We talked in my last post about how important it is to plan for your financial future. Now we’re going to talk about understanding what it costs. Specifically, discussing all of the different payment options for hiring a financial advisor or planner. Then you can determine which is right for you. Because having a financial planner that you like, trust and have confidence in can literally change your life.
Let’s start with the four ways financial planners can get paid: Commission Only, Commission and Fees, Salary Plus Bonuses, and Fee Only.
· Commission Only: This is when advisors receive only commissions for selling financial services and products. This commission comes out of your investment dollars; it is not paid by the vendor of the product. You find this type of structure within the banking environment. With this structure, you want to be clear as to why it is being recommended and get several alternatives so you may compare products and costs.
· Commission and Fees: Another term commonly used is Fee-based. Commission and Fee-based advisors may receive a fee for developing a financial plan for you, and then receive commissions on the insurance and investment products they recommend in your financial plan.
· Salary Plus Bonuses: Discount brokerage firms and banks compensate their employees with a base salary plus incentive pay for bringing in new clients and recommending or selling certain products and services.
· Fee-Only: These financial advisors provide advice or ongoing management. They’re typically self-employed Registered Investment Advisors (RIA) or employees of this type of firm. Fee-only advisors have no financial stake in the recommendations they give you. They may charge an hourly rate, a flat fee, and/or a retainer. Here’s how they work:
1. Hourly fee: You pay for all the time that the financial advisor works on your case and/or spends with you. Multiply the time spent by the advisor’s hourly charge, and that’s how much your fee is. Always find out the expected cost and the maximum cost – there usually is one – before you begin working with an advisor who charges by the hour. An hourly fee may be best for:
a. People who need specific advice about one or just a few financial products or services.
b. Do-it-yourselfers who just want a professional’s opinion.
c. People who want to do as much as possible to save money, but want expert analysis and direction.
2. Flat-fee: Then there are the flat fee packages for specific services. Flat-fee pricing may be a good choice for people who need specific advice or services such as evaluation of your employer’s benefits package or a detailed review of insurance policies and coverage.
3. Retainer : A retainer can be calculated based on a) a percentage of assets the advisor manages, b) a percentage of your net worth or income, c) a mixture of the previous two, or d) by estimating the amount of time required and complexity of the services promised. A retainer fee may be good for people who want ongoing assistance with managing their financial affairs.
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Now you see there are many ways you can work with an advisor. Determine which best suits you when you seek expert assistance with your plans for your life. When you’re working with the right person, it’ll feel like a huge load has been taken off your back. And you know that’s good, because you will walk confidently in those stylish platform heels you love so much!