Fee only Financial Advisors

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
biker
Gold Ring
Gold Ring
Posts: 2409
Joined: 19 Feb 2005 08:57

Fee only Financial Advisors

Post by biker » 19 Jan 2011 09:10

I know that I have seen recently a list of Fee Only people in Ontario. Not sure if it was on this forum or elsewhere. Any directions appreciated.
Live like you are dying but invest like you are immortal.

"Men do not quit playing because they grow old ; they grow old because they quit playing" Oliver Wendell Holmes

DanH
Gold Ring
Gold Ring
Posts: 1790
Joined: 21 Feb 2005 14:25
Contact:

Re: Fee only Financial Advisors

Post by DanH » 19 Jan 2011 09:38

Here is a list I compiled 2.5 years ago. It's not out of date and by no means was it meant to be comprehensive. But it's a good start.

biker
Gold Ring
Gold Ring
Posts: 2409
Joined: 19 Feb 2005 08:57

Re: Fee only Financial Advisors

Post by biker » 19 Jan 2011 15:43

DanH wrote:Here is a list I compiled 2.5 years ago. It's not out of date and by no means was it meant to be comprehensive. But it's a good start.
Thanks Dan that is the one I was looking for plus Highview of course.
Live like you are dying but invest like you are immortal.

"Men do not quit playing because they grow old ; they grow old because they quit playing" Oliver Wendell Holmes

Shine
Gold Ring
Gold Ring
Posts: 2022
Joined: 13 Dec 2010 01:32

Re: Fee only Financial Advisors

Post by Shine » 20 Jan 2011 00:45

How do Fee Only Advisors set their fees?

Is it based on total portfolio value or a flat rate, or hourly?

Are tax and estate strategies included services or additional services?

User avatar
Bylo Selhi
Diamond Ring
Diamond Ring
Posts: 24699
Joined: 16 Feb 2005 10:36
Location: Waterloo, ON
Contact:

Re: Fee only Financial Advisors

Post by Bylo Selhi » 20 Jan 2011 08:10

Shine wrote:How do Fee Only Advisors set their fees?
It depends.
Is it based on total portfolio value or a flat rate, or hourly?
Yes. Yes. Yes.
Are tax and estate strategies included services or additional services?
Yes.

See also:
http://network.nationalpost.com/np/blog ... anner.aspx
http://retirementaction.com/FeeOnlyAdvisorsCanada.aspx
Sedulously eschew obfuscatory hyperverbosity and prolixity.

DanH
Gold Ring
Gold Ring
Posts: 1790
Joined: 21 Feb 2005 14:25
Contact:

Re: Fee only Financial Advisors

Post by DanH » 20 Jan 2011 08:27

Shine wrote:How do Fee Only Advisors set their fees?
It depends on the advisor's cost structure, which will be heavily influenced by what licenses, if any, the advisor holds and the advisor's location.
Shine wrote:Is it based on total portfolio value or a flat rate, or hourly?
As Bylo said, you'll find all three but the first - a % of portfolio value - is the most common. The reason is that flat fee or hourly charging advisors are not licensed to give individualized investment advice so their direct and indirect costs are significantly lower than their licensed peers. If you want an advisor to give you specific investment advice based on your circumstances, you're unlikely to find an investment-licensed advisor that charges flat or hourly $ fees. I have looked for such people and have yet to find one (that is since I abandoned that model myself thanks to the new registration rule that was implemented over a year ago).
Shine wrote:Are tax and estate strategies included services or additional services?
Usually but you'd have to ask. This is more common with those charging flat $ or hourly fees since they can't give specific investment advice so they've got to have competence in non-investment disciplines.

Don't assume that flat $ or hourly is the best option. The best option is what makes the most sense to you. See this article which talks about the biases with each method of compensation.

