For smart consumers, here is another important topic to understand:
A “fee-based” financial planner is not a “fee-only” financial planner.
A “fee-only” financial planner is one who gets paid exclusively by the client. There are no commissions. The client pays for the planner’s services either by the hour, project or plan. Some fee-only planners also manage assets, charging a percentage of “assets-under-management.” This percentage varies, but there are no commissions on products because the fee-only planner does not sell products. If a product is needed to complete a plan, the fee-only planner usually recommends a no-load or low-cost solution.
A “fee-based” financial planner can collect fees from a client but also receives commissions. They may charge fees to create a financial plan and/or to manage assets, but they are compensated from third parties for selling products. Some do a fee-offset, where they adjust their planning fee if client purchase products, or they charge either a commission or a fee, but not both at the same time.
While there are knowledgeable commissioned-based financial planners out there, the problem is the built-in conflicts-of-interest that exist with the commission-based way of doing business. We believe that when a planner’s income (or even a part of it) is derived from the sale of financial products, insurance, or third party relationships with vendors that offer special perks for promoting their products, it is likely that their thinking and recommendations will be influenced.
If a consumer selects a fee-based financial planner, they need to understand how much the planner will be compensated. This information is needed in real dollar and cents and not just quoted in percentages. Once the consumer knows how much they have directly and indirectly paid the planner (and will pay, such as with deferred loads and trailing commissions) and how much the planner has collected from third parties, only then can the consumer accurately assess if the services received are worthy of the payments.
Remember, fees and commissions come out of your investments. The more taken out, the less you have available to put to work for your life goals.
To talk with us, you can arrange a Get Acquainted Teleconference by booking on-line, calling us at 312-528-9077 or sending an email request.