Learn Before You Pay For The Services Of A CFP
Two Kinds Of CFP’s
Hiring a CFP (certified financial planner) as your financial advisor can be financially beneficial; but before you do, make sure you understand how they will get paid for their services. All certified financial planners are not the same. The main difference between CFP’s is the way in which they charge for their financial planning services. You can hire a one that charges by the hour (sometimes called fee-based) or by the product sold (sometimes referred to as commission-based). Neither one is good or bad, it is a matter of preference.
Financial Planner By The Hour
When you hire a CFP that charges an hourly rate they do not receive extra commissions for any financial products they may sell to you. You are paying them for their financial advice; they make their living on their financial advice. Any financial products they recommend to achieve your financial objectives can be purchased through them or another source. In other words, with a fee-based planner your financial plan is more portable; you only pay them for the financial plan, strategy and recommendations.
Financial Planner By The Product
CFP’s that make their money from the financial products they sell could potentially run into a conflict of interest. They earn their living on the products they sell. This is not to say that hiring a commission-based financial planner is a bad financial move; you just need to be aware of the planners intentions. If you are unsure about the financial products they recommend, be very certain that you trust them to have your best interests in mind not their own.
Hiring a CFP is an investment in time and money so be sure you hire one that you are comfortable with and trust. Interview a few before choosing; ask for recommendations from people you know and trust. When you interview the CFP, ask as many questions as you can. Once you hire them you and the planner need to focus on your financial goals and objectives. You do not need to be distracted by how they will be paid so get that answered before you start.