Paying for a financial
No part of the client-financial planner relationship
is more important than understanding how you will pay for his services.
Knowing how each compensation plan works will help you decide which
fits your goals and needs. There are five primary ways in which
advisers are compensated:
type of billing plan has received a lot of criticism. The advisers
collect commissions on financial products they sell. That creates
a conflict of interest for those who sell investments, insurance
policies or other products. The more things you buy, the more money
On the other hand, commission-only planners argue
you can walk away without paying if you do not accept their advice.
Planners are required to disclose whether they have a financial
stake in securities they recommend.
planners are compensated solely through fees paid by their clients.
Fees can be charged hourly, at a flat rate or a percentage of your
assets or income. This method supposedly eliminates the conflict
of interest associated with commission-based services.
However, Gary Schatsky, a New York City-based, fee-only
adviser and vice chairman of the National
Association of Personal Financial Advisers, a trade group for
fee-only planners, acknowledges that this method may not be suited
for certain individuals. "It might not be appropriate if you have
an extraordinarily simple financial question or if you have just
a few thousand dollars to invest," he explains.
This is the most popular compensation plan. These planners claim
they are more objective than commission-only salespeople. Critics
say that having to pay once for counsel and then again to act on
it is too costly. But Deborah Voso, a CFP with Voso Associates in
Frederick, Md., believes that this type of plan makes her services
more affordable for clients with smaller accounts. She charges a
flat fee for financial advice, but clients are not obligated to
purchase any of the products she recommends.
Fee-based. This is
similar to fee-and-commission financial planning. The only distinction
is that planners let you choose whether you want to work on a fee-only
or on a commission-only basis if you want to implement the plan
this unusual arrangement, planners charge a fee for developing an
investment strategy, then reduce that fee if the client buys products
from the planner. Commissions or asset management fees are deducted
from the initial fee. While this option doesn't totally eliminate
the conflict of interest dilemma, it prevents consumers from having
to pay for both advice and products.
-- Posted: March 21, 1999