What is a Fee-Only Financial Planner?

You’ve heard about financial planners who help you manage your money, but what does the term “fee-only” mean? We’ll explain the difference in payment methods for financial advisors and help you decide which scheme fits you best. 

Fee-Only Financial Advisors

A fee-only financial planner (or advisor) is someone who you hire to help you manage and meet your financial goals for a fee. This includes advising you with investments, retirement planning, budgeting, insurance and tax preparation.  

Fee-only means planners take a flat fee, an hourly fee or a percentage of assets directly from the client for their services, rather than having their payment be tied to the products they sell. This gives both you and your financial planner peace of mind, knowing that you’re being steered toward the best products independent of any potential kickbacks or commission opportunities. It also provides for more comprehensive advice.

Fee-Only vs Fee-Based Financial Planner

A financial planner that advertises themselves as fee-only can only receive compensation from you, the client, not an insurance company, mutual fund or brokerage firm. Conversely, a fee-based financial planner has all these profit avenues at their disposal. This puts fee-based financial planners at higher risk for potential conflicts of interest. 

Fee-based financial planners can wear many hats, including acting as a broker-dealer, an insurance agent or a salesperson of mutual funds. These are all additional avenues of income that fee-based planners can profit from. You also could pay a performance fee, meaning your costs would increase as your money grows thanks to your planner’s work. 

Be aware that fee-based financial planners don’t always advertise the structure of their fees, so be sure to ask how your planner gets paid. 

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Pros of a Fee-Only Financial Planner 

We know that a fee-only financial planner represents your interests when giving you financial advice. This is a major pro: transparency. It’s not just the payment method that keeps fee-only financial planners honest, however, it's also their fiduciary responsibility, which means they are legally obligated to act in their clients’ best interests above their own. When you’re trying to decide what to ask a financial advisor, be sure to inquire if they are a fiduciary so you know you can trust the person across the table from you when you put your money in their hands. 

Another positive aspect of working with a fee-only financial planner is that you won’t bump up against any hidden fees. When you’re working with a financial planner who has several avenues of income, charges can begin to pile up. This is less likely to  be the case with a fee-only financial planner, as costs remain clear from start to finish. Regardless of what type of planner you choose, be sure to ask them how much their services will set you back so you can budget for this cost.

Cons of a Fee-Only Financial Planner 

While it’s comforting to know you won’t be steered in the wrong direction regarding your financial profile with a fee-only financial planner, there are some downsides. The biggest one is that you could end up paying more to your fee-only financial planner than you would to someone who is paid on commission. 

A fee-only financial planner can mean a short-term relationship, depending on the services you are seeking. If you are paying an hourly or flat fee for your planner’s services, you may meet with them as few as a couple of times — or even once — to be educated on potential financial decisions before carrying them out yourself. This puts the responsibility on you, the client, for the performance. A longer-term relationship could offer you continuity of growth in your portfolio. While this is still possible with a fee-only financial planner, it’s not as common as with a fee-based advisor.

What Certifications Does a Fee-Only Financial Advisor Have?  

The most common certification you will see in a fee-only financial planner is a certified financial planner (CFP®). This robust exam is comprised of 170 questions surrounding more than 100 topics within the financial planning world. In addition, candidates must have proof of formal education, have logged at least 6,000 hours (3 years) of full-time work experience in a related field, and adhere to the CFP Board standards of professional ethics. An added bonus: finding a registered CFP® guarantees he or she will be a fiduciary.

For a more comprehensive list of financial advising certifications, check out Benzinga’s article. 

How to Find a Fee-Only Financial Planner

It may seem overwhelming to find the right fee-only financial planner, given the number of options out there. Below are a few suggestions for narrowing in on the right choice:

• The CFP Board: The CFP Board’s tool, Find a Financial Professional, is a great place to locate a CFP® to work with.
• Referrals: One of the most difficult aspects of the financial planning profession can be finding suitable clients. In fact, some may resort to paying third parties to find potential clients. Luckily, a fee-only financial planner doesn’t operate in this realm, as they are paid only by clients themselves. The sole referrals they work off of are bonafide, genuine recommendations. This makes using the referral system air-tight. Ask your friends, family, or even a lawyer or accountant if they know any fee-only financial advisors they’ve enjoyed working with. 
• SmartAsset’s tool: Use this free tool to be matched with upwards of 3 financial advisors in your area.
• National Association of Personal Financial Advisors: A large portion of fee-only financial advisors work with the NAPFA, an association focused on the fee-only model. You can use the site’s search function to discover planners in your area at napfa.org.
• Online finance outlets: The internet has a host of options to choose from when it comes to finding resources on financial consultants. Check out Benzinga’s section dedicated to financial advisors and personal finance. 

Working with a fee-only financial planner is the safest bet for finding trustworthy, unbiased financial advice. Remember to ask as many questions as you have — you’re paying your financial planner for their expertise and experience. With a little luck and a lot of savvy financial planning, you’ll be able to meet your monetary goals and then some.