Personal Financial Advisor

Personal Financial Advisors provide advice regarding investments, insurance, taxes, wills & trusts, and mortgages — advice tailored to your needs to help you achieve your financial goals. If you choose your planner well, he or she will become an important part of your life, and you should be together for a life-time. After all, financial planning is a lifetime activity! http://www.retirement-financial-advisor.com/certified-financial-advisor.htm.

Ways that Personal Financial Advisors are compensated

All planners (or their firms) are compensated in one of four ways: commission-only, fee only, fee plus commission, and fee-offset. Let's look at each.

Commission-Only

Commission-only planners are different from stockbrokers and insurance agents (who also are commission-only) because of their breadth of knowledge as well as their methodology. Where brokers and insurance agents tend to talk about products, planners tend to talk about you.  However, most stock brokers and insurance agents work on a commission-only basis.

Commission-only planners say they offer the best compensation method, because you pay only for implementation. If you do not buy the investments or insurance that the planner says you need, then the plan itself does you no good and is therefore not worth paying for. And since all investments and insurance products feature some form of transaction fees, expenses, sales charges, or commissions, you'll pay twice if you pay for advice, too. So commission-only planners say they are working in the consumer's best interests: If you don't like their recommendations, you spend no money on advice you're not using. http://www.retirement-financial-advisor.com/index.html

Critics, though, say this can create a conflict-of-interest. Since such planners make money only when you buy something, they have a strong incentive to get you to do so. Could that lead to bad advice?  Or, is the commission only personal financial planner making a recommendations that provides him the most commission?

Fee-Only

To avoid this conflict, some people turn to fee-only planners, who do not earn commissions. Instead, they charge fees, either hourly, usually $100 to $250 per hour, or a flat fee, often $1,500 to $10,000 or more. After you get their recommendations, you go elsewhere to implement. These planners do not earn commissions, so they say they do not have a conflict of interest.  The large association of fee-only planners are members of the National Association of Personal Financial Advisors (NAPFA).

But commission-only planners argue that fee-only planners don't earn commissions simply because they aren't allowed to -- because they do not have the required licensing, training, or experience to do so. Commission-only planners also say that fee-only planners are objective to the point of disinterest: since they are paid whether you implement or not, it makes no difference to them whether your investments succeed or fail. Commission-only planners also claim that just because fee-only planners earn only fees, that doesn't mean you pay only fees. You've still got to implement, they say, and that means you've still got to pay commissions or sales charges or transaction fees — to somebody. The fact that you're paying these expenses to someone else, rather than to your planner, is small consolation. http://www.retirement-financial-advisor.com/cetified-financial-advisor.htm

Because you pay a fee-only planner, they have no need to “push” products or particular products because they are compensated for their time.  Most however will make product recommendations or offer portfolio management services.

Countering this criticism, many fee-only planners show that they are involved in the selection and management of investments and insurance – and that they steer their clients to less expensive, commission-free products that can save their clients money. Such planners also argue that they do not hold certain securities or insurance licenses merely because those licenses are needed to earn commissions – and since they are not earning commissions, they don’t need the licenses. http://www.retirement-financial-advisor.com/about_us.html

Commission-only planners retort that the "I don’t need a license" posture is a smokescreen for advisors who don’t have the knowledge it takes to earn a license.

Fees Plus Commissions

According to industry surveys, more than 70% of all financial planners charge fees plus commissions. In other words, most planners do hold insurance and securities licenses. Therefore, they charge fees to tell you what to do, and they also earn commissions by selling you the investments they say you need.

Many fee-plus-commission planners also charge asset management fees, usually ranging from 1% to 3% of the value of the assets they are monitoring for you. This can be in addition to fees and commissions. Also, some fee-only planners are charging asset management fees, either in addition to their hourly or flat rate, or in place of it. (Note: some fee-only planners feel that those who charge asset management fees are improperly calling themselves "fee only"; they believe that a true "fee-only" planner earns only hourly or flat fees.)

When Fees are Really Commissions

The asset management fee is emerging as the compensation method of choice for both planners and consumers. Consumers like it because they can avoid paying up-front commissions, and since the fee grows with the size of the assets, the planner's compensation is directly related to how well those assets perform. This puts the planner on the same team as the client: If the client's investments fall in value, so does the planner's fee -- while an increase in the client's account gives the planner increased compensation. This gives the planner a strong motivation to offer good recommendations. And planners like asset management fees because fees provide a steady stream of income from current clients. Commission-only and fee-only planners are continually looking for new business so they can earn a living.

But should asset-based fees be an additional form of compensation, or a substitute? Some planners say asset management fees can be so high that clients would have been better off paying commissions or flat rates.  The NASD has fined some investment firms for placing clients on fee-based accounts that would have been better off, because of their low level of transactions, on a commission-based account. http://www.retirement-financial-advisor.com/contact_us.html

Fee-Offset

These planners reduce their fees by whatever they earn from commissions. Thus, a fee-offset planner will be paid one way or the other, but not both.

Fee-offset planners say that by charging fees, they have the same objectivity of fee-only planners. But because they are fully licensed, they can implement their recommendations. All they are doing, they say, is reducing their compensation for the benefit of the consumer.

Fee-only planners, though, accuse fee-offset planners of being commission-based in disguise, while fee-and-commission planners claim the fee-offset group cannot afford to maintain such an aggressive fee schedule indefinitely. In other words, they say, fee-offset planners either must change to fee-plus-commission or they'll one day be out of business.

You'll have to decide for yourself which compensation method you prefer.

Industry Designations

You may come across planners with a variety of credentials. The most common are:

CFA - Chartered Financial Analyst –this is usually not a person who advises individuals but rather, manages a mutual funds or portfolios at a trust department

CFP - Certified Financial Planner™ --considered to be the top choice when you want a financial planning generalists

CRFA – Certified Retirement Financial Advisor™ --considered to be the top choice if you are a retiree seeking a personal financial advisor http://www.crfa.us

CFS - Certified Fund Specialist – a professional that has taken extra training in selection of mutual funds 

ChFC - Chartered Financial Consultant –equivalent of the CFP credential that is promoted by the life insurance industry

CLU - Chartered Life Underwriter  -- a professional training for life insurance agents

CMFC - Chartered Mutual Fund Counselor

PFS - Personal Financial Specialist –a designation held only by CPAs who offer personal financial planning services

QFP - Qualified Financial Planner

RFC - Registered Financial Consultant

All these designations are awarded by private organizations. While they suggest that a planner has a certain amount of experience or training, none is required or recognized by any federal or state government or regulatory agency. Planners voluntarily choose to obtain these. Many talented planners hold no designations; other talented planners hold several.

Federal Securities Licenses

To sell securities, planners must hold a federal securities license, offered by the National Association of Securities Dealers. Most planners hold either the Series 7 (which cover all forms of investments except commodities) or the Series 6 (limited to mutual funds, unit investment trusts and closed-end funds.)

When doing a search for personal financial advisor, you may notice that American Express Financial Advisors gets very high ranking.  Shortly however, these advisors will be split off from American Express and be an independent company.  One would not have received independent advice from these financial planners as they deal only American Express products so they are in effect, sales people for AMEX. The company does claim to have the greatest number of Certified Financial Planners™ and this may in fact be true due to their sheer size (10,000 financial advisors).  http://www.retirement-financial-advisor.com/financial-advisor.htm

High ranking is also achieved by NAPFA, the National Association of Personal Financial Planners. These are fee-only planners never charging a commission.  Here’s what they say: