Fee Only Financial Planners gain market share in Phoenix
The financial planning industry was built on commissions. Somewhere along the way “commission” became a dirty word. Some people even changed it to “transaction charge.” We generally find four problems with a commission or transaction based financial planning relationship;
1. The financial planner is incentivized to “sell” products and/or make changes in order to get paid.
2. The commission varies by product and so there is a built-in conflict of interest.
3. It is much more profitable to sell new investments to new clients than it is to spend your time providing service to your existing clients.
4. Sometimes, the financial planner should make a change but can’t because the compensation structure gets in the way. For example, let’s say the financial planner sold you an “A” share mutual fund which paid him a 5% commission. Then something happens and he realizes there is a better fund or market conditions have changed and the fund he sold you is no longer appropriate. He or she may feel that they can’t make a change so soon because it would call their 5% commission into question. It would seem even worse if they sold you a different fund which also charged a 5% commission (even if that was the investment which was appropriate).
Don’t get us wrong. There are tens of thousands of ethical commission based financial planners. The structure can work. However, many financial planners in Phoenix have realized that their clients were not comfortable with the commission based relationship and so they transitioned to a “Fee Only” financial planning practice.
Most of the financial planners in Phoenix who sell individual investments work on commission. A
Superior model is to find a fee only financial planner in Phoenix 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 Phoenix 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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