In this blog, we’re going to break down what fee-only financial planning is, and we’ll provide some examples of how a fee-only financial planner can help you. Equally as importantly, we’ll talk about what a fee-only financial planner is not, and some types of financial advisors to avoid.
What is financial planning?
As fee-only financial planners in Bend Oregon and Eugene Oregon serving clients across the country, we’ve had our share of questions about the nature of work that we do. Let’s start with a clear, easy explanation of what financial planning is.
In other articles, we’ve discussed at length what financial planning is. To summarize our past blog, a financial plan can be defined as a model of your current financial situation which captures:
- Goals – what’s important to you and what you hope to accomplish
- Priorities – yours, ones we identify, and the degree of alignment of priorities
- Net Worth – what you own and what you owe
- Cash Flow – your income and what it costs to live your life
- Risks – those you can and cannot control
- Projections – what will happen during your lifetime and when you pass away
Financial planning provides both monetary and emotional value. By implementing strategies to optimize taxes, portfolio allocation, risk, and estate planning, a financial plan can save you money. Equally important for many, a financial plan gives clarity about where you are and what your options may be if there are unforeseen changes. Working with a financial planner gives comfort and peace of mind, knowing that financial decisions have been vetted by a knowledgeable expert. Although the value is not as tangible as putting an addition on your house, if done correctly, financial planning can be an excellent investment in your future.
What is fee-only financial planning?
Our blog on how to find a fee-only fiduciary advisor goes into depth about the various ways that financial advisors charge. We suggest that you read it if you are seriously considering hiring a financial advisor.
Essentially, a fee-only financial planner:
- solely accepts fees for the work they do for you
- will never accept commissions or other forms of compensation
- will agree to sign a fiduciary oath, promising to follow a fiduciary standard of care 100% of the time
- identifies as an Investment Adviser Representative (IAR) of a Registered Investment Adviser (RIA), a firm that is registered either with the SEC or the states in which the advisor has jurisdiction
We are fee-only financial advisors in Oregon serving clients across the country, and here’s what fee-only means to us:
- We are only compensated by a fee on the value of assets we manage or by hourly fees
- We never accept commissions
- We do not pay or accept referral fees
- We follow a Code of Ethics
- We eliminate as many conflicts of interest as possible
- We seek to minimize any remaining conflicts-of-interest, and if any were to occur we would disclose them to you in full capacity and upfront
- We follow the fiduciary standard, the highest standard of care in the industry, 100% of the time
Now that we’ve covered what financial planning is, and what fee-only means, let’s talk about what you want to avoid when you are looking for a good financial advisor.
Here’s what it is NOT
If you are looking to do business with a high quality fee-only financial planner, which we highly recommend for the reasons outlined above, it’s a good idea recognize who is NOT a fee-only financial advisor.
Hybrid and dual-registered advisors
Hybrid and dual registered financial planners wear two hats. They make money from fees, but they may also charge commissions for financial products they recommend. These financial advisors are, by definition, not considered fee-only even though they have the option to charge fees. They may call themselves “fee-based” advisors, a term which may confuse people who are seeking fee-only financial advisors.
An example of how these advisors wear “two hats” is when they charge fees for financial planning and investment management services, but then sell their clients insurance or other financial products (for a commission).
Someone who works for a broker-dealer is called a Registered Representative and may earn fees or commissions from investment products they sell or recommend. Registered Representatives are not required to act as fiduciaries all of the time, and they are never fee-only advisors.
I found a fee-only financial advisor. Now what?
Once you identify a fee-only financial advisor, what else should you look out for? Here are a few things to check.
Many financial advisors, whether they be fee-only, fee-based, or commission brokers, engage in fee-stacking. This occurs when an advisor charges their own advisory fees but also hires a third-party to manage the assets for those clients’ portfolios. Those asset management fees get passed on to clients, and they are often not disclosed to the client. This can take the form of mutual funds with high expense ratios, wrap-fee arrangements, or separately managed accounts (SMAs). High fees are enormously destructive in the long term for a client’s overall wealth.
Out of scope advisors
Another issue is when a financial planner does not have expertise in your situation. You may either wind up paying for them to learn on the job, or you may not get the best advice. You can find out if a fee-only financial advisor is right for you by having a thorough list of questions to ask any financial advisor you are interviewing. If you don’t uncover their level of experience through questioning, they aren’t likely going to tell you upfront.
Think about how you discovered the fee-only financial advisor you are interested in. Oftentimes, advisors are found using matching services like SmartAsset, Zoefin, or WiserAdvisor. Advisors have to pay a referral fee for each client they acquire using these sites, so they may not list the best fee-only advisor for you. If you were referred to an advisor by an attorney or CPA, ask if there is a referral arrangement between them. Just as you expect unbiased advice from your fee-only financial advisor, you should expect to find them using unbiased referrals. Referral payments create a conflict of interest.
Ready to get started?
There you have it; that’s the scoop on fee-only financial planners, in a nutshell. We hope our blog has answered the question, “What is a fee-only financial planner?”
If you are interested in financial planning, we are a fee-only, fiduciary wealth management firm based in Bend and Eugene Oregon, serving clients across the country. If you’re interested in engaging with us further, please reach out and set up a time to meet. If now isn’t the time to make this move, we hope you’ll at least join our newsletter. If there is a topic you’d like us to consider for future newsletter, please let us know through our feedback form.