I’ve been asked why I think fee-only planning is superior to other business models. I’ll start by saying that it’s not a superiority thing; there are good planners in every version of financial advising who are trustworthy and who take great care of their clients. The opposite is also true. That said, there is a reason that I chose to be a fee-only planner.
I don’t like being sold things. I have a hard time trusting a one-sided opinion when there’s a clear conflict of interest. I wouldn’t trust a car salesman (sorry car salesmen!) to tell me how much car I can afford. “Oh sweet, the Tesla? Awesome!” So on the most basic level, I’m a fee-only planner because if I weren’t a financial planner at all, I’d use a fee-only planner. There are other advisors far more suited to sales than I am, and there are consumers who have no problem trusting a quality salesman. After all, they likely know their products inside and out which can be valuable. But doing business that way, with the product as the focus, is just not right for me. I know it’s not right for a lot of people, and if you’re one of them, you’re my ideal client!
What is Fee-Only?
NAPFA (National Association of Personal Financial Advisors) defines a Fee-Only financial advisor as one who is compensated solely by the client with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product.
What is a Fiduciary?
According to NAPFA, a financial advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a Fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how the financial advisor is to be compensated and any corresponding conflicts of interest.
So a fee-only planner is a fiduciary advisor who strives to put your interest first at all times. If an advisor is not a fiduciary, they are typically held to the “Suitability Standard,” which means they only have to uphold that their advice is “suitable” for you, even if it’s not in your best interest. There’s also a rule that allows some advisors to wear “two hats” meaning when they’re doing “financial planning” for you they’re a fiduciary, but when it comes time to sell you the product, well… they’re not.
In the work I do with clients, financial planning comes first because that’s what I believe is most valuable. Financial instruments and investments come second as a way to build out that plan. If an advisor is focused on investments and is not also talking about cash flow, goals, lifestyle, and values, they may still be a fiduciary, but that’s not financial planning. It’s investment management. If an advisor is assessing the suitability of a commissionable financial product, that’s also not financial planning. It’s product sales. Both can be valuable services performed by trustworthy professionals, but it’s just not financial planning plain and simple.
If you know you need a financial product, do your research and then find someone to sell it to you. If you don’t know that you need it, find an independent financial planner… who is also a fiduciary at all times… who is preferably fee-only… and work with them to figure out what’s in your best interest. NAPFA, the CFP Board, and XY Planning Network all have advisor search tools to help you find an advisor. At the end of the day, know what you’re paying for. Decide what’s valuable to you, and then go find an advisor you trust who provides that service for a reasonable and transparent fee.