Financial Planning Costs in Canada: 6 Ways Canadians Can Get a Financial Plan
1.0 Introduction
1.1 The importance of financial planning in Canada
The Canadian financial system is often held in high regard, largely due to the financial regulations and consumer protections that the government has put in place (CBA, 2024). Canadians are a pragmatic people who strongly value their sovereignty, and our robust financial system has enabled us for many years. Given this, financial planning should be an integral part of every Canadians’ life.
A financial plan is a tool used to acquire and maintain wealth, and to ultimately aid in achieving financial freedom. Financial freedom should be thought of as financial sovereignty. Thought of this way, the importance of financial planning to a Canadian should be quite clear.
According to the Financial Consumer Agency of Canada (FCAC), this doesn’t seem to be the case. In Canadians and their Money: Key Findings from the 2019 Canadian Financial Capability Survey (FCAC, 2019), the FCAC states that only 24% of Canadians sought advice about general financial planning and 18% about retirement planning.
While financial planning should be an important aspect of Canadians’ lives, it doesn’t seem to always be the case. Where is the disconnect? Well, as with any activity, one of the most common limiting factors is time. As with many things in today’s economy, money is one of the other major limiting factors. It is most likely the case that time and money factors have limited Canadians’ access to financial planning.
1.2 The evolving landscape and factors influencing accessibility
While financial planning through a wealth manager or a fee-only financial planner has been available to Canadians for well over 25-years, advances in technology have all but removed the limits that time and money impose on accessing financial planning.
Advances in technology have increased accessibility to financial planning by offering do-it-yourself solutions, enhanced tools for professionals, artificial intelligence integration, and virtual/remote meeting capabilities.
There are more options available to Canadians now than there has ever been before.
2.0 Ways Canadians Can Access Financial Planning
2.1 With a Bank Advisor
One of the most readily available methods of getting a “financial plan” is with a bank advisor at one of Canada’s large financial institutions. Bank advisors are a dime a dozen and are readily available to meet with you to sell you a mutual fund or complete a retirement plan.
The focus of the financial planning is predominantly on retirement planning, and should not be considered holistic, as the planning advice offered by mutual fund salespeople often focuses on shortfalls in retirement savings that could be mitigated through mutual fund investing.
The cost of the financial plan is “free”, in the sense that there is no explicit or upfront cost for the financial plan. It is entirely possible to complete a plan and not purchase mutual funds. However, if you get sold on the mutual funds, then the financial plan is anything but free and the costs are baked into the investment fee.
Bank advisors sell Series A mutual funds. The average management expense ratio (MER), or investment fee, across all series A mutual funds from RBC, TD, BMO, and BNS, is 1.88%. Assuming a mutual fund investment portfolio ranging from $500,000 to $1,000,000, the annual investment cost would range from $9,400 to $18,800 per year.
So, while the financial plan is “free”, the actual costs of the advice are priced into the series A mutual funds.
A financial plan from a bank advisor (along with a potential mutual fund investment), seem to be best suited for individuals seeking convenience, integrated banking services, and minimal personal involvement.
Pros:
- Potentially low cost.
- Accessible (there are banks in most Canadian cities/towns).
Cons:
- Financial plans are limited in scope, and are not holistic/comprehensive, often with a heavy focus on retirement planning and mutual fund investing.
- Investment fees can be quite costly.
Costs:
- While the financial plans are usually of no cost, if you were to hold a mutual fund investment portfolio of $500,000 to $1,000,000, then you could expect a cost of $9,400 to $18,800 per year.
2.2 With a Wealth Manager
One of the most comprehensive ways to get a financial plan is through a wealth management firm. These firms provide access to financial planning and investment portfolio management, often requiring a minimum investment portfolio of $500,000 or $750,000 to be eligible for their services.
Clients benefit from a team of professionals, including dedicated financial planners or centralized financial planning team. Wealth management firms offer a range of services such as financial planning, portfolio management, estate planning, and sometimes accounting services.
The costs associated with wealth management firms typically follow an assets-under-management (AUM) model, where a percentage of the assets held is charged as the annual fee. For example, with an investment portfolio of $500,000 to $1,000,000, you could expect an annual AUM fee of about 1.25%, translating to $6,250 to $12,500 annually. Larger portfolios, such as $4.5 million, might have a lower AUM fee of around 0.85%.
Wealth management firms are best suited for high-net-worth individuals seeking comprehensive financial planning and portfolio management.
