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What Is A Fee-Only Financial Planner?
Fee-Only Financial Planner is a professional advisor who charges a set fee from their clients for planning their retirement, repaying their debt, and creating their budgets, helping them reach their financial goals successfully. The fee structure encourages planners to deliver unbiased services to clients under fiduciary responsibility, making recommendations that would benefit the latter.
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The fee-only financial planner serves their client's best interest by acting as fiduciaries, recommending financial products without expecting an additional commission in return. Their job responsibilities include decreasing conflicts of interest, planning retirement, framing strategies for profitable investment, increasing financial transparency, and assisting clients with budget preparations.
Key Takeaways
- Fee-only financial planners charge set fees for planning retirement, repaying debt, and creating budgets for their clients. They promote unbiased services under fiduciary responsibility and enable investment recommendations for clients' benefit.
- They charge clients hourly, flat, monthly, and quarterly or as a percentage of the total worth of their clients' assets managed.
- They advise their clients without any conflict of interest but charge higher fees than other financial planners.
- While fee-only planners charge clients a specific fee, fee-based planners can earn from this charge as well as commissions on the financial products sold.
Fee-Only Financial Planner Explained
A fee-only financial planner is a professional who offers advisory and investment services at a specific fee and is not based on any commission from the sale of financial products and services. They operate within a fiduciary duty, ensuring their recommendations match clients' best interests without any conflict of interest.
These professionals charge their clients on an hourly basis, as a percentage of assets under management (normally 1%), or a flat fee for their services. With the increase in the number of fee-only planners, trust and transparency in the financial advising industry have witnessed a boost. Their unbiased and objective advice leads to positive outcomes for their clients, thereby positively affecting the existing financial system's overall integrity.
Types Of Fees Fee-On Financial Planners Charge
The fee-only planners charge customers in different ways while ensuring no commission from product sales is received. The most common ways in which they charge clients are as follows:
- Planners may charge their clients on an hourly basis, where they calculate their remuneration per hour spent on client's advisory services and financial planning.
- Another way these professionals charge their clients is a pre-decided flat fee. They consider the nature and type of services to be delivered to fix this one-time fee amount. A flat fee-only financial planner offers detailed financial planning, irrespective of portfolio size.
- Another charging method for planners is ongoing retainer fees, which clients pay monthly or quarterly for the services provided.
Lastly, they may charge a percentage, typically 0.25% to 1% of the total worth of their client's assets under management per portfolio.
How To Find?
One may find it difficult to search for a financial planner working on an only-fee basis. However, the following steps can help clients come across the best fee-only planners for their finances:
- Interested individuals can try to ask colleagues, friends, and family members for recommendations based on their personal experiences.
- One can also get referrals from fee-only financial planner networks or finance professionals, like CPAs or attorneys.
- People can also use search filters to retrieve available fee-only planner options in the National Association of Personal Financial Advisors (NAPFA) and Financial Planning Association (FPA) databases. For example, if one is searching for their services in Columbus, they can use texts, like fee-only financial planners in Columbus, Ohio.
- If one wants to have financial planners with hourly charges, one can browse the Garrett Planning Network (GPN) to get a list of fee-only planners charging on an hourly basis.
- One may also use Google search to find fee-only financial planners.
After shortlisting the desired fee-only financial planner, one must directly enquire about their fee structure to ensure they stick to fee-only planning.
Examples
Let us check a few instances below to understand the fee-only financial planner meaning better:
Example #1
An online article published on March 18, 2024, reported how fee-only financial planner CFP Rick Kahler advised investors not to mix their portfolio or investment decision-making with the political situations across, especially during elections. In the publication, Kahler cited the 2016 survey in which 320 advisors participated, with 90% of them predicting negative effects on clients' portfolios if they change their minds, given the political scenarios.
Kahler stresses the unpredictability of markets after the election is over. He supported his point using the fact that after:
- Trump won the presidential elections in 2016, and markets, especially the Dow Jones, rose by 6.8%, contrary to fears of a slide.
- Likewise, in 2020, after Biden won, the markets rose by 33%
Further, Kahler recommends that one should not be affected by political anxiety and make poor investment decisions. He suggests avoiding harsh reactions while maintaining a long-term perspective. Instead, one must stop oneself from timing market investments according to political outcomes.
Example #2
Let us assume 45-year-old Emmy of Old York approaches a financial planner, Sarahi, to manage her finances. She is a fee-only planner working at Clearer Route Finances. Emmy has $1,000,000 in retirement savings as one of the investments in her portfolio. Sarahi takes $2,500 annually as a flat fee for managing her portfolio.
As opposed to fee-based planners, Sarahi does not earn from selling financial products. Rather, she focuses on Emmy's financial goals, suggesting a clear savings strategy and affordable index funds. Emily, on the other hand, remains relieved as she knows she has an expert advisor on board with her mindset to recommend ways that would be in her best interest.
Advantages And Disadvantages
Advantages
- Advises their clients keeping their best interest in mind.
- Maintains transparency both in terms of service-related and fee-related details
- Have a legal obligation to maintain fiduciary responsibility to work only for the interest of the client.
- Work more independently and ensure customizing their planning based on latest requirements
- Centered on building trusted long-term relationships and ensuring client satisfaction
Disadvantages
- Charges higher fees than other financial planners.
- No commission-based products reach the clients.
- Possibilities of making errors
- Difficult to gain access to these advisors as they are available in limited numbers.
- It does not suit clients seeking a wider range of investment options.
Fee-Only Financial Planner vs Fee-Based Financial Planner
Fee-Only Financial Planner
- Planners work for fee-only charges from clients paid per the assets under management, number of hours or months worked for, or through a one-time flat fee.
- Generally, a company acts as an advisor having a corporate structure.
- Can sell plans directly.
- Has lesser chances of having a conflict of interest.
- Give uniform services to all.
- Bound legally or ethically to serve in clients’ best interest.
- Has a clear, consistent and transparent fee structure.
- Has an irregular frequency of portfolio evaluation.
- It provides support to the client regarding the implementation of investments selected by them.
Fee-Based Financial Planner
- Here, the planners can put forth fee-only charge, but can also generate income through commissions based on financial product sales.
- Small firms having fewer than five employees act as advisors.
- They usually do not sell direct plans.
- Usually laced with potential conflicts of interest, advisors recommend products with higher commissions.
- May vary their quality of services as per portfolio size.
- Are registered with respective regulators.
- Charges may not be transparent and free from performance.
- Portfolio evaluation may be done quarterly, monthly or bimonthly.
- Manages the portfolio investment directly with differing attention to clients.