers could easily identify them as being financial professionals who did not sell financial products like investments or insurance.
The media has provided a lot of positive attention for the fee-only industry in Canada over the years. However, as the practice of charging a fee as a percentage of assets under management for investment services has grown, so too has the number of advisors who refer to themselves as fee-only.
In fairness, an investment advisor who charges a fee of 1% of an investment portfolio is quite different from an advisor who charges commissions to buy and sell investment products. They too need to be distinguished from one another. But how does a consumer find an advisor who provides financial planning advice without managing their investments if more and more advisors are so-called fee-only?
When I began my career over 20 years ago, I always referred to myself as a fee-only financial planner. Over the past 10 or so years, I have used the description fee-only / advice-only. It is a mouthful, I know. Arguably, the best description today for what I do may be advice-only.
An advice-only financial planner is a professional – ideally a Certified Financial Planner (CFP) – who provides financial planning advice to clients without managing their investments. If they receive a fee split, commission, referral fee, or any other compensation from an affiliated investment firm or insurance agency, I would argue that they are not advice-only. An advice-only financial planner is paid only for advice, like a lawyer. Their fees may be hourly or flat fee.
Advice-only financial planning generally involves guidance on a range of financial planning matters, including retirement planning, tax reduction, estate planning, investment strategy, and insurance needs.
By comparison, a fee-based investment advisor provides investment management services. They, or someone at their firm, may provide financial planning as well. Their fees are based on a percentage of an investor’s assets under management, and they manage a client’s investment portfolio, typically on a discretionary basis. The financial planning that they may provide is not free. There is a cost to provide financial planning to an investor and it may be factored into the fee as a percentage of assets under management. It may or may not be as comprehensive as the financial planning services provided by an advice-only financial planning firm.
We get approached by lots of investors who believe we can help manage their investments for an hourly fee or help them build an investment portfolio with a discount brokerage account. We cannot, nor can other advice-only financial planners. Likewise, we speak to plenty of people who have spent years trying to find someone to provide financial planning advice, for a fee, without managing their investments. Most have spoken to other “fee-only” advisors who they mistook for advice-only financial planners.
Choosing between an advice-only financial planner and a fee-based investment advisor depends on your needs and goals. Many clients of advice-only financial planners also work with a fee-based investment advisor. Many clients of advice-only financial planners are do-it-yourself investors or prefer to invest in other investments like rental real estate. Many clients of fee-based investment advisors are satisfied with the financial planning advice they receive from their investment firm, especially if their needs are simple.
Regardless, it is important for a consumer to know the difference between an advice- only financial planner and a fee-based investment advisor. Both could be a great fit for the right client. Title regulation has gained more attention in Canada and hopefully over time, consumers will be able to more easily identify the different services available.