Anyone who has worked with a financial planning firm or individual financial professional knows the services provided come at a cost. That's to be expected, but it seems like there is a lot of confusion amongst consumers as to how they are being charged and at what rate.
Whether you’re already working with a financial professional or conducting a search for a new one, you’ll want to understand how they are compensated.
There are three basic ways financial professionals may be compensated: commissions, advisory fees or planning fees. Each form of compensation directly relates to the professional’s title and job description and requires its own set of licenses, affiliations, registrations and regulations.
Many financial professionals are required to inform customers how they will receive their compensation. Whether they are legally required to do so or not, it is your responsibility to ask this question up front and have the process clearly explained to you.
The way a financial professional answers your questions regarding compensation can be a valuable indicator of the type of professional you will be dealing with in the future.
I will break down commissions, advisory fees and planning fees in the coming weeks. Each compensation model has potential positives and negatives for you, the customer, and choosing the financial professional and model that suit you best will be a blend of different criteria that you’ll evaluate.
It will be up to you to do your due diligence, check out their histories and their backgrounds and make sure they will meet your needs in the coming years.
Joe Wirbick is president of Lancaster financial services firm Sequinox and specializes in retirement planning and distribution. This allows him to concentrate on developing strategies that help address the unique issues that confront retirees and those approaching retirement.