Pros:
- Access to a team of professionals
- Comprehensive financial planning and management
- Range of services including estate planning and accounting
Cons:
- High minimum investment threshold
- Annual fees based on portfolio size
Costs:
- Annual AUM fee of 1.25% for portfolios between $500,000 to $1,000,000, scaling down for larger portfolios. You could expect an annual fee of $6,250 to $12,500.
2.3 With a Fee-Only, Advice-Only Financial Planner
Fee-only, advice-only financial planners offer a unique approach to financial planning. Their services are not tied to investment management fees, and there is no requirement for investable assets. This means that the financial planning advice provided is unbiased, as these planners are not required to sell investment or insurance products.
Clients can expect personalized financial planning for an upfront flat fee, without portfolio management services. The costs associated with fee-only financial planners typically range from $3,000 to $6,000 for a complete financial plan. This fee is one-time, not annual, and many planners offer a reduced fee for updating an existing plan, typically done every five years. Assuming a financial plan costs $3,000 to $6,000 every five years, this equates to an annual cost of $600 to $1,200.
For those managing a self-directed ETF portfolio of $500,000 to $1,000,000, the average management expense ratio (MER) is around 0.25%, or $1,250 to $2,500 annually. Combined with a fee-based financial plan, the annual cost with this setup would be under $4,000.
Fee-only, advice-only financial planners are best suited for individuals seeking transparent and unbiased financial advice, particularly self-directed or DIY investors.
Pros:
- Unbiased financial advice
- No minimum investable assets required
- Transparent fee structure
Cons:
- No portfolio management services
- Upfront costs for financial planning
Costs:
- One-time fee of $3,000 to $6,000 for a complete financial plan, equivalent to $600 to $1,200 annually when updated every five years.
2.4 DIY Financial Planning with Software
DIY financial planning software and tools are becoming increasingly available as technology evolves. However, these tools are often limited in scope, offering only basic financial planning functionalities.
While financial planning software can be cost-effective and user-friendly, it is important to note that it can be time-consuming and lacks expert insight. The scope of financial planning may be limited, which can be a significant drawback for those seeking comprehensive advice.
The costs associated with financial planning software vary. Some options have annual subscription fees up to $200 per year, while others offer one-time purchases ranging from $40 to $100.
DIY financial planning software is best suited for tech-savvy individuals who are comfortable managing their own finances and have the time to dedicate to financial planning.
Pros:
- Cost-effective
- User-friendly
- Increasingly available options
Cons:
- Time-consuming
- Lacks professional oversight
- Limited scope of financial planning
Costs:
- Annual subscription fees up to $200 per year
- One-time purchases ranging from $40 to $100
2.5 Through an Employer or Community Sponsored Program
These programs offer a range of services, including financial planning, workshops, seminars, and advisor meetings. The costs associated with these programs are often minimal or free. Community-sponsored financial planning programs are usually free for the beneficiary or offered at a reduced cost. Employer-sponsored financial planning programs are included in the employment benefits package.
Employee-sponsored and community programs are best suited for individuals seeking accessible and affordable financial planning resources.
Pros:
- Accessible and affordable
- Range of services including workshops and seminars
- Often free or low-cost
Cons:
- May not offer comprehensive financial planning
- Quality and scope of services can vary
Costs:
- Community-sponsored programs are often free or at a reduced cost
- Employer-sponsored programs are included in the benefits package
2.6 Through Government Resources
The Government of Canada provides several resources for financial planning and financial wellness, promoting financial literacy through educational resources and tools.
These services include financial literacy programs, online tools, and educational materials. The Financial Consumer Agency of Canada (FCAC) offers a comprehensive financial toolkit with modules on financial planning, budgeting, saving, investing, and more. This toolkit includes videos, worksheets, checklists, and templates to help Canadians create and manage their financial plans.
The Canadian Retirement Income Calculator helps Canadians estimate their retirement income from various sources, including the Canada Pension Plan (CPP), Old Age Security (OAS), and personal savings. Service Canada provides information and resources on financial planning for older Canadians, including guides on creating a financial plan, understanding government benefits, and managing retirement income.
The Canada Revenue Agency (CRA) offers resources on tax planning, including information on Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), and other tax-advantaged savings options. The CRA also provides tools to help Canadians understand their tax obligations and optimize their savings.
The Financial Literacy Database, managed by the FCAC, offers a wide range of financial literacy resources, including articles, tools, and programs to help Canadians improve their financial knowledge and skills.
These government-provided resources are free and best suited for individuals seeking basic financial planning assistance and education.
