A New Era for Financial Planning: Fee-Only Advisors

Did you know that in Canada anyone can call themselves a financial advisor?

 Currently, the sales activities of advisors who sell products such as life insurance, mutual funds and other securities are regulated by each province. The title of "financial advisor," however, is not regulated. This means that anyone regardless of education, experience and level of financial knowledge can claim to be one.

 If this is the case, then how do you as a consumer go about choosing the right financial advisor?

 The positive aspect for consumers is that there are a growing number of alternatives for those who want true unbiased financial advice. The financial industry’s landscape has been shifting towards offering advisory models that are more client-centric.

 As our past article described, the classic financial advice model relied on a professional earning a commission or a bonus based on the amount of products and transactions that occurred. As many have witnessed, these advisors often have self-serving biases. Some still offer great advice, but in the majority of cases it is hard to place the clients’ interest first without having your judgment blurred by how much money the transactions could earn for you.

In the past years, there has been tremendous growth in fee-only financial advisors. Over the past 2 years, the United Kingdom and Australia have banned commission fees on all financial products in order to make sure consumers interests are always put first when it comes to financial advice. This has pushed most financial advisors to a fee only approach.

 Fee-only advisors charge a flat fee to guide a client’s financial interests by recommending the best products in the market to suit the clients’ needs.  By doing so, a client has complete transparency pertaining to the advisors compensation structure and can sleep soundly knowing the advice received is completely objective. Some may be apprehensive to paying a flat fee for advice when they can usually get it for free; however in the long run the cost paid for advice will be largely outweighed by the cost savings and excess returns gained.

Of course, even when it comes to fee-only advisors individuals must be conscious of the advisor’s competencies and qualifications. In general, financial designations can portray an advisor’s expertise and determination to continue to learn past his or her university or college degree. The two most highly recognized designations in the Canadian financial planning industry are the Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) designations. Looking for reputable designations beside an advisor’s name could help you narrow down your options.

 Next time you’re looking for a financial advisor, make sure they have the right qualifications and have your best interest at heart.