If a financial planner or financial advisor offers fee-only, it means that they receive compensation solely from the fees that clients pay for their services. They do not earn commissions or kickbacks for recommending certain products. A fee structure reduces potential conflicts of interest, which is why these types of advisors are often preferable. To find a financial advisor who serves your area, try SmartAsset’s free matching tool.
What is a Paid Financial Planner?
Paid financial planners are advisors who operate on a paid basis to create budgets, plan for retirement, pay off debt, and set goals to achieve other financial milestones. They usually collect fees from you only as a percentage of your assets under management. Paid advisors do not receive any fees, commissions, referral fees, kickbacks or any other form of hidden compensation.
This payment structure can reduce the risk of the advisor encountering a conflict of interest. Paid financial planners do not earn additional compensation by recommending one investment product over another. In fact, fee-based financial planners work under their fiduciary responsibility, which means they must act in the best interest of their client.
Advantages and Disadvantages of Paid Financial Planners
The best part of working with a paid financial planner is knowing that they are there to serve your best interests. They are there to help you with your finances, not theirs, because paid advisors don’t rely on what they sell to you to make money. They must operate as a fiduciary, guaranteeing that they will work in your best interests.
There are a few downsides to working with a paid financial planner, however. Their fees may be higher than those of advisors who earn commissions for product sales, because their management and financial planning fees must be higher to match the earnings of advisors who earn commissions. Moreover, a paying financial planner has, by nature, fewer services than one who receives commissions for the sale of insurance or the trading of securities. This means that you will have to deal with another professional for exchanges and the purchase of insurance products.
What fees do paid financial planners charge?
Paid financial planners charge their clients in different ways. The most common method is called “assets under management” or AUM, where your planner takes a percentage of the assets they manage.
Another method is to charge an hourly or monthly rate. Other paid advisors may charge clients a flat fee or a fee based on the services they require. Also, some financial planners only work with wealthy clients. This means that they will end up costing more because they work with more assets.
The exact cost of a paid financial planner will depend on how they charge their clients, the services you need, and your location. More experienced advisors may also charge higher fees. Typically, paid financial planners charge between $200 and $500 per hour and between $2,000 and $7,000 per year.
Paid or Paid Financial Advisors
Paid financial advisors are just one type of advisor you can work with. The other is called a paid financial advisor. Although the term “fee-based” is often confused with the term “fee-based”, fee-based advisors work very differently. The table below details some key differences:
Financial Advisors: Fees Only vs. Clients usually pay directly, but advisors can earn additional compensation in the form of commissions. Advisors always have a fiduciary duty to put the financial interests of their clients first. When initiating certain financial transactions and product sales, advisors must follow a suitability rule that states that they must meet the needs of the client. Paid advisors also fulfill the fiduciary duty.
A paid advisor will receive normal advisory fees from clients, which is similar to a paid-only advisor. However, commissions based on products and investments may be earned in addition to advisory fees. In most cases, these commissions come from the advisor’s role as a representative of an insurance broker or agent. These people are only required to meet what is known as the suitability standard, which only requires that investments be suitable for the circumstances of the investor and may allow a broker to recommend a more expensive investment that generates higher commission than a similar low-cost option. .
The fiduciary standard requires financial advisors to act only in the best interest of the client, which is the same as that followed by lawyers and doctors. They must fully disclose any conflicts of interest, including whether one referral pays a higher commission than another that is virtually the same, excluding the commission. The advisor is further required to ensure that any existing conflict does not affect the advice given.
What types of compensation do all financial advisors receive?
Financial advisors generally receive payment directly from their clients. But depending on the service, their compensation may vary. You can generally break down financial advisor fees into three categories:
Financial Advisors: Types of Compensation Asset Management Fees Most advisors charge fees for investment management services, which are based on a percentage of the value of the assets they manage. These fees may be charged quarterly and the percentages may be lower depending on the amount you have invested. Some advisors may also charge performance fees when they exceed a performance benchmark for their clients. Financial Planning Fees Advisors typically charge additional hourly or flat fees based on the cost of engagement for financial planning and advisory services. These are available as a stand-alone service or alongside investment management services with fees as a percentage of assets. Commissions Some advisors earn money through commissions, but clients are not responsible for paying them. Brokers and dealers compensate advisors each time they sell a financial product such as an annuity or buy and sell mutual funds and other securities for clients. As noted above, paid advisors do not receive sales commissions; paid advisors do.
No matter what type of financial advisor you work with, you always need to know how much they will charge you. Understanding how advisors make money will also help you identify any potential conflicts of interest that could harm your investments.
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How to Find and Verify Paid Financial Advisors
In addition to asking colleagues, friends, and family for recommendations, you can also take the automated route to finding an advisor. For example, SmartAsset offers a free financial advisor matching service that you can use to find advisors in your area. In fact, it will connect you with up to three advisors, although the final choice of who to work with is up to you.
Here are some other places to look for an advisor:
Resources for Finding Paid Financial Advisors National Association of Personal Financial Advisors (NAPFA) You can use NAPFA’s online search tool to find a local, experienced paid advisor. To become a registered financial advisor with NAPFA, advisors need experience and a fiduciary duty. All financial advisors registered with NAPFA operate on a fee-only basis. Board of Certified Financial Planners (CFP) The CFP Board also has a directory of planners with advisory qualifications. Being CFP does not guarantee a paid service, but guarantees trained, experienced and ethical advisers. Garrett Planning Network (GPN) This fee-based planning organization connects you with consultants who charge an hourly rate. Due to the company’s overlapping missions, some GPN members may also be members of NAPFA.
Once you’ve narrowed down your list of potential advisors and planners, do your homework to find the right one for you. Try to set up an initial meeting so you can ask key questions of your potential advisor. Ask about their experience, training, criminal history, specialty, services, and anything else you find relevant.
Before you overwhelm yourself with your search for a financial planner, it’s a good idea to start with paid planners. This way, you are guaranteed that the advisors you start with will already have fiduciary responsibility. You also know that they will have no incentive to sell you a product or service for their own profit.
Tips for choosing a financial advisor
A financial adviser can offer valuable information on a wide range of issues, including estate planning and investing. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
Before seeking an advisor, determine what you expect from an advisor. Are you ready to invest yourself or do you want the advisor to manage your investments for you? Do you need help creating a financial plan?
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What is a Paid Financial Planner? appeared first on SmartAsset Blog.