September 15, 2014
There are fee-based financial advisors and fee-only advisors. How are they different? Who should you avoid? Why?
There are fee-based financial advisors and fee-only advisors. How are they different? Who should you avoid? Why?
Fee based are your normal commission and fee advisers who want to sell you the products that get the most money from you, they should always be avoided. Fee only work for an hourly wage or an hourly rate, they are better then fee based but they are not needed either since you can do investing yourself through Vanguard. If you use Vanguard and avoid both you are better off financially if you know what you are doing.
Right again, Garrett. Let’s review.
Fee-based provides advisors multiple ways in which to be compensated. Commissions based on the products they sell tend to dominate their income stream. This is why you should avoid fee-based salespeople (financial advisors, life insurance agents, and investment brokers dominate this field).
If you are not ready to handle your own investments (I believe most people can with the right amount of education) go with a fee-only advisor that eliminates the conflict of interest. You pay him or her a specific amount of money and that’s it. No commissions and no conflict of interest (as best as we can anyway). There is one drawback with this approach. You generally need $250,000 to make you a viable candidate. Most new investors would be wise to start investing with vanguard.com and focusing on those really cheap and efficient index funds.
When looking for a fee-only financial planner, identify one that invest in index funds and make sure the yearly fees are at 1% or less. Your pocketbook will thank you.
Thanks. Good question. I don’t need either but 1% or less of exactly what?
The yearly fees are what you want to keep under 1% a year.
Garrett is right on the money, Holly. 1% in fees that would equal 1% of your money that is being managed. No commissions would be involved as the fee-only planner should place your money in no-load index funds at a place like Vanguard.com or Dimensional Fund Advisors.