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Levin: Financial planning jargon could be costing you money

Spend Your Life Wisely / May 26, 2019

By: Ross Levin, CFP®

Financial planning has a lot of confusing jargon. Here is a short course on what some of these things really mean.

Financial planners get paid in three ways: commissions, fees and commissions and fees. Period. Fee-only planners charge retainers, hourly rates or a calculation based on a percentage of net worth or assets that they manage. While some firms use the term fee-based, there is no such thing. These firms collect fees and commissions.

How someone gets paid can create conflicts of interest. Someone who earns commissions receives a benefit through selling you something, someone who manages assets benefits from the more assets they manage, and even those on an hourly have conflicts around how efficiently they perform the tasks at hand. Someone who is a fiduciary is expected to put your interests ahead of their own. Costs may not be different among fee structures because fee-only firms may still help you meet your objectives with products such as life insurance where a commission is earned by someone, just not your planner.

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This article originally appeared in the Minneapolis Star Tribune on May 26, 2019.