One of the most important lessons in life is learning who to trust. We feel lucky that almost all of the advisors we’ve met in the financial world are honest, hard-working folk. They are trying to earn a living while helping clients grow and protect their investments.
However, within this framework, brokers each have their own biases, preferences, and style. They may have a way they prefer to be paid. As the consumer, you need to discuss your preferences with your broker or financial planner and feel free to ask them how they are paid and which method best suits you.
Is My Financial Planner On My Side?
Dear Medallion Group,
My sister-in-law says I should never work with a broker who charges a commission. She says the only objective financial planner is a fee-based financial planner. Do you believe this is true? How do I know that my financial planner is on my side?
Fees vs. commissions seems to be the discussion topic of the decade in the financial planning world. Every broker, regulator, and financial planning board has struggled with this issue, but there’s just no single comprehensive answer.
Fees vs. Commissions
For example, consider a client who comes in with $250,000 he wants to invest:
Fee-Based: He could pay a fee, typically around 1% each year, to a broker who would allocate the assets to meet the client’s investment objectives. The broker would only be compensated 1% each year, regardless of market performance.
Commission: That same client could choose to pay an up-front commission (let’s say 3.5%) initially, then an ongoing .25%. That’s one quarter of 1% for the broker’s ongoing service and advice after the first year.
It doesn’t take a genius to see that, in this example, the commission is cheaper than the fee after just four or five years. However, there are always two sides to the story.
Two Sides To Every Story
The fee-based broker could say that his advice is more objective because he makes his percentage based solely on the market value of the assets. On the other hand, the commissioned broker could say, “I pay attention to all my accounts and .25% makes that worthwhile.”
With the fee-based structure, your planner can switch between any available investments and the fee will not change, while the commission-based structure can be a disadvantage because changing investments often generates new up-front commissions.
What’s Best For You?
As the fees vs. commissions debate rages on, the bottom line is to find a planner you trust and discuss the best compensation options available to meet your particular wants and needs.
At Medallion Financial Group, we believe financial planning is about Family. We have been helping families invest in the future since 1987 through a holistic planning approach. We recognize there are a variety of needs when it comes to retirement planning, plan rollovers, annuities, college planning, life insurance options, and investment management. It is easy to get lost in a sea of choices. Our financial advisors help with the basics and beyond to enable our clients to get the education, advice and management they need to retire with confidence.
Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.
We strive to exceed client’s expectations – because we have high expectations of ourselves.