Navigating the Financial Advisor Title Trap: Why Fee-For-Service Planners Are the True Superheroes

Are you ever confused by all the different titles that financial planners and advisors use? 

What types of advice and services do they offer? 

Which one offers what you are looking for?

When you have real worries or questions about your money, “who you gonna call?” Who is the super-hero of advice?

In my latest video, podcast episode, and blog post you’ll learn:

• When you want real advice, what are the most valuable types of advice to help you?
• What are the main titles planners & advisors use?
• What services and advice does each typically offer?
• Which type is the best to create a professional Financial Plan and confidence in your future?
• Which type offers on-going Full Service to be your financial guru and help you in all areas of your finances?
• Which types are unbiased, fee transparent, and have a fiduciary duty to you?
• Which types can help you with a wide range of investments and the best ones for you?
• Which ones are “Old Bay Street” and which are “New Bay Street?
• What would you look for to find your financial planner super-hero?

First, let’s look at what advice and services you need to get real answers. Then, we’ll look at all the different types of advisors and what you can normally expect from them. Then we’ll look at where to look for the perfect financial planner – the super-hero.

I have to give a huge disclaimer about this section. There are many exceptions to almost all the roles, services and details for each type of financial planner/advisor. The terms “financial planner” and “financial advisor” are very broad and are often used by people in other categories. I am not trying to describe the advice or services of any specific financial planners. The details here are the most common from the people I meet that use these terms to describe themselves.

A.      What do you need to get real answers?

When you have these real financial issues, you want real advice. Not a sales pitch.

To get real advice, here is what you need:

1. Professional Financial Plan: A Plan is the GPS for your life. You need a real Plan from a caring, experienced, knowledgeable financial planner. This means writing a professional Financial Plan for you to tell you exactly what to do to achieve your life goals, how to pay the least tax over your life, the best allocation for all your investments, protect your assets at the lowest cost, etc.

Your Plan should include advanced concepts and not just the basic conventional wisdom.

The process of creating your Plan should allow you to consider many possible options for your future life and clearly see what each one looks like and what you would have to do to get there. Your Plan should not be a “One Idea Plan”.

You don’t need a “fake plan” that is really a sales pitch or a quick plan that doesn’t answer your questions. A “fake plan” takes only a few minutes to give you 50 pages of colourful printouts, but uses broad assumptions – and does not give you any real answers to your important questions.

You will know you have a fake plan if you still don’t know exactly when you will retire, exactly what you have to do to get there, and how to optimize every step of the way.

You really need to pay separately to get a quality Financial Plan. Free plans are almost always sales pitches and worth only what you pay for them.

2. Full Service: One (and only one) financial planner to be your financial guru in all areas of your life, help you implement your Plan and work with you over the years to achieve it. This includes helping you implement your Plan with the best investments, tax returns, mortgages, insurance, and other products. The advisor should provide all your advice, and then either offer or refer you to the best, independent, well-researched products.

How many family doctors do you have? Would 3 family doctors looking after different parts of your body be better?

If you have 3 financial planners, you really have 3 salespeople trying to sell you’re their idea or product. It is up to you to figure out what is best.

One financial planner to know your entire financial life and bring in any necessary specialists is most effective for you.

3. Unbiased: Not biased to in-house products for the company the advisor works for or to products with higher commissions or hidden trailer fees. Your financial planner should be independent and never recommend investments or other products from his or her own company.
4. Fee Transparent: Fees should be charged separately, so you can clearly see what you pay for advice. No hidden fees. Not a note on the bottom of a statement. Fees should be charged separately. Then you know exactly what you pay and can clearly evaluate whether you will be better off financially with or without that advice at that cost.
5. Advice, not Sales: Real advice specifically for you. Most advisors are really just salespeople selling investments or insurance. If your advisor is talking about specific investments or other products in the first half our of your meeting, you probably have a salesperson.
6. Wide range of investments: You want your money to grow. This means your advisor should not be limited to the products from one company or to one product type.
7. Fiduciary duty with financial planning: “Fiduciary duty” means your best interest comes first.
8. Fiduciary duty with investments: “Fiduciary duty” means your best interest comes first, above the interest of the planner or their firm. This is a far higher standard than being offered “suitable” investments.
9. New Bay Street: Based on the best-seller “Beat the Bank”, by Larry Bates. “Old Bay Street” is the traditional, commission-driven models. “New Bay Street” means modern, fee-for-service, lower cost, unbiased and transparent sources for the products you need.
10. Your financial guru: Whenever you have a question or an issue comes up in your life, “Who you gonna call?” You need someone you can call or email any time with financial questions who already knows your entire finances and can give you a real answer specifically for you.

