Today, MoneySense takes the wraps off its new online directory of fee-for-service financial planners and money coaches. This revamps our popular online directory of “fee-only” financial planners, a resource that many do-it-yourself investors and users of discount brokerages have found useful over the years.
But as Preet Banerjee writes in the just-published November issue of the magazine, the term “fee-only” covers a number of situations and is not as useful a term as it could be. So while we’ve retained the “fee-only” label at the top for the sake of continuity and online searches, there are really two directories.
The larger one is what we call “Money Coaches and Fee-for-Service Planners.” This refers to professionals who offer their advice, planning or financial coaching strictly based on time (usually by the hour) or by the project. The second directory we call “Primarily Asset-based Planners.” This group is primarily charges a percentages of assets under management but also offers fee-for-service billing.
A mouthful, yes but sadly imprecise terminology is the main reason why there is so much confusion over these terms. As Preet drilled down into the issues, he discovered that even financial journalists who should know better—he and I among them and likely many of the readers who went to our directory—were under the impression that the term “fee-only” was equivalent to “fee-for-service” or time-based billing.
Blame NAPFA definition for confusion over term “fee only”
Turns out that was never quite right. In fact, based on the definition of the U.S.-based National Association of Personal Financial Advisors (NAPFA), fee-only can include either of fee-for-service or asset-based compensation. Really, all that “fee-only” means in practice is that it does not include the old commission-based (transaction) model.
So fee-only can refer to someone who is “fee-based” or “asset-based”—that is, someone who charges a set annual fee that is a certain percentage of the client portfolio. For example, someone with $500,000 held with an asset-based adviser charging 1% of assets will be paying $5,000 a year for the service. Read or re-read Preet’s story and you may conclude that’s a fair price to pay for some combination of financial planning, security selection, portfolio monitoring and rebalancing, plus advice on tax, estate planning and everything else.
However, we suspect that many MoneySense readers are largely self-directed investors who are acutely cost-conscious: perhaps they set up Couch Potato portfolios of ETFs that they buy themselves at a discount brokerage. (This is why our February/March issue featured our ETF All-Stars and our June issue features Canada’s Best Discount Brokerages). But we believe many such investors are also willing to pay for some guidance, assistance or help. A good number of these people are probably really looking for fee-for-service planners and/or money coaches who charge by the hour, not by percentage of assets in their portfolio. (My book, Findependence Day, is aimed at just these types of investors who want to build low-cost portfolios of ETFs at discount brokerages, but who also value good advice).
Resolving the confusion
Our previous “fee-only” directory would have confused such investors if they were expecting strictly a list of planners who charge by time or project because the list included many names that were asset-based, but were quite in their rights to describe themselves as “fee-only.” As Preet observes in his piece, to some extent, asset-based planners may have benefited by the positive aura the media has bestowed on “fee-only” planners, even if they really meant to refer to “fee for service.”
However, for those who wish it, we have also included a directory of asset-based planners who primarily offer asset-based compensation (defined as at least 51% of revenues) but who may also provide time- or project-based options at the specific request of the client.
To revamp the directory, in August we sent out a questionnaire to our earlier list of “fee-only” planners to clarify the precise nature of their financial planning services and how they are paid. The results can be seen in the directory.
Fee-for-service financial planners who would like to be included in the directory can email us at: [email protected].