Don Maycock...advising you to and through retirement!

Fee-For-Service Financial Plan

A fee-for-service plan refers to hiring a “financial planner” to review your situation and make independent recommendations for improvements that are “in your best interests” only. Compensation is solely to produce the plan and there is no product sale involved.  If the plan recommended a need that required purchasing a product i.e. life insurance, you would then research and find an advisor licensed to sell the product and purchase through that individual. 

In simple terms, it includes the first four steps of the Full Service Financial Plan but excludes Step Five: Implementation and Step 6: Monitoring the plan as shown below.

The Pros of a Fee-for-Service Plan

If you want an unbiased second opinion, a fee-for-service financial plan may be of benefit. An example would be a situation I was asked to assess several years ago.  The client had an existing financial advisor they liked but the decision revolved on whether they should do a pension buyback, for past service . However, the money would come from investments held by their advisor.  The client recognized that it could put their advisor in a potential “conflict of interest”. Why? Because if the pension buy-back was the best solution, it would be funded by transferring assets already held with their present advisor (the advisor would likely receive less compensation ongoing if his compensation were tied to “assets under administration”). Therefore the clients opted to do a fee-for-service plan and then make their decision without any possible “conflict of interest” from their current advisor.

The Cons of a Fee-for-Service Plan

A fee-for-service financial plan might be costly relative to the type of recommendation. In the example above regarding a life insurance recommendation. Life insurance is a commission-based product, so the client pays for the advice recommending purchasing life insurance and then has to go out and buy life insurance that also has a commission attached to it. That’s why it’s important to consider doing a comprehensive plan looking at your whole situation. You might better cover off all aspects at once.

Do you have the financial acumen, time and discipline to implement a plan now and each year afterwards? If you aren’t the do-it-yourself kind of person, consider a Full Service Financial Plan.

Additionally, you need to select a financial advisor that is competent in the area of expertise you require. At a very minimum, I would recommend using a “Certified Financial Planner” and make sure to have a pre-meeting with that advisor whereby you discuss your general situation and ask whether they are qualified to provide that kind of advice. (Note: if you click on the “certified financial planner” link below and enter “Maycock” in the last name portion, you can confirm my standing as a CFP.

Articles on advisor compensation models

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