B.      What do the different types of financial advisors really do?

You have the freedom of choices of many different types of advisors. Where do you get the perfect advice?

Let’s compare what the different types of planners and advisors typically do. There are many exceptions to all of this. Theses are the most commonly used titles and the most common advice for each type:

1.   Fee-For-Service Financial Planner:

• Gives you professional advice in every area, including a Financial Plan, tax, debt and possibly investment advice.
• You pay directly at an agreed rate for each service. Fees are transparent, so you see each fee charged to you.
• You pay for a professional Financial Plan, so you know it is a real Plan.
• For on-going advice and implementing your Plan, you might pay hourly, a flat rate, or a percent of your investments.
• For Full Service, they track your goals and planned actions, taking the initiative to call you about steps you want to take. They have almost all your info ready for your meetings. With on-going investments, you pay a percent of your investments to include on-going planning advice, and referral to and monitoring of the best independent portfolio managers that have a fiduciary duty to put your best interest first.
• Advice is completely unbiased. They don’t recommend specific investments – just how to allocate your investments most effectively (stocks vs. bonds), so that they can use a reasonable rate of return in your financial plan. Many will refer you to the best portfolio managers to manage and grow your investments, based on your Financial Plan.
• Has your back with fiduciary duty for advice to be in your best interest, if your planner is a CFP Professional.

2.   Fee-only advisor:

• Gives you professional advice in every area, including a Financial Plan, tax and debt, but not typically advice or referral for investments or other products.
• The Financial Plan includes asset allocation, but usually does not include strategies that require investment insight.
• Usually a one-time or short-term service, but sometimes annual meetings.
• You typically pay an hourly or flat rate, or an annual fee. Fees are transparent, so you see each fee charged to you.
• Most are not Full Service, don’t track your Plan during the year, and don’t recommend or refer for investments. For annual meetings, you have to update them on what you did during the year.
• Advice is completely unbiased. They don’t recommend specific investments.
• Has your back with fiduciary duty for advice to be in your best interest, if your planner is a CFP Professional.
• Often very conservative advice, like an accountant.

3.   Money Coach:

·       Similar to a fee-only advisor, but usually specialize in helping you with your cash flow, debts and your attitude towards money.

·       Usually does not include a Financial Plan.

·       You pay hourly or a flat rate.

·       Advice is completely unbiased. They don’t recommend specific investments.

·       Most are not a CFP Professionals, so they don’t have a fiduciary duty to you.

·       If you are struggling with debt or spending or behavioural finance issues, a money coach is usually the best choice before going to a fee-for-service financial planner.

4.       Financial Planner:

·       “Financial planner” is a broad term for many people that give financial advice. Usually broader & deeper knowledge and advice than a “financial advisor”. Both are protected titles in most provinces with legislation requiring a certificate such as a CFP, QAFP or PFP. CFP Professional is the best. QAFP is only 1-2 years of education and 1 year experience vs. 3 years of both for CFP Professionals. PFP is mostly bank employees that are generally not allowed to give you tax advice.

·       A financial planner in practice is most commonly a mutual fund salesperson and/or an insurance salesperson, but some CFP Professionals provide real financial planning. Licensed to sell mutual funds and/or insurance.

·       Paid by commissions and trailer fees, which is not transparent, or by a percent of your investments that is generally transparent.

·       May be independent or restricted to in-house mutual funds from their own company. May not be restricted, but get extra commissions or bonuses from their firm for recommending in-house investments. Independent financial planners might be relatively unbiased, since most mutual funds that are not in-house products pay essentially the same commissions and trailer fees.

·       Has a fiduciary duty for financial planning advice to be in your best interest, if your planner is a CFP Professional, but not for investments. Investments are usually only required to be “suitable”.

