Retirement Planner

For retirees or people rapidly approaching retirement

Locate a Certified Retirement Financial Advisor™ in Your Area

How to Select a Retirement Planner

Financial planners give you advice regarding investments, insurance, taxes, wills & trusts, and mortgages — advice tailored to your needs to help you achieve your financial goals. If you choose your retirement planner well, he or she will become an important part of your life, and you should be together for a lifetime. After all, financial planning and retirement investing is a lifetime activity!

The Four Ways Planners Get Paid

All planners (or their firms) are compensated in one of four ways: commission-only, fee only, fee plus commission, and fee-offset. Let's look at each.

Commission-Only

Commission-only planners say they offer the best compensation method, because you pay only for implementation. If you do not buy the investments or insurance that the planner says you need, then the plan itself does you no good and is therefore not worth paying for. And since all retirement investments and insurance products feature some form of transaction fees, expenses, sales charges, or commissions, you'll pay twice if you pay for advice, too. So commission-only planners say they are working in the consumer's best interests: If you don't like their recommendations, you spend no money on advice you're not using.

Critics, though, say this can create a conflict-of-interest. Since such planners make money only when you buy something, they have a strong incentive to get you to do so. Some retirement income planners work on commission for the investment portfolio they build for you.

Fee-Only

To avoid any conflict of interest, some people turn to fee-only retirement financial planners, who do not earn commissions. Instead, they charge fees, either hourly, usually $100 to $250 per hour, or a flat fee, often $1,500 to $10,000 or more. After you get their recommendations, you go elsewhere to implement. These planners do not earn commissions, so they say they do not have a conflict of interest. In fact, because 401k investing is done at work, some people will use a retirement planner on a fee-basis to get advice for investing in a 401k as well as for their self-directed IRA investing.

But commission-only planners argue that fee-only planners don't earn commissions simply because they aren't allowed to — because they do not have the required licensing, training, or experience to do so. Commission-only planners also say that fee-only planners are objective to the point of disinterest: since they are paid whether you implement or not, it makes no difference to them whether your investments succeed or fail. Commission-only planners also claim that just because fee-only planners earn only fees, that doesn't mean you pay only fees. You've still got to implement, they say, and that means you've still got to pay commissions or sales charges or transaction fees — to somebody. The fact that you're paying these expenses to someone else, rather than to your planner, is small consolation.

Countering this criticism, many fee-only retirement planners show that they are involved in the selection and management of investments and insurance – and that they steer their clients to less expensive, commission-free products that can save their clients money when investing for retirement. Such planners also argue that they do not hold certain securities or insurance licenses merely because those licenses are needed to earn commissions – and since they are not earning commissions, they don’t need the licenses.

Commission-only planners retort that the "I don’t need a license" posture is a smokescreen for advisors who don’t have the knowledge it takes to earn a license.

As you can see, there’s a strong turf war between these two groups.

Fees Plus Commissions

According to industry surveys, more than 70% of all financial planners charge fees plus commissions. In other words, most planners do hold insurance and securities licenses. Therefore, they charge fees to tell you what to do, and they also earn commissions by selling you the investments they say you need.

Many fee-plus-commission planners also charge asset management fees, usually ranging from 1% to 3% of the value of the assets they are monitoring for you. This can be in addition to fees and commissions. Also, some fee-only planners are charging asset management fees, either in addition to their hourly or flat rate, or in place of it. (Note: some fee-only retirement planners feel that those who charge asset management fees are improperly calling themselves "fee only"; they believe that a true "fee-only" planner earns only hourly or flat fees).

When Fees are Really Commissions

The asset management fee is emerging as the compensation method of choice for both planners and consumers. Consumers like it because they can avoid paying up-front commissions, and since the fee grows with the size of the assets, the planner's compensation is directly related to how well those assets perform. This puts the planner on the same team as the client: If the client's investments fall in value, so does the planner's fee — while an increase in the client's account gives the planner increased compensation. This gives the planner a strong motivation to offer good recommendations. And planners like asset management fees because fees provide a steady stream of income from current clients. Commission-only and fee-only planners are continually looking for new business so they can earn a living.

But should asset-based fees be an additional form of compensation, or a substitute? Some planners say asset management fees can be so high that clients would have been better off paying commissions or flat rates.

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