Money Matters

Before hiring a financial planner, consider how you think they should be compensated

June 15, 2013 

Q. This question centers around a financial issue but it is more of an ethical question. My husband and I disagree on how to proceed and would like your advice. We worked with a planner I’ll call “Joe” and he prepared a very detailed comprehensive plan for us at no charge with the understanding that we would implement the plan through him. He explained that he would be compensated by the insurance and investment companies offering the products we would purchase. Since this time I discovered that my bank offers financial planning. I showed the plan to the bank representative and he said they have investment and insurance products similar to what “Joe” has recommended. The bank representative says their products are much better than those that “Joe” has recommended. My husband thinks we owe it to “Joe” to implement our plan through him and I think this is a part of our lives that is too important to worry about “Joe’s” feelings if there are better investments for us to buy. My husband also thinks that there can’t be that much difference between what the bank and Joe are recommending. What would you suggest we do?

A. I agree with both of you. “Joe” worked for free developing a financial plan for you with the understanding that you would purchase products from him. If he spent time and developed a detailed/objective plan he should be compensated. On the other hand, a good financial plan and the vehicles you select to implement that plan are important and loyalty to “Joe” should not dictate what you decide to purchase. Perhaps you could compensate “Joe” by paying for the hours he spent developing and explaining the plan to you. On average, planning fees range from $150 to $350 an hour depending on the adviser’s experience and training. You may also want to consider sharing the bank’s recommendations with “Joe” and give him equal opportunity to compare his recommendations to theirs.

Most financial advisers are compensated in one of four ways: fee-only, fee-based (fee and commission), commission-only and salaried. Conscientious, objective planners are found in all of these compensation categories. However, you can also find unscrupulous ones. There is no free lunch and all ethical planners deserve to be paid for their services regardless of the compensation category into which they fall. Selecting a compensation arrangement that suits you and then looking for a financial planner offering that arrangement may be a good way to begin a search. The following is a brief explanation of the different compensation methods.

Fee-only: Bills a flat or hourly rate for the time spent working with you. This may involve the development of a comprehensive financial plan or be limited to solving specific financial concerns you may have. Some will only provide advice about implementation of your plan and others may help facilitate your implementation. A fee-only planner may also provide asset management services when implementing the investment portion of your financial plan. They do not receive any commissions or other forms of compensation but they do charge a percentage of the assets they have under management.

Fee and commission or Fee-based: Charges for time spent developing a plan or solving a specific financial concern. A fee-and-commission planner will help with implementation by recommending certain investment or insurance products for which they receive a commission. Some will also implement the plan and charge a percentage of the assets under management.

Commission-only: Provides a plan and recommendations at no charge. They are compensated solely by commissions earned from the products and services necessary to implement their recommendations. If you don’t purchase a product through them they won’t receive compensation regardless of the amount of time and advice they gave you.

Salary: Many banks, credit unions and other organizations offer planning services provided by salaried financial planners. Their recommendations include commissioned products bought through the organization paying the planner’s salary and bonuses; commissions may go to the organization or the representative depending on the arrangement.

Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at or P.O. Box 97128, Raleigh, NC 27624

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