Why Wealthy Individuals in Prefer Fee Only Financial Planners
The financial planning industry in Scottsdale is continually evolving. There are fewer and fewer “stock brokers” who call you up with an “idea” or a hot investment. However, it is still far too common for investors to be looking to their financial planner to sell them one or two investments. It is even worse when prospective clients come in and say, “I am interested in an annuity” or “I want to buy a real estate investment trust (REIT).” There are many problems with this, which we explain further below:
Whenever a financial planner is selling a single investment the focus is always on past performance. Have you ever heard a financial planner say “This investment has done lousy lately but it is going to come back?” Probably not, but that is the way investments work. You should buy when prices are down. The problem is that if the planner has to sell you on a particular investment they are going to sell what is hot because that is what people naturally want to buy. A good financial planner protects you from your instinct to chase whatever is hot, not to buy into it themselves.
1.) Investments should not be viewed in isolation but as part of a portfolio. The exact amount that should be invested in any one thing should be based on the goal you are trying to achieve, your risk tolerance, family dynamics, income needs, etc. The allocations in the portfolios may be planned down to the fraction of a percentage (e.g commodities may be 7.3% of a portfolio). If someone is trying to sell you a single investment it may not part of a plan.
2.) Typically, a single investment should be a small portion of your overall portfolio. In our practice we constantly see people with too much money in too few investments. This results in unnecessary and uncompensated risk.
Most of the financial planners in Scottsdale who sell individual investments work on commission. A superior model is to find a fee only financial planner who does not accept commissions. They charge a management fee, which is typically a percentage of the assets they manage. The fee typically ranges from 1-2%. The more money your financial planner is managing, the lower the percentage. Most people would agree that this is a superior arrangement for several reasons:
1.) You never have to second guess why your financial planner is recommending changes. Every time they buy or sell something it is just more work for them. Therefore, you can assume that they are only going to make changes if they think it will improve your situation.
2.) There is no conflict of interest since they get paid the same amount regardless of which investments they use.
3.) Your financial planner has the flexibility to buy and sell as often as necessary without the financial penalty of commissions.
4.) There are the right incentives for your financial planner. They get to charge their fee on a larger account when they make you money. On the other hand, they take a pay cut, when your account declines in value. The other major incentive is to provide excellent service so that you never want to leave. This is a win-win structure.
If you have questions or comments about fee only financial planners Scottsdale area, please contact Jeremy Kisner, Certified Financial Planner (CFP) at (480) 272-7116. Mr. Kisner is the President of SureVest Capital Management, a fee only financial planning and investment advisory firm and with two offices (Las Vegas, NV and Phoenix, AZ). The firm manages investment portfolios of $250,000 to more than $10 million.
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