There are different ways that financial planners charge their clients and each way has its own pro’s and con’s.  Making the comparison between the different types can sometimes be confusing, especially if the planner you are interested in combines different fee options.  Below is a look at the three basic fee structures and how they work.

Commission – Financial planners that work through a commission based system earn their income by selling insurance, stocks, bond, and other investments.  Most planners are ethical and have your best interest in mind but you need to be very careful to not be pressured into making purchases you do not need.

• Pros: The pro of paying commission is that you know exactly what the fees will be before you make the purchase.
• Cons: The con of paying commission is that there is a risk of being pressured to make purchases that are not necessary for the financial gain of the planner.

Hourly Rate – This is the way most people are used to paying for services and because of this it is the way many people feel the most comfortable.

• Pros: The pros of paying an hourly fee can include a less likely chance of a conflict of interest, it also allows for you to do more of the work yourself so that you can save some money.
• Cons: The cons of the paying an hourly fee can be that you find yourself doing more of the leg work than you anticipated or have time for, or you may feel that the hourly fee is too high or that it takes the planner too long for some services.

Flat Rate – Some financial planners preferred to be paid one flat rate, usually per year, to work with your account.

• Pros: The pros of working with a flat rate are that you know exactly what you will pay for an entire year and this can be negotiated yearly.
• Cons: The cons of working with a flat rate is that if there are drastic changes in your finances during the year you may have to renegotiate the fee or pay more than you were originally anticipating.

Combination Fees: Some financial planners do a combination of commission and flat or hourly rate which can sometimes make it hard to comparison shop.  The pros and cons of this style are the same as the pros and cons of all the above options.

When interviewing different financial planners make sure you understand their fee structure and ask any questions you may have before you make your final decision.  If you are uncomfortable with a certain fee structure but like the planner you can always try to negotiate a different fee or type of fee that is fair to both yourself and the planner.   After reviewing all of the potential planners see if you are able to compare the costs and services so that you are getting the best deal while still receiving the services that are most important to you.