How do financial planners earn their money?

I found a site that answers your question better than I could. I actually read it too. Seems solid.

http://moneyover55.about.com/od/findingqualifiedadvisors/a/finadvisorfees.htm

Two different ways.

Some take a percentage of assets (and a percentage of each trade). I call them bloodsucking leeches, because it is in their interest to keep churning your account, even if YOU don’t make money.

The other type is a flat fee plan, where you pay a flat fee and because of that, your advisor is supposed to be more attentive to YOUR needs.

There’s a new flutherite here who goes by the name WEALTHADVISOR; he will probably weigh in as well.

There is a trade organization of financial planners whose HQ i in Charlottesville, VA – look them up as well for industry informatiom.

I think the lack of transparency in fees for financial planning and retirement fund management has been an issue, because I do hear it referenced in advertising, and when our company changed 401(k) managers last year, the mentioned that in the presentation. As mentioned above, you want to ask whether they earn commission, percentages, or a flat fee.

I have sought financial advice numerous times during my adulthood, and most have seemed to wanted to sell me things; and when they learned I was of modest income, they wanted nothing to do with me. My observation has been that they are only glorified salespeople and not interested in actually helping people (other than the 1%) manage their money better.

I wish they had an obligation to disclose like realtors do.

I think if you ask them directly they would have to answer. Wouldn’t they? I can’t imagine it is legal to lie. Sounds too unethical. I could be wrong.

It’s a reasonable question. My adviser is salaried at Fidelity. it keeps everything squeaky clean. How do I know? I discussed this with her when we decide to work togeether.

Financial Planners make their money a number of different ways. Some are fee only. Some are fee and commission, some earn what are called trailers on mutual fund sales. Some charge fees on what is called a wrap account. (That is a percentage each year on the total balance in the account.)

A Financial Planner is required to provide a form ADV when you first engage him or her to do work for you. http://www.sec.gov/answers/formadv.htm

Here is spelled out how the planner makes money.

Your IRA, with the right institution, (Fidelity for example,) charge no management fees for your IRA itself. There are, however, fund fees charged on the investments inside the IRA. Whoever is the custodian for your IRA is where you should first turn for a list of fund fees to see what the charges are.

If your IRA has not made much money, it is most likely how the money is allocated and invested. Fund fees are not large enough by themselves to create your situation. But a combination of fees and ups and downs in the market can not only cause no growth, it can also create a loss.

You need to sit down with your planner and have him explain the returns on your equity accounts and the fees charged to those accounts.

If you do not get a satisfactory answer, you can change planners. You should always look for a planner that has a CFP designation.

If you are an educator who is approaching retirement, deciding when and how to take your pension is often the most important decision to be made when planning your retirement.