Is Fee-Based Financial Planning Worth It?

Investing can be a daunting task to most people. After all, it's hard to know if an investment is "good" or "bad" or will even help one achieve their financial goals. Especially when that goal can often be saving up for a house, a child's college expenses, or even one's own retirement. Of course, one can always educate themselves on different investment products, investment strategies, and common market principles. However, this can be a rather time-consuming task, assuming one learns the information correctly in the first place. And even if one does, the nearly constantly changing markets as well as the gradual changes in one's investment goals over time means that they must also routinely modify said investments. This is where seeking out a fee-based financial planning service can help one reach their goals.  

What Is Fee-Based Financial Planning? 

In general, fee-based financial planning can encompass three primary categories: a transaction-based fee schedule, a wrap account fee schedule, or a portfolio-based fee schedule.  In each of the three categories, there is active management of the assets and advisory services provided in the financial planning model. However, they differ somewhat in how they achieve those actions.  

Transaction-Based Fee Schedule

In a transaction-based fee schedule, the financial advisor will still recommend specific investments, but the only fees one pays are specifically for buying into (or selling out of) those investments. For example, a mutual fund might have a three percent charge on any amount which is purchased into it. This three percent amount goes to pay the financial advisor for their services, and the remaining ninety-seven percent that goes into the fund. Or, the financial advisor might charge a flat five-dollar fee each time they buy or sell shares of a stock in the account. One only pays when a transaction actually takes place. If there are no transactions, there are no other fees. This type of fee arrangement can be beneficial for those just starting out with investing or who don't really have any substantial assets.  

Wrap Account Fee Schedule

In a wrap account fee schedule, the advisor essentially charges a flat fee that covers all management of the assets as well as any and all transactions throughout a specified time frame. For example, a financial advisor might charge $5,000 dollars to manage all the assets, and outside of this fee, there are no other fees the client pays. So, whether the advisor places hundreds of transactions in the account over that period or only a few, the fee is the same. This type of fee structure is most beneficial to those with substantial assets.  

Portfolio-Based System

The last type of fee-based system is a portfolio-based system. In this scenario, one pays an annual fee, but the fee is based entirely on a percentage of the total value of the assets under management. For example, the fee might be one percent, and if the value of the account is $100,000, that would equate to an annualized fee of $1,000 dollars. As the value of the account rises or falls, so does the fee to manage the account. This type of fee structure is beneficial to those with medium to substantial assets.  

The most important thing this is with any one of these three types of fee-based financial planning schedules that one has a financial plan in place. For more information, contact a professional who provides fee-based financial planning