Financial planning is not just a luxury of the rich; it is a must for almost everyone. Personal financial advisors, financial planners, and financial consultants, etc., are money management professionals who utilize the financial planning process to help individuals in sustaining wealth, or obtaining future wealth, and planning for retirement. Generally, there is one major difference in the way financial planners operate; it is of vital importance to understand this main difference before seeking their services.
Fee-Only Financial Planner
A fee-only financial advisor operates on an hourly rate. When one chooses a fee-based financial planner, the money management professional will charge the client based on the amount of time spent working on their personal financial plan.
Commission Based Financial Planners
As the title suggests, commission based financial planners operate on a commission basis. Usually, the planner works for, or represents, one particular financial services firm, and they are hired by that firm to market the firm’s products and services.
Other Types of Financial Planners
There are firms within the financial services industry who pay their money management professionals a fixed salary (with company bonuses and incentives), but bear in mind, those planners are still only selling the products of that particular firm. And, those “bonuses and incentives” are usually based on the overall sales of the company – which is directly related to the financial planner’s ability to encourage clients to purchase their products. Also, there are planners who combine commission only and fee-only structures, but the opportunity still exists for a conflict of interest to arise in some cases.
What the Differences Can Mean for the Financial Services Client
An individual will receive objective financial advice when utilizing the services of a fee-based financial planner. Because no conflict of interest exists, the planner will not have any reason to steer the client toward a particular financial product – their only motivation will be to seek the best financial product for their client. In strong contrast, a commission-based financial planner will only get paid when the customer purchases their recommended products and services; however, their recommended financial products and services might be the perfect solution for the client.
The services of fee-based financial planners are usually higher than those of commission-based planners. When choosing someone to manage personal finances, it is important to understand that the type of financial planner one chooses can greatly impact their financial future – so choose wisely.
Rachelle Williams - Rachelle Williams has been writing on the web for 2 years. In addition to Suite101, Rachelle Williams is a contributing writer for Demand ...
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