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Tony Novak  800-609-0683
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Fee-only and fee-based planning: which is best for me?

by Tony Novak, CPA, MBA, MT

The choice between fee-only and fee based planning is a matter of personal choice. This table is meant to highlight the distinctions between the two methods to help make the decision easier. 

Fee-only Fee-based
Advantages no concern over conflict of interest, no expectation of ongoing service, tends to utilize better-trained and experienced advisers, more commonly used by CPA planners initial affordability,
integration with accounting and bookkeeping functions, effectiveness with reducing long term expenses,  better use of evolving technologies, may reduce tax return preparation expense, tends to lead to less formal long term communications
Disadvantages higher initial expense,
ignores or devalues importance of insurance, devalues some financial options
possible conflict of interest, tends to ignore non-financial planning issues
Best Use pre-retirement planning, new marriage, divorce,  inheritance, business planning, business sale long term advisory relationships,
young professionals,
monitoring retirement accounts, when detailed knowledge of financial products and transactions is important
Not suited for insurance advice employee benefit plans, when insurance is the immediate and primary need
Pricing  $2,500 typical minimum fee for comprehensive financial plan typically $160 per month for ongoing monitoring

One common question is whether it is feasible to use some combination taking the best of both methods or to switch from one method to the other. This "hybrid" approach may actually be the most popular method used by financial planners who serve high net worth clients today, although there is no reliable data to verify this observation.

It makes sense to assume that at the time that an individual realizes a desire to start an advisory relationship, perhaps in anticipation of retirement, sale of a business, marriage or divorce or other life-changing event, there is a strong possibility that fee-only planning is the best choice. Since the advisor relationship is untested it makes sense to enter into a specified engagement for a comprehensive financial plan. As a result, fee-only method may be the best approach when hiring a new adviser.

Later, after the adviser relationship is tested and finances are on a more stable course, it is more likely that you may need help with occasional questions and ongoing transactions like a retirement plan. Now it may make more sense to have a fee-based planner.

In the end, the choice is always yours. I am happy to discuss the use and specifics of either option.

Related resources:

Knowing Who to Trust: Straight Talk on Choosing a Financial Adviser (editorial)

Opinions expressed are the solely those of the author and do not represent the position of any other person, company or entity mentioned in the article. Information is from sources believed to be reliable but cannot be guaranteed. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Tony Novak operates as an independent adviser under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator" but is not a representative, agent, broker, producer or navigator for any securities broker dealer firm, federal or state health insurance marketplace or qualified health plan carrier. He has no financial position in any stocks mentioned. Novak does work as an accountant, agent, adviser, writer, consultant, marketer, reviewer, endorser, producer, lead generator or referrer to other companies including the companies listed in the articles on this web site.   |  (800) 609-0683  |  Cell/Text: 856-723-0294  |