What You Get From a Financial Planner

by | Nov 9, 2009 | Fee Only Financial Planning, Weekly Column | 1 comment

financial adviceWhat exactly do you get when you engage a fee-only financial planner?

This question seems so obvious that it is rarely asked, yet its answer is important.

Fee-only planners, much like attorneys and physicians, are compensated for their knowledge and their services. They do not receive commissions by selling products such as insurance or investments.

For many planners, the decision to be compensated only by fees is based more on ideology and career satisfaction than on profitability. They believe they can do the best planning in a client-advisor relationship rather than in a salesperson-customer relationship.

A real financial planner—as opposed to an investment advisor or financial product salesperson—takes a very broad view with clients, helping them orchestrate everything about their financial lives. This includes such areas as:
• Budgeting and cash flow
• Unbiased insurance advice
• Investments
• Planning for both financial and non-financial aspects of retirement
• Tax planning
• Estate planning in both financial and non-financial areas
• Making educational and career choices and setting life goals
• Using one’s resources to build a satisfying and fulfilling life

Advisors who receive commissions typically view the scope of the engagement very narrowly, with the focus usually on investments. Commission planning is less work and more profitable than fee-only planning.

Today, an increasing number of consumers are seeking out the services of fee-only planners. The benefit of being a client rather than a customer is the main reason. A fee-only planner owes you, the client, a legal obligation to be your advocate, to disclose all conflicts of interest, and to work in your best interests. A seller of financial products owes you, the customer, nothing but to treat you fairly.

Just to add confusion, some planners are “fee-based,” which means they are compensated in part by fees and in part by commissions. These planners are registered with both the SEC (Securities and Exchange Commission) and FINRA (The Financial Industry Regulatory Authority). They have a fiduciary duty to you as a client when they are doing planning for you, but not when you are a customer and they are selling you a product. If the planning is only tangential to the product, then they have no fiduciary relation with you.

Fee-only planners tend to cost less and deliver more. One of the most obvious cost savings is because fees are typically less than commissions. Also, fees can be tax deductible where commissions are not. Fee-only clients also receive comprehensive financial advice, where the customers of a commission salesperson typically receive only investment advice.

Clients also can save substantial amounts by following the advice of their financial planner, which is based solely on what the planner perceives to be their best interests. As an example, in a six-month period this year I may have saved some of my clients enough money to pay my fees for the next 35 years.

Here is how it worked: In early March 2009—which we now know was the bottom of the 2008-2009 market crash—about a third to half of my clients wanted to sell most or all of their stocks and go to cash. As an investment professional, I was convinced that we were near a market bottom and to sell out would mean missing the recovery that was sure to come.

I was able to persuade almost all of these clients to keep all or a portion of their portfolios in stocks. Six months later, those who hadn’t sold out were back up 35%. With money market funds paying less than 1%, that same 35% recovery might have taken 35 years had those investments been moved to cash.

As a fee-only planner, I was able to interpose my professional knowledge and experience between my clients and the financial crisis. While I wasn’t able to keep their investments from losing value in the crash, I was able to help them avoid making fear-based decisions that would have cost them much more in the long term.

Such unbiased advice—and the very real financial benefits it can provide—is one of the most important things you get from a financial planner.

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