How do financial planners charge?
Financial planners basically get paid under one of three methods - commissions, fee-based or fee-only.
- Commissions are paid to financial planners based on the specific product or strategies being implemented by the client. These commissions can take the form of a front end sales load charged on a mutual fund, a surrender charge charged on an annuity, or commissions may be paid directly to the adviser from the investment company, as in the case of a non-publicly traded REIT. These fees vary from product to product and company to company.
- Fee-Only financial planners are paid only by the client and this fee can also vary. A fee-only financial planner cannot receive compensation (or commissions) from a brokerage firm, a mutual fund company, an insurance company, or from any source other than the client. A fee may be charged hourly for a limited assignment such as review and update of a retirement plan or fees may be charged as a percentage of assets under management (AUM), which may be a flat rate fee or an hourly fee. Fee-only financial advisers fees can vary greatly depending on the services being provided. These services may include: financial plan creation, investment management or specific financial planning projects, such as college funding evaluation, trust and estate planning review, investment assets review, etc.
- Fee-Based financial planners are a paid a combination of both fees and commissions. This type of compensation allows the financial planner to charge a fee to the client as a fee-only financial planner does, but can also accept commissions on the products or strategies implemented.
When shopping for financial planning services you need to understand what type of services you may need. The focus for anyone looking to engage a financial planner should be on how much that particular financial planner is charging and what specific services are being provided for that specific fee. Then the fee can be evaluated based on what service you are getting for the cost.
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