The Canadian Capitalist is doing an interesting series on finding a financial planner. The third instalment is about fee-only planners. I’ve always thought that if you need a financial planner, a fee-only arrangement is better than commission-based; you’ll likely pay less in fees, and the planner won’t have the glaring conflict of interest pushing him to select investments that pay the highest commissions.
The Canadian Capitalist contacted two fee-based financial planners. Both charged $100 per hour and would take 10 or 15 hours to create a comprehensive financial plan. This sounds reasonable enough. Investors can easily pay much more than this in commissions on mutual funds.
But then I started thinking. What if I insist that the financial planner do all his work with me present? I'll bring all my relevant records in and answer questions, and the planner will work out a plan in front of me. I won’t object if he takes 5 or 10 minutes a few times to look up information in books or on the internet.
The planner shouldn't object to this because I'm paying by the hour, and the process should take longer with me present, in theory. But, I can't imagine why this would take two working days. In fact, I would be surprised if this took even 4 hours for an average client. Sure, there are people with complex financial situations, but I’m not one of them.
I do some short-term (non-financial) consulting myself, and I understand the problem of spending more time finding clients than I spend working for them and getting paid. I deal with this by charging a high hourly rate and just living with the fact that most of the time I spend on consulting is unpaid.
I do know consultants who charge lower rates, but pad the hours. They don’t think of it this way, but I do. Essentially each client pays for the work they get plus they pay for some of the time the consultant spends looking for the next client.
I won’t say that this is what the fee-only planners are doing, but I can say that for myself as a client, I would not be interested in paying for the planner’s time spent without me being present. I wouldn’t care about nice reports with pretty charts. I would just want some advice that I could write down myself and act on.