The financial services industry has run the same way for decades. Most financial professionals are compensated for selling financial products. Technically, beyond the discussions related to product suitability and ensuring the client understands the product, they aren’t required to provide additional financial advice. The industry often assumes, and even markets as if that’s the case. But it might be more accurate to say the industry hopes advisors are including financial advice beyond product advice of their own accord. But it’s not something fund companies are checking in most cases.
In the new year, investment statements will include the exact fees investors are paying in dollar amounts thanks to significant regulatory changes. This change is an effort to ensure transparency around investment costs. For many, especially those with $500,000 or more, the fees may be over $10,000 a year, depending on the types of products you’ve purchased within your portfolio. Some may not blink at that amount, but it will likely create sticker shock for most. And it will be even worse with much larger accounts.
No one is going to manage money for free, nor should they. You don’t do your job for free after all. But the cost of investing is much more wide-ranging than it was even a decade ago. And there are good-quality investment options with higher or lower fees. Great advisors are delivering far more value than simple investment selection advice, and it’s fair for you to expect that you receive reasonable value for what you’re paying.
While some advisors only offer investment advice, the stellar ones take a holistic approach and offer financial advice that helps you get more life from your money, in addition to results you get from the products themselves. But it’s not just on the advisor to offer services. It’s important for you as a client to make sure you’re aware of the service options your advisors have, and to ensure you’re making use of the ones that fit your needs. It’s also crucial that you share complete financial information when consulting a financial professional for product or financial advice. Holding back will result in incomplete advice at best, and inappropriate advice at worst.
Here are some of the services holistic advisors offer.
Cash flow plan 💸
A cash flow plan is not a budget. A cash flow plan is a behaviour-based written plan that shows you exactly how much you can free up to fund your dreams. It also shows you how much is safe to spend on the things you can control. On average, cash flow plans free up $24,000/yr per household. So when it comes to getting value for the money your advisor earns from your portfolio, a cash flow plan could really amp up the non-product related value you receive. In addition, because some of what you free up generally goes towards your long-term goals and is invested in financial products, it can also increase the value of the product advice you receive.
Debt management plan 🏘️
Two of the most expensive things adults will pay for in their lives are taxes and interest. Debt management is a crucial part of financial planning. But often, practical and easy-to-follow strategies aren’t included in traditional financial planning. Some people don’t even ask for this type of advice because they assume the debt product advice they are getting is debt management, but it’s not. Debt management advice isn’t about the product — it’s about how much you put towards debt payments, assessing how much you can save in interest by refinancing your debts, assessing true affordability prior to taking on new debts, and mapping your debt freedom date. You do not need to be in any kind of financial trouble to get value from a debt management plan. Anyone with debt — even “good” debt — may be able to improve their financial outcome by working with their advisor on a debt management strategy. Debt management is in concert with a cash flow plan, and having both as part of your overall financial plan is ideal.
Short-term goals 🏖️
A less common aspect of financial advice is short-term goals. The irony is, these types of goals are more effective at motivating commitment and keeping you on track with longer term goals. Ensuring you get to enjoy some things that really matter to you in the near term makes it easier for you not to dip into long-term investments, which could take you off course. This type of advice should be included in all types of planning or advice.
Full financial plan 📈
A full financial plan is a written plan that should guide your overall decisions when it comes to your money. It should include a snapshot of your current financial situation, your goals for your money and guidance on what you need to do to reach those goals. For example, it should include how much to invest to reach long-term goals, and how much to save to protect you from emergencies. A full financial plan should also include cash flow and debt management, but often doesn’t. It’s important that you stress to your advisor that you want these elements included in your plan.
Retirement plan 🔑
A retirement plan is often a major part of your overall financial plan. But unless you’re really close to retirement, it won’t cover it all. This part of your plan should delve more deeply into the type of retirement accounts you’ll use, with foresight on how those accounts will be taxed. They should also take into account government benefits, your existing and future savings, as well as employer pensions.
Retirement income plan 🛥️
The stage of life when you begin to use the retirement resources you worked so hard to create requires a different kind of advice than you needed when you were simply focused on accumulation. A retirement income plan helps you decide when to withdraw, from what account to withdraw from, and what amount to take from your various retirement accounts. A good retirement income plan can help maximize your retirement income and save taxes, which combined, can make your resources last longer and give you more capacity to enjoy your golden years. This type of plan needs to be adjusted from time to time to ensure it continues to deliver the maximum value from your retirement assets and income sources.
Estate advice 📃
The end of our lives requires yet another kind of advice. Often an extension of the financial plan, retirement plan or retirement income plan, an estate plan helps you ensure that your assets are passed on to the people or organizations you care about in the most efficient way possible.
Tax planning 🤑
This should be a layer in most of the other types of advice too, especially investment advice. In most cases, the impact of all of the other types of advice can be enhanced by adding tax planning. Simple applications include understanding tax refunds, and taxation of income when comparing RRSPs and TFSAs. A more complex version of tax planning could include strategies to maximize your financial outcome from owning rental properties, a business, or a family cottage, for example.
Before you see your investment costs next year in black and white, take the time to evaluate what you’re getting from your advisor now, and look into other types of value they could provide. Make sure you are open, cooperative and timely when collaborating with your advisor. This will ensure the advice you receive lines up with your reality and has the greatest chance to benefit you.
If you find that all you’re getting from your advisor relationship is rate of return, you might be able to get more value elsewhere. Humans are easily bound by inertia when it comes to financial decisions, preferring to do nothing because it can feel overwhelming. But for those who find they are paying high fees, and getting limited value, let this be the catalyst for change. Make the one-time effort to find an advisor who will give you far more life from your money. You deserve to get what you're paying for.
About CacheFlo
CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allow them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.
About the Certified Cash Flow Specialist (CCS) program
CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.
About the Real Life Money program
An annual, digital, behaviour-based program that teaches employees everything they need to know and do to become financially capable. Our proven financial wellness program that combines online workshops, microlearning, and a powerful app called Winton that puts financial capability, confidence and control into the hands of every employee. Learn more.
