Today their are different type of Financial Planners in market who by small differences in their service types can name themself. In all other cases it is easy to understand the difference between but when it comes Fee-Only and Fee-Based Financial Planners, it is commonly mistaken that both are one and same. But both generate their fees from difference sources. Hence it is better to understand the difference between these two.
1)Fee-Only Financial Planners-As the name suggest, they get their revenue from the plan they design for you and yearly charges which they charge for you on continues base. They are not associated with any brokerage firm, mutual fund company, insurance company or any wealth management firm.
Their revenue is fully depend on the fee they charge to you. You can say that this type of serve is purely advice based not implementation based. They look at your financial conditions, risk appetite and goals and based on that they design a suitable plan which you need to follow. Hence when it comes to just recommending, they will not bother about any selling tactics rather their main motto is to make you be in a right path of your financial life.
They usually charge on yearly base based on the asset they manage your assets. But in western countries fees are charged even on quarterly or hourly base, which we cant imagine in India as of now 🙂
2) Fee-Based Financial Planners-This name confuses with the fee-only financial planners and their is every possibility that thinking of you hired fee-only planner. These type of planners earn their revenue from the fee you pay to them and the commission or brokerage from the products where you invest. So you need to be bit cautious when dealing with such type of planners.
You need to verify what % of commission they will get when you invest in the products they recommended for you. Usually you may find some conflict of interest due to selling part is also attached with such type of planners. They may recommend you the product where they may get better revenue rather than the best available product.
As I told above they charge annual fee and with that they too earn commission from the products you invest.
Hope with above description now you are in a better position in choosing a planner who suites for you. Wishing you all Happy Diwali Festival 🙂