I read your column on financial planners with interest. I agree with your statement that fee-only financial planning eliminates a major conflict of interest -- namely, recommending what's profitable for the seller rather than what's good for the buyer.
I would like to point out, however, that there is another financial planning approach in which commissions received by the planner are used to offset that planner's fees.
This achieves essentially the same result as fee-only planning but allows the planner to provide a broader service.
You may ask, "What is the difference?" Although definitions will be stated differently by almost any planner you talk with, I'll try to give you my impression.
In general, a fee-only planner does not offer his or her client any investment or service that involves a commission. Fee-based planners (myself included) offer some services that involve commissions, but these commissions are applied as offsets to the client's planning fee. This will be spelled out in the planner's written agreement with his client. Insurance may be excluded from this fee-offset arrangement because of state laws against commission rebates.
There are many good no-load mutual funds, but dealing only in the no-load world for every service is very limiting, to say the least.
My clients buy and sell individual stocks, bonds, real estate and many other commission-generating vehicles.
With my assistance in these areas, the client receives a lower overall cost and ensures that his general practitioner remains involved in his financial affairs without the potential conflict caused by commissions. Isn't this the result we all want for the client's benefit and protection?
Thank you for listening. I hope this may give you reason to note in future columns that there are other planners that also don't have the commission conflict or hidden costs.
The Federalist Papers state: "If men were angels, no government would be necessary." In the diverse and confusing field of financial advisers, it could be said, "If men were angels, no client would ever be fleeced." Of course, people are not angels, and clients are sometimes overcharged.
This quote (with which I wholeheartedly agree) was given to me by an official of the National Association of Personal Financial Advisers, whose members are fee-only planners.
