Paid vs Paid Financial Planner: What’s the Difference?

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A paid financial planner looks surprisingly similar to a paid financial planner, but there is a big difference in how they are paid.

Here’s what you need to know about paid and paid financial advice:

Paid Financial Planner

Paid Financial Planner

  • Paid directly by clients for their services and cannot receive other sources of compensation, such as payments from fund providers

  • Act as a fiduciary, which means they are required to put the interests of their clients first

  • Paid by customers but also through other sources, such as commissions on financial products customers purchase

  • Brokers and dealers (or registered representatives) are simply required to sell “suitable” products to their clients

What is a Paid Financial Planner?

A fee-based financial planner is paid directly by clients for their services, whether it’s a flat fee, an hourly rate, or a percentage of assets under management. The latter typically accounts for around 1% of a client’s portfolio value each year. Their fee-only compensation structure means that they do not receive commissions or other payments from the financial product providers they recommend to clients.

Paid financial advisors act as a “fiduciary“, a term you may hear thrown around; it means they are obligated to put the interests of their clients first. Ask if your financial planner is a investment advisor or one certified financial planner — both types are fiduciaries. This is an important consideration when choosing an advisor.

What is a Paid Financial Planner?

A paid financial planner is paid by the client, but also through other sources, such as commissions on financial products purchased by clients. This can create a conflict of interest, as the advisor charges you for advice while directing you to investment products that they profit from.

Ask if your financial planner is a broker or trader, also known as a registered representative. These planners are generally held to a lower legal standard, which simply requires them to sell “fit” products to their clients.

If your advisor is fee-based, find the name of the brokerage Submission of the ADV form with the United States Securities & Exchange Commission. The document includes information that explains how the firm’s brokers are compensated. (It’s good practice to review the Form ADV before engaging a financial advisor. In addition to explaining the fee structure, it lists past faults, if any.)

Paid or fee-based financial planner: which type is best for me?

Financial planners are paid in a variety of ways, but it’s important to know if your advisor receives payments for referring you to certain mutual funds or other financial products — and this raises questions about conflicts of interest. An investment that is “right for you” is not necessarily the most profitable option.

That’s why we recommend that you choose a paid financial planner that meets the fiduciary standard. Many professional groups require their members to meet the fiduciary standard. These include: The National Association of Personal Financial Advisors, The Garrett Planning Network, The XY Planning Network, and The Alliance of Comprehensive Planners.

Cost is another factor to consider. In general, there are three levels of financial advisor rates you will encounter, depending on the types of services they provide.

Low cost aid and investment only: Robo-advisors are digital services that provide low cost investment management. You answer questions online, then computer algorithms build an investment portfolio based on your goals and risk tolerance. Robo-advisor fees often start at 0.25% of the assets they manage for you, with many large providers charging 0.50% or less. On an account balance of $50,000, 0.25% equals $125 per year. (Is the sound right for you? Check out our top picks for the best robo-advisors.)

Intermediate financial planning and portfolio management: For slightly more than the fees charged by robo-advisors, but less than what you would pay for a traditional financial advisory firm, you can get comprehensive advice on financial planning as well as investment management.

A basic online service can offer the same automated investment management you would get from a robo-advisor, plus the ability to consult with a team of financial advisors when you have questions. More comprehensive services roughly mirror traditional financial planners – you’ll be paired with a dedicated human financial advisor who will manage your investments and work with you to create a holistic financial plan.

Examples of services in this space are Facet time (which charges a flat fee that starts at $1,200 per year and increases based on the complexity of your financial situation) and Personal capital (which charges 0.89% of assets under management per year).

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Traditional high-end in-person financial management: At the upper end of the spectrum are wealth management companies that provide investment and financial planning services to generally wealthy clients. Like robo-advisors, they tend to charge a percentage of the amount managed. But some need at least $250,000 in investable assets to get started, and the median fees in the industry are much higher by 1%. Others may charge a fixed fee, an hourly rate, or a deposit.

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