Fee-Based Financial Planning Vs. Commission
Financial Planning – Fee based Vs. Commission
When you go to the mall, commission-hungry salespeople hunt you down. As you make your way to your favorite store, you look down at the tiled ground just to avoid the eyes of the kiosk workers who try to pull you away and sell you expensive skincare products. Though the products they sell may be great, commission-based employees have one goal in mind: sell, sell, sell.
Maybe you’ve got the money to splurge. Maybe you don’t and you’ve only come to the mall to buy something you really need. No matter your present financial situation, the commission-based worker will try their very hardest to sell you product after product until you finally say “no”, and even then, you may have to say it several times. The salesperson has to eat too, and their paychecks primarily come from commission made via sales. If they don’t sell, they don’t make money. Plain and simple.
Financial planners, on the other hand, work with you by establishing a plan that will maximize savings and allow you to invest in your future. A fee-only or fee-based financial planner will certainly stand by their fiduciary duty so that you are receiving the best and most transparent financial advice. A commissions-based financial planner, however, is set on selling, just like any other commission-based employee.
When choosing a financial planner, it is in your best interest to find a fee-only or fee-based financial planner as opposed to a commissions-based financial planner. A commission-based financial planner’s income is based almost entirely off of the insurance packages or mutual funds he or she can “pitch”, so to speak, to their clients. The main goal of a financial planner is to provide clients with a solid financial plan of action. But commission-based advisers are not required to disclose conflicts of interest to their clients.
Though any financial planner or adviser is supposed to be vested into the needs of the client, a commission-based planner has a duty to their employer: ie., the brokers or dealers. Of course, if you are a savvy client, you may not be tempted to bite every baited hook. Financial planners are still supposed to follow the suitability rule, which requires that brokerage firms deal with their customers in a fair and “suitable” manner. It would be outrageous if even a commission-based planner could get away with pushing completely irrelevant products and services toward you.
No matter what your financial goals are, having a fee-based financial planner by your side ensures that you are getting great financial advice without all the unnecessary fluff. Though fee-based planners can recommend products to you that provide them with commission, most of their income is earned from the flat fee. Working with a commission-based financial planner will require you to stay on your toes. Though some products may be well worth your investment, others will pull you farther away from your long-term financial goals.
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