Why you need a fee-only financial planner – What the experts say

  • William Bernstein , noted author, investment advisor, and neurologist, says, ” The best, and only, way to make sure that you and your advisor are on the same team is to make sure that he is ‘fee-only’, that is he receives no remuneration from any other source besides you. Otherwise, you will wind up paying, and paying, and paying, and paying, and paying…” He warns of the “conflict of interest arising from fees and commissions, paid indirectly by you. But rest assured that you will pay these costs just as surely as if they had been lifted directly from your wallet. You will want to ensure that your advisor is choosing your investments purely on their investing merit and not on the basis of how the vehicles reward him. The warning signs here are recommendations of load funds, insurance products, limited partnerships, or separate accounts.” He is quick to point out that the fee-only business model is “not without pitfalls, however. Your advisor’s fees should be reasonable. It is simply not worth paying anybody more than 1% to manage your money.” The Four Pillars of Investing, pages 293-294.
  • Clark Howard, popular radio and TV consumer advocate warns people to be wary of “free advice” from commissioned salespeople. “You may think…you are getting advice for free. But as I said, that is the most expensive free advice you’ll ever get. Insurance salespeople and full-commission stockbrokers are legally allowed to put their interests first and yours second when you work with them…they have no ‘fiduciary duty’ to you.” He recommends, “…that if you need financial advice, pay for that advice! You can find fee-only financial planners in your area by visiting NAPFA.org.” Pay for investment advice or get it “free” (July 18, 2011)
  • Ron Lieber, New York Times personal finance columnist, discusses the benefits of working with fee-only personal financial planners in this recent video. He recommends finding fee-only planners through the Garrett Planning Network and National Association of Personal Financial Advisors (NAPFA).
  • Liz Pulliam Weston, well-known personal finance author and MSN columnist, recommends using fee-only financial planners with comprehensive training. She warns readers about “run-of –the-mill investment advisors”, many of whom are “just salespeople in disguise, with no comprehensive financial planning training or even an obligation to put their clients’ interests ahead of their own.” She states that, “Good help is available, but we need to make it more available” —which is why she recommends the independent, fee-only advisors from the Garrett Planning Network. — Don’t Panic; Get a Financial Advisor
  • Jane Bryant Quinn, prominent personal finance author and commentator, also recommends fee-only financial planners. “Sales commissions drive the ‘advice’ you get from brokers and other financial advisors. They promote products that pay them the highest commissions, even when they know about better (and cheaper) ones…’We can deny it all we want, but sales are commission driven,’ one of them told Investment News…The best way to protect yourself from commission-driven sales is to switch to a fee-only investment advisor. Fee-only advisors sell no products and take no commissions, they charge only for their advice. Two places to find them: The National Association of Personal Financial Advisors (napfa.org) and the Garrett Planning Network.com.” — Why You Get Bad Investment Advice (Jan 24, 2010)
  • The Motley Fool says, “When hiring a financial planner, it pays to screen carefully. It is important to understand exactly how each candidate is paid, so that you can make an informed market decision. But remember, few worthwhile pros work for peanuts. Don’t get so ruthless about the cost that you end up with worthless advice…Ask planner candidates exactly how they will be paid. ‘Fee only’ should mean that the planner accepts no sales or trading commissions. Ask directly to be sure…In the best case, even a well-intentioned commission-based planner might overlook the best option for you, if he or she’s not trained and paid for selling it. In the absolute worst case, commission only planners are thinly disquised salesmen with no interest at all in your finances–beyond selling you the one product for which they are most highly compensated.” — Are You Paying Your Pro the Wrong Way? (Feb 24, 2009)
  • Matt Hougan, a leading expert on exchange traded funds and editor of IndexUniverse.com and the Journal of Indexes, gives seven key considerations when selecting a financial advisor. First on the list is fiduciary duty: “There is a huge difference between an investment advisor who has a fiduciary responsibility to his/her clients and a broker who is only required to recommend ‘suitable’ investments. You want your advisor working for your best interests.” Second is making sure your advisor is paid fee-only or hourly: “You don’t want your advisor being paid on commissions. Ever. Hourly rates are great, if you can find that. Absent that, a fee-only advisor is fine.” — Seven Guidelines for Choosing and Advisor (Sept 17, 2010)
  • Larry Swedroe, author and asset manager, in his checklist for selecting an investment advisor firm says, “The only way to ensure that your advisor’s interests are aligned with your own is for the investment advisory firm to be independent of any potential conflicts of interest, such as earning commissions from the sale of products it recommends. Therefore, I recommend working with a fee-only advisor.” He goes on to contend that, “Sound advice is not expensive. An effective advisor can add value equal to many times his fee simply by preventing you from making some very poor investment decisions (like chasing yesterday’s hot sector)… Finally, remember that while good advice may not be cheap, it is far less expensive than bad advice.” What Wall Street Doesn’t Want You to Know, page 318-320.