If you are looking for a financial planner and are confused about when, how, and how much you will pay, don’t worry! Choosing a financial planner can be intimidating, overwhelming, and full of jargon. Understanding the payment structure is critical to determining whether a financial planner is a good fit for you. Financial planners typically earn income through four main compensation models:
1. Fee-Only and Advice-Only
Fee-only financial planners charge clients directly for their services. This model offers transparency and minimizes conflicts of interest. With fee-only planners, you know exactly what you are paying for and when. Here are the common types of fee-only structures:
- Hourly Rate: Clients pay an hourly fee for the work done on their behalf. This structure is similar to those used by attorneys and accountants. At Firm Footing Financial Planning, I use an hourly rate system to provide tailored services that fit my clients’ needs and budgets.
- Flat Fee: Planners charge a fixed amount for specific services, such as creating a comprehensive financial plan. Some planners also offer project-based pricing for tasks like buying a house. Fees are often based on the complexity of the client’s situation, so be sure to ask for a personalized quote.
- Retainer or Subscription Fee: This recurring fee (billed monthly, quarterly, or semi-annually) covers ongoing advice and service. Planners using this model typically schedule regular meetings and provide continuous financial management and planning.
Advice-Only Financial Planning: Advice-only financial planners do not manage investments directly. All advice-only planners are fee-only, focusing solely on providing guidance. As an advice-only financial planner, I work with individuals who may not have significant assets yet but are eager to learn and grow their financial knowledge.
2. Assets Under Management (AUM)
Planners who manage a client’s investment portfolio typically charge a percentage of the assets they manage, ranging from 0.5% to 2% annually. This fee is deducted directly from the client’s account. Many planners using this model require a minimum asset level to become a client. AUM works well for clients with substantial assets who prefer to delegate investment management.
Important Note: Retirement accounts are usually excluded from AUM calculations because financial planning fees cannot be deducted directly from them.
3. Commission-Based
In this model, planners earn money by selling financial products such as mutual funds, insurance policies, or annuities. Commissions are paid by the companies issuing the products. While this model can work for some, it may create potential conflicts of interest since the planner could be incentivized to recommend products that generate higher commissions.
4. Combination
Many financial planners use a hybrid approach, combining different models depending on the client’s needs. For example, a planner might charge a flat fee for creating a financial plan and also an AUM fee for managing investments. Similarly, financial planners working for insurance companies may charge a flat fee for planning services while earning commissions from selling insurance products.
Choosing the Right Financial Planner
Understanding how a financial planner is compensated is crucial to ensuring their approach aligns with your goals. Transparency in their fee structure helps build trust and clarity. Always ask questions to ensure you are comfortable with their methods and services.
Ready to Try Advice-Only Financial Planning?
If you are interested in an hourly, advice-only relationship, Firm Footing Financial Planning is here to help you build a clear, actionable plan. Whether you’re seeking financial coaching or a comprehensive financial plan, I offer hourly planning starting at $90 per hour to help you achieve your goals. Schedule your free 45-minute discovery call today to see if we’re a good fit!
Still Deciding if Financial Planning is Right for You?
That’s okay! Join my free monthly Talk Money with Lisa group chat, where you can ask any financial questions and get honest feedback—no pressure, just guidance. At Firm Footing, we’re here to support you every step of the way.
