By The Galecki Financial Management Team
Trying to navigate the complicated world of personal finance on your own can be overwhelming. Many individuals turn to financial advisors for help in making wise financial decisions. Advisors can provide the guidance and professional knowledge needed to optimize finances and pursue long-term goals.
But there’s a significant upside to working with a Fee-Only financial advisor that most people don’t know about. Understanding the way that financial advisors are paid (and specifically Fee-Only financial advisors) gives you an immediate head start on pursuing your financial goals.
We wrote this article to explain, in simple terms, financial advisors’ compensation structure and why it’s such an important concept to understand.
How Are Financial Advisors Paid?
First, let’s go over the three primary ways financial advisors can get paid:
1. Commission-Based
Commission-based financial advisors make money on products they sell, whether mutual funds, insurance policies, or any other financial product.
Unfortunately, this type of compensation structure is often plagued by conflict of interest because advisors can be tempted to recommend products based on higher commissions and not necessarily based on how the product aligns with the client’s needs. For the client, this can result in increased costs, decreased returns, and questionable investment performance.
2. Fee-Based
Another type of compensation structure for financial advisors is called fee-based. Like a commission-based structure, financial advisors can earn commissions from the sale of financial products. The difference with fee-based advisors is that they can also earn income from fees charged directly to the client.
While this payment structure offers versatility, it’s troubled by the same conflict of interest as a commission-only payment structure. Therefore, it’s essential to take time to carefully review the fee structure of the advisor you’re considering. Their compensation structure has a direct impact on the quality of advice you receive.
3. Fee-Only
The last type of financial planning payment structure is Fee-Only. Since this is our structure at Galecki Financial Management, we believe this is consistently the smart choice for discerning clients.
A Fee-Only financial advisor is compensated solely by their clients. That means they’re paid with a flat fee, an hourly rate, or a percentage of the assets under management (AUM).
Because the advisor’s income is not dependent on the sale of certain financial products, this simple fee structure reduces the possibility of conflicts of interest. This strategy helps the advisor’s financial-product suggestions only take the client’s needs into consideration.
The Added Value of Partnering With a Fee-Only Financial Advisor
As explained above, Fee-Only financial advisors offer a unique added-value to their clients because they’re not incentivized by commissions. They can help their clients make well-informed financial decisions by focusing solely on providing objective advice.
But there’s another reason why Fee-Only financial advisors are superior. They often have a more in-depth understanding of complex financial strategies. That knowledge allows them to offer full financial-planning services, such as risk management, retirement planning, estate planning, and insurance strategies. They can guide their clients toward a comprehensive financial plan that meets their long-term goals.
The bottom line is that clients who consult with a Fee-Only financial advisor can feel confident knowing that a dependable professional is dedicated to their financial well-being.
Reach Out Today!
When you’re ready to partner with a trusted professional to help you navigate your financial future, we’re here to help.
Our team at Galecki Financial Management provides our personalized financial planning services on a transparent, Fee-Only basis. As Fee-Only financial advisors (and members of NAPFA, National Association of Personal Financial Advisors), we are paid directly by our clients—and only by our clients. We don’t receive any type of kickbacks or commissions for recommending certain securities or investments.
To schedule a meeting, call (260) 436-8525 or email [email protected].
About Galecki Financial Management
At Galecki Financial Management, we help individuals and families confidently pursue their financial goals. We’re anything but a business-as-usual wealth management firm. We’re different. Friendly. Casual. And really good listeners. Indeed, that’s a big part of what makes us different. Everything we do is based on what we hear from you, because our experienced team of professionals specializes in comprehensive financial planning, cash flow analysis, IRA rollovers, financial services, money management, estate planning, retirement planning, and advising. We help you identify your short- and long-term goals, and then we work together to pursue them. Lastly, and most importantly, we’re Fee-Only, meaning we’re only compensated for our time. Our only incentive is to help you succeed.