How to find an independent financial planner

A: You ask a great question, Gerry. The media—and MoneySense in particular—tends to speak highly of fee-only financial planners and encourage people to seek these advisers out. As a result, many people in the financial industry are sure to advertise that they’re fee-only or fee-based. After all, it’s good for business!

Everyone in the financial industry is paid fees and they come from you either directly or indirectly. And there is no regulation of titles, so it really doesn’t matter who someone says they are. What matters is who they actually are (as a person) and what they actually do (as a professional).

The MoneySense list is a great starting point and has recently filtered fee-only planners into those who sell products (primarily asset-based planners) and those who do not (fee-for-service planners) to try to provide some distinction. Even some of the fee-for-service planners are licensed to sell products though, as you’ll notice. And many of the asset-based planners are paid commissions from sales as well as fees.

I think the public needs to be clear that anyone can be a financial planner. There are no educational or regulatory requirements. I can print business cards for my mother and she can be a financial planner too. I might trust her to babysit my kids, but I wouldn’t trust her to advise me on my corporate tax planning.

Also, Gerry, there is no regulation of the terms fee-only or fee-based. And since everyone is paid fees in one way, shape or form, what does fee-only or fee-based even mean?

Take a financial planner who works for a mutual fund company. They may do extensive financial planning and be very good at it. Or they may do nothing but sell mutual funds. And either way, they’re paid fees, through a combination of fees you may pay on purchases or sales, an annual fee you may pay on your account and fees they are paid by the mutual fund companies who manufacture the mutual funds you purchase. But even the fees from the mutual fund companies come from fees that the fund companies charge to you. I’d argue a mutual fund salesperson could call themselves a fee-based planner and be on-side.

I think one distinction that needs to be made is between advisers who sell stuff and those who don’t. As of 2011, approximately 150 of the 90,000 financial advisers in this country were advice-only financial planners selling only financial advice, according to the Financial Planning Standards Council. The other 89,850 sell products and provide varying levels of advice. That’s distinction number one.

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Beyond that, I think when most people talk about “financial planners” they’re actually talking about investment advisers—people who sell and offer advice on investments. The key to determining independence is understanding what they can sell.

Ask an adviser what they’re licensed to sell, Gerry. Some can only sell mutual funds. Some of those licensed to sell mutual funds work for a company where all they can offer are limited choices provided by their own company. Yet others work for companies where they can sell you any mutual fund in the country. Mutual funds might be right for you. But if they’re not, or funds from another company are a better option, you may be limited by a lack of independence.

Some advisers are licensed to sell stocks and bonds. Of those licensed to sell stocks and bonds, some work for companies who may use compensation or other methods to limit their independence. Often, though, if an adviser is big enough and making enough money for their company, they can operate independently because their company doesn’t want them to walk across the street with their clients. The problem with these advisers is they may only take on clients that have certain minimum amounts to invest.

I’d say your best chance of working with an independent investment adviser is to work with a privately-owned investment firm that has no ties to the big banks. Or work with a big adviser at a big firm, including the bank-owned brokerages. And ideally, you want someone who can sell mutual funds, stocks, bonds, ETFs, GICs—the whole gamut.

You might need $250,000 or more to invest though.

For smaller accounts, robo-advisers are worth a look.

For financial advice that is separate from investment produce advice, consider advice-only financial planners.

Beyond that, independence is going to be hit and miss and you’re going to get good and bad no matter which company or type of adviser you’re considering.

So my best advice, Gerry, is to forget business cards, titles or lists. Ask questions. Take the time to understand what someone is allowed to do for you or sell to you and how they get paid. Ask them directly. So few people in this country even know how or how much they pay the people that are taking care of their money.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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