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The world of financial advice is divided into 3 main categories. Many people are familiar with traditional financial advisors. This is the most common procedure when a financial advisor works for an institution and sells a product. Financial advice is provided “free of charge” and is part of the sales process for these products. The second category of advisors is called fee-based financial advisor. These types of advisors do the same as traditional advisors, but charge the same percentage of the cost of the assets they manage rather than the product. Costs may be lower, but they can still add up over time, as fees are based on a percentage of available assets. The tips are still part of the service and are free. The last option is just a fee or a fee for a service financial planner. This type of planner only provides advice and does not sell the product. The consultancy fee is a fixed dollar amount depending on how much time is spent or how complex the project is.

What are the advantages and disadvantages of each type?


A traditional counselor is usually the most expensive. Charges are based on the amount of products you purchase in dollars. For example, if you invest $ 100,000 in mutual funds and pay 2% tax, you pay $ 2000 a year until you own those funds. 2% is the average MER (Management Expense Ratio) based on a mixture of equities and fixed income (equities and bonds). Other charges may apply, such as sales charges, account charges, sales charges, trailer or shipping charges, administrative charges, or penalties for early replacement or redemption. To find out the true cost, you will need to calculate the cost based on your situation.

A tax-based financial advisor can reduce fees because they charge a flat percentage rather than MER and other expenses. Reduced fees range from 1% to 1.5% for the entire bill. Most importantly, this option is available to people with higher assets, as the fees charged must be high enough to be profitable. The minimum asset threshold usually starts with $ 500,000 of exploratory assets (assets held in a trading account). If you invested $ 1 million USD, this fee can range from $ 10,000 to $ 15,000 per year.

Only a fee-based planner charges a flat dollar fee for a plan or project. This means that you should make a plan once or periodically every 3 or 5 years, and you would pay somewhere between $ 1000 and $ 5000 for the plan.

Note: Do not record too many names or positions of people you are communicating with, Y. Financial Planner versus Financial Advisor. These names are used interchangeably in Canada and do not indicate a specific service or accreditation. There are also additional names like financial advisor, investment advisor, portfolio manager and so on. The most important thing to know about what you are dealing with is to ask “what are the fees in dollars?”. and explain it to you. Based on what you hear, you will know what the tax structure is.

Conflict of interests

A traditional counselor must serve many masters. There is a customer who pays the bills and needs to be taken care of. There is an office and a boss who wants to make as much money as possible from client fees. Lastly, there is the regulatory / compliance team, which ensures that you advisor serve the client and does not violate any corporate, industry or criminal laws. If your company has lower value products, now you, the advisor, are in conflict. You can sell a mediocre product to the customer and make your boss happy, or have the customer turn to a competitor for a better deal that will make the customer happy. If you are a very experienced advisor with a big business book or you do not need a job, it is very difficult to cheer everyone up.

A tax financial advisor has a similar dilemma if servicing a client means the property should be taken elsewhere. It is also advisable to pay off debts, buy real estate, use money to buy a business, start an art collection, take money abroad, buy physical metals, etc., which are not products sold by the institution and will not result in any taxes. taxes.

Only the planner fee does not cause these conflicts because there is only one master – the client. No products and no assets – just the legal system and ethics body of the association to which the advisor belongs.

Service array

In this area, the traditional counselor has the advantage. If you are in a situation that requires a will, an accountant, a trustee, a mortgage broker, or insurance products, a traditional financial advisor works for an institution that can provide these services. The administration aspect is also handled for you: account opening, trading, portfolio re-balancing, automatic deposits and withdrawals or form filling.

A fee-based financial planner may be able to provide these additional services, but this will depend on the size of the firm. Smaller boutique firms may specialize in portfolio management or investment, and in more challenging situations may still need to employ a network of professionals.

The same situation applies only to fees or charges for financial planning of services. People planning a service charge are usually single or small businesses without the resources to provide a network of professionals.

Minimum asset level

If you sell products or manage assets, the fees paid for the entire process, including financial planning, are a percentage of the amount of money used to purchase the products or assets. If the amount of money invested is $ 100,000 with 2% tax, you would pay $ 2000 a year. Products will likely be on a predefined list. It is necessary to complete the Know Your Customer (KYC) survey and select products, rather than make a detailed plan. Asset minimum amounts for a financial plan typically start at $ 500,000 for a product purchase or asset, but some firms may provide a plan with a smaller asset amount. In Rob’s planning age, a plan can be created using software for less than $ 1,000, but it may not cover all scenarios because the software is not comprehensive compared to human.

In the case of a tax-only financial planning instrument, there is no need for minimum asset shares because the proceeds are not tied to the sale of the product. Revenue generated is related to time spent and work done, whether the item is $ 1,000 or $ 100 million. In USD, the amount of work involved in buying a product, creating a plan and distributing assets will be the same.

Which type of advisor is right for you? It will depend on what you have, what you need, how much work you do, how much knowledge and convenience you have about finance.

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