The Myth of “Free” Financial Planning
If you've ever walked into a bank or investment firm and been offered a “free” financial plan, you might have wondered, what’s the catch? The truth is, financial planning is never free. If an institution isn’t charging you directly for advice, they’re making money off you somewhere else. Understanding how financial professionals are compensated is crucial to making informed decisions about your financial future.
How “Free” Financial Planning Really Works
Many banks and investment firms promote free financial planning services as a way to attract clients. These services may include a budget review, retirement projections, or investment recommendations. On the surface, it sounds like a great deal. However, what they don’t tell you is that their business model is built on selling financial products like mutual funds, insurance, or managed portfolios - often with high hidden fees.
Here’s how these so-called “free” plans actually get paid for:
High-Fee Investment Products – Banks and investment firms often recommend mutual funds or managed portfolios with hidden fees that can cost you thousands over time. Many mutual funds charge Management Expense Ratios (MERs) of 2% or more, significantly reducing your long-term returns.
Commission-Based Sales – Advisors at banks and insurance firms often earn commissions when they sell certain products, like segregated funds or insurance policies. This creates a conflict of interest, where the advisor may recommend products based on the commission they receive rather than what’s best for you.
Assets Under Management (AUM) Fees – Many financial advisors charge a percentage of the assets they manage for you, typically 1%–1.5% per year. While this might not sound like much, it means that over time, you could be paying tens or even hundreds of thousands of dollars in fees, even if little to no actual financial planning is being done.
Who Really Pays for "Free" Advice? You Do.
While you may not see an upfront bill, the cost of “free” financial planning adds up over time:
✅ If you have $500,000 invested with an advisor charging 1.5% AUM, you’re paying $7,500 per year in fees. Over 20 years, that could add up to more than $250,000, money that could have been invested or spent on your goals.
✅ If your mutual fund has an MER of 2.25%, you could be losing 40% or more of your potential investment gains to fees over a lifetime.
✅ If an advisor recommends a high-fee insurance product with hidden commissions, you may be locked into a costly contract that benefits them more than you.
The Alternative: Transparent, Fee-Only Financial Planning
Advice-only (fee-for-service) financial planning provides an alternative to the traditional commission or AUM-based model. Instead of charging fees that are embedded in products or tied to assets, advice-only planners charge a transparent, upfront fee for their expertise, just like you would pay for legal or accounting services.
With an advice-only planner, you get:
✅ Unbiased recommendations – No commissions, no product sales, no conflicts of interest.
✅ Flat or hourly fees – You pay only for the advice you receive, not based on how much money you invest.
✅ Holistic planning – A comprehensive approach that covers your full financial picture, not just investments.
✅ Lower long-term costs – Instead of paying high annual fees, you receive expert guidance at a fair and transparent rate.
Make Sure You’re Getting Real Advice—Not a Sales Pitch
If a financial planner offers to create a plan for “free,” ask yourself:
How are they really getting paid?
Are they recommending a product that benefits them more than me?
Will this plan still work for me if I take my money elsewhere?
True financial planning isn’t about selling products, it’s about empowering you to make the best financial decisions for your future. Don’t fall for the myth of free financial planning! Real financial advice is always worth investing in.