Fee-Only Planning

Have you ever wondered why the only time you ever hear from your broker is when he or she has a new stock idea or product for you? Have you ever wondered how much your broker makes as you sign the paperwork for a new insurance policy or annuity? Well, you aren’t alone.

Nationally, the vast majority of financial planners are compensated through commissions of one type or another. Commissioned financial planners or brokers are only paid when they sell product. This creates a situation where the number of transactions or size of product sales generated may influence the financial advice given to a client.

Fee-Only planners do not accept commissions or sales fees. They only sell advice so 100% of the planners’ compensation comes from their clients. Since fee-only planners work only for their clients and not for the product provider, clients can rest assured the advice they receive is in their best interests, not the planners. Financial Guidance Group is a fee-only planning firm. We are paid for our financial planning expertise, not for our sales expertise.

Financial Guidance Group is a member of the National Association of Personal Financial Advisors (NAPFA), the nation's largest association of fee-only advisors. All NAPFA members live by the NAPFA oath, which is:

“The NAPFA Member shall exercise his/her best efforts to act in good faith and in the best interests of the client. The advisor shall provide written disclosure to the client prior to the engagement of the advisor, and thereafter throughout the term of the engagement, of any conflicts of interest which will or reasonably may compromise the impartiality or independence of the advisor.”

The NAPFA Member, or any party in which the advisor has a financial interest, does not receive any compensation or other remuneration that is contingent on any client's purchase or sale of a financial product. The advisor does not receive a fee or other compensation from another party based on the referral of a client or the client's business.

Why Fire Your Commissioned Financial Advisor?

Imagine you visit a doctor for a physical. After the physical, the doctor recommends 3 prescriptions for various purposes. Then when you go to pay the bill you find there is no charge because the doctor is paid by the drug companies for the prescriptions he sells. If you are like most people, you would wonder whether you really need the prescription or whether the doctor needed to get paid. The same can be said for planners or brokers compensated by commissions.

1. Inherent Conflict of Interest
   
   Commissioned planners, insurance salesmen and brokers are paid for selling products, not advice. This creates a conflict of interest because you can never be sure if the mutual fund or product your broker is recommending is in your best interest or if it simply pays the highest commission. This isn’t to say that commissioned brokers or planners aren’t trustworthy people; in most cases they are. They just work in a flawed system that rewards them for selling product rather than providing solutions.



2. Lack of Disclosure
   
   Commissioned brokers or planners are not required to disclose their compensation unless they act as Registered Investment Advisors, which most of them do not. This means when they sell you a fund, annuity or insurance product they do not have to tell you how much their commission is unless you ask them directly. Would you work with a mechanic, lawyer, plumber or any other professional if they didn’t tell you how much it was going to cost you?



3. Higher Costs than Fee-Only Planners
   
   Imagine you just spent a couple of hours with a commissioned broker or planner who seemed competent and trustworthy. They showed you graphs, validating the products they just recommended. You then sign the paperwork they prepared to invest $100,000 with them in a mutual fund or annuity. Do you know how much they just got paid? Well, for the few hours they spent with you they could make up to $8,500. They are allowed by the SEC to charge up to 8.5% for commissions. How do they get this commission? The company that offers the product compensates the broker or planner, and then the product charges your account to cover this expense through load charges, termination fees and higher annual fees. If you had worked with a fee-only planner that $8,500 would have bought you 57 hours of dedicated, personal service, assuming the fee-only planner charges the current average rate of $150 an hour. In this case, a fee-only planner probably would have spent 4 - 6 hours to rebalance your portfolio in no-load, low cost mutual funds or index funds. $8,500 vs. $900 - which would you rather pay?



4. Less Service
   
   Once the broker makes his commission on your initial purchase, the broker does not have an incentive to service your account any further, unless they want to sell you more products. He or she would be better served finding new customers than work with a client who has already purchased an annuity or mutual fund. Fee-only planners who manage assets or work hourly have an incentive to provide fantastic service. This is because fee-only planners are not compensated up front like commissioned salespeople. They are paid over time so fee-only planners only profit if they keep you as a client for a number of years.

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