When it comes to managing our finances, we often rely on the expertise of banks and financial institutions or turn to independent financial planners. Both options offer financial guidance, but the approach and incentives behind each can vary significantly. Financial regulators do not have the capacity to oversee the industry, so it is up to the consumers to learn and grow. In this blog post, we will delve into the differences between banks and advice-only financial planning, comparing costs, savings, and the crucial aspect of objectivity. We will also explore the importance of lower fees on investments and how they can impact your wealth over time. This post is in response to a video produced for CBC Marketplace (Hidden Cameras Reveal How Banks Are Upselling You).
The Great Divide – Understanding the Players
Ah, the age-old financial showdown: Banks versus Independent Financial Planners. Imagine banks as the high school jocks of the finance world – popular, everywhere, and somewhat pushy, always trying to sell you a product like it is a ticket to the prom. They are the financial behemoths we have all grown up with, offering everything from your first savings account to that tempting credit card with rewards that sound too good to be true (spoiler: sometimes, they are).
On the other side, enter the advice-only financial planners: the indie artists of money management. These folks do not get kickbacks from selling you the financial product of the week. Nope, they are like that friend who tells you your outfit does not work, but then helps you put together a killer look. They are in it to give you the straight-up, unvarnished truth about your money, tailoring advice to your unique financial dreams and nightmares, sans the sales pitch.
So, what is it going to be? The financial quarterback with slick sales goals, or the bespoke financial guru who is about keeping it real with advice just for you? Remember, one might serenade you with the sweet song of instant gratification (hello, shiny new credit card). At the same time, the other plays the long game, helping you craft a financial symphony that’s music to your ears (and bank account). Choose your financial adventure wisely.
The Cost of Wisdom – Peeking Behind the Curtain
Let us speak frankly—or in this case, dollars, and sense. When you waltz into a bank, looking for financial wisdom, it is like walking into a restaurant where the waiter gets a bonus for every appetizer they upsell. You came in hungry for advice, and suddenly, you were recommended the priciest dishes on the menu. Why? Because those sales targets are not going to hit themselves, folks.
How does this impact our net worth over time? Let us explore the TD Comfort Growth Portfolio with a Management Expense Ratio (MER) of 2.13% and a 10-year return of 5.6 % versus a Robo Advisor at Questwealth with a similar risk at 0.37% fee and a 10-year return of about 7.5% (actually it is almost a full 1% higher than this but I am being generous to the banks or other high fee investment providers). If you invested $500,000 in TD, your final value at year 10 would be $862,202 vs $1,030,000 with Questwealth. Banks tell you the fees do not matter. In fact, we, as commissioned financial advisors, were also taught by our managers that cost is only a concern in the absence of value. What value did your advisor provide that cost you $167,798 over the last decade? Stay tuned for my YouTube video that will show a mind-blowing impact on your finances over a 40-year period.
Now, pivot to the advice-only financial planning scene. Imagine paying a flat fee for a meal and getting to pick anything off the menu, no upselling, no hidden charges for extra seasoning. You get what you need, not what the kitchen needs to sell. This fee-for-service model is like your foodie friend who knows the best spots – you pay for their time, not the number of dishes you order. The transparency is as refreshing as a glass of ice-cold lemonade on a sweltering summer day. You get billed for the financial planning fee and your financial planner serves as a guide to the best investment firm that provides competitive returns at a low cost.
This approach keeps more cash in your wallet and ensures you are not being sweet-talked into financial products or services you do not need. It is about getting advice that fits your life, not filling the pockets of the institution offering it. So, while the banks are playing a game of “how many credit cards can we sell this month,” your advice-only financial planner is in your corner, working out the best way to maximize your moolah.
The Quest for Objectivity – The Heart of the Matter
Ah, objectivity – the holy grail of financial advice. Picture this: you are navigating the choppy waters of your finances, and you need a lighthouse guiding you to safe harbor. Now, who would you trust more? A bank, whose lighthouse might suspiciously flash towards the rocks of high-commission products? Or an advice-only financial planner, whose beacon cuts through the fog, directing you based solely on what is best for your journey?
Banks often play both dealer and the house in the grand casino of financial advice. They have a personal stake in the game, pushing products that might not be the royal flush you are hoping for. It is not that they are twirling villainous mustaches, plotting to drain your coffers. But let us just say their advice might come with a side of “what’s in it for me?” Being in the industry for 13 years, I would argue that the bulk of commissioned advisors struggle with misaligned compensation models, ethics, and moral values. The lack of objectivity and consumer education is exactly why I am an advice-only planner now. I have gotten tired of fighting big companies and their approach.
Enter the advice-only financial planner, the financial world’s equivalent of a noble knight. They have sworn an oath to objectivity, bearing no allegiance to product commissions or sales targets. Their advice is the financial equivalent of pure, unfiltered spring water—refreshing, invigorating, and, most importantly, clear of any muddying interests. Navigating the maze of financial advice without a biased guide might just be your most brilliant move.
The Long-Term Impact – Watching Your Garden Grow
Picture this: you are in the financial equivalent of a green-thumb contest, where every cent saved on fees is a seed for your future money tree. In the grand garden of investments, advice-only financial planners are your eco-friendly, non-GMO, organic fertilizer, ensuring that your green grows without the toxic runoff of excessive fees. On the other hand, banks might as well be using that overpriced, chemical-laden stuff, where the flashy packaging promises growth but does not mention the part about siphoning nutrients (a.k.a. your returns) to pad their own flowerbeds.
As you watch your garden (read: wealth) flourish under the care of an advice-only planner, you can practically hear the cha-ching of healthier returns. It is like opting for a gourmet farm-to-table meal over a fast-food combo; both fill you up, but one does so without the regret and the mystery meat. Remember, in the verdant fields of finance, paying less in fees means more green in your greenhouse, and who does not love a lush, thriving garden that is all envy-worthy and no wallet-weepy?
I am passionate about educating consumers and will keep advocating for fairness, objectivity, and transparency in our messy industry!
