What is a fee-only financial planner, and why should I care?
3 minute read
The way your financial planner is compensated can make a big difference in the advice and recommendations you get. One way to align your financial advisor’s interests with your own is to be the financial planner’s only source of income.
There are three basic ways financial advisors get paid:
Fee-Only
Commissions
Fee-Based
Fee-only
A fee-only financial planner typically only accepts compensation in the form of an hourly rate, a fixed percentage of assets (investments) under management (AUM), or a flat dollar fee. Fee-only advisors don’t sell investment or insurance products that offer them commissions and typically operate under a fiduciary standard that holds the client’s best interests above all else.
Another way to identify a fiduciary is by their credentials. A CERTIFIED FINANCIAL PLANNER™ is bound by a fiduciary duty as a requirement to hold the designation, which is one of many reasons to make sure your advisor is a CFP®
The fee-only method of compensation is the most transparent and objective method available. This model minimizes conflicts and ensures that your financial planner acts as a fiduciary. Fee-only planners are compensated directly by their clients for advice, plan implementation, and the ongoing management of assets.
Commissions
Investment advisors or broker-dealers may receive a commission when they sell certain financial products. You can think of commissions as kickbacks from companies that provide the products (annuities, mutual funds, life insurance, etc.).
There are some very good advisors that are paid with commissions, but the problem is that commissions can create conflicts of interest for the advisor that constantly tests their moral compass. Commission-based advisors operate under a suitability standard that simply requires an investment recommendation or solution to be suitable for a particular situation. Just because it’s suitable, doesn’t mean it is the only or best option.
Fee-based
Not to be confused with fee-only. Advisors who operate under a fee-based model represent a hybrid between fee-only and commission-based models. They may sell you a product while collecting a commission, and they may charge you a fee for managing your portfolio. This is typical of your ‘big bank’ advisors. Because fee-based advisors can go between “fee” and “commission” pay structures, this can be quite confusing for a client.
It is important to distinguish if an advisor is fee-only or fee-based. They mean two very different things.
Modern Money Management
I am a proud fee-only advisor and do not receive any commissions or incentives. By being an independent, fee-only advisor, I am able to evaluate solutions across the entire financial universe and am not limited to one bank or financial institution’s products.
I take my fiduciary duty very seriously. Everything I do, from the advice I give to the services I provide, is with your best interest in mind. I act as a fiduciary because I am committed to helping you build a better life, where you can save more for the future and can make the most of your money.
Contact me to get started.