What is fee-only financial planning?
There are numerous Financial Planners and Advisors around the country. They provide professional financial advice and earn for their living. However, how they get paid is where the difference is. This is important because it directly affects the quality advice you get from the planner.
Free advice is not really free
Most planners offer advice but do not charge the clients any fee for their service directly. The way they get paid is in commissions for the products they recommend to their clients. The commissions are paid by investment or insurance company, directly to the financial planner. This seems to be good for the client and sounds like free advice, as he does not have to pay anything directly. However, clients unknowingly still pay for this, indirectly. In most products, this commission that gets paid is indirectly charged to the client by the investment or insurance company. Usually this is more than what they would have paid in a straight forward, direct fee to the Financial planner for their services. ‘Free advice’ is often more expensive than ‘Fee advice’.
Putting the investor's interest above the advisor's interest
Commissions and fees are one aspect, but the most important responsibility of a financial planner is to act as a fiduciary towards their clients. To always put the client’s interest ahead of their own. Unfortunately, where there are commissions involved, biases always come in. Planners are often driven to promote and recommend products that offer them the best commission or are limited by the products of companies that they have a tie up with. They may end up in a position to put their interests ahead of the clients’.
Unbiased, confict free advice
Proper financial advice can be given only where there is no bias and all available options are evaluated for the client equally. That is where fee-only financial planning comes in. In fee-only financial planning, the client pays a flat, transparent and mutually agreed upon fee for the financial planner's services. The planner helps the client build a solid, unbiased, personalized financial plan and recommends appropriate products for the client’s needs. The financial planner does not sell or distribute any of the products that he recommends to the client and the only single source of income he gets is from the fee that the client pays.