How Is The Fee-Only Planning Business Going?

I’ve written about personal finance and investing for the past five years and over that time received countless emails from readers asking for financial advice about their unique situation. That’s why last year we started a fee-only planning service after recognizing the glaring need for unbiased and objective financial advice in Canada.

As far as I know, I’m the only person offering fee-only or fee-for-service financial advice in the city of Lethbridge, Alberta, and I’m one of just 100-200 such advisors in the country. The reason for that is simple: advisors can make more money from selling mutual funds or managing investments for their clients than they can from charging by the hour or per project.

Related: Steak knives, yes. Financial advice, maybe not.

Fee-only advice is uncommon and many potential clients are not aware that the option even exists.

I offer this service on the side while maintaining a full-time job and studying to obtain my Certified Financial Planner credentials. That means taking on just one or two new clients per month – a pace that has gone reasonably well thus far as I’ve recently finished up the initial planning phase with my 22nd client.

Despite the initial success there are some major challenges to overcome in order for us to run a successful fee-only financial advice and planning business.

Lack of Credentials

How can you offer financial advice without holding some type of designation that is recognized by the financial planning community? 

It’s true, you need a license in order to sell products such as mutual funds or life insurance, and anyone selling securities or offering investment advice needs to register with a securities regulator.

The system is set up so that most financial advisors holding a CFP designation end up working for the big banks and investment firms and so they have a direct conflict of interest when it comes to offering advice because they are paid to sell their own products.

Related: One simple test for your financial advisor

But anyone (outside of Quebec) can call themselves a financial advisor without a license and offer objective advice on goal setting, money management, debt repayment, asset allocation, and retirement planning.

If credentials are the top criteria for choosing an advisor then you would obviously feel more comfortable working with one of the many Certified Financial Planners at Investors Group, Edward Jones, or Industrial Alliance – advisors who are paid to sell you expensive products that are “suitable” but may not be in your best interests. Right?

Right.

As fee-only planners we don’t sell products or give specific investment advice on whether you should buy this stock or that fund. Instead, for a set fee determined up-front, we’ll review your current financial situation, give you feedback on areas to improve, and provide an objective opinion on the kinds of financial decisions that keep you up at night.

The value we provide on the investment side is an objective look at your portfolio in terms of performance and costs. We’ll then compare your portfolio to a benchmark of comparable index funds and ETFs and let you decide what makes sense.

Related: More ways the investment industry is screwing Canadians

All that being said; I am actively working toward becoming a Certified Financial Planner by taking the required courses online through the Canadian Institute of Financial Planning. I hope the designation adds credibility to the services that I provide and gives an answer for those who question the qualifications of a fee-only financial planner.

Paying up-front for advice

Consumers aren’t used to paying fees up-front for financial advice and so it can be a bit of a shock to fork over $1,000+ for advice and a plan.

I suspect this will become less of an issue as the financial industry is forced to become more transparent with the fees they charge. Professional services such as legal and accounting charge by the hour or project, so why can’t financial advisors get on board?

The fact is that most Canadians pay 2 percent commission or more every year for their investments. When I explain to my clients what they’re actually paying per year in dollar terms instead of percentages they usually end up grasping the value in paying up-front for objective advice.

One other note: The investment industry claims that banning commissions will lead to many advisors leaving the field because it will no longer be profitable for them. This will supposedly create an “advice gap” for smaller investors (with less than $50,000 in assets) because they won’t be able to find an advisor to take them on.

Half of my clients are what the industry would consider to be “small investors” and the fact that they are willing to pay up-front for independent financial advice means the tide indeed may be turning.

The media has also done a decent job of making people aware that fee-only advice even exists, and not just for high net worth individuals.

Location independent services

How can you establish trust with clients when you’ve never met face-to-face?

The requests we get for financial planning advice come from people living all across the country (we’ve even had a few inquiries from the U.S.). In fact, I’ve only ever met a handful of clients face-to-face.

It’s a challenge that I thought would be more of an issue, however most of the clients I’ve worked with have been fine communicating by phone call and email.

Maybe it’s because I have a public face in terms of my blog and Toronto Star column – people know that I actually exist! But I believe that more people are getting comfortable working remotely and frankly don’t have the time to schedule face-to-face meetings to go over matters that can be reviewed online and talked about over the phone.

Final thoughts

I’m pleased with the initial success of our fee-only business model and the leads that we continue to generate through our blog, the MoneySense directory, and now from client referrals. It’s such a rewarding feeling to help people save money and get on the right track with their finances.

It’s exciting to see the potential in this business after working at it for just over a year. There will always be challenges to overcome with this business model, but with experience we’ll keep getting better at delivering it and exceeding our clients’ expectations.

On Retirement – Early or Never?

Our current concept of retirement is relatively new. Past generations had no idea what it meant not to work. They only stopped when they physically had to. Here’s an interesting tidbit – in 1890, nearly everyone died while still employed, and if they were healthy enough not to expire on the job, they retired at