One of my first goals when talking with a new prospect, or even an existing client, is to help them fully understand how I am paid. I am a firm believer in fee-only financial planning. This model was what motivated me to make a career change and start Janus Financial Planning. I thought it only appropriate that I start my new blog posts with an explanation on what this "Fee-Only" Fiduciary model means.
Overview
The financial advisor model has changed over the last several decades. From the investor perspective, these changes provide more options, more transparency, and more of the kind of services that used to be accessible only by those with a great deal of wealth.
The fee-only fiduciary advisor gets paid to provide advice to their clients, whether in financial planning, asset management, or both. The fiduciary standard is a key piece of this. To act to the fiduciary standard, an advisor must always put a client’s interest above their own. Fee-only advisors get paid exclusively by their clients and don’t receive commissions or kickbacks from recommending certain products or services.
Trust is at the heart of all financial advisory relationships. As an investor, you want to find an advisor that you can trust and a transparent fee structure is a critical part of that.
Advice is The Core
While investment management has been the industry's focus for years, true holistic financial planning was often only available to investors with great wealth. Today, the fee-only model is bringing more advice back into the mix. More advisors are tailoring their service offerings and client relationship models to focus on a more holistic, accessible form of advice rather than strictly investment management.
Financial advice is more than asset selection and portfolio management. Holistic financial advice is designed to help investors increase their financial wellness across their entire financial journey. Advice is tailored to help you increase wealth where you are and build wealth as you move towards your goals and into the future.
An advisor now may act as a family CFO, helping you understand the decisions you need to make every day. Advice is tailored to what you need in the life stage where you are.
And It’s in Your Best Interest
One of the biggest benefits of working with a fee-only fiduciary is the lack of conflicts of interest. The definition of fiduciary is “a person who holds a legal or ethical relationship of trust with one or more other parties.” While it may be surprising, not all financial advisors are fiduciaries.
When advisors earn their income from recommending certain products over others, there’s an inherent conflict of interest. The concern is that it's tough to know as an investor if the product is truly in your best interest or if it generates the most commission for the advisor. Fee-only helps remove this conflict of interest.
Accessible, Affordable Options
Before the fee-only model, advisors were limited in the services they could provide. Now, they have much more flexibility. No matter your stage of life, chances are, there’s an advisor out there whose pricing and service model fits your needs.
So, what does fee-only look like in practice?
In recent years, one of the most popular pricing models is the annual fee, usually assessed quarterly. Investors have an on-going, comprehensive relationship with an advisor. This allows an advisor to provide financial planning without a client needing to have investable assets – for instance, the bulk of their assets may be in their 401(k), but they still need advice across a broad range of other areas.
For investors who prefer one-time advice or DIY their finances, project-based or hourly pricing models allow an investor to get personalized advice in a few pressing areas of their life for a flat, transparent fee. There are also fee-only models based on assets under management. The advisor charges a percentage of the assets they manage and provides the full range of holistic financial planning under this fee.
The Takeaway
It's easier to invest now than ever, but creating a successful financial plan remains complex and should be rooted in your situation, goals, and risk tolerance. Fee-only, fiduciary financial advisors can help you build your wealth at any stage, for any goal – and you’ll always know they are acting in your best interest.
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