Shine
Gold Ring
Gold Ring
Posts: 2022
Joined: 13 Dec 2010 01:32

Re: Fee only Financial Advisors

Post by Shine » 20 Jan 2011 22:19

Thank you both Bylo and DanH for your comments and links.

tvenner
Bronze Ring
Bronze Ring
Posts: 58
Joined: 05 Jan 2006 14:22
Location: Dundas, ON

Re: Fee only Financial Advisors

Post by tvenner » 24 Jan 2011 20:42

For what it's worth, I am a CFP and fee based planner in the Halton, Hamilton, Niagra region. Please look up feebasedfinancialplanning.info. Your comments and suggestions for improving my website and service offerings are appreciated. It's a tough road moving to this platform from the commission based approach but I'm giving it a try as I see the value it offers to my clients.

User avatar
CROCKD
Gold Ring
Gold Ring
Posts: 2775
Joined: 15 Aug 2008 16:59
Location: GTA

Re: Fee only Financial Advisors

Post by CROCKD » 18 Jun 2011 13:17

No wonder John Q public get snowed by Financial Advisors. See this answer in the G&M .Talk about obfuscation.

I need money now. Should I break into my RRSP or TFSA?

The simple answer should have been- Take it out of your TFSA. There are no tax consequences if you wait until Jan. 1, 2012 to put it back.
" A verbal contract isn't worth the paper it is written on " Samuel Goldwyn
"The light at the end of the tunnel may be a freight train coming your way" Metallica - No Leaf Clover

User avatar
Bylo Selhi
Diamond Ring
Diamond Ring
Posts: 24699
Joined: 16 Feb 2005 10:36
Location: Waterloo, ON
Contact:

Re: Fee only Financial Advisors

Post by Bylo Selhi » 11 Nov 2011 21:12

The elusive search for financial advice - The Globe and Mail
A growing number of people want to buy financial advice straight, no products. I’ve been marvelling at the steady flow of e-mails received from readers this year asking whether I can help them locate this kind of financial help. Mr. Lamontagne’s firm has noticed the trend as well. “We’re swamped,” he said. “The phone is ringing off the hook, and people are all saying the same thing: ‘I want to pay you a fee for advice, I don’t want you to sell me anything.’”...

Mr. Lamontagne said people seeking this type of advice are often what he calls “validators,” or self-directed investors who want to consult an expert. “These people are smart enough to do it on their own, but they really want someone to look at their investments and answer questions like should I sell RIM, or is this the best ETF?”

Some fee-only advisers are not licensed in a way that allows them to discuss the merits of individual stocks and exchange-traded funds, Mr. Lamontagne warned. For that reason, fee-only advice is best used for help with financial planning. Investing matters can certainly be covered, but at the big-picture level of risk and the right mix of stocks and bonds for your portfolio.
Sedulously eschew obfuscatory hyperverbosity and prolixity.

User avatar
NormR
Gold Ring
Gold Ring
Posts: 4005
Joined: 18 Feb 2005 11:19
Contact:

Re: Fee only Financial Advisors

Post by NormR » 11 Nov 2011 21:41

The fee-for-service investment-advice guys have basically vanished in Canada. It's a relatively crappy business compared to the more typical % of assets or commission models. But it's still quite available for financial planning where it can feed % of assets / commission investment advice business.

User avatar
ghariton
Diamond Ring
Diamond Ring
Posts: 11825
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Fee only Financial Advisors

Post by ghariton » 11 Nov 2011 23:16

The last bit of the article linked to by Bylo:
Getting those new clients is a challenge because many people are surprised to be asked to pay directly for financial advice. They’ve been trained by the mutual fund industry to believe that advisers work for free.

Advisers who sell mutual funds are typically compensated through trailing commissions that are siphoned out of the fees fund companies charge investors who own their products. Investors are often oblivious to trailing commissions, and that in turn makes them testy when asked to pay out of pocket for advice.

“I’ve had people come to me say, why would I come to you when I can go to this guy and get it for free?” Ms. Cameron said.
I can't believe people can be so stupid -- or uninterested.

