Nowadays, there are a lot of so called financial planners. They can be mutual fund agents, financial advisors from insurance companies, and those that had a certification from organizations like RFP or Registered Financial Planners.
These financial planners make a living through fees paid by their clients. There are two different types of financial planners based on their fees. These are Fee-Only and Fee-Based Financial Planners.
What is a fee-only financial planner?
A fee-only financial planner is a financial advisor that is paid directly by clients for the services that they offer. They get paid specifically by their clients, which means they cannot receive any other source of compensation.
This fee could be an hourly rate, a flat fee or it could be a small percentage of the assets that are under management. They usually act as fiduciary. This means that they have to put the interest of the client first before any other thing.
Who is a fee-based financial planner?
A fee-based financial planner normally gets paid by the client but also gets payment through other sources such as commissions from other financial products that the client will purchase.
The fee-based advisor can decide to charge a client for his advice but also at the same time gets payment from third party. This sometimes always causes conflict of interest as the advisor charges for advice while moving you towards investment products which he himself will benefit from. A lot of fee only financial planner atlanta wear hats when they approach clients.
Between fee-only and fee-based, which is the best type for you?
Having known the difference between the two financial planners, which one best suits you when you need a financial advise?
Fee-based advisors are somehow bias as to the particular product that they are offering because of the incentive they will get by way of commissions. They don’t get to browse the market and suggest the most competitive product providing the most benefits for their clients as they get to choose their own product for the commission.
As a client, if you are seeking for a personal financial plan and you come to meet a fee-based financial planner, it is your responsibility to compare the product that they offer against other similar product in the market. Ask several fee-based financial planners from different companies to lay their offerings to you and compare each of it. The points of comparison should be financial stability of the company they are working with, the price and benefits of the product they are offering, and the feedback from their service from their previous clients.
In contrast, if you come to meet a fee-only financial planner, make sure that indeed he only gets fees from the financial advise that he provides and not from the product that he endorses so as to avoid conflict of interest.
In the US, if your advisor is fee-based then you should be able to look out for them at the US Securities and Exchange Commission.
Here in the Philippines, Insurance Commission takes a look at fee-based financial planners selling insurance policies and the Securities and Exchange Commission for fee-based financial planners selling mutual funds. For fee-only financial planners, there is the Registered Financial Planners of the Philippines or RFP that accredits them.