If the world worked on an “This means exactly what it sounds like,” basis, it might run just a bit smoother. Of course, that’s just my opinion. Unfortunately, the world is filled with things that are not quite what they seem, and that means that many people end up screwed in the long run because they were fooled by pretty terms and flashy ideals. One great example of that is the fee-based financial planner and the non-fee based financial planner. Assuming you do not know much about either, which would you choose? If you’re anything like me, you’ll choose the non-fee based financial planner, right? Non-fee based sounds a lot better than fee-based. It sounds to me like the “Non” is going to have my best financial interests at heart.
Seems to me like the one with the “Non” in front of it is going to receive no kickbacks, compensation, bonuses or whatever you want to call it when they offer a product to me, correct? Incorrect. This is a prime example of a situation in which the way things are worded make them sound entirely different than what they are. A non-fee based financial planner is one who receives compensation for every product that he or she sells to you. Fee-based financial planners, on the other hand, are the kind of people who do not receive anything when they sell you a product. They are paid for doing their job, period, and not for making sales and earning compensation in that manner. So, basically, there are a few things you need to worry about when it comes to non-fee based financial planners.
Before we tell you why we think you should be skeptical of these non-fee based financial planners, let us first clarify that there is nothing wrong with all people and all financial planners. Most are perfectly good people who do have your best interests at heart and work with morals and ethics that will not allow them to make poor recommendations to you simply because it pays them. And then there are those who have to pay mortgages and send kids to college and who are always looking out for number one. They might not be overly bad people who want to put you in a bad financial place, but they do have to consider their own income and that might mean advising you to purchase things you don’t really need just so that they can increase their income. And then there are those who are just not in it for you at all, and you really need to watch out for those.
Why Should I be Skeptical?
Let’s consider the story of a man who, as a young gentleman freshly enlisted in the military, married and planning a future with his young wife. He was advised to see a financial advisor since he and his wife were not very good at their financial situation in terms of saving, retirement and doing what they needed to do to help their financial future look as bright as possible. Upon visiting a non-fee based financial planner, he went home with advice that might not be so good. In his own words, this man was not advised to save or pay off his exceptional debt. He was advised to purchase several expensive life insurance policies from his financial advisor, despite already having policies through the military. He was also advised to purchase a few more policies that did not help him with his current situation, which was no savings, no retirement and a heap of debt. In fact, the advisor ended up costing him more money each month to pay for these items and left him with less money to save and pay off his debts with.
Again, not all non-fee based financial advisors will offer such careless advice, but the fact is that they do earn their income by offering you products and getting you to purchase them. This means that they might not be the best for you.
Why Choose a Fee-Based Financial Advisor
Let’s first start by saying that not everyone needs a financial advisor. Most people are perfectly capable of paying off their own debts and working their own lives into financial security with just a few pieces of advice from those who know what they are talking about, but some people will benefit from hiring a financial advisor. The best one to choose, however, is the one that does not receive compensation with the sales of certain products. These are advisors that will be much more likely to sell you only products you really do need, and they are usually the ones that do offer the best possible advice.
How to Choose an Advisor
There is nothing stating that you have to use the first advisor you meet when you interview potentials. You get to use things like your common sense, your gut instinct and everything in between when you hire a financial advisor. Do not allow anyone to talk you into anything until you’ve had time to go home and process what you’ve learned, think about it and make a decision that is right for you and your family. This is a critical process, and it’s something that you will want to consider long and hard.
To find a good financial advisor, you’re going to want to ask questions, get to know this person and see what they have to say. You’re going to want someone confident and firm, but not pushy. You’re going to want to work with someone who can help you in a way that you cannot ignore. This is a person that deserves your time and attention. Someone that makes you feel at all uncomfortable is not worth your time and your effort. You should feel comfortable and confident with the people you work with, and that’s how things should go in all business ventures. Go ahead and interview some financial advisors, but be careful of those who are considered non-fee based.
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