Free lunches, eh? These must be the same people who vote for new government programs, then complain when taxes go up (as they must, eventually).

And yes, I am blaming the victim. I think that we don't blame the victim often enough.

George
The plural of anecdote is NOT data.

User avatar
Bylo Selhi
Diamond Ring
Diamond Ring
Posts: 24699
Joined: 16 Feb 2005 10:36
Location: Waterloo, ON
Contact:

Re: Fee only Financial Advisors

Post by Bylo Selhi » 12 Nov 2011 08:26

ghariton wrote:I can't believe people can be so stupid -- or uninterested.
It's not hard when your advisor, you know, the fellow you're supposed to trust, the person who you came to for advice, the one who's supposed to be putting your interests ahead of theirs, tells you bald-faced lies like, "My services don't cost you anything" or "You don't pay me, the fundco pays me", "MERs don't matter, only returns matter", etc.
Sedulously eschew obfuscatory hyperverbosity and prolixity.

Rysto
Silver Ring
Silver Ring
Posts: 108
Joined: 10 Nov 2010 21:16

Re: Fee only Financial Advisors

Post by Rysto » 12 Nov 2011 11:54

CROCKD wrote:No wonder John Q public get snowed by Financial Advisors.
That's nothing. Check out this one from the Post: http://business.financialpost.com/2011/ ... eed-rrsps/

This couple's financial "advisor" steered them away from RRSPs, saying that they are too much paperwork. Too much paperwork? I've opened up two RRSPs in my life, once with TDAM, and after I came to my senses and decided to stop paying 2% MERs, a second one. In each case there was like 1 form to fill out and sign.

Instead of the RRSP the advisor got them into a leverage program in a taxable account. Their loan exceeds the value of their investment by over $50 000. Meanwhile the advisor is no doubt siphoning off a nice 1% per year for the "assets" he has under management. At least they're invested in index funds.

Oh, and they also own shares in a segregated fund with a 2.53% MER. It's not clear whether the advisor has anything to do with the seg fund.

User avatar
Bylo Selhi
Diamond Ring
Diamond Ring
Posts: 24699
Joined: 16 Feb 2005 10:36
Location: Waterloo, ON
Contact:

Re: Fee only Financial Advisors

Post by Bylo Selhi » 12 Nov 2011 12:36

Rysto wrote:Check out this one from the Post: http://business.financialpost.com/2011/ ... eed-rrsps/
Paperwork aside it's a mystery why a couple with "pre-tax annual income of $224,000" and "are not in any pension plans" weren't advised to max-out their RRSPs and TFSAs by their original financial advisorsalesperson. If they had done that, even if they did a fraction of that, even if invested conservatively, they'd have little trouble in funding their retirement. Then their only decision would be to decide between a lavish retirement at age 65 or a merely comfortable one 10 or 15 years earlier.

Also a glaring omission from their proposed new financial plan, at least as published in the FP, is any mention of disability and/or life insurance. What happens to their retirement dreams if one of them, especially Jonas, becomes disabled and is unable to contribute their share of that $224k annual income?
Sedulously eschew obfuscatory hyperverbosity and prolixity.

User avatar
deaddog
Gold Ring
Gold Ring
Posts: 2604
Joined: 19 Jan 2008 19:59
Location: Central BC/Arizona

Re: Fee only Financial Advisors

Post by deaddog » 12 Nov 2011 15:38

An online alternative to fee only planners

Looks like US based but might apply to Canadians.
Financial planners are trained, I think, so the results for the input given by the client should be similar from different planners if they have the clients’ best interest at heart.
Could even be a computer program spits out the plan based on the clients input.
Most of our so-called reasoning consists of finding arguments for going on believing as we already do.( J.H. Robinson)

InsureCan
Newcomer
Newcomer
Posts: 1
Joined: 11 Feb 2012 15:52

Re: Fee only Financial Advisors

Post by InsureCan » 11 Feb 2012 16:51

Deleted deleted deleted deleted.

