If you are looking to establish a long-term relationship with a financial planner, it is important to do your research, meet with prospective financial planners, and ask them questions before committing to a written agreement.
When it comes to vetting your financial planner, it can be hard to sort through the myriad of options and services offered. There are more than 200,000 people in the U.S. alone that identify as financial planners or advisors. The financial planning profession generally aims to talk to a variety of financial needs like estate planning, investments, retirement, taxes, and insurance, though the reality is that any individual financial advisor cannot be an expert equally in all these areas. It takes a team approach.
Do your homework and understand what expertise and services you are receiving and how you will be paying your financial planner. Here is a short checklist to consider during your vetting process:
- Perhaps the most important question is, are you comfortable working with them? If the answer is “no” or “not sure”, then those planners may not be right for you.
- It is also important to ask yourself about your own objectives. For example, would it be better to use a generalist who can quarterback you through many different financial scenarios, or a specialist who can go deep for a particular need?
- Once you identify your own needs, then try to determine which of the financial planners’ experiences and backgrounds best suit those needs.
- Do the planners have access to a larger team of professionals that can serve multiple needs? Look at the total company, not just the individual advisor.
- As you narrow your list, get referrals from financial planners’ current customers.
- Finally, ask how you will pay your financial planner. We will explore this aspect in more detail below.
Fee-Only vs. Fee Based: Understanding the Difference
You compensate “fee-only” financial planners through a fee for their ongoing advisory services. You do not pay them commissions on any investments or other products they may sell to you to implement your financial plan.
The fee you pay may consist of an hourly rate; a percentage of the amount of assets under management (AUM); a flat project fee; or a monthly retainer.
A fee-only financial planner can also be a fiduciary, making him or her ethically bound to act in the best interests of his or her clients.
In contrast, a “fee-based” financial planner can receive commissions from financial products they sell. A fee-based financial planning firm can sell its own or third-party products. Depending on the commission structure, fee-based financial planners may have greater incentive to recommend certain products for your financial plan. It is also possible the fee-based financial planning firm could be limited in its selection of investment products.
A fee-based financial planner can also be a fiduciary, which commits them to make choices in their clients’ best interests. To maintain their fiduciary duty, the fee-based planner must disclose to their clients any time they receive a commission to avoid any potential conflicts of interest and maintain fiduciary responsibility.
It is nevertheless important to know that the incentive to recommend certain financial products over others is present in a fee-based structure. This is not the case with a fee-only financial planner.
About Us: Modera is proudly a fee-only and independently owned financial planning firm of professionals that act as fiduciaries for our clients. We have built our organization to put our clients’ interests first.
Call Modera and our Atlanta financial advisors to learn more and set up an initial meeting with our team.