The Difference Between Fee Only and Fee Based Financial Planners

Posted by Virtueam on December 3rd, 2020

A financial planner is someone who helps you manage your current and long-term financial goals. They can help you achieve these goals by understanding your current financial status and presenting a proper plan that allows your money to make money for you. A financial planner can be a treasure trove of information and can help you build an incredibly effective financial plan.

There are two types of financial planners - fee only and fee based. Find out how a fee only financial planner Chicago-based firm can help you get the best return on your investments.

What is a Fee Only Financial Advisor?

As the name suggests, a fee only financial advisor charges a flat fee or their services, regardless of the size of your portfolio. This fee could be charged hourly, monthly or annually. The biggest advantage that fee only financial advisors have is that they are able to offer a more uniform service since there is no conflict of interest. This is because the fee remains the same, no matter the size of the customer’s portfolio.

Fee only advisors usually don’t offer direct plans. They execute investments into plans and instruments chosen by their customers. This also prevents any conflict of interest. Fee only advisors also have a legal bond with their clients and their structure is extremely transparent. These certified financial planner Chicago firms are typically very experienced and usually need to be extremely qualified to stand up to the competition.  

Fee only financial planner Chicago-based firms can be further classified into three categories – flat fees, asset-based fees and performance based fees. As the name suggests, flat fee advisors charge their clients a fixed fee annually. Asset based advisors usually charge between 1 – 2% of the asset value.  Performance based advisors typically charge an annual base fee that is equivalent to a small percentage of your assets along with a certain percentage of profits.

What is a Fee Based Financial Planner?

A fee based financial planner charges a fee that usually corresponds to the assets managed. The fee can be a fixed amount or a percentage of the assets being managed by the planner. The fee being charged by the planner doesn’t necessarily depend on the performance of the portfolio. The fee typically still applies even if the portfolio suffers losses in the current financial year.

One of the biggest drawbacks of choosing this model is that advisors usually give preference to clients with larger portfolios. This means that if your portfolio isn’t large enough to attract the financial planner, you might not get the attention you deserve. It could also end up being a conflict of interest as the advisor may choose to invest in instruments that benefit them personally.

You should compare both types of financial advisors and choose the right option based on your needs, preference and requirements. Just keep in mind that your choice should match your business as well as your personal financial needs, structure, context and goals.

Ask around for recommendations, make inquiries and discuss how they can help you develop a good financial plan with long-term benefits. Your investments deserve the best certified financial planner Chicago has to offer.