Why advice-only planning?

When I introduce myself as an advice-only financial planner, the first question is why. They ask the question for two reasons: 1. I have a license to offer investment management, life insurance, and can help with implementation. But in my advice-only role, I deliberately remove that part so clients know my only focus is the plan itself. 2. What is the difference between advice-only and engaging in planning with implementation?

First, we need to answer what advice-only financial or retirement planning is. It is comprehensive planning without a product. Regardless of the recommendations in the plan, advice-only planners will not offer or sell you products. No investment products, no life insurance sales. You are paying for advice and strategies in your best interest to help you achieve your goals. Advice-only plans typically cover: cash flow, retirement income, tax planning, estate strategies, and risk management. Commission-based advisors get paid commissions for selling products. Fee-based advisors get paid a fee plus sell products that pay commission. They typically get paid a direct fee or a percentage of assets under management.

Certified Financial Planners are regulated by FP Canada. We adhere to the Standards of Professional Responsibility.

Why is this important?

Compensation drives behaviour. You only need to watch the CBC investigation into bank practices. The employees in the bank make offers and recommendations to clients based on performance goals and compensation, not necessarily a solution based on customer needs.

Who uses advice-only planning?

DIY investors because they want to manage their investments but need help with other areas like taxes, insurance, decumulation, and estate planning.

Clients who do not want to move their investments and other products from where they currently are.

People want to limit the bias in the advice they receive.

People who do not have a large amount of assets understand that they need and want help. Many investment firms have minimum requirements for assets/investments to become their clients. Banks give attention and service to clients with minimal assets(often ignored). Some people have substantial assets in other forms, like real estate, who will benefit from planning. An example is someone who has rental properties and wants to start selling them and turning them into retirement income. They need help because of tax consequences and turning the proceeds into investments and an income source.

People who want a second opinion.

Clients who are more focused on retirement income planning or tax planning or estate planning.

People who want to reduce costs. Paying for a financial plan may cost more now, but you make it back and save money because you can achieve lower fees.

There is no one right way. I believe that most people would benefit from an advice-only plan because you are paying for the advice, and it gives you a road map for a higher likelihood of success. As Mike Tyson said, Everybody has a plan until they get punched in the face. The plan can help you take the punch, plan for the punch, and get back on track. And everyone gets hit, whether it’s a major health event, divorce (increasing at an alarming rate in seniors), job loss, etc.

Imagine walking into a bank and not knowing whether the recommendation is best for you or best for their sales target. Now imagine sitting with someone whose only job is to give you a clear, unbiased roadmap, and then you decide what to do with it.

If I don’t see it, did I really spend it

It is common to hear the advice, save up for it before you buy it, but we live in a world of instant gratifcation and the deck is not stacked in our favour. You often get hit with ads buy now, pay later or there are only two left, or my personal favorite, you will never see this price again (It’s my favorite because three weeks later you see the same price again.). There are points programs on credit cards rewarding our spending with free groceries or free travel. The average balance on a credit card in Canada in Q4 2024 was $4681 and delinquencies are on the rise.

Why the points programs? The credit card companies are for profit organziations so if they are giving you something for free, is it really free? Credit card companies know two things:

1. Usining a credit card means you will spend more than if you paid cash(one study found it to be 160%more).

2. You are twice as likely to make an impulse purchase using a credit card then using cash.

The reasoning is simple, when you pay with a credit card, you feel less pain. Should you stop paying witrh a credit card? Not necessarily. The trick is to trigger the same pain you would feel if you paid cash. The four suggestions I have are:

1. Remove apps from your phone that you make purchases from. It places an extra step to make the purchase. You need to log into your laptop or desktop to make the purchase.

2. Immediately after you make the purchase, make the payment. This way you get your points, you don’t need to carry cash, and you still feel like you spent money.

3. This is my recent discovery and what prompted this blog, use a credit card that shows up on your online banking profile so that everytime you log into online banking, you see your balance. If your credit card is separate, you can avoid looking at it until the bill comes due and it allows the balance to creep up without you feeling it.

4. If you are making a purchase that isn’t a necessity, contribute the same amount to your investment account. This gives you confidence that you can afford the purchase and reward your current self and it also looks after your future self.

We live in a world of ease and comfort and it is usually a good thing. Spending painlessly is not good and can, and is leading to cashflow and debt issues for many Canadians.

Need help getting your cashflow under control, book an hourly seesion we can review it together.