Understanding how financial planners get paid is important, yet many investors aren’t aware of what they pay professionals to manage their wealth. Financial advisors use different pricing structures, which can help add to the confusion for some investors.
Read on to learn more about the types of fee structures and common concerns about whether fees paid accurately reflect the level of service required for investment products.
Is a Financial Planner a Major Expense?
Many people pay between 1-2% yearly for using a financial planner’s advice. These fees usually incorporate fees on the investments, as well as the time the planner spends advising you.
Investors are best knowing what the planner charges for their services, even if the fees seem somewhat low. After all, you only know if you’re getting a good value if you know what you’re paying.
One of the things that make it difficult to know how big an expense a planner happens is the fact that most have no one-size-fits-all rate that they advertise. There are too many variables possibly influencing pricing. Asking your advisor about their fees is the best way to know with certainty.
Some of the important questions to ask are:
- What will I pay in total for working with you?
- How much money does your company get for these products?
- Are you paid any commissions?
Always look for a straightforward answer. When an advisor can’t give you a straight answer, this should be a red flag.
What Are the Most Common Ways Financial Planners Get Paid?
Financial planners get paid using one of three common fee structures:
- Fee-only, in which the planners get flat, annual, or hourly fees
- Commission-based on the investments sold
- A combination of a fee and a commission
The most common fee-only structure financial planners use involves a percentage of the assets being managed. The amount might be deducted on a quarterly or monthly schedule. Financial advisor fees may be charged on a sliding scale basis. When a sliding scale fee is used, the percentage will lower based on the number of assets that are involved.
When a planner takes a commission, they receive a percentage of the investment amount from whoever they purchase investments from. One real concern with commissions is that planners sometimes put their interests ahead of their clients to get payments.
Fee-based advisors may take a commission as well as a fee. You will do well to find out if this is the case before working with an advisor if the planner receiving a commission is something you’re concerned about.
Although thinking about the fees that financial planners charge can be overwhelming, having an idea will help you decide what paths you may want to take. The more transparency you get, the better.
Is a Financial Planner Worth It in the Long Run?
Wondering whether using a financial planner is worth the money is a real concern. Ultimately, the decision will come down to how much value you place on the role that planners play.
In addition to higher returns, there are other benefits that come from using financial planners. Some advisors will lower your overall bill using minimization strategies, which are always helpful.
One of the most important things to think about if you’re hesitant to pay for financial planning: do you have the time and resources to handle these on your own? You’re likely to find being able to grow your wealth more effectively with a little help more worth it in the long run.
Probably the most important question of all is: do you feel like you are more likely to meet your goals? The advisor should make you feel like the answer is an easy “Yes!” If the planner describes what they intend to do in a way that makes them seem worth the cost, you have the answer you need.
Prevail offers the financial strategy solutions that you need for better planning; contact us for more information today, especially to learn how our financial planners get paid.