Selling Bonds To Raise Money Is What Type Of Finance What Is Fee-Only Financial Planning?

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What Is Fee-Only Financial Planning?

The world of financial advice is divided into 3 main categories. A traditional financial advisor is what most people are familiar with. This is the most common arrangement where a financial advisor works for an organization and sells a product. Financial advice is given “free of charge” and is part of the process of selling these products. The second category of advisor is called a fee-based financial advisor. This type of advisor does the same job as a traditional advisor, but charges a flat percentage fee based on assets under management instead of by product. The cost may be lower but can still add up over time because the fee is based on a percentage of the assets you own. Advice is still part of the Service and is “free”. A final option is a fee-only or fee for service financial planner. This type of planner only gives advice and does not sell a product. The fee for the consultation is a flat dollar amount depending on how much time is spent or how complex the project is.

What are the advantages and disadvantages of each type?

cost

Traditional advisors are the most expensive. Fees are based on the dollar amount of product you purchase. As an example, if you invest $100,000 worth of mutual funds and are paying 2% fees, you will be paying $2000 per year for as long as you own these funds. The 2% mark is the average MER (Management Expense Ratio) based on a mix of equity and fixed income (stocks and bonds). There may be other fees such as sales loads, account fees, trade fees, trailer or referral fees, administrative fees or penalties for early switching or redeeming. To know the true cost, you need to add up the costs for your situation.

A fee-based financial advisor may have reduced fees because they are charging a flat percentage instead of the MER plus other costs. Reduced fees range from 1% to 1.5% for the entire account. The catch is that this option is only available to people with large amounts of assets because the fees have to be high enough to make it profitable. The minimum asset threshold typically starts at $500,000 in investable assets (assets in a business account). If you have a $1 million investment, this fee can range from $10,000 to $15,000 per year.

A fee-only financial planner charges a fee for a plan or project using a flat dollar fee. This means that you will have to plan once every 3 or 5 years or periodically, and you will pay between $1,000 and $5,000 per plan.

Note: Don’t get too fixated on the name or title of the person you’re working with – like financial planner vs financial advisor. These names or titles are used interchangeably in Canada and do not designate a given service or recognition. There are also names like financial advisor, investment advisor, portfolio manager and so on. The key to knowing what you’re dealing with is “What are the fees in dollars?” to ask And explain it to you. Judging from what you hear, you will know what kind of fee structure is being presented.

Conflict of interest

A traditional advisor must serve multiple bosses. There is the customer who is paying the bills and must be taken care of. There are organizations and owners who want to make maximum money from customer fees. Finally, there is a regulatory/compliance team that ensures that you advisor is serving the client and has not broken any company, industry or criminal laws. If your company’s products are sub-par, you consultant is now conflicted. You can sell a mediocre product to a customer and make your boss happy, or go to a competitor and get a better deal that makes the customer happy. Unless you are a very experienced consultant with a substantial book of business or you need work, it is very difficult to please everyone.

A fee-based financial advisor has a similar dilemma if serving clients means moving assets elsewhere. It is also advised not to make or produce items that the organization does not sell, such as paying off loans, buying real estate, using money to buy a business, starting an art collection, taking money abroad, buying physical metals, etc. fee.

A fee-only planner does not have these conflicts because there is only one master – the client. There are no products and no assets – just the legal system and the ethical body of the advisory association.

An array of services

In this area, the traditional advisor has an advantage. If you are in a position that requires a will, an accountant, an estate trustee, a mortgage broker, or insurance products, a traditional financial advisor works for an organization that can provide these services. The administrative side of it is also handled for you: opening an account, trading, rebalancing the portfolio, automatic deposits and withdrawals or filling out forms.

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 investments and if you have a more complex situation you may still need to hire a network of professionals.

The same situation applies for a fee-only or fee-for-service financial planner. Fee-for-service plans are individuals or small companies without the resources to provide a network of professionals.

Minimum asset level

If you are selling products or managing assets, the fees you pay for the entire process, including financial planning, are a percentage of the amount being used to purchase the products or assets. If the amount being invested is $100,000 at 2% fees, you will pay $2000 per year. Products will likely come from a default list. A “know your customer” (KYC) survey is filled out and products are selected instead of making a comprehensive plan. The minimum assets for a financial plan usually start at $500,000 in product purchases or assets, but some firms may offer plans with smaller asset amounts. In the era of robo-planning, a plan can be created using software for less than $1,000, but it cannot cover all scenarios because software is not perfect against talking to a human.

In the case of a fee-only financial planner, there is no asset minimum requirement because revenue is not tied to product sales. The revenue generated is tied to time spent and work performed, and whether buying a product is a $1000 trade or a $100 million trade, the amount of work involved in planning and allocating assets will be the same.

What Kind of Counselor Is Right for You? It depends on what you have, what you need, how much you’re working on yourself, and how much knowledge and comfort you have about finances.

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