The Financial Planning Process

Question 1

Financial Planner Compensation

Answer 1

Fee-Only

Asset-Based

Fee-Based

Commission-Only

Question 2

Fee Only

Answer 2

Fee-Only: Earn income only through the fees they charge clients. Very few financial planners adopt this method of compensation. These financial planners tend to work with bigger, more involved, and specialized situations. The engagement of a fee-only plan requires a fee agreement be signed by both parties.

Question 3

Asset Based

Answer 3

Asset-Based: Compensation is a derivative of fee-only planner compensation. Where the fee-only planners are compensated for analyzing a client’s portfolio, asset-based planners are compensated for actually managing it. (Some planners will refer to their compensation as fee-only when they are actually talking about asset-based. It is wise to clarify which type of compensation they are referring to.)

Question 4

Fee Based

Answer 4

Fee-Based: Charge a fee for the development of the plan and also collect commissions on products they recommend through the implementation process. This relationship also requires a fee agreement.

Question 5

Commission Only

Answer 5

Commission-Only: Commission-only planners earn their income through product sales. No fee agreement is necessary.