You're ready to invest, but you don't know if you want to invest in some mutual funds or shares of Wal-Mart (NYSE:MSFT), PepsiCo (NYSE:PEP), Nike (NYSE:NKE), or Dell (NASDAQ:DELL). In fact, you don't know if you should open an IRA or a regular brokerage account. And, now that you're thinking about it, you're suddenly wondering if you're on course as you save for retirement.
You'll find answers to all these questions if you spend a good (and hopefully pleasant) chunk of time reading and thinking. Another alternative, though, is to consult a financial planner.
However, when it comes to hiring a financial planner, it pays to screen carefully. It's important to understand exactly how your planner candidates are paid so that you can make an informed market decision. Not many worthwhile pros work for peanuts, so expect to hand over some money. But you do want to make sure that the advice provided is primarily intended to make you richer, not the advisor.
Here are the four main ways that planners get paid. (To easily review this in a table format, jump right over to our advisor comparison table.)
1) Commissions
There are essentially three types of commission payments:
- One-time sales rewards, such as mutual fund "loads," or the upfront payments that come from selling annuities and life insurance policies
- Ongoing, annual service payments, such as annual commissions paid to insurance agents upon policy renewal
- Commissions paid for transactions, such as buying and selling shares of stock
2) Fee based on percentage of assets
Some planners charge a straight percentage of your total assets on an annual basis -- either all assets (from your personal balance sheet) or just the assets they are helping you manage. This is the most common arrangement for paying an independent financial planner and is increasing in popularity.
3) Fee based on an hourly rate
Under this arrangement, you do the bulk of the work and pay the planner for information and advice on an as-needed basis -- like the typical arrangement with a personal lawyer.
4) Flat fee for a one-time financial plan
You pay a hefty upfront fee -- often in the many thousands of dollars -- for a glossy write-up of your total financial empire, complete with recommendations for action.
You can read more in our Advisor Center, where we explain in much more detail the kinds of questions you'll want to ask yourself and your candidates as you seek an advisor. The Motley Fool offers a financial-planning service that features affordable and objective professional guidance. We think it's the bee's knees, but see what you think as you learn more about our TMF Money Advisor.
For more personal finance and investing basics, visit our Personal Finance area, our Investing Basics area, and our Fool's School. You can also learn a lot via our acclaimed How-to Guides and online seminars and our book, The Motley Fool Money Guide: Answers to Your Questions About Saving, Spending and Investing .
