Financial Planners

[ksoehrlein]

There have been a few posts on this board in recent months where posters were advised to see a financial planner but were reluctant to do so because they didn't want to pay for those services. I had also been under the impression that clients pay their planners, but the first time I actually sat down with one (in Delaware), I was told this was not the case: the funds that the planner recommended would pay him based on how his clients invested in those funds. The planner implied that this system varies from state to state. I believe Alabama does it the same way as Delaware.

Now I know that this scenario is still not ideal, because the planner isn't necessarily going to have your best interests at heart (although the ones I've dealt with seem to), but it does provide a way for someone to get retirement savings advice without having to pay for it -- other than their investment, which only serves to benefit themselves in the long run.

How do things work in your state?

 

[pearlieq]

There are both comission-based and fee-only planners here. We use a fee-only planner, we prefer to have unbaised counsel.

 

[Mojomanny]

There are fee-only, commission-only as well as both fee and commission planners.

I am cautious about commission only. Ask how many insurance companies and mutual fund companies he works through. Tell him you want copies of his license with the different companies he claims he is licensed with (you can easily get it yourself through your state insurance commissioner, but he should be easily able to provide). If they are only recommending mutual funds from very few companies you should find out why. Unless you are getting Rights of Accumulation break points (more business with one firm lowers the load) it does not make sense to be allocated with only a few companies.

Fee and commission sounds like double dipping but it is not necessarily so. Think of it this way. You pay the planner to design your plan and then have the option of taking it anywhere you want for implimentation. If you want them to implement through them, they should get paid for that as well.

Think of it as hiring an architect to design a house, then choosing you want them to be the general contractor as well. Two distinctly different roles that should be paid appropriately

You often get what you paid for ... and free advice may not be worth ths cost.

 

[ceecee]

You can speak to someone at most credit unions or banks. Most have people with licenses that can handle all kinds of investment, financial planning questions without a charge.

 

[bdcp]

Our planner sat down with us for free. After we signed with him, the co. gets a 1% commission per year based on our balance that is deducted from the account. Believe me we more than made that this year. Commissions are not bad because the more money we make, the more he makes. It's very simple. I would never use a flat fee service. A flat fee investment planner has no incentive to make you money. We've had great success with our planner. You just have to be aware of what's going on in the market. It's as simple as reading your statements and researching companies.

 

[georgina]

Our planner sat down with us for free. After we signed with him, the co. gets a 1% commission per year based on our balance that is deducted from the account. Believe me we more than made that this year. Commissions are not bad because the more money we make, the more he makes. It's very simple. I would never use a flat fee service. A flat fee investment planner has no incentive to make you money. We've had great success with our planner. You just have to be aware of what's going on in the market. It's as simple as reading your statements and researching companies.

I don't think that is fair to fee-only planners, to say they have no incentive to make you money. I would never use a commission only planner, because I have a susicious mind. I would wonder if they were recommending the best investments, or the ones they might make the most money from. Personally I enjoy reading about investments and doing it myself, so I don't use either.

If I'm reading your post right, a 1% commission on the balance could be really steep - if you had $500,000, that would be $5000 a year?

 

[Cheshire Figment]

Actually there are three basic methods of payments to financial planners. Some will strictly work with one of the methods, and some will use a combination of two.

The ones that I would consider last are those that receive a commission from either the fund family or the insurance company you put your investments into. These are usually referred to as commission only and often look to maximize their commissions.

Much better are the fee only. They will work with you to set up your goals and then make recommendations. They may or may not be the ones to actually handle the investments. Their only source of income is the fee they cahrge you.

Best are the money management companies. However, you usually have to have at least $100,000 to invest. They will work with you toward your goals. They will basically handle your investments, although they will accept some of your suggestions (such as I want to always own at least 100 shares of Disney). I have had a couple of tax clients using these. They do not charge you any brokerage fees when either buying or selling on your behalf. The way they get their income is on the last day of each quarter they deduct a fraction of one percent of your net asset value. The more your account is worth the more they get -- it is to their advantage to make sure your account increases in value as much as possible for their maximum return. As your account increases in size the percentage commission will also be reduced.

 

[bdcp]

I don't think that is fair to fee-only planners, to say they have no incentive to make you money. I would never use a commission only planner, because I have a susicious mind. I would wonder if they were recommending the best investments, or the ones they might make the most money from. Personally I enjoy reading about investments and doing it myself, so I don't use either.

If I'm reading your post right, a 1% commission on the balance could be really steep - if you had $500,000, that would be $5000 a year?

I'd love to have $500,000 of investments. Not quite, but getting there rapidly. We're halfway to retirement in terms of years. Our Financial Planner happens to be a very trusted friend. Our investments are in funds and he has steered us away from risky ones and he's been right so far. What exactly would you be suspicious of? Fee only means they get paid if you make something or not. Not as much incentive. If they make more on commissions because you do, how can that be a bad thing? And we're using a money management company because we had more than $100K to invest from other investments. Even 1% is less than most sales commissions that anyone I know gets. When you trade with a broker, they get more than 1%. Nothing is free.