Everybody wants a financial adviser, but nobody wants to pay for one.
Or maybe it’s just that most people may be unsure of the best way to pay.
But, despite what you may hear from the nearly 300,000 financial advisers available in the U.S., there’s no perfect form of payment. Generally speaking, there’s no hurdle-free way of getting past conflicts of interest, and the models that limit conflicts — in some circumstances — may also reduce options for clients.
To find the best fit for you, educate yourself about the pros and cons of each payment structure, and the experience and licenses required to perform these roles. Here’s a breakdown.
Clearly, it’s important to ask about a professional’s compensation structure before you put your life savings in his or her hands. There is no right answer on this one; it’s often more about where you are in your life or what type of individual you are. If you’re just starting out, you might not meet the required account minimums of a fee-based professional, so you may wish to turn to a commission-based professional. If you’re about to retire, you may want a fee-based professional who can offer a variety of financial products. And if you’re a knowledgeable individual and a high earner, you may choose a fee-only adviser and implement the strategy yourself.
Whatever way you choose to go, the most important factor to consider will be the relationship you will have with this person – hopefully for years to come. If you have trust, communication and a good fit with that person’s personality and philosophy, you likely can work out the rest from there.
P.S.: Here’s how you can tell where your professional lands. Ask them what licenses they hold. What securities license do they have? Do they hold both an insurance and securities license? If they only offer you insurance products, maybe they don’t hold a securities license. If they only offer you securities-based options with no guarantees, maybe they are only securities licensed.
Casey B. Weade is president of Howard Bailey Financial Inc. in Indiana and author of the book The Purpose-Based Retirement. Weade holds a CERTIFIED FINANCIAL PLANNER™ (CFP®) certification in addition to being a Retirement Income Certified Professional® (RICP®). He is also an Investment Advisor Representative (IAR), as well as life, accident and health insurance licensed and Long-Term Care Certified.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.