Financial Planner * Invest Money Wisely * Financial Future * Commission Based * Fee Based * Professional

Get a Free Credit Consultation

What You Don't Know About Financial Planners Could Cost You

Last Updated: May 20, 2010

Financial planners are practicing professionals who help people deal with personal financial issues through proper planning and management of cash flow, saving for higher education, investing money, tax planning, estate planning, and business planning. Now that you've started to save money, you will need a professional to help you make the most of this money.

We all know how important it is to save for our financial futures, staying out of debt and credit history, but few of us have the time, knowledge, and resources it takes to invest our money wisely. Since we already hire professionals to do our gardening, shopping and other chores, it only seems natural to turn to a professional for financial planning advice. While hiring a financial advisor can certainly make sense, it is important to understand what a financial advisor is, and more importantly, how he or she is compensated. After all, you worked hard to get that savings plan going, you want to make every penny count!

When looking for a financial planner, you want to make sure this person is a "certified" financial planner which means this person has taken high-level training programs to stay current in the marketplace. There are three basic types of financial planners in the marketplace - commission based, fee based and fee only. The differences between the three flavors of financial planners are vast, and it is vital for any would be investor to understand how the choice they make can impact their financial future and that of their families.

Commission Based Financial Planners

A commission based financial planner is compensated based on the investments he or she sells, typically earning a commission on each product he or she sells. This is similar to a mortgage broker. While it is certainly possible for a commission based financial planner to be knowledgeable and honest, it is important for clients to understand the potential conflicts of interest that can arise.

Clients of commission based financial planners must make doubly sure that each recommended investment truly meets their own needs. It is important to consider factors such as age, financial experience and years before retirement when making an investment choice, and it is vital that any commission based financial planner respect these needs and cater to them.

Fee Based Financial Planners

A fee based financial planner is basically a combination of a traditional commission based financial planner and a fee only financial advisor. Even though these financial planners may charge an hourly or set fee for their services, they are also compensated through commissions on the investments they sell. It is important for every investor to understand the difference between a fee based advisor and a fee only advisor and act accordingly.

As with a commission based financial advisor, it is important for clients of fee based financial advisors to be sure that the advice given is sound and directed toward their own needs. Those who are in search of truly independent and impartial advice may want to consider a fee only financial advisor instead.

Fee Only Financial Planners

The third type of financial advisor is known as the fee only advisor, and the compensation structure of these advisors is designed to ensure impartiality, honesty and independence. Unlike fee based and commission based financial advisors, a fee only advisor is compensated only through the fees he or she charges clients.

Clients pay for the services of a fee based financial advisor in a number of ways, including hourly fees, yearly charges and fees for money management. Fee only advisors derive none of their income from commissions on the products chosen by their customers, eliminating the conflicts of interest that can arise with the other two types of financial professionals.

This work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License. You may use this information as long as you give a link back to this site.