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Why an Advice-Only Financial Planner Makes Sense

Updated: Nov 7, 2023

In the rapidly evolving landscape of financial planning, advice-only financial planners are the jet stream that's propelling a new way of thinking about personal finance. This model departs from the traditional financial advisor's trajectory, offering a more transparent and arguably less conflicted route for clients. As we navigate through the differences between the two, it’s essential to navigate each model’s approach, philosophy, and the client experience it delivers.

The Traditional Financial Advisory: Commission-Driven Altitude

Traditional financial advisors often operate under a commission-based or fee-based model. They're the pilots of a system where the compensation is tied to selling financial products, such as mutual funds, insurance policies, and other investment vehicles. This model can sometimes lead to turbulent conflicts of interest, as the advisor's income is directly linked to the financial products recommended to clients.

For clients, this means the advisor’s own financial gain could potentially influence the advice they receive. It's not always clear whether the advisor recommends a product because it's the best fit for the client's financial portfolio or because it affords the advisor a higher commission. A perfect example, even in the fee-based world, is a classic question: do I pay off my mortgage or invest more for retirement? When an advisor makes a percentage of assets, they stand to benefit the more invested with them. Many advisors are very good at navigating this conflict, yet it is a conflict nonetheless.

Advice-Only Financial Planning: Clear Skies and Unbiased Guidance

In contrast, advice-only financial planners operate on an hourly, retainer or per-plan model. Like a plane cruising at a steady altitude, this model maintains a level of consistency and transparency. Clients pay directly for the advice and guidance they receive, not for the purchase of products. This conflict-free approach aligns the planner’s incentives with the client’s best interests, providing a breath of fresh air in an industry often clouded by opaque compensation structures.

The advice-only financial planner is like an air traffic controller for your finances, guiding you with unbiased advice that is untethered from the sale of financial products. Their focus is on providing strategic financial planning based purely on the client’s current financial climate and future aspirations.

The Client Experience: Personalized and Conflict-Free

Working with an advice-only financial planner is akin to flying first class. The experience is tailored, focusing on getting to know the client personally before making recommendations. This ensures that the financial plan is customized to the individual's goals, whether they're looking to spend their money on life's adventures now or saving for a smooth landing into retirement.

Clients can expect a transparent fee structure where they understand exactly what they're paying for – guidance and advice. This approach empowers clients to make informed decisions about their finances without the pressure of being sold financial products.

Advice-Only Planners: Navigating Regulatory Restrictions

Advice-only planners, while free from the conflicts of interest associated with commission-based earnings, face specific limitations. Regulatory constraints often prevent them from directly implementing investment transactions or selling insurance products. They can provide comprehensive financial planning advice, but when it comes to executing certain investment and insurance recommendations, clients must turn to other financial professionals who are licensed to conduct such transactions. We maintain a list of trusted referral partners depending on what the client is looking for in certain aspects of implementation.

Percentage Fee-Based Advisors: Financial Piloting

On the other hand, percentage fee-based advisors tend to offer an all-encompassing service. They are typically registered to give investment advice and can manage investments directly on behalf of their clients. This model suits clients who prefer outsourcing all of their finances, including financial planning, investment management, and insurance advice. While this convenience comes with its own set of regulatory oversight, it allows clients the comfort of having a single advisor managing all aspects of their financial journey. Still, it can introduce conflicts, especially if insurance products are compared to investment products, as these can often carry significant differences in earnings for the advisor. We plan on a future post about this particular issue.

Final Approach: Choosing Your Financial Co-Pilot

For individuals seeking tailored financial planning who prefer a collaborative experience or want specific unbiased advice, an advice-only planner may be the ideal co-pilot. However, for those who desire a more hands-off approach, with a professional at the helm of their investment and insurance needs, a percentage fee-based advisor could provide the necessary full service just be mindful of certain conflicts.

As the financial industry continues to evolve, the advice-only model is soaring in popularity, offering a fresh, client-centred approach. By prioritizing the client full stop, advice-only planners are redefining the journey to financial well-being. Whether you’re just taking off or looking for a new course, an advice-only financial planner might be the co-pilot you need to navigate the ever-expanding horizon of your financial future.

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1 Comment

David Toyne
David Toyne
Nov 10, 2023

Terrific and balanced summary Ben. Well done!


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