Four types of Financial Planners, and how to choose the one that’s best for you

FPYou’ve decided to make your finances a priority so you can meet your long term goals and to enlist the help of a professional Financial Planner to make those dreams turn into reality. If you don’t already know a reputable Financial Planner, finding the one that’s best for you may be challenging. Here are 4 types of Financial Planners and what you should know before hiring one.

Four Types of Financial Planners

#1. Salaried Financial Institution Employee

Employees of financial institutions such as banks or trust companies working whose jobs are to provide advice to their clients.

What you pay: Varies; may be provided to you at no charge or for a nominal fee.

How they’re paid: By their employer; set salary.

Products offered: Typically limited only to the products offered by the financial institution.

Who this is best for and what you should know: If you’re still in a stage of Financial Instability or Financial Stability, or even the early stages of Financial Stability, this may be an affordable option for you. Your Financial Planner (FP) may be able to help you with your budgeting and ensure that you have the best products so you’re getting the best value for your money. If you’re in debt, your FP may be able to help consolidate your debt with a low interest loan. Some financial institutions also offer Financial Planners to their highest net worth customers and have access to products outside of their own company’s – they may prove to have a high level of expertise with their client’s best interest in mind (versus pushing products with the highest commission rates), but these FPs are not available to just anyone.

5 Stages of Personal Financial Independence

#2. Commission Planner

May be employed by a financial institution or be a general or exclusive agent.

What you pay: Either a fee plus commission from the product(s) you purchase, or just commission.

How they’re paid: Fees and commissions based on the products they sell you.

Products offered: Depending on who’s employing the FP, may be limited to their employer’s line of products, or exclusively offer certain companies’ products, or may offer what they deem to be the best products in the market.

Who this is best for and what you should know: The temptation for commission-based planners is obviously to promote the products with the highest payouts, which may not result in you getting the best return possible. These FPs generally have more independence than the salaried employees, so working with one may suit you better if a salaried employee does not have access to products outside of their own institution that you’re interested in. Some FPs are also compensated based on how much your total portfolio has grown over the year, meaning it’s in their best interest to maximize your wealth. If you’re in a stage of Financial Stability, Financial Freedom or Financial Wealth, this may be a good option for you.

#3. Fee-Based Planners

Typically independent of specific financial institutions.

What you pay: A fee, typically hourly.

How they’re paid: The fees you pay, plus commissions from the institutions of the products they sell.

Products offered: Generally a wide range of products available on the market, since they’re not tied to one specific institution.

Who this is best for and what you should know: You’ll probably pay more up front in fees, but these planners operate with more independence than the salaried or commissioned employees, so they’ll have greater access to products. Because they’re still partially compensated in commission, the conflict of interest is not entirely eliminated, but they are one step above the financial institution employees, who probably all have very specific sales targets and goals to meet. If they’re compensated by a percentage that your portfolio has grown, however, this may be a good option, since they can only maximize their wealth by maximizing yours first. You may want to consider this kind of planner if you’re in a later stage of Financial Stability (i.e. not just starting out like I will be in a few months), Financial Freedom or Financial Wealth.

#4. Fee-Only Planners

Independent of specific financial institutions.

What you pay: An hourly fee, typically ranging from $50 to $300.

How they’re paid: Only from the fees they charge you hourly.

Products offered: Generally a wide range of products available on the market, since they’re not tied to one specific institution.

Who this is best for and what you should know: This is typically considered the best kind of FP since there is no conflict of interest when suggesting products to you. If you have enough financial assets and perhaps some complex financial issues you need expert advice on, their hourly fees may be justified. These kinds of planners are probably best if you’re in a position of Financial Freedom or Financial Wealth, or perhaps a late stage of Financial Stability.

My current Financial Planner is a salaried employee of my bank whose bonus depends on how much my portfolio has grown over the last year. He does have access to products outside of the bank’s, and we’ve developed a friendship over the years. In fact, he’s the one I’ve been turning to for advice on how to get into the Financial Planning sector! We don’t pay any fees for his services other than the banking fees I pay monthly and because it’s in his best interest to maximize my portfolio, I do think his expertise will serve us quite well for at least the next few years.

Once we’ve gotten ourselves out of debt (i.e. Goal #1), I do plan on making an appointment with him – an expert financial checkup of sorts.

Mrs. Unchained55

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