There are many terms out there describing financial advisors and sometimes it’s hard to figure out what they all mean and why it matters. It does matter. Their “classification” can tell you a lot about how they are compensated, work with clients, and their fiduciary responsibility.
Fee-Only financial planners are registered investment advisors (RIAs) with a fiduciary responsibility to act in their clients’ best interest. They do not accept any fees or compensation based on product sales. Their main source of compensation is directly from their clients in the form of a quarterly bill for retainer services, assets under management fee or an hourly fee. Fee-Only advisors have fewer inherent conflicts of interest, and they generally provide more comprehensive advice.
Commission-based planners, also known as brokers, are solely compensated by the products they sell to their clients. These planners are only required to do what is suitable for their client, but not necessarily what is best for their client.
A fee-based financial planner collects a fee from managing assets, but is also able to collect commissions for investments they make on your behalf. Fee based sounds a lot like fee-only and most people confuse the two. However they still may have a conflict of interest because of the commissions they receive for their investment selections. The graphic at right demonstrates the difference in compensation methods for the three types of financial planners.
It is important to do your homework when looking for a financial advisor and make sure their goals match up with yours. Also remember that nothing is ever free so if you are receiving a “free” financial plan, the advisors are most likely receiving compensation from the products they are selling you to implement that plan.
Want to learn more about these and other ways to realize your financial objectives? That’s exactly where Guidepost Financial Planning can help. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.
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