The Average Cost of a Financial Plan
Most people know what it costs to fill up their car with gas. Prices are posted at the pump and we pay out of pocket for each fill. In contrast, Canadians are generally clueless about how much they pay for financial advice. This is a problem because financial advice often costs much more than fuel. Many of my clients are surprised when I tell them how much they're paying for their "investment guy".
While traditional financial advisors have often avoided discussing fees, advice-only financial planners are proud to offer transparent pricing. To help you know what to expect to pay for a financial plan, I calculated the average fees of 25 Advice Only financial planners. Let's take a look:
What is Advice Only Financial Planning?
Advice-only planners provide financial advice in exchange for a fee paid directly by the client. We do not provide investment management services or sell insurance products. This differs from most other advisors who get paid a percentage of investments managed or by commission from the sale of insurance.
Those of us who have chosen the advice-only fee structure believe that it removes potential bias in financial advice. Our clients appreciate that meetings aren't product-focused and we can instead focus on the big picture.
How Much Does a Financial Plan Cost?
Most advice-only planners work on an hourly or project-based fee schedule. The main determining factors in the fee are complexity and the level of service provided. Advice-only planners will typically give a quote after an introduction call to review your situation.
Everyone's financial situation is unique, but a comprehensive plan will generally include the following:
Cash Flow Management
Investment Planning
Insurance and Risk Management
Tax Planning
Retirement Planning
Estate Planning
Business owners have more complex needs which increases complexity and cost.
By looking at the average fees of advice-only planners, we can see the typical cost of creating a financial plan.
Cost of a Comprehensive Financial Plan
To calculate the average fee for a financial plan, I relied on Steadyhand's directory of Advice-Only Planners. The data on fees was taken from their directory in combination with info from each firm's website.
The most common data point I could find was the minimum fee for a comprehensive financial plan:
The average minimum fee was $3,238 (25 samples)
The lowest minimum fee was $1,200
The highest minimum fee was $8,500
Not all of the planners listed the typical top-end of their fee range, but there is enough data to get an idea:
The average upper-end fee was $6,064 (17 samples)
The lowest was $2,400
The highest was $14,100
This results in an average fee range for a comprehensive plan of $3,238 to $6,064.
I should note that the lowest fee I found seems too low for a truly comprehensive financial plan. Without knowing the advisor or having details on how they work, I suspect that their offering would fit better within the "modular" category below.
Modular Financial Plans
In addition to a full plan, firms may offer services which focus on a limited range of topics, including:
single or short-term coaching sessions
education savings plans
investment portfolio reviews
retirement income planning
This can be a great opportunity for Canadians to get targeted advice at a more affordable price. As an example, my Retirement Assessment service focuses on helping Canadians who are nearing retirement and need an income plan.
With so much variation, I wasn't able to come up with useful data to compare pricing for modular plans.
The Cost of Traditional Financial Advisors
Most financial advisors charge a percentage fee based on the investments that they manage. This is known as an asset under management (AUM) fee.
The typical AUM fee advisors charge is about 1% per year, but it may be higher or lower.
For example, an investor with $500,000 in investments would pay their advisor $5,000 each year if the AUM fee was 1%.
Note: In addition to an AUM fee, there is often a fee associated with the investments themselves. This is known as the Management Expense Ratio (MER). Be sure to factor in both fees when evaluating the cost of your investments.
While I have chosen to work as an advice-only financial planner, a traditional advisor who charges an AUM fee can be a suitable choice for some. What is important is that the fees are transparent and that you get good value for them. Potential conflicts of interest must also be disclosed.
Hidden Fees and Conflicts of Interest
The financial services industry has historically done a good job at obscuring fees. I recently came across the website of an advisor who proudly boasted that they don't charge fees. Don't be fooled, no one works for free. If you don't pay them directly, they get paid from your investments or your insurance premiums.
Canadians can end up receiving bad advice if they aren't aware of these conflicts of interest. When I was growing up, my mom received bad advice which nearly cost us our home. The advisor on the other hand received a large commission for the recommendation. Never work with an advisor if you aren't clear about how they get paid.
Who Needs a Financial Plan?
A financial plan is your guide to getting the most value out of your hard-earned money. With a good plan, you can earn a good return on your investments, save taxes, and minimize risk. There is also the psychological benefit of knowing that your finances are under control.
While everyone would benefit from having a plan, not everyone is cut out to create their own. If that's you, know that it's possible to get help with creating your own personalized financial plan.
Conclusion
A financial plan is an investment in your financial and emotional well-being. Whether you get one yourself or get professional help, don't let common obstacles stop you from creating yours.
If you'd like to make your financial plan but feel too disorganized to get started, check out my FREE email course on gathering the documents you need to make a retirement plan.