You may be considering working with a financial advisor, or you may already have an advisor who helps you with investments or insurance. But is your advisor fee-only? Working with a fee-only financial planner can make a world of difference and offer many more benefits than working with an advisor who isn’t just fee-only.
What Does “Fee-Only” Mean?
A fee-only financial planner is a registered investment advisor who abides by the fiduciary rule. Being a fiduciary means that a financial advisor must act in your best interest at all times. A fiduciary advisor who is also fee-only is only compensated by the fees you pay them.
This means that they don’t receive any commissions or additional income as a result of recommending specific financial planning, insurance, or investment products to you. Their recommendations are 100% fueled by what’s in your best financial interest based on your unique risk tolerance, goals, and financial situation.
Don’t All Financial Advisors Have My Best Interest in Mind?
In short – no. They should, but unfortunately there are financial advisors out there who are chasing a commission check. We all have seen or heard of the “financial planner” who tries to lock you into an insurance policy that doesn’t fit your needs and costs you a lot of money or are out to take your money and invest it in something that benefits them not you. These people should be avoided at all cost and give a bad name to financial planning as a profession and an industry.
Of course, there are some advisors who still have your best interest in mind even if they’re receiving commissions on the investments or products they sell you. Still, in the back of your mind, you’ll always wonder: did I just get sold something I don’t need?
If you were talking to a salesperson at a car dealership, a retail store, or other place of business you’d take their recommendations with a grain of salt. This wariness should translate to financial planners who accept commissions. Of course, in many cases, a salesperson is completely reputable. They genuinely want you to make a purchase that’s going to add value to your life and help you reach your goals.
Some advisors who receive commissions follow what is called the “suitability” standard. On the surface, this may seem like the fiduciary standard – but don’t be fooled. The differences are dramatic and have the potential to negatively impact your financial situation.
Fiduciary vs. Suitability
One of my favorite analogies for the fiduciary standard is to liken financial planning to the medical world. If you were seeing a doctor, you’d expect your doctor to give you unbiased advice that was, beyond a shadow of a doubt, in your best interest. But let’s pretend the doctor you’re seeing is following the suitability standard.
This doctor has a deal with a local fast food chain that he gets a monetary kickback every time he sends them a new customer. Using the suitability standard as a guide, the doctor could recommend that you eat a cheeseburger a day. Technically, a cheeseburger is still sustenance. It will provide you some nourishment.
Of course, we all know that eating a cheeseburger a day isn’t healthy. A doctor abiding by the fiduciary standard would never recommend a cheeseburger a day, even if it provided some nourishment. They’d recommend a healthy, well-balanced diet with plenty of fruits and vegetables, lean proteins, and whole grains. If they’re fiduciary and fee-only, they wouldn’t even have a deal with a local fast food chain to receive a monetary kickback!
You want a financial planner who is recommending things that are going to have the best possible impact on your financial life. After all, why would you settle with “suitable” when you could have the best?
Why Does It Matter?
A financial planner who is only compensated by the fees you pay them ensures that they’re not collecting commissions on the insurance, products, or investments they recommend to you. This helps to protect your money, and ensure that the method you choose to grow your wealth is truly the best available option.
I strongly believe that everyone deserves access to financial advice, and that you deserve to make financial decisions that are in your best interest. You’ll never have to worry that I’m trying to “sell you something” in addition to offering you the financial advice that your fee covers.
Your financial situation is unique, and you deserve to have a financial planner on your side who is always looking out for what’s best for you right now – and in the future. I believe in financial planning that takes a holistic approach to your life and helps you stay on track to meet long-term goals while addressing short-term financial needs.
If you want to learn more about why fee-only planning, or what being a fiduciary financial planner means – I’d love to talk to you. Feel free to contact me today with any questions or concerns you have.