I’m a financial planner, but that may not mean what you think. Typically, when I tell people that I’m a financial planner the idea that they have in their mind is that I buy and sell stocks and bonds for their investment portfolio. If that’s not what they think, then they think that I have some product to sell them. Although the company that I work for, Market Street Wealth Management Advisors, does manage clients’ investment portfolios, neither of those things is what I do. Unfortunately, the terms “financial planner”, “financial advisor”, “investment advisor”, or any other iteration, are not protected and clearly defined so that the public actually understands what they mean and their differences.
Fee-Only Financial Planner
I’m a fee-only financial planner and I do not sell products. I’m a CERTIFIED FINANCIAL PLANNER™ professional (all caps is a CFP Board requirement, I’m not yelling at you) which means that I completed The Four E’s as outlined by the CFP Board:
- Education – I have an undergraduate degree in financial planning.
- Examination – I’ve passed a comprehensive exam that covers the financial planning process including
- Tax planning
- Employee benefits and retirement planning
- Estate planning
- Investment management
- Insurance
- Experience – I have several years of experience working under someone who is a CFP® professional (the minimum is 2 years)
- Ethics – I uphold the CFP Board’s Standards of Professional Conduct and I act as a fiduciary.
Most professionals who are CERTIFIED FINANCIAL PLANNER™ professionals have the job title of “financial planner” rather than other job titles such as those mentioned above.
I work for an independent Registered Investment Advisor (RIA) which charges clients a fee that is based on their assets under management (AUM). In other words, the size of their portfolio that Market Street manages. I don’t make commissions because I don’t sell products. I don’t sell products because my company doesn’t have any products to sell and because selling products to someone is a very suboptimal way to approach financial planning. We’re simply paid a fee by our clients to create a financial plan for them (which is updated at least annually), invest their assets in accordance with the plan, and help them with anything that they need along their life’s journey.
Financial Salesperson
When I was in college and I started looking for financial planning internships I knew I wanted to work with a fee-only firm. The main problem that I see with the model of financial salespeople who are paid based on commissions is that they’re incentivized to do what is in their best interest, not yours.
I’m sure that you, or someone you know, has been approached by someone who wants to sell you whole life insurance, an annuity, or some other financial product that you didn’t really understand (run away!). The questions that I ask myself in this situation are, “How can someone tell you that they have a great product to sell you when they’ve not done a deep dive into your financial situation and your goals and aspirations. Don’t they need that information first to even know if what they’re selling you is right for you?”
For example, let’s say that a financial salesperson tells you that you need product A. However, they also have option B available that would actually be better for your situation. If this person is paid based on commissions, and product A pays them a better commission than product B, then you’re likely never going to hear anything about product B.
Does this seem right to you?
In fact, many large financial services organizations that operate under this structure sued the Department of Labor over its Fiduciary Rule because they didn’t want to have to act in your best interest when selling you something.
If you haven’t been approached by someone wanting to sell you a financial product, then I’m willing to bet that at some point a financial services company has tried to recruit you to work for them. Think about your current occupation for a second. Would your employer ask you to recruit me, who has no training or technical knowledge in your area of work, to come and do your job?
In my opinion, a better way to do things is to complete the financial planning process first, including writing down your goals and aspirations, which will provide you with a better understanding of how you should invest your money. Most of the time this doesn’t involve purchasing financial products such as whole life insurance or annuities.
Work With Someone Who Always Has Your Best Interest First
Fee-only financial planners are only ever paid the fees that clients pay to them. No product selling. No commissions. No referral incentives. (There is a different between fee-only and fee-based). The intention of the fee-only model is to eliminate conflicts of interest and to always put the client’s best interest first. No matter what. I got into the financial planning profession as a means to help others and the fee-only model is the model that I believe in and stand by.
Of course, not all commission-based financial advisors are bad and not all fee-only financial planners are good. If you have questions about your financial life or have been considering working with a financial planner, then I would recommend utilizing the CFP Board’s website to find a fee-only financial planner who is a CFP® professional and will always work in your best interest: http://www.letsmakeaplan.org/.
