Financial planners: Fee
Fee-only financial planners don’t receive a dime in commissions on the investment products they advise you about. If you think that makes them objective, and therefore trustworthy about what the best investment are for your portfolio, you’re right.
When you go to a no-fee financial planner you are getting less than you pay for. Because that financial planner has an incentive to steer you into investments that will pay him or her a big fat commission.
Most financial planners who work on commission are interested, not in getting the investment products that best meet your needs, but instead in setting up an income stream for themselves that will keep paying them big fees for years into the future.
This is because mutual fund companies pay a percentage of the cost of your mutual fund investment to the financial planner who sold them to you. And they keep paying the financial planner, year after year, so long as you stay invested.
And don’t kid yourself. Even though you don’t pay the financial planner directly, you’re still paying every cent that he gets. It comes from the management fee your mutual fund company charges, you know the MER that lops 1% or 2% off your investment each year. That may not sound like much, but when you reach the point where you have a couple of hundred thousand of dollars invested – which isn’t that much in a retirement account – you’re looking at three to four thousand dollars per year just for management fees.
Do you remember how long it took you to save your first four thousand dollars?
Now, not all of that money goes to your financial planner of course, but rest assured, he’s well rewarded.
A fee-only financial planner never gets a commission from any of the investments they recommend for you. They may, for example, instead of recommending a mutual fund for your two hundred thousand dollar investment, recommend a basket of stocks similar to those in the mutual fund. Instead of paying 1% or 2% per year in MERs, you’ll be receiving 1% or 2% a year in dividends. That’s a difference of four to eight thousand dollars in savings to you, every single year, before the capital return on your investment even starts.
So having a fee-only financial planner can make a big difference to the success of your investment account. Sure, you’ll have to pay them up front, and you’ll have to write the check yourself. But if you go with a no-fee planner instead, the mutual fund company will be writing your financial planner’s paycheck. It’ll still be your money, though, and it will be a whole lot bigger.