Occasionally, we get a call from someone interested in our services, who specifically wants to talk to a “fee-only” financial planner about their situation. Out of curiosity, we often ask what made them want to hire a fee-only planner, and quite often the answer is, “because Clark Howard says so!”
For those who may not be familiar with Clark Howard, he is a local radio/TV personality known for giving solid, practical advice to consumers on their finances. On everything from travel tips to mortgages to CD rates, Clark is in the know. So when he speaks, people generally listen.
So why does Clark Howard recommend fee-only planners? (here’s an exerpt from his website):
Do you have money to invest, but you’re not sure where to put it? Most people who are unsure about investments hire someone to help. One of the greatest danger points is in mid-career, when you find yourself with a great deal of money in a 401K. At that time you’re at the greatest risk, because that’s when you’re most likely to end up hiring a commissioned salesperson. Is that a problem in itself? No. There are plenty of situations when paying a commission is just fine. But in the investment world, there can be inherent conflict of interest with commissions.
There are plenty of investment products that may not be the best choice for you, but you may be sold on them because the commissions are humongous. Variable and Index Annuities are referred to as ‘sold’, not ‘bought’, since people don’t buy these on their own — they are convinced to do so. Salespeople use code words such as Retirement Secured Account and other phony phrases to keep from tipping you off that you’re being sold an annuity. Sometimes a Life, or Immediate Annuity makes sense, but the commissions are so low you won’t hear much about them.
|Fee-Only vs. Fee Based|
|By the way, there is a huge difference between these two terms. “Fee Based” just means the advisor is a commissioned salesperson who also charges fees for advice. The incentive to recommend products with higher commissions is still present in this arrangement. Only “Fee-Only” planners operate without this conflict of interest.|
When Jon Houk started JPH Advisory Group, he discovered early on that one of the most important parts of the financial planning process was developing a high level of trust between client and planner. Without that, any advice given is often tainted by distrust and therefore often goes unused. So, to remove all potential barriers to trust being developed, he structured JPH as a 100% fee-only firm with a legal fiduciary responsibility to always act in the best interest of our clients. (See our fiduciary oath here).
There’s no incentive for us to do anything outside our clients’ interests, since they are the only ones who pay us. Many commissioned insurance agents, brokers, and financial advisors take offense to the fee-only model, saying that an ethical professional would never let higher commissioned products tempt them into recommending them more. While that may or may notbe true (I would argue that human nature is often much more frail than we would like to think!), the key issue is developing that level of trust. We want our clients to know that we are always on their side of the table.