Paying for Planning Services: Canadian Perspective

Credo has explored how advisors charge their clients for financial planning services.  We surveyed 500 advisors from across the country and found that the majority of Canadian advisors (60%) don’t charge their clients specifically for the service of creating a financial plan.  Exhibit 1 below show how advisors responded when queried about charging for planning.

Exhibit 1. How do you charge your clients for financial planning services you provide?

Most advisors bundle the cost of producing a financial plan into the overall service offering they deliver to their clients.  17% of advisors indicated that, essentially from an accounting perspective, they offset the cost of producing a plan against the commissions they earn from the sale of various financial products.

Only 5% of advisors indicated that they don’t produce comprehensive financial plans for their clients.  A number of these advisors explained in follow up qualitative questioning that they believe that “plans are really not worth the paper they are written on.”  This is not to say that these advisors don’t see value in planning.  Rather, they explained that the industry drive to create documents that are outdated almost immediately after their creation does not serve the client well.  “Formal financial plans are a way of meeting the compliance interests of a firm… a cover your [risk] move that isn’t really in the client’s interest,” said one advisor.  Others concurred with this advisor’s perspective and added that they prefer the flexibility that is afforded them as they regularly maneuver their guidance in ways that they feel serve their clients’ needs.

Only about 5% of advisors charge a specific fee for the development of a financial plan.  This can be seen as a move to distinguish the advisor’s offering within the advice realm.  Fee-only advice remains very uncommon in the industry and the research indicates that fewer than 5% of advisors offer plan development services on an hourly basis.  Those advisors that do offer fee-only planning and guidance, however, swear by their strategic decisions to do so.  The advisors with whom Credo has spoken on this matter indicate that they are as busy as one-armed wallpaper hangers.  Their services are not inexpensive.  Some charge upwards of $400 per hour for their services, but they have developed loyal enough client bases to operate in this unique manner.

Credo believes that as investors gain an understanding of the costs associated with working with a financial advisor — as they learn about the differences in cost models for planning and guidance models —  the results presented in Exhibit 1 will change.  As the strengths and weakness (or costs and benefits) of the current trend towards fees-based-on-AUA become apparent to investors, more advisors will deepen their skills in cost-justification and relationship development.