Pros:
- Free resources
- Comprehensive financial literacy programs
- Wide range of tools and educational materials
Cons:
- Basic financial planning assistance
- May not cover complex financial planning needs
Costs:
- Free
3.0 Conclusion
Financial planning is essential for achieving financial freedom and should be accessible to all Canadians. With various options available, including bank advisors, wealth managers, fee-only planners, DIY software, employer-sponsored programs, and government resources, Canadians can find a solution that fits their needs. Promoting accessibility to these resources ensures that everyone can make informed financial decisions and achieve their goals.
4.0 Summary
|
Source of Financial Planning |
Cost (annual for $500k to $1million portfolio) | Pros |
Cons |
| Bank Advisor | No upfront cost; MER of 1.88% for mutual funds. $9,600 to $18,800 annually. | Potentially low cost; Accessible in most Canadian cities/towns | Limited scope; Focus on retirement planning; Investment fees can be costly |
| Wealth Manager | Annual AUM fee of 1.25% for portfolios between $500,000 to $1,000,000. $6,250 to $12,500 annually. | Access to a team of professionals; Comprehensive planning; Range of services | High minimum investment threshold; Annual fees based on portfolio size |
| Fee-Only, Advice-Only Financial Planner | One-time fee of $3,000 to $6,000; Equivalent to $600 to $1,200 annually | Unbiased advice; No investable assets requirement; Transparent fee structure | No portfolio management services; Upfront costs for planning |
| DIY Financial Planning Software | Annual subscription up to $200; One-time purchase $40 to $100 | Cost-effective; User-friendly; Increasingly available options | Time-consuming; Lacks professional oversight; Limited scope; Inadequate for comprehensive planning |
| Employer or Community Sponsored Program | Often free or at reduced cost | Accessible and affordable; Range of services including workshops | May not offer comprehensive planning; Quality and scope can vary |
| Government Resources | Free | Free resources; Comprehensive literacy programs; Wide range of tools | Basic planning assistance; May not cover complex needs |
5.0 Resources
Financial Consumer Agency of Canada (FCAC) Financial Toolkit
The Canadian Retirement Income Calculator
Service Canada Financial Planning for Older Canadians
Canada Revenue Agency (CRA) Tax Planning Resources
FCAC Financial Literacy Database
6.0 Sources
CBA, 2024. Canadian Bankers Association: Understanding Canadian banking regulations and global banking standards (https://briefings.cba.ca/article/global-banking-regulations-and-banks-in-canada).
FCAC, 2019. Canadians and their Money: Key Findings from the 2019 Canadian Financial Capability Survey (https://www.canada.ca/en/financial-consumer-agency/programs/research/canadian-financial-capability-survey-2019.html).
7.0 Appendix
7.1 RBC Series A Mutual Funds and Their MERs
Average MER for all RBC Series A Mutual Funds
- Average MER: 1.81%
Lowest and Highest MERs for all RBC Series A Mutual Funds
- Lowest MER: RBC Canadian T-Bill Fund (RBF262) – 0.35%
- Highest MER: RBC Select Choices Aggressive Growth Portfolio (RBF569) – 2.56%
Source: https://www.rbcgam.com/en/ca/products/mutual-funds/?series=f&tab=overview
7.2 BMO Series A Mutual Funds and Their MERs
Average MER for BMO Series A Mutual Funds
- Average MER: 1.87%
Lowest and Highest MERs for BMO Series A Mutual Funds
- Lowest MER: BMO Aggregate Bond ETF Fund (BMO 99322) – 0.65%
- Highest MER: BMO SelectTrust Equity Growth Portfolio (BMO 99485) – 2.58%
Source: https://bmogam.com/ca-en/products/mutual-funds/fund-list/
7.3 TD Series A Mutual Funds and Their MERs
Average MER for TD Series A Mutual Funds
- Average MER: 1.92%
Lowest and Highest MERs for TD Series A Mutual Funds
- Lowest MER: TD Canadian Money Market Fund (TDB305) – 0.39%
- Highest MER: TD Emerging Markets Fund (TDB313) – 2.77%
Source: https://www.td.com/ca/en/asset-management/funds/solutions/mutual-funds
7.4 BNS Series A Mutual Funds and Their MERs
Average MER for BNS Series A Mutual Funds
- Average MER: 1.92%
Lowest and Highest MERs for BNS Series A Mutual Funds
- Lowest MER: Scotia Money Market Fund (BNS357) – 0.80%
- Highest MER: Scotia Partners Maximum Growth Portfolio Class (BNS1349) – 2.54%
Source: https://www.scotiafunds.com/en/home/all-funds.page.1.html