User avatar
ghariton
Diamond Ring
Diamond Ring
Posts: 11825
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Fee only Financial Advisors

Post by ghariton » 11 Feb 2012 17:31

InsureCan wrote:Bumping an couple month old thread to disagree :shock: with the idea of fee based financial planners being the primary attribute of what to look for. The premise that removing commission somehow makes their advice better is weak at best.
I can't resist this lob ball. :wink:

The primary problem with commission-based advisors is that they have an incentive to have you undertake transactions that maximize their income, rather than your wealth. At the extreme, for transaction-based compensation, that leads to "churning", i.e. advising more transactions that may or may not help the client, but sure help the advisor. (I'm not saying all transactions-based advisors would do this. But some certainly do.)

As well, different products pay different commissions to the advisor. There is a natural tendency to find merit in those products that pay the highest commissions, whether or not they are the ones best suited to the client. (Again, I'm not saying that all advisors do this.)

There is also a tendency to skimp on the time spent with any given client, or on his affairs. The same amount of money will be coming in anyway. Just keep the client happy enough that he won't jump ship. (Again, I'm not saying that all advisors do this.)

By contrast, fee-only advisors are largely free of these incentives. Thus they have much reduced incentives to put their own interests ahead of those of clients. (I say "largely" because there may be an incentive to generate unnecessary hours. But that is much less harmful to a client than say being mercilessly churned or led into high-MER instruments.)

I agree that certain advisors rise above these perverse incentives and give excellent service to their clients. Others give in to temptation. Unfortunately, the client is in no position to know which is which -- if he were, he would not need an advisor in the first place.

George
The plural of anecdote is NOT data.

ockham
Gold Ring
Gold Ring
Posts: 1452
Joined: 04 Apr 2006 21:50
Location: The Prairies

Re: Fee only Financial Advisors

Post by ockham » 11 Feb 2012 19:16

ghariton wrote:
InsureCan wrote:Bumping an couple month old thread to disagree :shock: with the idea of fee based financial planners being the primary attribute of what to look for. The premise that removing commission somehow makes their advice better is weak at best.
I can't resist this lob ball. :wink:

The primary problem with commission-based advisors is that they have an incentive to have you undertake transactions that maximize their income, rather than your wealth. At the extreme, for transaction-based compensation, that leads to "churning", i.e. advising more transactions that may or may not help the client, but sure help the advisor. (I'm not saying all transactions-based advisors would do this. But some certainly do.)

As well, different products pay different commissions to the advisor. There is a natural tendency to find merit in those products that pay the highest commissions, whether or not they are the ones best suited to the client. (Again, I'm not saying that all advisors do this.)

There is also a tendency to skimp on the time spent with any given client, or on his affairs. The same amount of money will be coming in anyway. Just keep the client happy enough that he won't jump ship. (Again, I'm not saying that all advisors do this.)

By contrast, fee-only advisors are largely free of these incentives. Thus they have much reduced incentives to put their own interests ahead of those of clients. (I say "largely" because there may be an incentive to generate unnecessary hours. But that is much less harmful to a client than say being mercilessly churned or led into high-MER instruments.)

I agree that certain advisors rise above these perverse incentives and give excellent service to their clients. Others give in to temptation. Unfortunately, the client is in no position to know which is which -- if he were, he would not need an advisor in the first place.

George
I say, blame the victim. I think we don't blame the victim often enough :wink:

User avatar
ghariton
Diamond Ring
Diamond Ring
Posts: 11825
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Fee only Financial Advisors

Post by ghariton » 11 Feb 2012 20:29

ockham wrote:I say, blame the victim. I think we don't blame the victim often enough :wink:
You remembered. :!: Aw, I'm touched.

George
The plural of anecdote is NOT data.

