Know Who You’re Working With
There is no shortage of individuals today offering wealth management and business planning services. So how do you choose the right wealth management firm or advisor for your family and/or business?
As you consider different firms you might work with, the first thing to determine is exactly who you are talking to. Not every firm or individual that presents itself as a financial planner really is one. There is a literal alphabet soup of titles and designations following many individuals’ names, but the one that is especially important is the CFP® designation, which stands for Certified Financial Planner.
A CFP® practitioner has met rigorous professional and industry standards established by the Certified Financial Planner Board of Standards. This financial professional must adhere to the highest principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients. A CFP® practitioner is also required to act in a fiduciary capacity when working with clients.
How Are We Compensated?
At Towson Wealth Management, we have structured ourselves as a “Fee-Based” financial planning organization. Being structured as a fee-based firm allows us to offer you the full spectrum of financial products and services that are available in the marketplace and may be appropriate in your personal financial situation, while also allowing us to manage when appropriate in a completely fee-only capacity.
We will generally charge an upfront fixed planning fee to compensate us to design your financial plan utilizing our Comprehensive 5 Step Financial Planning Process. Depending on your specific plan recommendations, we will be able work on a commission, fee-only or combination basis to meet your overall needs and individual situation. If we will earn a commission at any point, this will be fully disclosed to maintain full transparency. We believe this structure will allow us to best serve our clients’ needs by aligning our compensation to the achievement of your goals and dreams, providing one-stop comprehensive service and independently representing our clientele to the broader financial marketplace.
The financial services industry generally has three different advisor compensation models. Understanding this distinction is important as it may affect your overall cost, potential conflicts of interest and the services you may receive in an on-going advisory relationship.
Commission-Based Compensation Model
"Commission-Based" advisors earn their revenue solely by commissions generated selling investment or insurance products. Many insurance agents selling insurance-based investment products fall into this category. They generally represent the product distributor and are regulated from a suitability standpoint only at the time of sale.
Fee-Only Compensation Model
"Fee-Only" advisors earn their revenue solely by charging a fee for their services. They will not receive a commission when managing assets; instead, they will generally charge based on an hourly fee schedule or a percentage of managed assets. The potential advantage of this structure is that you may obtain more objective advice. The disadvantage is that the advisor may not have incentive to make sure you follow through by implementing the plan, or may lack the ability to coordinate all facets of your plan during the implementation process. Also, depending your plan recommendation, you may need to engage a third party to implement commission-based vehicles like an insurance product, for example. This could result in paying the product company an additional fee for implementation — after already paying the fee-only planner. In essence, you could be paying twice for the same service.
Fee-Based Compensation Model
“Fee-Based” advisors can earn revenue in a commission or fee-only capacity as described above. This is commonly referred to as a hybrid model, allowing firms to customize compensation structure based on individual client needs.
While it’s important that you understand the differences in compensation, this should not be your single deciding factor. It's far more important to hire a financial planner who cares, who can be trusted, who is competent, who shares your philosophies, and who can help you achieve your goals and dreams.