If you consider the possibility of consulting a financial planner than there are three types of financial planners to choose from: commission planners, those who charge fees and commissions, and those who are fee-only.
Commission planners can provide you with a financial plan, but it usually requires buying products that will generate a commission for them. Such products include mutual funds, stocks, bonds, insurance, and variable annuities. You pay for these services by paying a commission—usually 4% to 6% of the amount you’re investing in securities or using to buy a policy or variable contract.
While an experienced commission-based planner can be helpful, remember that there may be a tendency to sell you products you might not need, since that’s how the planner’s compensation is paid. You should also ensure that a commission planner you work with has access to a large universe of products and not just a handful produced by the company employing the planner. You can find commission-based planners at banks, brokerage houses, insurance agencies, and financial planning firms.
Fee and Commission Planner:
These planners wear two hats. On the fee side, they can create a financial plan or engage in more limited planning activities, such as helping you to pick mutual funds or set up an automatic investment account for a child’s college tuition. On the commission side, they charge commissions for any products you buy from them.
Many have begun to offer an all-in-one type program called a wrap account, for a fee of 1% to 2% annually of the money you’ve invested. You’ll get an overall financial and investment plan, complete with a portfolio of investments and an annual check-up.
These planners accept no commissions, rather, provide comprehensive planning services and investment recommendations. For an annual fee of 1% to 2% of your portfolio, fee-only planners will provide you with a comprehensive planning and investment plan, including selecting suitable investments and managing them.
Some planners will also charge a flat hourly fee that averages $100 to $180 an hour to tackle specific questions you might have, such as valuing stock options or evaluating planning or investment that you’re currently doing.
The advantage is that these planners work for their clients rather than for a broker-dealer or mutual fund company that is paying them commissions. While fee-only planners are often perceived as the most objective, there is a downside also, many tend to work with wealthier clients.
However, Fee-only Financial Planners are the most objective and I would advice to take there services. What do you prefer? Do share with us.