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Tony Novak, CPA, MBA, MT
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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-onlyFee-basedAdvantagesno concern over conflict of interest, no expectation of ongoing service, tends to utilize better-trained and experienced advisers, more commonly used by CPA plannersinitial 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
Disadvantageshigher initial expense,
ignores or devalues importance of insurance, devalues some financial optionspossible conflict of interest, tends to ignore non-financial planning issuesBest Usepre-retirement planning, new marriage, divorce, inheritance, business planning, business salelong term advisory relationships,
young professionals,
monitoring retirement accounts, when detailed knowledge of financial products and transactions is importantNot suited forinsurance adviceemployee benefit plans, when insurance is the immediate and primary needPricing $2,500 typical minimum fee for comprehensive financial plantypically $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)
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