The title “Fee-Only Financial Planner” is pretty intuitive and essentially describes a financial planner who operates on a fee-only basis. This means that they will collect fees as a percentage of your assets that they are managing. Note that
Fee-only financial planners do not receive any sort of commission for recommending or selling you various products. This is beneficial because it lowers the chances of the advisor having a conflict of interest. Essentially, your financial advisor can fulfill their role as a trusted fiduciary when they operate on fee-only and will always have your best interest.
Pros of Fee-Only Financial Planners
- Have your best interest at heart, as they make money based on how much you earn with your investments
- Offer a wider range of solutions to help you reach your goals
- Not trying to sell or pitch products to you every time you meet with them
- Operate as a trusted fiduciary and are likely more motivated to see you succeed
Cons of Fee-Only Financial Planners
- Fees may be higher than advisors who operate on commissions
- May limit their suggested solutions to one they know will generate the most money
- Offer fewer services because they are not commissioned to sell things like insurance, securities, etc.
What Do They Charge?
The primary method that fee-only financial planners use to charge their clients is taking a percentage of the assets they manage. This means that every quarter, a percentage of your money will be withdrawn from your account.
Another method one might use is to charge an hourly/monthly rate. This can be beneficial because you know that you are paying for what you get. However, you do not want to feel hesitant to make a quick phone call to your advisor out of fear of being charged.
There are a variety of charging methods that fee-only financial planners may use, but the exact cost depends on the specific services you want. More experienced advisors who work with only high-net-worth clients will likely charge much higher fees than less experienced advisors at smaller firms. The ranges very greatly, so before you choose an advisor, make sure you understand their charges and if they match your needs.
Fee-based financial planners are another type of advisor you could work with. Although this title seems similar to “fee-only”, there is actually a distinct difference between the two.
Fee-based financial planners get paid directly by clients also, but can receive additional compensation from product and investment commissions.
Unlike fee-only financial planners , conflicts of interest may arise for fee-based advisors. This is because commissions create an incentive for advisors to recommend products that will earn them money, even if they are not the best for their client. However, fee-based advisors are required to follow the “suitability rule”, meaning the products that they recommend to their clients have to suit their needs.
Finding a Trusted Fee-Only Financial Planners
It is important to develop a relationship with your financial advisor because you want to be able to trust them with an important part of your life. This being said, it can be difficult to know where to look for advisors and how to vet them.
We have listed several possible outlets to find a trusted advisor:
- Start by asking you friends, family and colleagues. If you can trust those people, then you will likely trust the people that they recommend.
- There are automated platforms where you search for advisors in your area and filter them based on what you are looking for.
- The Certified Financial Board (CFP) has a directory for you to search for advors with the proper certification. This ensures that the advisor is experienced and educated to serve your needs.
Once you have found a list of potential fee-only financial planners through these platforms, you should try to do background research on them. Find online reviews and try to come up with any background information. This will help you narrow it down even further.
Then, you can schedule meetings with this short list of advisors to briefly discuss your situation and get a better feel of what they will be like to work with. Finally, once you narrow it down to the one financial planner you want, it is safe to sign a contract and begin working with them!