What Is a Fee-Based Financial Planner?
Fee-Based Financial Planner
There is a fine and often blurry line between the fee-only financial planner and the fee-based financial planner. Though both are different in definition, clients often have a difficult time differentiating the two and understanding the implications of fee-based, fee-only, and commission-based financial planners.
Both fee-based and fee-only financial planners offer detailed and sound advice based on a flat fee. Fee-only advisers will not throw products your way in hopes of making a commission. In fact, as a fee-only financial planner, there is no commission to be made. For fee-based financial planners, the intent is still the same: to provide customers with the most viable information pertaining to their specific financial situation but with the option to direct clients to a specific product from time to time.
A fee-based financial planner can promote services and products that are of interest to the client’s specific financial needs, but will not push irrelevant products that would ultimately contradict sound financial advise. Great fee-based financial planners will not mislead. As a customer who seeks solid financial planning, you have the right to ask questions. When a fee-based financial planner tries to throw a product or policy your way, you can always ask how much the advisor is making off of that policy. Any good financial planner will be forthright in telling you. Honesty is always the best policy, especially when it comes to financial planning.
A fee-based and fee-only financial planner has your best interests in mind. Advice is given based on a flat fee, and there aren’t any extra fluff costs clouding good, honest intent. Fee-based financial planners tcan make occasional commission, but the primary source of their income comes from the predetermined flat fee. A commission-based planner, however, offers products or services that create a conflict of interest. A financial planner is expected to help you save money. But when a commissions-based planner is throwing products and policies at you left and right, you’re tempted to spend the very money you’re trying to invest in and/or save.
A fee-based financial planner’s income is based largely off of client-paid fees. A small percentage can be earned through a commission based on the selling of products from insurance companies, mutual fund companies, and brokerage firms, but the majority of their income is based on providing you with transparent advice that is worth the fee you initially pay. When working with a fee-based financial planner,be sure to communicate so that all fees are clear and comprehensible from the very beginning. As the client, you make the ultimate decision.
Fee-based financial planners will only try to sell products that inherently relate to your present financial needs. If the investment product is not related to your goals or present financial situation, it is not mentioned. Fee-based financial planners still maintain fiduciary responsibility to their clients. To build trust, they cannot push products that present a conflict of interest. A conflict of interest might be pushing many products that in turn would put you in a worse financial situation than the one you were in when you first sought financial advice. That would definitely make the entire financial planning process quite contradictory, would it not?
Fee-based financial planners are a fantastic option for those who looking for a way to manage their money when planning for retirement, preparing for emergency funds, or dealing with all the complications and intricacies of taxes. The fiduciary duty of a fee-based financial planner keeps all of your best interests in mind so that you know your finances are in good hands. Understanding what a fee-based financial planner is and does is your first step in the process of seeking financial advice. Knowing what questions to ask and understanding the role of commission in your financial planner’s income can help you to stay in control.
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