From American Public Media (NPR) – Explainer: how to choose a financial planner

“Fee-only advisers are a bit like the Holy Grail of financial helpers. There aren’t that many of them out there, and they can be tough to find.”

Unfortunately, I find that the article was too short to be very helpful, and that it glosses over a bunch of details.  For example, it points out that traditional commission-based advisors have a conflict of interest.  They do.  But it then discusses “fee-based” and “fee-only” not only downplaying the conflicts of interest but falsely claiming that “fee-only” is free of conflicts of interest.  That’s astoundingly false.  It may minimize or change the character or structure of the conflict, but as a very smart person once said in very few words, any time money changes hands, there’s a conflict of interest.

Moreover, while the article points out that fee-only may include people who work by the hour, the fact is that the vast majority of fee-only financial planners work on the basis of assets under management, charge a percentage of those assets, and do not clarify or separate out the costs for the financial planning from the costs for the asset management.

That all said, the fact that the article is up at all is a good sign that people are starting to look at the differences.  Too many folks don’t know that there are different ways of compensating advisors at all, and even amongst those who know that there are fees versus commissions usually don’t know the difference between fee-based (which means fees and commissions) and fee-only (which may mean hourly, project-based, flat-fee/retainer, or percentage of assets under management).

At the end of the day, the bottom line is that if you are getting financial advice, you are almost certainly paying for it.  If you don’t know how you’re paying for it, it’s like the old adage about poker – “If you have been in a poker game for a while, and you still don’t know who the patsy is, you’re the patsy.”  Look around your financial plans.  If you don’t see how you’re paying for the advice, you’re probably paying a lot more than you realize.