By Sarah Lybrand
As opposed to a commission-based financial planner, or the similarly-named “fee-based” planner— a fee-only financial planner charges only for their services and nothing more; they do not earn a commission or kickbacks for recommending certain products, making certain referrals, investing in certain funds, or by selling you additional services.
Fee-only advisors are widely considered the most trustworthy of all financial planners, as they have a fiduciary responsibility to act in the best interest of their client—and not in how best to line their pockets.
If it helps you remember, “Fee-Only” is widely seen as the “Only” trusted and reliable fee structure. While “Fee-Based” planners often “Base” their profits on taking both a service fee on top of a commission on certain investment products—in other words, a potential conflict of interest.
Another benefit of fee-only advisors is the range of services they can offer at a fair price. They’re free to suggest a wider array of solutions to help you reach your financial goals, since there’s no single company or corporate interest influencing their referrals. Of course, sticking to fee-only advisors doesn’t guarantee that you’ll always get good advice. But, it does improves the odds that you’ll be guided into investments in your best interest.
This model is best if you have a one-time need for financial planning, such as if you’re undergoing a life change like getting married or having a baby, and want some advice on how to keep your finances on track.
There are a few ways that fee-only financial planners collect fees from clients. Many charge a flat hourly or monthly rate. While this ensures you only pay for what you need, sometimes it’s irritating to have to pay for short visits, questions, or phone calls.
Another model is per-service fees for a la carte services made on your behalf. This arrangement allows advisors to work with a more diverse set of clients and provide a range of services. Keep in mind that for more holistic financial planning, this kind of fee structure can add up quickly.
Finally, some fee-only financial advisors charge a percentage of all assets under management, an amount debited from your account every quarter. This model typically appears in advisors with high-net-worth clients, and often amounts to higher fees than other models. This arrangement may also give the advisor a slight to build and keep your assets high. This is the most common arrangement, and the best one if you’re looking for an advisor who will oversee your accounts on an ongoing basis and make adjustments on your behalf.
The exact cost of a fee-only financial planner depends on several factors, including, your location, an advisor’s preferred fee structure, and the services you require. However, fee-only financial planners generally cost between $150 to $300 per hour, or an average of $1,000 to $3,000 per year (clients with a higher net worth paying a percentage of assets could pay more). Expect that experienced advisors will charge higher rates.
Look to the Certified Financial Planners Board for a directory of fee-only financial planners (make sure to check off “fee-only” when searching by zip code) or visit the National Association of Personal Financial Advisors’ (NAPFA) website for a search tool to help you locate qualified fee-only advisors.
Knowing that your financial planner has only the incentive to help you build, grow, and manage your money according to your best interests—and not to sell you services for their own gain—just might be the peace of mind you need to get started on your way to financial success.
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