We all need help figuring stuff out sometimes.
This is true whether you’re learning to ride a bike or creating a long-term plan for your money.
A financial planner can be just the person to help you get on the right track. An outsider can see things about your finances that you might not notice. Plus, their expertise can open your eyes to new options you may have been previously unaware of.
In recent years, financial planning has become more popular — especially the fee-only model. But before you jump in, here are a few things to know about a fee-only financial planner.
1. Fee-only planners are paid by clients
“Fee-only financial planners receive payment only from their clients,” said Ryan Frailich, a financial coach and planner with Deliberate Finances. “Historically, many people who use the title financial planner have really been sales reps.”
Frailich said planners working on commission receive bonuses for specific products. They are sometimes incentivized to push certain financial products, even if it’s not the best fit for your situation.
“An advisor who makes a living primarily off selling insurance and annuities is much more likely to recommend them to clients,” said Ian Nohner, a CFP with Nohner Black Group. “In contrast, a fee-only planner makes the same amount, regardless of whether you choose mutual fund A or mutual fund B.” That means they’re more likely to work with your best interest in mind.
2. Look for a flat fee or a retainer
“Some fee-only planners charge based on the size of the assets they are managing for you,” Frailich said. “Given this fee structure, many firms operate with a minimum account size.”
Known as an assets under management (AUM) model, planners that charge you based on the size of your assets often require a high account minimum.
An account size of $100,000 or $250,000 might be out of reach for a young adult just starting out, though. In those cases, Frailich recommends a structure that involves a flat fee or a monthly retainer.
This allows a young adult access to financial planning in a format similar to a subscription. It breaks down the cost and makes it manageable, like any other bill.
But what if you aren’t interested in ongoing financial planning help? Maybe you just need a little short-term help to get you on your way. “Some fee-only planners also offer hourly or project-based work,” explained Frailich. “A client can pay for a short engagement when they need a very specific problem solved.”
No matter which fee structure you choose, Nohner stressed that it should be transparent. He said this is often easier with fee-only planners because of the nature of the structure. “I’ve found people are more likely to understand and trust a retainer or AUM model rather than commission-based revenue models,” he said.
3. A fee-only financial planner isn’t a one-stop shop
Though commission-based financial planners often sell life insurance, a fee-based financial advisor doesn’t offer this.
“Fee-only financial planners won’t be able to sell you insurance,” said Lauren Zangardi Haynes, CIMA, a financial planner with Evolution Advisers. “It’s not a one-stop shop.”
However, a fee-only planner can review your insurance and look for inappropriate coverage. “They can also provide you with second opinions on life insurance illustrations,” Zangardi Haynes continued.
4. Some fee-only planners have specialties
In some cases, fee-only planners concentrate on specific areas. Someone planning to expand a business while growing a family will have different needs from a two-income household with partners hoping to retire early.
“A financial planner may seem to have an attractive fee structure, but if they aren’t providing you with the services you need, they might not be worth it,” said Nohner. “If there’s another advisor specializing in your specific needs, it may be worth it to pay a higher fee for their expertise.”
5. You can get a holistic approach to financial planning
Whether you have specific needs or you just need some help putting together a basic roadmap to financial independence, Frailich said fee-only planners often offer a holistic approach.
“The shift to fee-only structures gives planners incentives to look at all aspects of a client’s life, rather than just their investments,” Frailich pointed out. “Many young people are working to balance costs of their own student loans, starting families, buying homes, saving for retirement, their own children’s education, and more.”
With a fee-only financial planner who understands all these aspects and how they fit together, it’s possible to create a plan to help clients hit their desired milestones. Frailich also said retaining a fee-based financial advisor can help you stay on track and review your progress, helping guide you if you start getting off track.
Finding the right financial planner
Sit down with two or three planners for an initial consult. Get a feel for how well you interact and whether you believe the planner understands your situation.
In the end, you need to feel comfortable with your fee-only financial planner. They will know everything about your money situation and it’s vital that you trust them to point you in the right direction.
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