How to find a fee-for-service planner

What I call the “Findependence Day Model” dervived from the book is simply the combination of three things.

All three deal with cutting investment costs or brokerage costs. The first is using a discount brokerage to make your own trades, typically at $10 per transaction. The second is to take advantage of broadly diversified, tax-efficient and low-cost exchange-traded funds (ETFs), which can also be purchased at a discount brokerage.

And the third is to use a fee-for-service financial planner, that is, a planner whose services are billed either by time (usually by the hour) or by the project (as in a one-time financial plan) but NOT via annual fees levied as a percentage of client assets under management. The problem with the latter is it gets prohibitively expensive as wealth grows, unless the fees are tapered down accordingly. I recently heard from a reader complaining that a 1% fee on a $4 million portfolio cost $40,000 a year — an amount many people could live on. Clearly in such case, you should negotiate a lower fee: say 0.5% for starters, or look for another firm that will negotiate, or go the DIY route described in this blog and find a true fee-for-service planner.

What the heck does “fee-only” really mean?

Note there is much confusion over the term “fee-only.” As Preet Banerjee writes in the current issue of MoneySense — here — the term fee-only does not necessarily mean fee-for-service. All that fee-only means is that it is NOT old-time commission-based, levying commissions per transaction. In fact, commission-based is not that bad a deal, particularly if you’re a buy-and-hold investor.

Sadly, many journalists and even advisers themselves have used the term “fee-only” when they really were referring to fee-for-service. As a result of the definition used in the US NAPFA, an asset-based financial planner (like the one charging our reader 1% of a $4 million portfolio) is well within their rights to refer to themselves as “fee-only.” Fee-only can mean EITHER  fee-for-service OR asset-based financial planning, rendering it almost meaningless. And mea culpa, even in the two editions of Findependence Day, I use the term fee-only when I should have used “fee-for-service.” Future editions will fix that and editions of MoneySense magazine will going forward make this distinction clear.

MoneySense’s new Fee-for-Service online directory

Because of this, we at MoneySense have revamped the previous online directory of “fee-only” planners. Click here for the new directory, or rather TWO directories: one for true fee-for-service (i.e. by hourly or project billing) and one for financial planners who are primarily asset-based (at least 60% of revenues) but who do offer clients the option of time-based or fee-for-service billing.

I might add that other aspects of the Findependence Day model have also been rolled out in MoneySense throughout the year 2013. Our Feb/March issue on RRSPs introduced the ETF All-.Stars, which will be revisited in the Feb/March 2014 issue. And our June 2013 issue introduced MoneySense’s first survey of Canada’s best discount brokerages, a second version of which will run next summer. Both features were written by MoneySense editor at large Dan Bortolotti, more about which can be found below.

For those who missed those two issues of the magazine, here’s a tip. It costs only $20 a year to subscribe to MoneySense magazine (7 issues), which also gets you free access to the web site at PLUS the iPad edition. We recently went behind a paywall (or technically a pay fence) but the iPad edition also gives you the back issues, including the ones mentioned above and in fact all the issues since I became editor starting with the June 2012 issue.

Upcoming iShares educational event in partnership with MoneySense

Finally, those in the greater Toronto area may find an event coming Saturday, November 16th of interest. Dan, mentioned above and pictured on the left, will be talking about ETFs and portfolio construction along with “Ask MoneySense” columnist and broadcaster Bruce Sellery, and various iShares ETF experts from BlackRock Canada . Dan will be taking readers through some of the concepts I’ve described above, as outlined in the book he authored for the magazine: the MoneySense Guide to the Perfect Portfolio, copies of which will be given away at the event, along with the current issue of the magazine, parking and breakfast. (more than recouping the $25 charge).

I might add that Dan is in the process of becoming a financial planner himself. He is already working with PWL Capital, whose firm is listed in the new directory as primarily asset-based. Dan himself is in the fee-for-service camp.

Details for the iShares/MoneySense event can be found here.


Findependence Day for Teens

I’ve not previously given this site over to guest bloggers before but I really liked the concept of Findependence Day for Teens, so I’m happy to run this piece by Dave Landry Jr., a debt relief counsellor who recently has begun to blog. Over to you, Dave!


Findpendence Day for Teens

By Dave Landry Jr.

It’s doubtful many teenagers think about financial independence. After all, middle age, not to mention old age, is as far away as it can be and the idea of saving for the future when you have so much of it in front of you doesn’t seem like a priority. Of course, this doesn’t mean that many teenagers don’t plan their financial futures, but it does mean that all of them should. The reasoning is the same for a teenager as it is for an adult: Namely, the sooner you begin planning for your findependence day, the sooner you can achieve it. And believe it or not there are many things that most teenagers can start doing right away to ensure that their financial independence comes sooner rather than later.

1.) Stay out of debt. Since it’s doubtful you’ll have the income to put down a payment on a house, what we’re talking about here is consumer debt; most specifically, credit cards. If you do take out credit cards, pay off your minimum balances each month and plan ahead for spending in large amounts. Should one fall into debt’s way, there are services available that can assist in managing the situation and ease the transition of filing for bankruptcy or consolidating.

Of course, even if you are forced to make a large purchase on a credit card that you cannot pay back immediately or maybe you even wish to bump your credit score up by maintaining a balance for a short period then you can still stay out of debt by planning ahead. Just make sure you give yourself the shortest period of time to pay it off. You may realize what an interest rate is, but make sure you understand the implications of one and how it alters the repayment period of your temporary loan.

2.) Begin building your cash cushion. Keep some of your money in a savings account that you don’t touch except to make deposits. At this point, you may not think you’ll save a lot but you’d be surprised how money can accumulate once you plan ahead. You may want to go with a traditional savings account for this but do remember that there are alternatives. A certificate of deposit (CD in the USA) or Guaranteed Investment Certificate (GIC in Canada) won’t let you touch your money for a period of time but if you don’t need access to it then this is a safe and easy way to let your money start making money for you.

Mostly though, developing the practice of saving money in any form is what you’re after. Make sure you try doing it as a percentage of your income instead of a lump dollar amount. This will ensure that when you work jobs with higher income in the future, your savings rate will remain similar in your mind but the total amount saved will be significantly larger.

3.) Invest if you can. If you have extra money and want to begin investing, then there is a lot to consider. The safest bets might be with government bonds, municipal bonds, and even corporate bonds. Each one has its own sets of risks and rewards, so doing your homework is important. Also, consider mutual funds. There is tremendous diversity with mutual funds and what’s better they can begin exposing you to the stock market. This means that you can begin building small cash surpluses while you learn what to do with them in the future.

4.) Account for college. Take your future school costs into consideration now before you take out student loans. By understanding what taking out a loan entails and by utilizing a budget before you ever go to school you can avoid the burden of significant student loan debt and the lack of a plan to repay it. More than anything, what you’re building in your teenage years are good habits. And just as this is true in social settings, professional settings, and educational settings, it can also be true of you financial future.


Dave Landry Jr. is a personal finance manager and debt relief counselor who has only recently started blogging to share his expertise on those matters and more. He hopes that you enjoy this article.