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How financial planning fees affect your financial future...

The financial planning fees which financial planners could charge you can be classified into three main categories:

  • Commission-Based Planners are those who receive a commission when you purchase an investment product or insurance policy which they sell.  It is for this reason that you may find advisors who offer free or low cost planning services.
  • Fee-Only Planners which are paid a fee directly by you. There are some variations in which a planner which only earns a fee, such as:

- managing your shares or funds and charging
- by the hour,
- for a specific project,
- or for a fixed fee.

  • Fee-Based Planners charge fees for services which they provide in addition to receiving commissions on product they sell.

Below we will see the pros and cons together with the possible conflicts of interest which can result when you decide to use a commission based planner, and in following article we will consider those planners who earn only fees.

What is covered in these two articles, will naturally apply to planners who earn a combination of fees and commissions.

Advantages, disadvantages and conflicts of interest of commission based planners.

Advantages
Disadvantages
Conflicts of interest
Free or low cost advice

- The advisor may not be qualified to advise you, being only trained to sell.

- Since his primary interest is to sell his products, he may overlook various factors which could affect your life. (See the financial planning pyramid)

- Your advisor will not tell you if there are better products that what he is attempting to sell.

- The commissions on the products you buy could be very costly because they not only provide an income for the advisor, but also for the company which offers the products.

There is a very high risk of a conflict of interests because his income is directly dependent on how much he can sell you. He/she probably will put his/her interest before yours.

As you've seen in in this first part, the financial planning fees can have an important impact on your financial future,  so that it is important that you know what these are and how to choose a financial planner.

Now we'll go to the next part where we analyze planners who only earn fees.

Back from Financial planning fees to Personal finance help or Home

 


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