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Fee-Based vs. Fee-Only Financial Planners: The Difference Could Cost You Everything!

By Sixty and Me February 05, 2020 Interviews

Financial planners are there to ensure that our money is handled wisely and with our future in mind. These days, though, the titles they use tend to be confusing, and you might end up hiring the wrong person for your particular needs.

What’s the difference between fee-based and fee-only financial planners? Pam Krueger of Wealthramp and Jessica Searcy of Searcy Financial share their insights and provide suggestions on which might be better suited for you in the long run.

Fee-Based Financial Planner

Fee-based financial planners are based in fees that you pay but are also motivated to sell investment products because they get paid by those products.

While fee-based financial planners can offer the same services as fee-only financial planners, there’s always the added risk that they’re thinking of their own interests over your own. As a result, they might hold back on some things that you need or try to sell you something you don’t necessarily need.

Fee-Only Financial Planner

A fee-only financial adviser or planner works for you and is paid by you. They earn no commissions for their recommendations, so as a result, their interests don’t come into conflict with yours. Because of this, they’re more able to cater to what you need.

For example, fee-only financial planners don’t sell insurance to you, but if needed, they have the resources to refer their clients to someone who does.

Why Choosing the Right Financial Adviser Matters

Choosing the right financial adviser matters in the long run, especially once you’ve reached the age of retirement.

No matter which adviser you choose to work with, it’s essential that you do your homework. There are three things that a person has to look out for when reviewing how fee-only advisers are compensated.

Some advisers charge solely based on a percentage of assets under their management. While not necessarily a bad thing if they take only high-network clients, it might mean having to pay them a higher percentage if you are not one of these clients.

Then, there are fee-only advisers who charge a wrap fee. Wrap fees are meant to be comprehensive fees that cover a number of services that can range from investment advice to brokerage services. However, if these are services that you don’t need all the time, then the more appropriate approach would be to unbundle them and not pay a wrap fee.

Lastly, some financial advisers charge minimum fees. According to Jessica, the fewer your assets are, the more expensive their minimum fees can get, and you might end up paying for more. Choosing a financial adviser who charges on a monthly or hourly basis might be better if you have fewer assets.

That’s not to say that all fee-only financial planners would make the best option. Not all fee-only fiduciary financial advisers are ethical. It’s still important to do your research when selecting the best kind of financial planner that suits you, especially when there are fees involved. Sometimes these fees can be hidden, and you won’t know about it until much later.

Are you thinking about hiring a financial adviser? How are you planning to choose who to hire? If you found this article useful, please click “like,” share, and join us in our discussion below!

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The Author

Sixty and Me is a community of over 500,000 women over 60 founded by Margaret Manning. Our editorial team publishes articles on lifestyle topics including fashion, dating, retirement and money.

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