2torial #0667:
Learn2 Choose a Financial Planner (continued)

Determine fees

Now it's time to find out how your potential planner charges clients. Is this person strictly a planner, or a salesperson as well? Ask each of your candidates over the phone whether they are fee- or commission-based. Here's what their responses mean:

Fee-only planners receive no commission, and only benefit from the flat or hourly fee you pay. In theory, after paying their rate, you should be able to walk out of their office with a good financial plan outlining your future actions, and never talk to them again. Ideally, these planners have no conflict of interest, and can help you make objective decisions about which investments to make or what funds to buy.

Note: Some fee-only planners operate this way because they're underqualified and have no certification. They, therefore, aren't allowed to earn commissions by selling investment products.

Commission-only planners charge no fee, because they receive commission from whatever investment products you decide to buy. Initially, using a commissions-based planner might seem like a good idea, as you pay nothing unless you decide to accept the plan they present to you. However, there's an obvious conflict of interest, as they cannot be objective about what plan is best for you, because the amount of money they make depends on what you invest.

Planners who charge an asset percentage will handle your investments long-term. Because they receive a percentage (usually 1 or 2 percent) of everything their clients have, they have incentive to increase their clients' total wealth. While this can be a great idea, because it gives both the client and the planner the same goal of increased wealth, the total amount you pay the planner is usually higher than with either of the other methods.

Ask each planner for a written explanation of how he or she charges fees. Also ask for the planner's ADV form, or Uniform Application for Investment Advisor Registration, which is a document filed with the Securities and Exchange Commission that discloses educational background, fees, investment methodology, and Central Depository record. The ADV gives a 10-year history of the person's professional accomplishments, including any disciplinary actions.