Working with a Fee-Only Financial Planner – The Pros and Cons
There’s more than one way to get financial advice. But you pay for it one way or another. Here are the pros and cons of working with a fee-only financial planner.
And the Alternative to a Fee-Only Financial Planner is…?
Your fee-only financial planner earns their compensation for providing services only. There is no commission, kick-back, referral fee or other hidden payment when they recommend you invest in certain products. A fee-based financial planning always has a fiduciary duty to act in your best interests. So, the fee-for-service financial advisors structure reduces the potential for conflicts of interest.
One alternative to a fee-only advisor is a financial planner paid on commission. This type of advisor earns their income on each product they sell and account they open. Commissioned advisors focus on making the transactions that equal more compensation for them. Brokerage and mutual fund firms and insurance companies often pay commissions to the advisors to promote their products.
The second alternative to a fee-only advisor is a fee-based financial planner. Don’t confuse this with fee-only planners, because these two kinds of advisors do operate differently. Fee-based advisors collect commissions from the companies to promote their products. But they also charge clients a fee in addition.
Fee-Only Financial Planner – The Pros
Working with your fee-only financial planner means knowing they serve your best interests. They don’t rely on the products you buy to make their paycheck. They operate as a fiduciary, which guarantees they work for you, and only you. No pushing a strategy or product because they simply help you with your finances.
While it doesn’t completely guarantee you always get the best advice, it does improve the odds. Because they are without ties to any particular companies, a fee-only financial planner usually offers a broader range of solutions. This gives you more choices for how to reach your goals.
Fee-only advisers charge you an hourly rate. So, they help with as little or as much as you need. Ask questions about one investment, one tax law change, or develop a completely new financial plan. And pay only for the time you use.
Sometimes, a fee-only adviser charges you a percentage on the assets they manage for you. That might create a slight incentive for larger investments, so they continue earning their percentage.
Fee-Only Financial Planner – The Cons
It sounds like it should be all good, but there are some downsides to working with a fee-only financial planner. Firstly, the fees might add up to more than what you would pay an advisor who also earns a commission. Plus, a fee-only financial planner may offer fewer services than someone who sells insurance or securities, too. This eliminates conflicts of interest, but it means you need another rep to execute your stock trades and to buy insurance.
In Summary – What to Do? What to Do?
Don’t get overwhelmed searching and wondering about picking a bunch of financial planners. Generally, start with a fee-only financial planner. So, that way, you begin with a guaranteed fiduciary responsibility. They won’t have incentives to pressure you to buy their favorite products or services for the commissions. The payment method is completely transparent and upfront. And although getting professional financial advice seems expensive, it is worth it to successfully manage and plan your finances.