Your Financial Interests
Your interests are pretty straightforward – you want to want to achieve your financial goals for the least amount of risk and expense. For example, you want to send your children to quality schools, you want financial security, and you want to retire when you want to and live the way you want to. The financial planner’s role is to help you develop a realistic plan for achieving these goals. Some financial planners will also help you implement the plan, but more about that later.
The Financial Planner’s Interests
His interests are also pretty straightforward – he wants to maximize the amount of revenue he derives from his relationship with you. Usually that means he helps you create the plan and he also helps you implement the plan he created. Implementation is another word for sales. In other words, he sells you the products (insurance, investment) that are recommended in your plan.
Major Conflict of Interest
All financial planners have a major conflict of interest. They can produce the best plan for you or the plan that produces the most income for them. The determining factor for the recommendation is ethics. Ethical advisors produce plans that are in your best interest. Unethical advisors produce plans that are in their best interest. How do you measure ethics when you select one?
Planning Only Service
There are professionals who only provide financial planning services. They do not implement the plans they create. This is your best solution for resolving the conflict of interest, but there are two problems. First, there are very few professionals who only provide planning because it is hard to make a good living providing this service. Second, you still need someone to implement the plan.
Fee Only Service
There are also financial planning professionals who only work for fees. They provide planning services for fixed or hourly fees and investment services for asset-based (percent of assets) fees. This is the ideal type of professional if the person is going to create and implement your financial plan. Why? You can stop his compensation at any time by terminating the relationship. This is a major advantage for you compared to financial planners who are paid commission. Commission reps are paid at the time of the sale so they have no downside if the plan does not work or the products don’t perform.