CathyF
Bronze Ring
Bronze Ring
Posts: 79
Joined: 01 Feb 2012 08:15

Re: Fee only Financial Advisors

Post by CathyF » 12 Feb 2012 16:48

IMO, financial advisors are not worth it for the average investor. If you have a small amount of money, then the standard model works fine, because you're not paying much for their advice or effort. But you won't be getting much service, either.

If you have a lot of money to invest, you're far better off learning the basics yourself, and doing it through a discount broker. That will save you thousands of dollars per year, and cost you a couple of hours of time at most. Stick it in some ETFs and bonds, and reallocate once a year. Simple.

If you think an advisor can beat the market and give you value for money (i.e., beat the market by over the 1% he's probably charging you), then good luck! If he claims he can do that, then he's selling snake oil to you. If he doesn't claim that, then he's just selling you some thousand-dollar powerpoint slides and a comforting hand to hold. Not worth it, IMO.

Spending a couple of hours learning how to do the trades yourself will be the best investment you will ever make. Sticking with a couch-potato portfolio will be the second-best investment you ever make. Going with a financial advisor is probably the worst investment you ever make.

DanH
Gold Ring
Gold Ring
Posts: 1790
Joined: 21 Feb 2005 14:25
Contact:

Re: Fee only Financial Advisors

Post by DanH » 13 Feb 2012 15:50

Added Disclosure: I am not a disinterested party in such discussions but I don't participate here to find clients. On the contrary, I have participated here and have received a few inquiries but only a small one-off engagement (when I offered services on an hourly-charge basis). With that in mind, I have a few thoughts to add to above comments.
ghariton wrote:By contrast, fee-only advisors are largely free of these incentives. Thus they have much reduced incentives to put their own interests ahead of those of clients. (I say "largely" because there may be an incentive to generate unnecessary hours. But that is much less harmful to a client than say being mercilessly churned or led into high-MER instruments.)
While you may be correct re: magnitude, I wouldn't gloss over the potential conflicts of fee-only advisors. Come on, where's your imagination? It seems to me that padding the time sheet is pretty serious and could easily gouge clients of thousands of dollars each year.

Not good enough. How about charging a flat $ amount for a service and the incentive to spend minimal time thereby maximizing the hourly rate? Sure, this is fine if the result of operational efficiencies. But there is certainly the incentive to cut corners to save time and ramp up hourly rate. Incentive: make more money.

Show me an industry that has a more significant fee only advisor population and I'll show you abuse of clients and their trust. You can quibble about which costs more money but in terms of betraying client trust, all of the above are equally bad.
Cathy F wrote:If you have a lot of money to invest, you're far better off learning the basics yourself, and doing it through a discount broker. That will save you thousands of dollars per year, and cost you a couple of hours of time at most. Stick it in some ETFs and bonds, and reallocate once a year. Simple.
Simple? Yes. Easy? Not for most people. I'm reminded of Warren Buffett's reply to a Columbia business student who asked, and I'm paraphrasing, "...did it really take you 5 minutes to know you wanted to buy Burlington Northern Railroad?" Buffett replied first with laughter but then said, "...yes, 50 years and 5 minutes".

Similarly, I always wince when I hear the suggestion that it's simple; learn the basics and manage your money in 2 hours per year. Sure, but perhaps it's worth first asking people like Bylo, Shakespeare, adrian2 and others in a similar position how long it took them to gain the knowledge required to have the confidence to invest their life's savings.

Surely not 50 years. But I'd wager somewhere between 2 and 5 years. So, again, it's simple but the committment and dedication it takes to become truly knowledgeable is no small task. There is a reason why we have a country of financial advice-seekers. Some of that has to do with marketing and sales. But a significant factor is that people are too busy with their day jobs and family lives to add hours to each day or week to learn enough to have the confidence and conviction to do what you suggest and what others here have done.

