How your financial planner is compensated can make all the difference in the recommendations they make for you.
That’s because some planners work under a standard that only requires their recommendations to suit your particular situation. Other planners work under a fiduciary standard that requires planners to consider what is in their client’s best interest.
You may be wondering why your planner would make a recommendation that is not in your best interest. That’s where the issue of compensation comes into play. There are three basic ways in which financial planners are compensated:
- Commission-Based Model
- Commission & Fee-Based Model
- Fee-Only Model
Both commissioned, and commission + fee-based planners receive compensation based on the specific financial products they sell to you. Because of the conflict of interest inherent in these transactions, these planners may have difficulty putting the client’s interest above their own.
Our position is that the Fee-Only compensation method is the most transparent and objective method available. This model minimizes conflicts and ensures that we act as my client’s fiduciary. Fee-Only planners are compensated directly by their clients for advice, plan implementation, and ongoing management of assets.
Fee-Only financial planners may be paid hourly, as a retainer, as a percentage of assets (AUM), or as a flat fee, depending on your chosen planner.
