The term “Fee Only” refers to the way financial planners are compensated for the advice they provide. This term is growing inpopularity, but many individuals in the financial services industry use this term inappropriately. In addition, if you ask the average person what it means to work with a Fee-Only financial planner they may not fully understand the critical importance of the term.
The National Association of Personal Financial Advisors (NAPFA) defines a Fee-Only planner as “one who, in all circumstances, is compensated solely by the client, with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product”. This type of professional relationship always places the clients best interests first and eliminates potential conflicts of interest. Fee Only compensation indicates that an advisor never accepts commissions or compensation of any kind related to the products he or she recommends.
I strongly believe that Fee-Only planning is extremely important during these uncertain economic times. A financial planner who has a financial stake in the course of action that he or she recommends to a client faces an inherent conflict of interest and cannot be considered objective and unbiased. This is true even if the planner truly believes that he or she has only the best interests of the client at heart.
Unfortunately for consumers, the vast majority of financial advisors in the United States are sellers of financial products. There is nothing wrong with the presence of product-based advisors. Their services are needed and many do indeed try to do the best for their clients. Some or all of their income may be dependent upon their ability to steer their clients to a limited number of the thousands of financial products available today. Putting aside the conflict-of-interest factor, this limiting of choices in and of itself is often enough to impact the quality of the investment advice.
A Fee-Only financial planner is well-positioned as an objective source of tax and financial planning advice. I agree with NAPFA’s belief “that many of the problems that beset Americans today in their financial affairs – including the mis-management of debt, failure to protect retirement assets and poor allocation of savings and investments – relate directly to the conflicts of interest that pervade the marketplace”. If you are in the process of taking control of your financial life, consider working with a Fee-Only financial planner to guide you along the journey to tax and financial freedom.
For more information on Fee-Only planning visit www.napfa.org or www.focusonfiduciary.com.
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