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This is Jeff Rose with Good Financial Cents. Today I want to give you the definition of
a fee-only financial planner or financial advisor. You've reached that point where you're
ready to hire a financial planner to help you reach your goals, but you're not sure
what direction is best. You do a little bit of research and you keep seeing this term
fee only. What exactly does that mean? Let me see if I can help out.
A fee-only financial advisor or financial planner gets paid directly by the client and
only by the client. What does that mean? That means they don't get paid a commission for
selling you an investment product. That means they don't get paid a referral fee from an
attorney or CPA referring clients to you. That means they don't get paid a finder's
fee. The only way they get compensated is by the relationship they have with that client,
and that is very, very important to understand.
How does a fee-only planner or advisor get paid? Most commonly there are four different
ways that a financial planner or financial advisor that is fee only gets paid. Number
one, they get paid hourly. Just like you were working with an attorney or a CPA, they get
paid per hour for the time that they are working with you to achieve your financial goals.
When working with an hourly financial planner that is fee only, make sure you understand
up front how much they charge per hour and how long it take to work on your case.
The second way a fee-only financial planner can get paid is a fee for service. What that
means is they charge a set fee for doing a set service; for example, a financial plan.
That fee-only financial planner will have a set rate on what they charge for a financial
plan. I have see other fee-only planners charge for, let's say a 401K review where they review
your 401K options with your employer and help you choose the investments that are best suited
for your goals. They would have a set fee for that service.
The third way that a fee-only financial planner can get paid is by a retainer fee. That is
where you would pay an up-front fee for working for that financial planner for an entire year
or it could be six months depending on that relationship. Typically in that rule you'll
pay an up-front fee for a set period and that fee-only planner will then service you as
much or as little as you need.
Lastly, a fee-only planner can get paid by a percentage of the assets that they manage.
Let me give you an example. Let's say that you have $100,000 that you have invested with
that planner and that planner's rate or fee is 1%, so $100,000 times 1% is %1,000. That's
how much you would pay that planner or advisor per year for them to manage your investments
and also manage your financial planning activities.
If you're looking to hire a fee-only planner, one resource that you can check is NAPFA.
That is a great source where you can go and literally type in a name, zip code, or a state
or city and you'll find a fee-only planner near you.
If you have any more questions you know where to find me, goodfinancialcents.com. We'll
see you soon.
The opinions voiced in this material are for general information only and are not intended
to provide specific advice or recommendations for any individual. To determine which investment(s)
may be appropriate for you, consult your financial advisor prior to investing.