How should a financial planner be paid?

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
Flaccidsteele
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Re: How should a financial planner be paid?

Post by Flaccidsteele »

Agree with AR.

% AUM is a massive rip off. Perhaps one of the biggest rip offs in life.
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Re: How should a financial planner be paid?

Post by gaspr »

For those who need some planning help and are willing to work with someone on an online basis, the possibilities and choices are growing rapidly. Here are a couple of examples...

https://springpersonalfinance.com/

http://boomerandecho.com/fee-only-advice/

Read their blogs, get a feel for who they are. These folks are able to provide reasonably priced, quality service because they are able to work from home, and can keep their costs very low.
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Re: How should a financial planner be paid?

Post by AltaRed »

I agree more options are becoming available but in the Sandi Martin case you cite, it takes a pretty astute individual with already some confidence and knowledge to go with someone off the internet. IOW, I see Sandi as someone who is really a second set of eyes to help keep someone 'between the ditches'. That said, this could be a start in the right direction. Just have to get investors off the misguided thought that they get free advice from the nice young man (woman) at the bank.
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Re: How should a financial planner be paid?

Post by HardWorker »

Big changes are coming to the US regarding advisor compensation. Will it work as intended? And will we see something similar in Canada?

http://www.npr.org/sections/thetwo-way/ ... ests-first
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Re: How should a financial planner be paid?

Post by brucecohen »

HardWorker wrote:Big changes are coming to the US regarding advisor compensation. Will it work as intended? And will we see something similar in Canada?
Little chance of seeing it here. For one thing, it would have to be adopted by each provincial securities regulator. In the US it's confined to tax-sheltered retirement accounts which are all federally regulated.

Reuters says the rules was weakened a bit in response to industry lobbying, but still has the support of Sen. Elizabeth Warren, its main champion.
the Labor Department did compromise with the industry on a range of provisions. Unlike the draft proposal, the final rule does not restrict brokers from pushing proprietary products, splitting revenue with creators of funds they promote, or recommending risky, high-fee investments in alternative assets and certain annuities.

Brokers also got more time to implement the changes, which they said were costly and difficult. The rule will now take full effect on Jan. 1, 2018, compared with an eight-month compliance deadline in the Labor Department's initial proposal.

Nonetheless, brokers will now be covered by a fiduciary standard, said Massachusetts Senator Elizabeth Warren, a consumer advocate who helped shine a national spotlight on the proposal last year.

"There's no doubt there is some risk," Warren, a Democrat, said in an interview. "On the other hand, the Department of Labor was not looking to put all proprietary products out of business," Warren said.

The goal is to make sure there is "adequate regulation," said Warren, adding that she now believes there will be.
A few weeks ago, doing what reporters should do but don't, Warren used SEC filings and analyst conference calls by financial companies to spotlight their hypocrisy in opposing the rule. See here.
Proving yet again that she will not back down when it comes to matters of consumer protection, Senator Elizabeth Warren is slamming financial firms for their two-faced responses to the Department of Labor’s proposed revamping of the fiduciary rule. The proposal, which aims to shield investors from conflict-laden investment advice, has been blasted by firms like Lincoln National LNC -0.47%, Prudential Financial PRU +0.90% and the Transamerica Corporation as “immensely burdensome” and “extremely intrusive.” But on Thursday, Warren used these companies’ own words against them to show that they might not be as vulnerable to the effects of the proposal as they claim.
<snip>
But in a letter sent to the Department of Labor and the Office of Management and Budget Thursday morning, Senator Warren (alongside Representative Elijah Cummings, a Democrat from Maryland), basically called the firms’ claims baloney. Why? Because, in her view, each company made completely contrasting comments about the fiduciary rule in public comments to their investors.

“Publicly traded companies are rarely held accountable for assertions they make when lobbying in Washington, even if these assertions are untrue,” Warren writes. “But when communicating with investors, publicly traded companies are required by law to provide full and accurate information about any material matters that may affect their business models or stock valuations.”

As Warren depicts it, Jackson National’s claim that complying with the fiduciary rule would be “impossible” was negated when the CEO of Jackson’s parent company, Mike Wells, said in a earnings call with investors that the company is “better situated than any of our competitors to address [the rule] quickly and effectively.” And Lincoln CEO Dennis Glass’ arguments that the rule would be burdensome lose their punch when considered alongside his comments to investors that “we don’t see this as a significant hurdle for continuing to grow that business.”

