Do you want to be receiving biased advice when it comes to your money?
It's crucial to work with somebody you trust, like, and who puts your best interests ahead of everything. If you pick the right financial advisor, you will work with them through every stage of life. Every year, we are faced with critical financial decisions around things like taxes, investing, funding lifestyle goals, and planning for your family.
So, how do you make sure you are getting the best advice possible for your particular situations, needs, and goals? Working with a fee-only financial advisor can improve your chances of getting quality advice regardless of your current financial situation, income, and/or investable assets.
What is a Fee-Only Financial Planner?
Typically, a fee-only advisor operates as a registered investment advisor who provides advice for a fee rather than products for a commission. These types of advisors are almost always fiduciaries who are legally required to act in your best interest.
You're not alone if you think some financial professionals are more salesman than they are a trusted financial partner. You'd think that getting quality advice where your interests are the most important thing would be the norm, but unfortunately, it isn't in the financial services industry. Let me break down some terminology that will paint a clearer picture about fee-only planning.
Transparency: Fee-only advisors are required to explain their costs in detail, meaning you know exactly what you are paying for before you make any commitment. This includes things like how and when they are paid, plus any costs associated with doing business. Best of all, any conflicts of interest are stated and disclosed. For example, if an advisor provides asset management for a fee, what is that fee for? A common answer might be rebalancing, tax loss harvesting, and asset allocation.
No Commissions: Fee-only advisors cannot accept commissions. This is more important than you think because many advisors are still compensated via commissionable products. This could be a commission on certain investments, insurance, or annuities. Have you ever encountered a friend or received a cold call pitching you on an insurance idea or possibly some product that will solve all of your financial problems? It is likely that the commission is a big part of why they are recommending it.
When you pay for advice rather than a product, fee-only planners simply provide what they think is the best advice for your particular situation. A fee-only planner's income is not derived from a product they sell you but rather the advice they provide.
A fee-only advisor might earn money in a variety of ways like:
Hourly fees
Flat fees
Assets under management (AUM) fees
Monthly, quarterly, or annual fees for work performed
The idea behind fee-based planning is that the fees are directly correlated to the work your advisor is doing for you. Fee-only planning tends to build a relationship that is more aligned with you and based on the value you receive. There is an inherent conflict of interest when somebody's advice is limited to products they are paid from. Would you rather pay an advisor for the advice they give you, or work with an advisor who can only get compensated by recommending certain products depending on the company they work for?
I founded WealthBound Advisors as a fee-only financial planning firm because I strongly believe that when it comes to your financial well-being, getting the highest quality advice should be the only thing that matters. I can speak to the different pricing models because I started my career at a firm where selling products was the main driver of revenue. It was clear to me that there were just too many conflicts of interests, and I couldn't give people the value they deserved.
What are the disadvantages of Fee-Only Advisors?
This all seems like a no-brainer so far, but no model is perfect.
A primary concern of fee-only advisors is that they won't implement things for you. This varies from firm to firm. Many firms, like WealthBound, will invest your money for you and handle all of the administrative work on your behalf. This should be disclosed before any planning relationship begins.
However, I believe you should have the choice to decide, so we provide this service as an optional offering if you decide to work with us.
Some people like to implement things themselves but still want professional unbiased advice. The best part is that you get to decide.
Wrapping Up
It may seem obvious that you would want to work with an advisor who puts your interests first. There are good reasons why people sometimes do not trust financial professionals and that the industry overall has a bad reputation. Unfortunately, most of the industry still uses an outdated business model that benefits the corporation more than its own clients. The main thing I want to drive home is that there should never be any confusion or question about how your advisor is making money. There used to be only two reasons to work with an advisor; you either had a lot of money and they would manage it for you, or you needed a product, and they could sell it to you. Luckily, that's no longer the case. Although still the minority, fee-only financial planning has become more popular and accessible to everyone. If you want to learn more about fee-only advisors or where to find them, you can look into these directories XY Planning Network, NAPFA, and if you are already working with an advisor, make sure to look them up on FINRA BrokerCheck to see if there are conflicts or disciplinary history.