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What Is a Fee-Only Financial Planner?

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Fee-only financial planners are registered investment advisors who do not accept any compensation or commissions based on sales and must act in their clients’ best interests. If you thought all financial planners work this way, you’re mistaken. Some financial planners make money by selling you a certain type of product — even if it’s not the ideal one for your needs.

Before you get started on your path to financial independence, make sure you’re working with an ally who has your best interests in mind. Here’s everything you need to know about fee-only financial planners and how they’re different from other types of advisors.

The following topics are covered in this guide:

What Is a Fee-Only Financial Planner?

Fee-only financial planners are paid by their clients — not by a brokerage or financial product. They don’t make money on the side if they convince you to invest in a certain type of product that pays planners commissions. Because they’re not swayed by commissions or incentives, the advice they give you is typically focused on your best interests.

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Besides fee-only financial planners, there are two other types:

Here’s a closer look at the characteristics of a fee-only financial planner.

Fiduciary Responsibility

Understanding what the term “fiduciary” means will help you wrap your head around the whole concept. According to the Consumer Financial Protection Bureau, a fiduciary is “someone who manages money or property for someone else.” The key is this — your money should be managed for your benefit, not the financial planner’s.

Imagine you’re planning on retiring in five years, and you meet with an investment advisor. A fiduciary investment planner may suggest a safer, short-term investment, such as a certificate of deposit. The planner won’t earn a commission for suggesting a CD but recommends it as the safest option for your needs.

A non-fiduciary advisor, however, may push an index fund that tracks the stock market. It’s a riskier short-term investment because of the volatility of the market. It will also cost you more in fees and could yield the advisor a bonus for the referral.

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Fee-Only Basis

So how do financial planners make money if they don’t earn a bonus or commission for recommending products? By charging you a fee for their time. When you pay an advisor, it improves your chances that the advice and guidance are in your best interests.

No Commissions, Referral Fees or Kickbacks

Fee-only financial planners must act in your best interests. To do so, they do not accept fees, kickbacks, commissions or any other rewards from companies and brokerages that may sway them. You can rest assured that the products a fee-only planner suggests are the ones the advisor believes are best for you.

Find Out: How Much Does a Financial Advisor Cost?

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What Fees Does a Fee-Only Financial Planner Charge?

Now that you understand a bit more about the process, you may be wondering, “How much does a fee-only financial planner cost?” Cost depends on each financial planner’s fee structure. Here are examples of each type:

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What Are the Benefits and Drawbacks of Using a Fee-Only Financial Planner?

If the idea of paying someone thousands of dollars to help you set up an independent financial plan sounds a bit steep, consider why it may be worth the investment:

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Although a fee-only financial planner seems ideal, there are occasions when you may want to avoid one:

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How To Find a Fee-Only Financial Planner

Finding a fee-only financial planner takes a little legwork. They work independently; therefore, you can’t walk into your local bank or brokerage to meet with one. Financial planners who work at a brokerage or bank are likely non-fiduciary and employed to sell the financial institution’s investment products.

There are a few ways to find a fee-only financial planner:

You can also ask friends or family to recommend a fee-only financial planner.

Here’s More: How To Find the Best Financial Advisor for You

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Should I Use a Fee-Only Financial Advisor?

According to the National Association of Personal Financial Advisors, the fee-only method is the most upfront and fair compensation structure. If you want the peace of mind of knowing that the plan developed for your financial future was designed in your best interests, a fee-only financial advisor is likely the best option.

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