America Asks the Dolans: Can I afford a financial planner?
QUESTION: My wife and I are trying to get our finances in order headed into the new year, and we feel like it's time to sit down with someone who can help, but we don't know how much a financial planner will cost. What should we be prepared for cost-wise?
George, first of all, congratulations to both of you for focusing on your finances!
You've taken a big step toward financial success in the new year! The answer to your question about costs depends on what kind of financial planner you choose.
There are typically 3 ways planners charge:
1. Commission only:
This type of planner doesn't charge you a fee for the plan he creates for you. Instead, as with a full service broker, he makes money only when you purchase one of the financial products that the planner recommends. His entire compensation is the commission on the sale.
As you can see, there's a potential conflict of interest by your financial planner: is he recommending a product because it is the right one for you and your unique needs, or is he recommending it because the company behind it will pay him a big fat commission when you buy it?
2. Fee Plus Commission:
Here, you will either pay a flat fee or a percentage of your portfolio's value each year. In addition to that fee, you will also pay a commission when the planner purchases for you any of the products that he/she recommends.
3. Fee Only:
A fee-only planner usually charges you a one-time charge that's based on the size of your portfolio. It may either be a flat rate for all the work you do together or an hourly rate (usually in the range of $150 - $200) ... not both!
Although it's true that not one kind of planner "fits all," Daria and I recommend using a fee-only financial planner so that you will never have to worry about the motive behind the recommendations he is making.
Here are a couple recommended sites for more info on planners:
The National Association of Personal Financial Advisors is dedicated to the advancement of fee-only comprehensive financial planning: www.napfa.org
The Financial Planning Association @ www.fpanet.org.
Do you have a money question for Daria and me? We'd love to hear from you! Just click here to send us your question, and we'll do our best to answer it here on WalletPop.
Ken and Daria Dolan of Dolans.com have hosted their own national radio program for 22 years, anchored their own television shows on CNN, authored six books on money matters, served as money contributors on CBS This Morning and have now launched a comprehensive web site and free e-letter at Dolans.com.