User avatar
kcowan
Diamond Ring
Diamond Ring
Posts: 13008
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Fee only Financial Advisors

Post by kcowan » 13 Feb 2012 17:03

We have a number of widowed and divorced female friends. They are as likely to learn the ropes of investing as to change their own oil. They do not want to touch it no matter the costs. I also have some well-off male friends who love chatting with their advisors. I don't have one friend who does it themselves. (One guy comes close but still relies on his broker.)
For the fun of it...Keith

User avatar
ghariton
Diamond Ring
Diamond Ring
Posts: 11825
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Fee only Financial Advisors

Post by ghariton » 13 Feb 2012 17:10

DanH wrote:I am not a disinterested party in such discussions but I don't participate here to find clients.
I know, Dan, and I appreciate your posts very much. I believe that what you post here is not swlf-interested, but rather in an intention to be helpful. In no way am I impugning you or your motives, and I apologize if my post comes across that way.

Unfortunately, you are in the minority among financial advisors I have met. I hasten to add that the worst of all have been full-service brokers. I have several times contemplated filing a formal complaint with the relevant regulator, but life is too short for that...
While you may be correct re: magnitude, I wouldn't gloss over the potential conflicts of fee-only advisors.
Yes, I share your concern. However, we may not totally agree as to the potential for harm. The fee-only adviser may pad his or her hours. But for every dollar he profits, I lose a dollar. By contrast, another financial adviser, aiming to maximize his or her commissions, may lead me into a high-MER investment when a very low MER investment would have been just as satisfactory. Here, for every dollar the adviser gets in extra commission, I stand to lose a multiple of that in additional MER expenses. The damage to the investor may be many times the gain to the adviser.
How about charging a flat $ amount for a service and the incentive to spend minimal time thereby maximizing the hourly rate? Sure, this is fine if the result of operational efficiencies. But there is certainly the incentive to cut corners to save time and ramp up hourly rate. Incentive: make more money.
Yes, a flat fee per job is an alternative. As you say, it has its own disadvantages. One you didn't mention is that, if I agree to a flat fee for a job, I take on the risk that the amount of hours needed will tuirn out to be greater than I estimated in setting my flat fee. Therefore I build in a premium to compensate for the shifting of the risk from the client to me.
Show me an industry that has a more significant fee only advisor population and I'll show you abuse of clients and their trust.
I'm most familiar with the legal profession. Almost all the work is done on a fee-for-service basis in Canada. The U.S. has widespread use of contingency fees (effectively commissions) and they are very controversial. We are starting to see them in Canada, and they are even more controversial here.

The real reform in legal services is increased use of flat-fee rather than per-hour fees, both fee-for-service. I offer my clients both options. It remains to be seen which reduces conflicts more.
You can quibble about which costs more money but in terms of betraying client trust, all of the above are equally bad.
Yes. There is no perfect solution. I would argue that one improvement over the present situation would be for financial advisers to give clients the option to compensate by transaction, by value (commission), by the hour, by the size of the portfolio, or by the year. I certainly would not impose any particular model. I strongly believe that financial advisers should have the freedom to run their businesses as they see fit. But I would impose an enhanced duty of disclosure (e.g. estimated total yearly outlay), whatever mode of compensation is chosen. The rest is public education, which is what I am attempting to contribute to, here.

George
The plural of anecdote is NOT data.

User avatar
Shakespeare
Diamond Ring
Diamond Ring
Posts: 20755
Joined: 15 Feb 2005 23:25
Location: Lethbridge, AB
Contact:

Re: Fee only Financial Advisors

Post by Shakespeare » 13 Feb 2012 17:12

I was talking to a reporter on the phone a couple of days ago. I told him that very few people were suitable for DIY investing - Bernstein estimates 1%.

Most of the professional-practice people would be better to put the effort into their practice rather than learning DIY, particularly the younger ones.
“A wise man should be prepared to abandon his baggage at any time.” -- R.A. Heinlein, The Door Into Summer.

Post Reply