Fee Based Financial Planning

Fee Only Vs Commission Based Financial Planner

When deciding on choosing a financial planner, you should understand the difference between fee only financial planners and commission based financial planners. By definition, a fee only financial planner charges fees for their advice on financial plan. Unlike fee only financial planners, commission based financial planners earns from the financial products that you buy.


How Do Commission Based Financial Planners Get Paid?

Similar to an insurance agent, a commission based financial planner makes money when you buy a financial product such as life insurance. In many cases, a commission based financial planner will create a financial plan for you, without incurring further cost; however, this individual hopes that you will follow his or her recommendation and purchase insurance protection i.e. life insurance or health insurance and other financial products that may include mutual funds, stocks or annuities . Usually, the financial planner only will recommend products from companies that he or she is licensed to sell. If the financial planner does not buy anything, then he or she probably will not get paid.

Understanding Fee only Financial Planners
Some financial planners will charge you for a financial plan, even if you decide not to implement his or her recommendations. These individuals are referred to as fee only financial planners. The goal is to create a comprehensive financial plan that will allow you to address your financial concerns ranging from budgeting to estate planning. Yet, it is important to understand that a commission based financial planners also may do so. The difference between fee only financial planners and commission based financial planner’s centers around how you as a potential client will pay for his or her services. A fee only financial planner may not even want you to buy financial products from him or her, but you will be writing a check for the financial plan. In addition, the fee charged by a fee only financial planner will correspond with the number of hours needed to perform the financial analysis and to create the plan. If you decide to implement the recommendations through the fee only financial planner, he/she may charge an additional fee for managing and monitoring the assets under management.

Which Is Better? 
Both a commission based financial planner and fee only financial planner can help you to achieve your financial goals. Consider the fees associated with choosing a fee only financial planner and the amount of commission earned from the financial products that you might purchase from a commission based financial planner. The advice of the fee only financial planner should be independent of product sales and hence should be unbiased. The recommendations should be client centric and professional. But many customers are of the view that advice(s) are available freely from the neighborhood adviser, insurance agent or so called trusted relationship managers. But there is a risk in free advice. It is always better to pay for the advice and make the adviser accountable for the advice. Still better are the fee only financial planners who provide the advice and may advise you to buy online products i.e. direct mutual funds and online insurance policies which are cheaper since no commission are involved.

For getting right and unbiased advice, you may approach a Fee only certified Financial planner or a SEBI approved Investment Adviser.

Last modified on Friday, 16 August 2013 13:44

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.


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