Should You Opt For Financial Advice That Comes For A Fee?
If you’ve ever heard of a financial advisor or financial planner serving “fee-only,” it only implies they get the compensation for services rendered to clients. There’s no possibility of earning commissions or ‘kickbacks’ because of recommendations for certain items or products. The preference for such advisors has been on the rise, and it’s because of the pay-for-it structure. As a result, there are fewer chances of conflicts of interest. Before you choose (or not choose) the services of someone who offers financial advice regarding a certain fee, here are a few things you must consider.
Who Is A ‘Fee-Only’ Financial Planner?
These professionals operate based on a certain fee only. The advisors do all such work, from repaying any debt, planning retirement to forming budgets or larger goals that would help them attain “financial milestones.” The fees collected are only a certain percentage of the assets you have under management. No hidden form of compensation comes into the picture. To put it straight, the fee-only planners work as per ‘fiduciary responsibility, which implies they should act as per clients’ best interests.
What Are The Good And Bad Sides?
Just like any other service, here too, a heady mix of pros and cons exist. Firstly, the best part of collaborating with a financial planner who works in exchange for a certain fee will only serve the best interests. The planner doesn’t possess the intent of making more money. While working as a fiduciary doesn’t imply that only good advice will come. You could receive some false information, but you can minimize the chances of falling victim to false information.
Since there’s no tie-up to specific organizations, these financial planners can offer variegated solutions to clients so that they reach their goals quickly. Commissioned planners exercise certain limits to the suggestions they provide if they can’t see the prospects of earning money.
However, there are a few downsides to this too. For instance, the fees are generally higher for these experts. Since they’re not employed in any office and have no dictums governing their work, they are bound to charge you more. Also, the fees for planning and management tend to be much higher than the overall earnings that advisors seem to make, coupled with commission charges.
Also, there are fewer services of fee-only financial planners than those who earn a commission by selling insurance or trading securities. As a result of not earning sufficient commissions, there could be a potential conflict of interest in your agent. But this doesn’t imply that you must consult another professional for trade purposes or when buying insurance products.
How Is The Fee Charged?
There are different ways in which the advisor can charge a fee. One (as stated earlier) is ‘assets under management, where the planner gets access to a portion of the assets’ percentage to manage.
Another way out is charging based on time. It can be hourly, weekly, or even at a monthly rate. By taking recourse to this, clients pay for what they get.
But it is also likely that the planner might not receive a payment when they come for quick visits or phone calls. Some fee-only advisors put up a flat fee based on the services. This process works well when clients are diverse in their interests and can better address several financial needs.
Some planners only work with those with a great net worth or can boast of an extravagant lifestyle. While there is not much that we can say about a set or exact cost of the planner’s services, certain industry standards exist. And remember that the charges will be greater as they are now functioning for those who possess greater assets.
Should You Opt For Fee-Only Advice?
This is tricky! Ideally, financial advisors get all their money from clients. But the fees can fall into either of the three categories – asset management, financial planning, and commissions. Always ensure that you know how much your advisor is charging you. Now check for the reputation of the advisors, experience, and if it will serve you any good. Do your research and do not just make a random selection based on suggestions from friends and relatives. It will help if you take to numerous advisors before deciding on one. That way, you know you are working with the right person.
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