December 3, 2009
Commission or Fees – How Should I Pay For Financial Advice? – Hot Topics Q & A
Q. I've been thinking about using a financial adviser to help me with my retirement planning. I've read a lot about whether one should pay the adviser via commission or fees.
Which payment option do you think would be best for me?
A. The first point to clarify is that commission is generated when you purchase certain financial products (although note that not all providers pay a commission). The principle is that the product provider pays the commission to the adviser as a reward for introducing a new customer/client to the company.
Secondly, and crucially, the adviser will only be paid for the work they do for you if you transact a financial product.
So, whilst you may receive the 'best of breed' from all the products available, you may be left wondering whether you've been advised 100% impartially. For example, what if the best course of action is for you to only repay debt as part of your retirement planning? This type of advice would not generate a commission payment, so any adviser only offering a commission payment option would not be paid for their work.
Perhaps one solution is to agree a set fee with the adviser, on the understanding that if a product is transacted, they will allow you to pay the fee via the commission generated?
If no product is recommended, then you'll write them a cheque.
At least that way you may be more convinced that the advice is being given to you with no question of bias. Of course, as there's no guarantees I recommend that you ask the adviser for 2 client testimonials – one from a long standing client and the other from someone they've taken on recently.
If they're unable to provide these (or refuse to), take your business elsewhere.
An increasing number of financial advisers and financial planners now offer their clients the option of paying for their services by way of fees, so you will hopefully be able to find one that offers a service that you're looking for.
For a list of Certified Financial Planner licence holders, visit the Institute of Financial Planning's website (this is not a list of those that offer the fee option, although many do, but it's a good place to start).
Good luck!
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Filed under Financial Planning, Q&A by Ray Prince
