How Are Financial Planners Compensated?
When you meet with prospective planners, it's important that you ask them to spell out exactly how and when they are paid. In general, planners are compensated with fees, commissions, or a combination of the two.
Fee-only planners, as they're known, charge a rate that's either hourly ($100 to $300 an hour is typical) or based on a percentage of your assets they'll be managing, often 1 or 1 1/2 percent. While there are fee-only planners who will cater to people just getting started, many won't take on new clients unless their assets are at a certain level, usually $100,000 or more.
Commission-based planners do not charge a flat fee for their advice. Instead, their compensation is paid by mutual-fund companies, insurance carriers, and other firms whose products they sell. Proponents of fee-only planning argue that this free advice does have a price -- your best interests may not be a planner's first priority if his paycheck depends on selling specific products.
That said, it's not necessarily a bad idea to work with a planner who earns some commissions, says Welch, who himself is a fee-only planner. In fact, for young couples starting out, it may be more economical to go to a planner who supplements fees with commissions, as most planners do. "The key is to understand how they are being compensated so you can be aware of potential conflicts of interest," says Welch. Be wary of a planner who is more focused on giving you his sales pitch than listening to your questions and concerns. "If he starts talking about products the moment you walk in, walk out," says Blandin.
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