Financial planners can be invaluable resources in creating a plan to achieve your savings, spending and investment goals. However, not all money experts share equal credentials; and it can be easy to become lost among all of their acronyms that follow their names.
Knowing your options when selecting an advisor can be key in meeting your individual needs. Here are five main categories of financial advisors.
Fee-based
Fee-based financial advisors typically charge clients either a flat or hourly fee or a percentage of assets under management for their services, and may earn commissions when selling products such as mutual funds and insurance policies to clients. This model enables them to offer more services, more transparency in fees, and attract younger talent – which makes their practice more sustainable in the long run.
Advisors who switch to a fee-based model may expand their service offering and strengthen client relationships, leading to greater assets under management and stronger revenue. Networking and recruitment efforts also become easier. But this change may also create additional conflicts of interest – regardless of their model of choice, all financial advisors should disclose all potential conflicts of interest to clients.
Fee-only
Fee-only financial advisors charge one, transparent fee for their services and do not generate additional revenues that conflict with your interests. Usually these are Registered Investment Advisors or Certified Financial PlannerTM professionals.
Financial advisors typically charge one of three fees: either a flat fee, hourly rate for financial planning consultation services, or percentage of assets managed (AUM) fee. Some even provide hybrid models that combine financial planning and investment management under one fee structure.
Fee-only advisors tend to have fewer conflicts of interest because they do not make commissions from selling financial products like mutual funds and annuities, enabling them to provide impartial advice tailored to meet your specific needs. Furthermore, their fiduciary obligation requires them to prioritize your best interests in all transactions they undertake on your behalf.
Commission-based
Commission-based financial advisors differ from their fee-only counterparts in that their income comes from selling investments like mutual funds and insurance policies to clients, although other services like retirement planning or tax strategies may be offered too. Unfortunately, their incentive structure and potential conflicts of interest make them less than ideal choices for those seeking transparent advice.
Fee-based advisors charge predetermined flat fees that can be charged hourly or on an ongoing basis; alternatively they may accept referral fees or share of assets managed as payment. Such advisors often have incentives to recommend expensive or complex products with high commissions in exchange for the commission they earn from these recommendations; additionally they are usually held to suitability standards rather than fiduciary duties which could compromise trust with clients. Fee-based advisors charge predetermined flat fees which are charged hourly or on an ongoing basis and have additional sources of revenue such as referral fees or percentage shares held among assets managed.
Independent
Prior to selecting a financial advisor, take time to understand your goals. Ask yourself whether you want to invest, create an estate plan or address other financial concerns. Make a list of your assets, income, debts and expenses before sending this list directly to an advisor who offers secure document exchange tools such as SmartAsset AMP.
Independent financial advisors don’t have any ties to larger institutions, giving them more freedom in providing clients with investment options and strategies that may save fees when searching for more complex investments or strategies. Furthermore, these advisors can create tailored solutions based on your unique circumstances and goals while many are adept at handling complicated situations such as estate planning, borrowing arrangements and intergenerational wealth transfer.
Broker
Financial advisors can be invaluable all throughout life, especially for people in complex financial situations. Advisors can help make sense of options available and create a strategy to pursue goals more easily. When selecting an advisor, it is important to take several factors into consideration including qualifications, fiduciary status and compensation arrangements; you should also inquire from family and friends as to their experiences with an advisor.
Financial planners provide a range of services, including estate and budget planning, budgeting, long-term care assistance and wealth management. Wealth managers may arrange tax-efficient security sales or harvest losses with tax loss harvesting to maximize investment deductions, while robo-advisors use algorithms to manage investment portfolios with lower fees than traditional advisors.
For comprehensive financial advice tailored tо your specific needs, consider consulting with BC CPAs and financial advisors.
