When you’re choosing a financial planner, you have a lot of things to consider: what type of education and experience does your advisor have, what type of certification does he or she carry, and – far from the least of your concerns – how is your financial advisor paid?
Fee-Only Financial Planners
When a fee-only financial planner performs services for you, you are the one paying the bill. He doesn’t get a commission from a mutual fund company, a brokerage house, or any other source. You’ll generally pay for these services in one of the following ways:
- A flat fee, paid annually
- An hourly rate
- As a percentage of the investment funds managed on your behalf – this percentage is deducted from your account rather than you writing a check to your advisor
Fee-Based Financial Planners
Although the titles sound similar, a fee-based financial planner is not the same as a fee-only financial planner. Whereas you and only you are the one who pays a fee-only planner for the work he does on your behalf, a fee-based planner is allowed to be paid a fee by you, and also receive a commission from an insurance company, a mutual fund company, or a brokerage firm, based on the investments he sells.
Commission-Based Financial Planners
There’s another type of financial planner, as well – a commission-based broker, who is paid solely through commissions based on the investments he sells.
It’s important to understand which category your financial planner falls into, and to be aware of any potential conflicts of interest when it comes to investment products you’re being advised to buy.