The overlooked fee based financial advisors

There’s a lot of confusion around the terms financial planners and financial advisors. Who does what? How do they get paid? Do they do investment advice? Help you with budgeting? Something else?

In years past, financial planners and/or advisors were often sales reps in the financial sector, generally offering the sale of investment products. Many of them offered additional services such as budgeting and investment planning to increase their value. But still, confusing reigned. For example, a life insurance agent could sell you life insurance policies and seggregated funds, and then bill themselves as a financial advisor or financial planner.

But that’s changing. The regulators are stepping in and placing some pretty decent requirements on being able to call yourself a financial planner. For people in the financial sector that want to use these terms, a fairly hefty set of educational requirements is being implemented.

Financial Coaches

In this article, I actually wanted to address a segment of fee based financial advisors that is often overlooked – fee based financial coaches. These are the folks that don’t sell insurance, mutual funds, or really anything other than their advice. And that advice is often focused on budgeting, savings, and general (and non-specific) investing advice. They’re the folks that you would use if you’re basically trying to get your financial house in order – pay a flat fee, and get expert level advice on your entire financial life from paycheque to spending to savings.

Many of them in the past have been referred to as financial advisors, even though they don’t sell investments. And since the term financial advisors is now being regulated, this segment of the industry will have to different themselves from that term. They’re doing that now, by calling themselves financial coaches. The curious thing is, that many of these types of financial coaches are very educated and experience so they already meet the requirements to call themselves financial advisors.

What does a fee based financial coach do?

Fee based financial coaches assist you with all aspects of your financial life, from earnings, to budgeting, to savings and spending. And there’s synergy between these tasks that are also important, i.e. how do you find the money to invest for retirement, if you’re not budgeting properly? Financial coaches help with that.

The core of what they do is budgeting. This sounds easy, there’s a billion online resources for budgeting. But in reality, it’s not that easy. Budgeting, particularly within a family setting, is a lot more about emotion and control (or lack of control) than it is about money – it’s an extremely emotional subject for most families. You’re spending money on your hobby, I should be able to spend money on mine. You spend money on coffee every day…well, you spend money on (insert something else). Families can’t budget in that environment, and they cant’ control their finances when they’re being dictated by emotion. The good news is that a fee based financial coach helps you remove the emotions, and get both you and your partner on board with budgeting – they’ll get you both pulling in the same direction.

They’ll also act as a reasonability test. How much should spend on hobbies? On vacations? On groceries. A fee based financial coach will not only be able to tell you what’s reasonable, they’ll be able to tell you how you can determine what’s reasonable for you.

At the end of the process ,what you should have is less of a ‘budget’ telling you what you can’t spend and instead, having control over your finances. Undestanding where you’re spending money, making decisions and tradeoffs on where you spend your money and being in control of that. If you want to spend money on something you want, you’ll be able to do so because you’ll understand that the money spent there, is being removed from something else – and you can make the decision to make that trade.

What a fee based financial coach won’t do is give you specific investing advice. They’ll coach you on what you should be looking for for your savings, but won’t tell you to buy or sell apple stocks.

How are fee based financial coaches paid?

Fee based financial coaches often have a flat fee per year, that they charge annually. You should expect to pay in the range of $3000 for a year’s consultation, give or take, and paid monthly.

The good news is that you should expect a savings in your budget even greater than the cost of their service. By the time you’re done budgeting, you’ll have uncovered all the wasteful unknown spending you’re doing, and if you’re considering a financial coach that unknown spending is likely well over the $3000 that they charge.

My spouse and I hired a fee based financial coach years ago and yes, they more than paid for themselves. One item alone more than paid for their fees – eating out. We didn’t eat out excessively, just occassionally when we wanted a treat, or were too lazy/tired from work. When we totalled up how much we spent on takeout and restaurants, I was horrified – I’m not even going to post the number here it’s that embarrassing. And again, it wasn’t excessive. We still eat out, but a LOT less than we did before.

(Note, I actually got a bit excessive with not eating out. I love McDonalds coffee but I got quite cranky with myself about spending money on takeout so for a year or two I wouldn’t even treat myself to a coffee. I eventually relented, and now am quite happy to have a coffee when I want one – because I know I can afford it and I know the tradeoffs.).

In the end, if you’re struggling with budgeting and unable to sort through the emotions with your spouse, I recommend (heck, even urge you) you to hire a fee based financial coach to get your financial life sorted out. Rather than recommending you one specifically, I’ll post a link to one of Canada’s larger firms in this area Money Coaches Canada.