Paying your financial planner
3 common ways financial planners are paid
1. Service fees
Some financial planners charge a set fee based on what they do for you. Others charge you by the hour. Once you agree on the fees, you know what you’ll get and how much you’ll pay.
For example, a planner may quote $300 to build a financial planFinancial plan Your financial plan should cover every aspect of your finances: saving and investing, paying down debt, insurance, taxes, retirement planning and estate planning.+ read full definition for you. For this price, they may tell you that you’ll get 2 sessions with the planner. In the first one, the planner will gather information from you to make the plan. In the second, you’ll meet to review the plan. Any ongoing advice would be charged at an hourly rate.
Planners paid this way get paid the same amount no matter which products you buy, so they’re likely to provide advice that is not tied to certain products.
2. Sales fees and commissions
If your planner is registered to buy and sell investments, they may charge a sales fee every time they buy or sell an investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition for you. Or, they may charge you a fee based on how much you investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition. The sales fees may be embedded in the cost of the investments you buy and sell, like mutual funds or the fees may be added to the cost of your investments, like an accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition management feeManagement fee A charge that you pay for having an investment professional manage an investment fund. The fee pays the managers for their time and skills. It may also cover things like communicating with investors and doing all the paperwork needed to run the fund.+ read full definition.
What they recommend depends on your needs and their qualifications. For example, if you work with a planner who is only registered to buy and sell mutual funds, they will not be able to recommend other types of investments.
Some planners may offer a wide range of investment choices from many companies. Others may offer fewer investments or only ones from the company they work for. In any case, the more money you invest and the more often you tradeTrade The process where one person or party buys an investment from another.+ read full definition, the more the planner makes. Some products pay more fees than others, which may lead a planner to favour those products.
3. Asset-based fees
These financial planners charge a set fee based on your investments with them. They usually charge a fixed percentage of the value of your portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition. Their fees cover the time they spend managing your money and giving you advice. Depending on the investments you choose, additional fees may be embedded in the product cost.
These planners usually work with investors with more money (at least $250,000). The fee rate generally decreases as the amount of money invested increases.
There’s more to choosing a planner than fees. Check their education, experience and qualifications, too. Make sure the products and services they offer meet your needs.
Key point
The way your planner is paid depends on the services they offer. Find out how your planner is paid and compare their rates with others.