Fee-Only Financial Advisors: Working for Your Bottom-Line, Not Their Own
BROOKFIELD, Wis., Nov. 13, 2012 /PRNewswire/ -- When hiring a financial advisor, what do you have to lose? Well, the answer to that question depends on what your financial planner has to gain. First and foremost, you want to work with someone who works for you – who doesn't get paid by someone else. If your advisor is fee-based, you will run the very high risk of getting advice that serves the best purposes of that individual or institution for whom they work and potentially being caught-up in a system that isn't what you think it is. In fact, many investors don't recognize that a fee-based relationship rewards advisors for not necessarily representing your best interests. So, while the terms "fee-based" and "fee-only" sound very similar, a quick language lesson on how these two basic concepts compare could affect the outcome and success of your family's future financial plans.
What is the difference between a fee-only and fee-based financial advisor?
Simply defined, a fee-based advisor charges a fee and also receives commissions or other forms of compensation. Unlike the fee-based advisor, the fee-only advisor does not receive compensation from a brokerage firm, mutual fund company, insurance company or anyone else but you. In other words, the fee-only advisor works for you and you alone.
Why a Fee-Only Financial Advisor?
"When your advisor works for you alone, they have no incentive to recommend one investment or planning tool over another," this according to Jim Cantrell, CFP, Owner and Founder of Financial Strategies, Inc. based in Brookfield, Wisconsin and the Regional Chair for National Association of Personal Financial Advisors (NAPFA). The Fee-Only Advisors receive no commissions, finders' fees, trips, soft dollars, kickbacks, fancy dinners or referral fees. One hundred percent of their compensation comes from you, the client, in the form of fees. You pay them, and they work for you. This compensation method helps assure you that your advisor is recommending what is best for you and not what pays them the most. If that advisor bases their compensation on a percentage of your assets, you have the additional peace of mind of knowing that the advisor is economically tied to you. Your best interest and their's are tied together. There are no hidden costs, no conflicts of interest and no personal biases.
How Will I Know the Difference?
The differences between financial advisors appear to be subtle; and in many cases, an advisor that is collecting commissions may try to hide these differences. Those who rely on additional compensation know that their payment structure does not sound appealing. Therefore, they may market their services under the guise of being "fee-only," so one must be additionally vigilant even once the language is understood. While such advisors charge a similar fee, they may also continue to accept additional types of remuneration. It is "a wolf in sheep's clothing," if you will, as noted by Cantrell. So, what can you do to make sure your advisor is creating a solid plan to benefit your future? According to Cantrell, the answer is to make sure to ask the advisor tough questions – questions to which you deserve answers. He provides five key questions that you should ask your advisor:
- Are you a fee-based or fee-only advisor?
- Are you a member of the National Association of Personal Financial Advisors (NAPFA)? Note: All NAPFA-registered advisors are Fee-Only and have met or exceeded a level of requirements, expertise, integrity and uphold these standards.
- Are you a Certified Financial Planner Professional?
- Will you put all fees, commissions and any other compensation that you or your firm receives in writing?
- What is your long-term plan for my financial future?
You have the right to ask an advisor for a written statement of all compensation he/she and the firm receives. Be sure it states that there are no other forms of compensation. If they won't provide this to you, walk away. Lastly, ask the advisor for a list of references. Your family's future financial success rests in the hands of these individuals – make sure you have done your homework before trusting a planner with this great responsibility.
About Jim Cantrell and Financial Strategies, Inc.
Jim Cantrell, Certified Financial Planner, is Owner and Founder of Financial Strategies, Inc. (FSI). FSI is a Fee-Only wealth advisory firm. Jim is also a National Association of Personal Financial Advisors (NAPFA) Registered Financial Advisor and NAPFA Board Chairman of the Midwest Region, serving North Dakota, South Dakota, Nebraska, Kansas, Minnesota, Iowa, Missouri, Illinois, Wisconsin, Michigan, Indiana and Ohio. He has over 23 years of experience in financial planning and investment advising to top-level executives and other investment savvy individuals and retirees, as well as their families.
FSI's Fee-Only structure ensures that clients receive honest and objective advice that is not dependent upon a commission structure for the financial success of the advisor. Known by clients for their dedication, attentiveness and teamwork, the staff at FSI combines creativity, kindness and professionalism to give the best possible care and service. For more information on Financial Strategies, Inc., please visit, www.retirementandwealth.com.
SOURCE Jim Cantrell and Financial Strategies, Inc.