·       Strange as it sounds, most “financial planners” do not create professional, comprehensive financial plans for you. The odd one does, but when you get a financial plan, it is most commonly an extremely simple plan so they can say they did planning, or it is a “fake plan” – a thinly-veiled sales pitch.

5.   Financial Advisor (or Insurance Advisor):

• Another broad term that could be used for anyone on this list.
• Usually similar to a financial planner, except no financial plan, or even pretext of offering financial planning. A protected title in most provinces with legislation requiring a certificate such as a CFP, QAFP or PFP. CFP Professional is the best.
• Usually a mutual fund and/or insurance salesperson. Licensed to sell mutual funds and/or insurance.
• Most commonly paid by commissions or hidden trailer fees, but could be a percentage of your investments.
• Has a fiduciary duty for financial planning advice to be in your best interest, if your planner is a CFP Professional, but not for investments. Investments are usually only required to be “suitable”.

6.   Investment Executive:

• We used to call them stockbrokers. They offer a wide range of investments, including stocks, ETFs and mutual funds, although many use mainly mutual funds.
• They mostly focus on investments. Might have an associate that does financial planning, but usually neither knows your full finances.
• Most are bank employees and may be biased to in-house bank products. Recommendations for stocks may be biased to stocks of companies that do investment banking with that bank.
• May be paid by commissions or trailer fees, but most have moved to fees based on a percentage of your investments.
• Fees as a percent of investments are often higher than fee-for-service financial planners because they work in a high-cost environment.
• Might be a portfolio manager and might have fiduciary duty to you for investments. If not a portfolio manager, then Investments are usually only required to be “suitable”.
• Most are not a CFP Professionals, so they don’t have a fiduciary duty to you for financial planning.
• Specialize in selling a wide range of investments, not financial planning.

7.   Bank Financial Advisor:

·       Similar to other financial advisors, but bank employees.

·       Usually limited to bank-owned mutual funds.

·       Usually very focused on mutual fund sales, or other bank products.

·       Limited or no financial planning. Sometimes give you a “fake financial plan” done in only a few minutes with broad assumptions and limited real value. They are generally not allowed to give you tax advice.

• Most are not a CFP Professionals, so they don’t have a fiduciary duty to you for financial planning. Investments are usually only required to be “suitable”.
• Usually paid by salary plus sales bonuses from the hidden fees in mutual funds.

8.   Independent portfolio managers (ICPMs) and robo-advisors:

• Primarily sources for investments, not financial planning.
• Regulated differently, so they have a fiduciary duty to you for investments.
• Portfolio managers might create a financial plan for you, but generally not robo-advisors.
• Both are unbiased and fee transparent, usually charging a percentage of your investments.
• Portfolio managers usually offer a wide range of investments. Robo-advisors usually offer a short list of investments, mainly ETFs.
• Portfolio managers usually have discretionary authority to change your investments based on your mandate without contacting you. This can be very useful to keep your portfolio up-to-date.

A.      What does the Super-hero of Financial Planning look like?

The super-hero of the financial advice world is the Fee-For-Service Financial Planner.

• Able to leap over tall worries.
• Able to stop a speeding debt.
• Able to keep you safe from the taxman.
• Able to carry you to the life you want.

The way to recognize the best fee-for-service financial planners, in my view, are:

• They start with your comprehensive Financial Plan. Without a comprehensive Plan, you can’t be confident of the best advice. Your Financial Plan is the GPS for your life. Set your GPS before you start driving.
• Unconventional Wisdom – Super ideas are often unconventional. Strategies and ideas based on experience that really work can be huge for you. Conventional wisdom is often conservative, old-fashioned methods that leave you struggling your entire life.
• Dress casually – not a suit! Wearing a suit usually means a salesperson. A fee-for-service financial planner should dress the way you do, to connect with you.
• Experience – Many years of writing many comprehensive, professional financial plans. There is a deep wisdom that comes from experience in many real-life situations.
• Creative – Experience teaches you many creative strategies that can be the breakthrough you need to make your Financial Plan work for you.
• Caring – Use your gut. Is the advice truly in your best interest?

When you have real financial worries or questions about your money, “who you gonna call?” A Fee-For-Service Financial Planner.

Ed