Are you wondering if you would benefit from professional help with your financial goals but are not certain where to start? A clear understanding of what a financial planner is and the differences between the three most common types of financial planners can help you decide which type is right for you.
Fee-only financial planners, fee-based financial planners/advisors, and the standard brokerage firm planning models are all different in terms of their fee structure, services offered, and potential conflicts of interest.
What is a financial planner?
A financial planner is a professional who looks at your entire financial picture and advises on how to achieve your short-, medium-, and long-term goals. The more generic term ‘financial advisor’ refers to a broad category which includes brokers, investment managers, insurance agents and bankers. It is important to note: All financial planners are financial advisors, but not every financial advisor is also a financial planner.
Furthermore, certain financial planners have taken additional steps and made additional ethical commitments to become CERTIFIED FINANCIAL PLANNER™ (CFP®) professionals. CFP® professionals take a wholistic, personalized approach to financial planning, bringing all the pieces of their client’s financial life together. As part of CFP® certification, CFP® professionals commit to putting the client’s best interests first when providing financial advice. Obtaining and maintaining the CFP® mark is a rigorous process including additional education, examination, proven experience, and ethics requirements, as well as ongoing continuing education and adherence to the CFP Board’s code of ethics and standards of conduct.
What is a fee-only financial planner?
Fee-only financial planners are compensated solely by their clients and do not receive any commissions or other compensation from third-party providers. Fee-only planners typically offer comprehensive financial planning services, including retirement planning, estate planning, tax planning, insurance planning, and investment management. They can be paid in a variety of ways including flat fees, hourly rates and/or a percentage of assets under management fee. Either way, fee-only compensation structures minimize potential conflicts of interest and ensure that the planner's recommendations are solely in your best interest. Financial planners working at a fee-only Registered Investment Advisor (RIA) must act as a fiduciary, meaning they must act in the best interests of the client over the entire period of the relationship. Fee-only RIAs are usually independent and do not have proprietary products or sales incentives.
What is a fee-based financial planner?
Fee-based planners may offer a range of financial planning services, but clients should be aware of the potential for conflicts of interest. Fee-based financial planners work in a variety of settings including banks, brokerage firms, insurance companies, fee-based RIAs or even what is called a hybrid RIA (registered as both an RIA and a broker/dealer). Fee-based financial planners may receive compensation from both their clients and third-party providers, such as commissions from selling insurance or investment products. This compensation structure creates potential conflicts of interest, as the financial planner may be required or incentivized to recommend proprietary products or products that provide them with higher commissions. Financial planners working at a hybrid RIA may ‘switch hats’ depending on whether they are acting as a commission-based broker or as a fiduciary planner, which can lead to confusion as to whether they are always acting in your best interest.
What is the standard brokerage firm financial planning model?
Standard brokerage firm financial planning models typically involve a commission-based compensation structure in which the advisor receives commissions from selling investment products to clients. Like fee-based advice, this compensation structure creates potential conflicts of interest, as the financial planner may be required or incentivized to recommend proprietary products or products that provide them with higher commissions. Previously, brokers were held to a lower suitability standard. However, recently brokers became subject to Regulation Best Interest (BI) requiring they act in the best interest of the client at the time of the transaction. While an improvement over the suitability standard, Regulation BI falls short of the fiduciary standard maintained by an RIA, who must act in the best interest of the client throughout the relationship.
Which type of financial planner/advisor is best for me?
Walnut Hill Wealth Management (WHWM) is an independent, fee-only RIA. We believe the independent, fee-only RIA model provides for the most transparent fees, a comprehensive financial planning process, and purest fiduciary relationship for the client. Putting your trust in WHWM means working with WHWM’s Founder and President Stephen Bodwell, a CFP® professional committed to putting your best financial interests first. To learn more about how WHWM can help you achieve your financial goals, schedule your complimentary, no-obligation 30-minute consultation with WHWM today.
Walnut Hill Wealth Management, LLC (“WHWM”) is a registered investment advisor offering advisory services in the State of Texas and in other jurisdictions where exempt. The information provided is as of the date indicated and subject to change.
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