We all need a little help with your finances sometimes. In fact, professional help can be a real plus as your finances gain in complexity. As you consider the implications of retirement planning, sending your kids to college, and investing for income, it can make sense to talk to someone who knows what he or she is about. Even if all you need is a little help figuring out your budget, or making a plan to reduce your debt, it can be a good idea to get professional help.
If you are looking for some professional help with your investments, budget and retirement planning, you should look for a financial planner. However, it’s important to understand that not all financial planners are the same. They are paid in different ways. If you are looking for someone to help you, and has your best interests in mind, you should hire a fee-only financial planner.
What are Fee-Only Financial Planners?
Before you decide on which financial planner to choose, it’s a good idea to understand how planners get paid. Not everyone is paid the same way, and it matters how your financial planner is compensated, especially since it can make a difference in how you grow your wealth.
Fee-only financial planners get their income from you, at $100-$250 an hour, to create a financial plan suited for you. Their fees are clearly laid out so that you know exactly what you are paying for and how much. In some cases, fee-only planners receive their fee as a result of assets under management. If your portfolio and net worth grow, the financial planner gets a bigger fee. If your financial planner receives an annual fee that equals 1.5% of the assets he or she manages for you, it’s in his or her best interest to grow your wealth.
On the other hand, commission-based financial planners have an inherent conflict of interest, since they might make more money selling you a mutual fund with a higher MER, which also includes a higher commission for them. Additionally, one fund might pay a better commission than another. Even though the fund might not be exactly what you need for your portfolio, a commission-based planner might steer you toward what offers the biggest commission. Paying these higher hidden expenses could cost you more in the long run, especially if you’re not on the financial path that’s right for you.
You have to be wary of commission-based financial planners because they don’t get paid based on how well your portfolio is doing; they are paid based on what they are selling you. It’s more about making sure their bottom line is bigger in the long run, than it is making sure that you have a portfolio suited to your needs and risk tolerance. Between the possible under-performance and the higher MERs, you could be leaving tens of thousands of dollars on the table over time.
While I’m sure there are many commission-based financial planners that do not let this sway their decisions, going with a fee-only financial planner, at the very least, gives you peace of mind that both you and your advisor are working toward YOUR goals.
How to Choose a Fee-Only Financial Planner
Of course, you shouldn’t just hire the first financial planner to come along… even if he or she works on a fee-only basis. You need to make sure that your financial planner understands your situation, and can make reasonable suggestions.
One of the best ways to start figuring out who to hire is to ask around. Ask family, friends, and co-workers for the names of fee-only financial planners. Then, research their credentials. Find out if they belong to a professional organization, and if they are properly licensed to offer the services that they claim.
Narrow your list down to three or four financial planners, and schedule a sit-down. Many planners will offer you a free half-hour or hour initial visit to look at your situation. Get a feel for the planners’ styles. Ultimately, you need to feel comfortable with your financial planner, so this “interview” can be a good way to determine who you will work well with.
The right fee-only financial planner can help you get your finances on track, and help you plan for a successful future.