To Prudential’s remarks that the proposed rule would pose a “significant challenge” to its operations, Warren lobs back Prudential CEO John Strangfeld’s remarks from the company’s second quarter earnings call. ”We remain confident that we will successfully navigate whatever the ultimate outcome may be,” he told investors — just weeks after his executive vice president told the DOL otherwise.
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Re: How should a financial planner be paid?

Post by Bylo Selhi »

HardWorker wrote:Big changes are coming to the US regarding advisor compensation.
Finally! This is something for which Jack Bogle has spent the better part of his lifetime advocating. (Finally, John Bogle's dream of a fiduciary standard will come true)
Will it work as intended?

Hopefully it will improve the overall quality of financial planning offered. But the financial services industry has a long track record in finding ways to skirt regulations. And of course it won't eliminate all of the abuses and all of the abusers.
And will we see something similar in Canada?
We can only hope. I'm not holding my breath.
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Re: How should a financial planner be paid?

Post by ghariton »

David Nadig
The big winner here is likely the end investor. Why? Because she can at least have some assurance that anyone she’s hiring to help run her money is actually working in her best interests, with no funny business going on. The counterargument to this is that by effectively shutting down potential revenue streams for certain kinds of advisors, small investors will get left out in the cold.

I’m not sure I buy that argument. The major robo-advisor platforms like Wealthfront and Betterment are already RIAs, and thus obligated to act as fiduciaries for their clients. And the robo-advice model is perfect for smaller accounts, where complexity is generally at a minimum. So robos are probably winner No. 2.

Winner No. 3? Exchange-traded funds.
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brucecohen
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Re: How should a financial planner be paid?

Post by brucecohen »

It's important to recognize that Obama et al are imposing this fiduciary standard by regulation, not legislation. If a Republican wins the White House in November the new administration would surely scrap this reg, especially since full implementation is set only for 2017.
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Re: How should a financial planner be paid?

Post by AltaRed »

I agree with Bruce. If the R's get the White House, this won't see the light of day. Indeed, there will be a lot of regulatory stuff that will likwly be reversed. Seems to be a common theme with the high(er) degree of partisanship in recent years.
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Re: How should a financial planner be paid?

Post by Insomniac »

Dan Solin has been talking about this for about a year now. The lobbyists will kill it.

http://www.huffingtonpost.com/dan-solin ... 81002.html
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Re: How should a financial planner be paid?

Post by DanH »

I'll defer to Bruce and others as to the impact of politics on the ultimate implementation of the fiduciary rule announced recently for the U.S. But in Canada, there are many signs that regulators are pushing through the industry's lobbying efforts. It's been slow but it's happening. More than three years ago - as CRM2 was just beginning - I wrote that the industry might face the very commission ban they fear if they didn't start working with regulators to craft solutions rather than put up roadblocks. And it's happening.
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Re: How should a financial planner be paid?

Post by DanH »

Just to drive home the point that there is a multi-pronged effort to push the industry toward a more investor-friendly regime I thought I'd aggregate a few developments below.

It's been widely reported that later this year all securities registrants (i.e. dealers and advisers) will have to start providing reports to clients showing personalized (net) performance and an annual disclosure of compensation and other charges. This is captured under CRM2 - a quick overview of which is found here [will open in Adobe Reader not browser].

Unfortunately, however, CRM2 doesn't show total cost disclosure for most people - as I pointed out some 18 months ago. With CRM2 implementation on the horizon, the MFDA asked for input on how to take it one step further and create total cost disclosure. While we are not affected by any MDFA initiative, I was happy to add in my two cents (see second link on this page).

Just last week, Ontario's expert committee to consider financial advisory and financial planning policy alternatives released its preliminary policy recommendations - most notably that financial advice providers should be held to a statutory best interest duty.

While that process moves forward, the MFDA (which regulates mutual fund dealers) has proposed restricting the use of the "Financial Planner" title among the individual 'advisors' under their jurisdiction.

I don't know if it's coincidental or not but around the same time, the Canadian Securities Administrators (CSA) says it will propose a best interest standard for registrants. And the Investment Industry Regulatory Organization of Canada (IIROC) published a report stating that member firms haven't done a good job of identifying and dealing with conflicts of interest pertaining to product commissions.

I realize that I've taken this topic slightly off topic but issues of compensation and transparency are intimately linked. And on many fronts, the industry is being pushed/forced into a direction it clearly refused to take on its own.
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Re: How should a financial planner be paid?

