There is a lot of confusion about what fee-only actually means and what such planners can and cannot do for do-it-yourself investors.

While MoneySense is intended to help empower individual investors, it’s a rare person that needs absolutely no financial help or advice. This blog continually makes the point that while self-directed investors can lower costs by buying index funds or ETFs at discount brokerages, that doesn’t mean they have to forgo financial planning help, advice or guidance.

Over the last decade or so, there has been a gradual shift from commission-based financial advice to fee-based advice. That is, instead of paying a traditional stockbroker commissions to buy a stock (or ETF these days) and then pay again to sell them, the industry is moving to a fee-based model that imposes an annual fee based on percentage of client assets: typically ranging between 1% and 2%. That is, on a $100,000 portfolio, you might expect to pay between $1,000 and $2,000 a year in fees, often via traditional mutual funds, wrap accounts or investment counsel. Not a bad deal at that level of wealth, if you’re getting good advice on asset allocation, security selection, financial planning, insurance and estate planning and the whole gamut of financial advice.

The problem is that at greater levels of wealth — and sometimes greater financial sophistication on the part of clients — high fees start to add up: 2% of a million-dollar portfolio is $20,000 a year. Little wonder investors are trying to cut that down in this era of ultra-low interest rates and volatile stock returns. Fortunately, the industry usually starts to taper fees down at such levels of wealth. I’d regard 1% as reasonable but that’s still $10,000 a year.

Many MoneySense readers are tempt to go it alone by picking their own stocks and bonds, or ETFs, at discount brokerages. Our Feb/March 2013 issue catered to this audience with the first annual feature on the ETF All-Stars. Then in the June 2013 issue, we introduced another new feature: Canada’s Best Discount Brokerages. Both features were written by editor at large Dan Bortolotti, who also writes our popular Index Investor column and his own Canadian Couch Potato blog.

These investors will find Bortolotti’s book, the MoneySense Guide to the Perfect Portfolio, invaluable. It’s a terrific introduction to indexing and discount brokerages. But as even he has discovered, many of these investors may still need some help or guidance in choosing ETFs, settling on an appropriate asset allocation, rebalancing or even with financial issues that go well beyond managing investment portfolios — more holistic challenges like tax-efficient withdrawal strategies, insurance and estate planning, debt management and the like.

Such investors are often tell to find a fee-only financial planner and MoneySense has catered to this by providing an online directory that points out fee-only advisors here. But there is a lot of confusion about what fee-only actually means and what such planners can and cannot do for such investors. In practice, our list of supposedly fee-only planners includes some who appear to be predominantly fee-base or — a term I prefer — asset-based.