A financial planner provides retirement, estate and tax planning for individuals and small business owners. The trust between a financial planner and his client is usually more important than the fee structure. According to the Financial Planning Association, a planner builds trust by providing full disclosure and always acting in the client's best interests. Financial planners are paid through fees, commissions or a combination of fees and commissions.
Some planners are compensated through commissions on the products they sell to clients, such as life insurance annuity plans and mutual funds. According to the website CostHelper.com, commissions can range from 1 percent or less on money market accounts and Treasury bills, to more than 5 percent on mutual funds. The client is not charged for the planner's advice. However, as the National Association of Personal Financial Advisors points out, when the advisor is paid on commission, the client cannot be sure if the planner's investment recommendations are based on performance or on the size of commission payouts.
A fee-only payment structure means that the planner’s entire compensation is from client fees. A planner may charge clients an hourly consultation fee, a one-time fee, annual fees or fees based on the total value of assets. According to CostHelper.com, U.S. hourly rates range from $100 to $400. Depending on the complexity of the assets, consultations leading to a financial plan can cost anywhere from $500 to $4,000. Alex White of Virginia State University's Cooperative Extension suggested in a 2009 publication that asset-based fees should be in the 1 to 5 percent range.
Planners may also charge a combination of initial consultation fees and commissions. Clients pay a fee for the preparation of the financial plan, and the planner receives commissions from product sales. Investors should set performance benchmarks, such as Treasury bill rate plus a couple of percentage points, and continually monitor their plans to ensure they meet long-term financial objectives.
Other Fee Types
Banks often employ financial planners to assist existing bank clients with their retirement planning, estate planning and other financial planning needs. Clients do not pay a fee, but their investment choices are usually limited to bank approved products. Some financial planners have a fee-offset structure, in which fees are reduced by the dollar value of commissions.