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The difference between a fee-only financial planner and a no-fee financial planner

If you’re considering hiring a financial planner, congratulations! This means you are thinking about your long-term financial future and taking steps to ensure you’ll be financially comfortable in your retirement. 

Choosing the financial planner you want to hire is a big decision. You need to find someone you trust, who has motivations and strategies you’re comfortable with, and whose fee structures seem to provide a good value. 

Before looking into individual planners, you must decide whether you want a fee-only financial planner or a no-fee financial planner. This will significantly narrow down your search.

If you don’t know the difference between the two, or you’re uncertain as to which is a better fit for you, you’ve come to the right place. 

Also read: The best online brokerages in Canada for 2023


What is a fee-only financial planner?

Everyone must earn a living, and every financial planner you meet needs to be paid for helping you manage your investments and reach your savings goals. 

Fee-only financial planners do not earn a commission on the performance of your investments. Rather, they are paid a flat fee, hourly rate, or percentage of the assets they are managing, and this payment is made by their clients. 

The standard fee charged by a fee-only financial planner is 1 - 2% of the assets being managed by the client, annually. 

Certified financial planners and registered investment advisors also take on fiduciary responsibility, meaning they are legally obligated to act in the best interest of their clients. In fact, Duty of Loyalty to the Client is the first principle in the FP Canada Standards of Professional Responsibility. 

It states: 

Principle 1: Duty of Loyalty to the Client 

The Duty of Loyalty encompasses: 

  • The duty to act in the client’s interest by placing the client’s interests first. Placing the client’s interests first requires the Certificant place the client’s interests ahead of their own and all other interests;
  • The obligation to disclose conflicts of interest and to mitigate conflicts in the client’s favour; and
  • The duty to act with the care, skill and diligence of a prudent professional. 

For fee-only financial planners, the more clients the advisor has and maintains, the more income they will earn. The fact that these advisors are being paid by their clients incentivizes them to keep these clients happy. In order to maintain their valuable client list, fee-only financial planners must provide a positive customer experience and recommend products that perform well. 


What is a no-fee financial planner?

While the term no-fee financial planner is attractive because it sounds like they do not charge a fee, it’s important to remember that nobody works for free, including no-fee financial planners. 

These advisors are paid by their clients, and they also earn a commission or salary from the banks as an incentive to sell the investment products offered by that particular institution. They often receive an annual bonus from the bank for hitting their performance goals. 

This type of advisor can pose issues because they have no incentive to offer you products that fit best within your financial goals and preferences. Rather, they are only obligated to offer suitable products, and are financially incentivized to sell products offered by a particular institution, whether or not they truly believe that product will perform. The high-pressure sales culture at the big banks makes this even more concerning.

These advisors are required to favour products offered by the financial institution that employs them, whether or not those products are the right choice for the individual client’s portfolio. Not only can this limit your financial growth, but it can also limit the selection of investment products presented to you. 


Fee-only or no-fee financial planner: Which is the best for me? 

Everyone has to make their own decisions when it comes to choosing a financial planner, but let’s break down the basics of both types of advisors to help make your decision easier. 

Fee-only financial advisor
  • The advisor is paid by both you and the bank and incentivized to sell products offered by specific institutions
  • They are only obligated to sell products that are ‘suitable’ for clients
  • They are not obligated or incentivized to prioritize a client’s financial needs
No-fee financial advisor
  • Clients pay the financial planner a fee to manage their money, which can end up being more expensive for the client in the end
  • In order to retain clients and continue generating revenue, the planner is incentivized to sell products that will perform and satisfy their clients
  • They have a fiduciary responsibility to the client and are obligated to prioritize the client’s needs

The bottom line

Based on the information above, a fee-only financial planner may be the best option. Not only are they legally obligated to sell products that are in your best interest, but they are also incentivized to offer a positive customer experience in order to retain your business. 


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