Before you start working with a financial planner, find out how they're paid. Financial planners are usually paid in 1 of 3 main ways – through service fees, sales fees and commissions, or asset-based fees.
Three 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 plan 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 investment for you. Or, they may charge you a fee based on how much you invest. 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 account management fee.
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 trade, 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 portfolio. 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.
Tip: 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.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca