How to Understand the Fees of a Financial Planner

A financial planner is someone that may help you not only invest your money, but also make other recommendations pertaining to your financial world. Financial planners charge for their advice and sometimes these aren’t fully explained in the original meeting. It is important to understand fees that are associated with a financial planner so you can calculate whether the advice is worth the cost.

Instructions

Difficulty: Moderate

1. Find out if the planner is fee-based, commission-based or both. Financial planners can receive a fee that is either hourly, a percentage or a flat fee for doing your plan. If they don’t collect a fee they receive commissions from the sale of products. Some planners not only recommend the products but also sell them to receive a commission. The payment of the commission is built into products and is paid by the company.
2. See if there if there is an offset of the fees by the commissions the planner receives. Sometimes planners that receive both fees and commissions reduce the fee by the amount that they receive if they sell the product recommended.
3. Question the new trend to charge a percentage of assets with a minimum charge if the assets are too low. Investing large sums of money can be as much trouble as investing smaller amounts. The smaller amounts require more focus since a small mistake affect the investor more than a small mistake on larger amounts. Ask if you can be charged by the hour if you have a large amount of assets unless the fee for the financial planner is for more than just recommending investments.
4. Ask for an estimate of the initial cost if they charge by the hour. Most planners already have an idea what the average cost will be. Ask the planner to estimate it at the high end so you aren’t surprised when you receive the bill.
5. Investigate all the services that the fees pay. If the planner works by the hour see if all the services are necessary.
6. Check to see if there are annual fees and what they cover. Some planners have annual fees that are based as a percentage of assets, others charge individual fees for service that they provide. There are costs for the updating of the plan each year. People’s circumstances change and an annual review is important.
7. Ask if the fees are itemized. Certain sections of the tax code allow for part of the fees to be deductible under itemized deduction on schedule A. The entire annual fee cannot be deducted. If the fee of the financial planner is not itemized no part of it can be.