Post by deaddog »

I'm waiting for the day when your statement reads:

Your account increased/decreased by this amount.
Cost of fund management was this amount
As your adviser I was paid this amount.

That would be transparency.
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Re: How should a financial planner be paid?

Post by tedster »

deaddog wrote
I'm waiting for the day when your statement reads:

Your account increased/decreased by this amount.
Cost of fund management was this amount
As your adviser I was paid this amount.

That would be transparency.
Are you talking about a financial planner or a financial manager? The people who manage my RRIF provide me with a statement that tells me exactly what 31-Dec was of the previous year, what this month end is. How much tax has been accrued, and what their fees are YTD. Never had a Financial Planner as I go to FWF :)
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Re: How should a financial planner be paid?

Post by DanH »

What kind of firm do you deal with tedster (i.e., portfolio manager, 'advisor' at an investment dealer, or ...)?
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Re: How should a financial planner be paid?

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DanH wrote
What kind of firm do you deal with tedster (i.e., portfolio manager, 'advisor' at an investment dealer, or ...)?
They have discretionary control over my RRIF. Buy and sell stocks (so far no ETFs). It is a small company and they have done okay for me so far. So I suppose they are portfolio managers?
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Re: How should a financial planner be paid?

Post by AltaRed »

I would call them portfolio managers. My bro is in a pseudo-arrangement like that. As part of their fee, they do all the paperwork, including the ACB and Schedule 3 info (they better at a so called 1+% AUM fee).
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Re: How should a financial planner be paid?

Post by tedster »

AltaRed wrote
My bro is in a pseudo-arrangement like that
Why is it a pseudo-arrangement?
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Re: How should a financial planner be paid?

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Because it is a big 5 Managed Portfolio that is applied to all clients that 'pick' that style of portfolio, e.g. Conservative, Balanced, Growth, Agressive. It is not unique to my bro. But it looks like it is for him, including the attention, meetings, data and report preparation, etc.
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Re: How should a financial planner be paid?

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Not really clear on "Big 5", however, I assume the Portfolio mgr has several "funds" that match the profiles to suit their clients. My Mgr has built my portfolio to meet my specific requirements. Of course I am not so naïve as to think that I am the only one in their client base with that specific cluster of assets. However, I am still confused by why you used "pseudo", it sounds like a Portfolio Mgmnt situation.
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Re: How should a financial planner be paid?

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I used pseudo because it is not unique to him BUT does contain individual stocks and bonds. It is just that it is managed to a 'script'. Think most of the big 5 have them. My bro is NOT a DIY type and this solution is likely best for him.
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Re: How should a financial planner be paid?

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tedster wrote:They have discretionary control over my RRIF. Buy and sell stocks (so far no ETFs). It is a small company and they have done okay for me so far. So I suppose they are portfolio managers?
Is this a brokerage firm or a Private Financial Advisor
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Re: How should a financial planner be paid?

Post by tedster »

deaddog wrote
Is this a brokerage firm or a Private Financial Advisor
What is the difference? FWIW, to me a Financial Advisor is some one who tells you in what they think you should invest. What I have is some one who just goes ahead without having to let me know?
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Re: How should a financial planner be paid?

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tedster wrote:deaddog wrote
Is this a brokerage firm or a Private Financial Advisor
What is the difference? FWIW, to me a Financial Advisor is some one who tells you in what they think you should invest. What I have is some one who just goes ahead without having to let me know?
I am looking for someone like that who could help my wife if I dropped dead. I have moved some funds to a mutual fund salesperson but have been handily outperforming the funds with accounts I manage myself. Big banks do not cut it as the account management is not at the local level. You seem to have found someone you trust, Iam just wondering where to start looking.
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Re: How should a financial planner be paid?

Post by AltaRed »

I guess there is always an independent (boutique firm) that one can hunt down. With a lot of due diligence I might add. I had a friend in Calgary just go through a process of finding, I believe a % of AUM advisor, though I provided him with guidance about how to go about looking for a fee only planner. The deciding point for him was him wanting someone to do the trading as well.....and that pretty much defaults to a % of AUM advisor. It took him the better part of 6 months or more...with interviews, etc.

I know there are a few boutique houses in Kelowna but have not checked any of them out. You probably have to go to at least Kamloops or Kelowna or? to find an acceptable person in the BC Interior.
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