Fee Only Financial Planners
There are many different varieties of financial advisers. Broadly, they are: advisers who charge commissions on trades, advisers who charge account fees, and fee only financial planners. Fee only financial planners are paid only by their client and do not receive commissions or load fees from investment sales. Some fee only financial planners take a flat percentage of your investment account balance while others prefer to charge hourly rates, similar to an attorney or accountant.
Benefits of Working With Fee Only Planners
The main benefit of working with a fee only planner is that you remove the sales part of the financial advising process. Financial advisers who are paid on commission or through back-end fees have an enormous incentive to sell you investments on which they make money. While many are good financial planners, many are also just good salespeople. When commissions are on the line, you don’t know if your financial adviser is looking out for your interests or his/her own.
With fee only planners, you are paying an adviser for his or her objective advice and removing the conflict of interest. Since fee only planners are not paid commissions, their goals are to provide you with excellent advice so that you continue to use their services.
Since fee only planners are not motivated by commissions and investment fees, they have no incentive to generate trades in your account, meaning that many promote buy-and-hold investing over short-term active investing. Historically, buy-and-hold investing tends to provide higher returns over the long term.
Fee only planners also offer more services than traditional financial advisers. They often offer budgeting and life planning advice. Such advice can be helpful when planning for college tuition, a house purchase, or debt elimination.
The downside of working with fee only planners is the cost. If you are a new investor without a lot of money in the market, the fees charged by planners can represent a much higher percentage of your investment than the relatively low commissions charged by advisers working on commission.
Planners That Charge Account Value Fees
Financial planners in this category are typically offering both investment management and financial planning advice. The benefit of using a fee-only planner in this manner is that they will typically include low-cost index funds and no-load mutual funds in your portfolio to minimize the fees you pay to fund managers.
It is important to distinguish fee-based planners from fee-only planners. The difference is that fee-based planners may also be compensated by funds and insurance companies for selling you their investments, while fee-only planners are only compensated through your account fee.
Financial planners in this category charge a flat percentage fee based on a snapshot of your account value at the close of a disclosed day each year. Percentages generally range from 0.50% on the low side to 2.0% on the high side. Expect to pay closer to the 2.0% fee if they are offering the full range of financial and retirement planning services. Often, firms will lower their rates if you invest large amounts of money.
The benefit of working with financial planners like this is that their interests are aligned with yours – the better your investments do, the more your account value grows over time, and the more they get paid each year. For investors who prefer the one-stop-shopping approach to their finances, having a planner who provides them with a full range of services can offset the increased cost.
Planners That Charge Hourly Fees
Some investors prefer to be in control of their own investments through discount brokerage accounts or self-directed accounts at outside financial firms, yet they still want the benefit of objective financial advice. In this situation, paying a financial planner an hourly rate makes sense. Typically, you would meet with your financial planner quarterly or annually to discuss investment allocations and portfolio updates and then you would implement the suggested changes. This approach can save money over percentage fees, but is only suitable for investors with extraordinary discipline. One of the best services a financial adviser can provide is an extra barrier between a panicked investor and his or her investments.
As with attorneys and accountants, the rates fee-only financial planners charge can vary widely by geographic location, level of experience, and area of specialization. If you need fairly general financial planning services, most advisors will be able to help; however, if you have need of niche services, expect to pay a higher hourly rate.
Paying For Ongoing Financial Advice
If you have the need for ongoing financial advice due to complex business, real estate, or investment structure, it may be worth paying a financial planner a quarterly or annual retainer. A retainer guarantees a planner a long-term relationship, meaning that you can benefit from lower fees and frequent advice.
Most investors will not need a relationship of this level, but it can be very beneficial for those with complicated situations who need frequent assistance. Typically a retainer agreement includes a detailed breakdown of fees, services, and availability.
Choosing a Fee Only Planner
Choosing a financial planner is much like choosing an attorney or therapist in that trust, comfort, and an understanding of long term goals is of key importance. The best way to find a list of fee only planners is through NAPFA, the National Association of Personal Financial Advisors, which is their professional association. Be wary of financial planners not associated with NAPFA, as they may be fee-based and not fee only.
Once you’ve identified a few local planners, ask for referrals from friends and acquaintances and search for online reviews to develop a short list of candidates. If you have need of a planner with certain expertise, your list might already be short. Most planners offer low-cost initial consultations to new clients and you should plan to meet at least two or three.
Once you’ve found a planner that has the expertise you need, makes you feel comfortable, and has an investment style that fits your long term goals, you can determine what fee structure fits your needs best.
Don't Put It Off, Jumpstart Your Retirement Plan Today
A comfortable retirement can only be secured with prudent planning, aggressive saving, and disciplined investing. Online research is a good start, but consider the benefits of discussing your options with a qualified financial advisor. The alternative could mean lost opportunities, higher fees, and lack of discipline. Request a free, no-obligation consultation today.Speak with an advisor over the phone about your retirement plan for FREE.