FP Answers: What is the difference between a financial plan and an investment plan?

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Don has $ 800,000 in investment. He wants to set lifestyle goals, but also have a long-term roadmap for the right investment strategy

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Julie Cazzin A complete financial plan should take into account all the components of financial planning. A complete financial plan should take into account all the components of financial planning. Photo by Getty Images / iStockphoto files

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By Julie Cazzin, with Doug Robinson

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Q: What does it cost to have a financial plan drawn up? How about an investment plan? And what exactly is the difference? I’m 39 years old with around $ 800,000 in cash (excluding my house) and think it is time I had both. – Thank you, Don P.

FP ANSWERS: You ask an insightful question, Don. It seems simple, but there will be many different answers from different companies and consultants in our industry.

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Too often an investment manager hides in advisory clothing. More specifically, customers have the illusion that simply buying a manager’s assets will give them a complete plan. The confusion this creates leads to big questions like the one you asked and fueled a debate about the level of fees charged. Additionally, there are regulatory concerns in the industry on this issue, leading to advisor title reform measures aimed at providing more clarity for consumers.

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Let’s start by defining a financial plan based on what it is not. It is not a 50-page printout of a financial planning software package that includes charts and graphs in addition to text templates that you or your advisor have never known before. It is not about buying insurance products. It is not selling a Registered Retirement Plan (RRSP) or Tax Free Savings Account (TFSA) in a retail store, nor is it a portfolio of mutual funds that you buy from a nice person.

A financial plan can include any of these elements, but an effective plan is one that you both generally understand and implement. You don’t have to understand everything. Usually very few people want to know all the details. Some people appreciate having everything in writing, but many just want a brief summary and enough personal conversation to get the relevant points clearly explained.

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A complete financial plan should take into account all the components of financial planning:

  1. Cash Management Plan: Income, Savings and Expenses, and Managing Debt more effectively;
  2. Estate planning: have appropriate wills and power of attorney documents that accurately reflect your wishes and review of ownership structures and beneficiary designations to ensure they do not conflict with those documents;
  3. Investment planning: creating an appropriate investment plan that is tailored to your risk appetite and takes into account your risk appetite;
  4. Retirement Plan: Plan how much you want to save for retirement and spend on retirement, and use the best vehicles (RRSPs, TFSAs, corporate savings, unregistered savings) to achieve the goals you set;
  5. Risk Management Plan: It is generally best to take out insurance for events with a low probability of occurrence but very serious consequences. Events such as disability or death require income replacement for your family;
  6. Tax Plan: Every Canadian has the right to organize their affairs to pay the lowest possible taxes while complying with the country’s tax laws.

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Other planning areas may need lifelong addressing, including education for children or grandchildren, marriage, divorce, second marriages, apartment buildings, charitable giving, and corporate succession planning.

A financial plan begins with the planner knowing all the up-to-date details on each component and preparing your financial statement. But most importantly, the client and the planner need to define each person’s priorities and goals. Unfortunately, this is seldom easy as most people have not thought out this task carefully or have well defined their future. (I don’t even know when to retire.)

You can hire a paid planner to bill for this service, and you can find a flat fee for all components between $ 3,000 and $ 10,000 or more. Some planners offer component service and may only charge for a retirement plan. Other planners charge an hourly rate that can vary widely, but $ 100 to $ 400 an hour would cover most of the range.

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  1. It is difficult to do without a defined contribution pension.

    FP Answers: What’s the best long term strategy to invest in a retirement plan versus a TFSA?

  2. Expert Says Annie should invest her monthly mortgage payment in an RRSP.

    FP Answers: How should I invest the extra $ 2,000 a month after my mortgage is paid off?

  3. None

    FP Answers: How do I know if I’m saving and investing too much?

Don, you asked about the difference between a financial plan and an investment plan. First of all, you will find that an investment plan is only one part of a complete financial plan. The price of an investment plan is usually built into the cost of managing the assets. A good money manager creates an investment plan and calculates 0.75 percent to one percent of the assets to manage the money. The problem is that the fees are often much higher (1.25 percent to 2.5 percent and more) and little additional financial planning advice is provided for that extra money.

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The industry is also fragmented. Banks offer cash management and debt financing, lawyers draw up wills and powers of attorney for estate planning, and all of them offer investment advice because that’s where they make the most money. Certified Financial Planners (CFPs) offer a wide range of values ​​for retirement planning, insurance agents prioritize insurance, and accountants prepare taxes. Most of these are one-off events, but financial planning is an ongoing relationship that should last for years.

At 39, with $ 800,000 in fixed assets (well done), you have enough cash to have both an investment and a financial plan. The price you pay shouldn’t be the focus; the value you get should be. A financial planner should have the CFP designation. An investment manager should be called a Chartered Investment Manager (CIM) or, better still, a Chartered Financial Analyst (CFA).

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My suggestion is to find a company with people who have these names who you can build a relationship with over the years. You need to feel comfortable with and trust your advisor (s), and he / she needs to be able to explain complex issues in a way that you can understand.

You are on the right way. I wish you every success in your search for the right law firm or the right consultant (s). Set high standards, be patient and only be satisfied when you have found the right partner.

Doug Robinson is a certified financial planner and investment advisor with Veritable Wealth Advisory in Peterborough, Ontario. Veritable Wealth Advisory is a full-service financial planning and investment firm employing several certified financial planners and portfolio managers with offices in Burlington, Kingston and Peterborough. Veritable has advisors specializing in retirement planning, tax planning, and estate planning, and most works with professionals, business owners, and wealthy retirees.

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