How Are Financial Planners Compensated?
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How Are Financial Planners Compensated?
Everyone knows there’s no such thing as free advice. An important factor in deciding which financial planner to use is how the financial planner charges for his or her services. There are several ways in which a financial planner might ask to be paid.
Things To Know
- Some planners charge a fee. Others charge a commission.
- Some planners charge both a fee and a commission.
- Still other planners charge a percentage of assets.
Fees
Many planners charge by fee only. They charge by the hour or by a fixed rate. For example, you might be charged $500 for a comprehensive financial plan, no matter how long it took to draw it up.
Commissions
Other financial planners may charge a commission. They receive money for financial products and services (such as stocks or insurance) you buy from them. Commissions are usually a percentage of the amount you invest in a product. Planners who receive commissions may also be acting as insurance agents or receiving a salary from another company.
Percentage of assets or both fees and commissions
A planner who is in charge of your investments may charge you a fee stated as a percentage of assets. For example, they may charge a fee of 1–2% on the assets they are managing for you. Finally, some planners may charge both set fees and commissions. The fees are charged for the work done to create your financial plan, and commissions are charged on any products you buy to help meet your plan. Sometimes fees are reduced if you buy products or services that give the planner a commission.
Understanding how your financial planner is compensated will help you do comparison shopping, judge the value of your planner’s services, and anticipate what you will pay for them.
An illustration of expenses
When purchasing investments through a financial professional, a good practice is to ask them to show you in writing all of the expenses associated with the products you are purchasing. The most important areas to consider are the following:
Financial professionals and investment managers should be fairly compensated for their services. Just make sure you are aware of how you are charged for purchasing, owning, and selling an investment. Product fees and expenses can vary greatly among companies. Ask your financial professional to show you how the fees for the product you are considering purchasing compare to the average fees for similar products in the industry.
