The Pros & Cons of Paying a Financial Planner by Commission
Financial planners have the choice to operate as fee-only, fee-based or commission-based professionals. There are benefits and drawbacks to each type of payment option, for both the planner and the person making use of the services. Determining which option is best for the individual requires examining the pros and cons of all three.
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Fee-only Financial Planning
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It is rare to find a financial planner that operates under the fee-only genre, but it is more common with individuals that feel the planning service and commission represent a conflict of interest. The planner usually charges a flat rate by the hour, service or year. It is particularly important to make sure that the financial planner with this type of business model be a certified financial planner, which requires educational coursework, passing a comprehensive exam and adhering to a code of ethics. Fee-only planners often lack the necessary requirements to sell investment products or insurance to their clients.
Fee-based Financial Planning
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Fee-based financial planning services begin to make the shift into charging commission on products that the professional sells. This type of provision offers both planning and the sale of insurance or investment products. As commission is dependent on the type and quantity of products that the financial planner sells, it may affect the type of advice that is rendered. However, it can be beneficial for the same person that conducts the plan to make the investment decisions for an individual.
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Commission-based Financial Planning
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Strictly commission-based financial planning is becoming less prominent in the financial advisory industry. Those that offer this type of service do not often have the interests of their clients at heart because their pay is strictly dependent on the sales that they make. Typically, the planning services are slim for financial advisers that offer a service solely payable by commission.
Choosing Among the Types
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Fee-only and fee-based financial planners both offer the likelihood that their services will seek to provide for the interests of their clients. An individual who wishes to have a professional take care of all of his advising, insurance and investment needs without a great deal of involvement from himself is better off employing the services of a fee-based planner or adviser. However, an individual who likes to be more involved or does not want a sales pitch should stick with the fee-only planner. More important than either of these choices is ensuring that the professional carries a designation as a certified financial planner (CFP), chartered financial analyst (CFA) or personal financial planning (PFP) specialist.
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