If you’re working with a financial advisor, you want to make sure you have “the talk.” And that conversation should be around exactly how you are paying them.
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Fee-only financial planners are fiduciaries, which means “they have a duty and obligation to do what’s in the best interest of their clients,” Bera explained.
Fee-based financial planners, however, are not necessarily held to the same requirements.
“They just have to pass a suitability standard, which means that the products that they’re recommending have to be suitable for their client’s situation,” Bera said.
For example, let’s say you are shopping around for life insurance. A fee-only financial planner may want to suggest a specific life insurance policy but will shop around to see what other companies offer before they make a recommendation.
A fee-based financial planner, on the other hand, can choose that insurance product based on what their own company sells without shopping around for different rates.
If you’re in the market for a fee-only financial advisor, Bera recommends two financial planning organizations for your search: the National Association of Personal Financial Advisors, or NAPFA, and the XY Planning Network, which focuses on Generation X and Y clients.