Types of Financial Planners

Posted By: Dr. Frugal in Budget on 08/20/2007 at 07:37:18

There are two types of financial planners and today's entry is going to discuss them.

Commission Planner: The commission planner, who may also charge a fee for plan development, earns his money through commissions on products he recommends in the plan. Some would an immediate conflict of interest here, but the planners disagree. They raise two key points:

. If they push products that are inappropriate for their clients, they won't stay in business very long and could subject to legal recourse in both civil and criminal penalties.

. By handling the execution side of the plan, they ensure that the client follows through. If left alone with a plan, some clients would not follow their recommendations and the plan would be useless. Commission planers keep their clients on track with execution and follow through after th plan's development.

Fee-Only Planner: The fee-only financial planners argue that their advice is untainted by recommendations that may lead to commissions on products. The fee-only financial planners deliver a plan, including recommendations that may or may not be product specific. You are responsible for buying the products to complete the execution of their plans.

Fee-only planners are more expensive, since their only compensation comes from their fees. You can expect to pay from around a thousand dollars to much more depending on the complexity of your financial situation and the comprehensiveness of their plan.

The financial planner you choose ultimately depends upon your comfort level with the person. If you trust them, it shouldn't matter how he is compensated. If you don't trust them, you should use them in the first place.


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