Once you understand the importance of working with a fee-only financial planner, you will also need to learn how to choose among these fiduciaries for the best fit for your unique needs. In addition to sorting out the differences in education, experience and personality, you will also need to be aware of the different methods of compensation within NAPFA. Here are some of the methods (and the jargon) you will need to make an informed decision: 1. Hourly rate planning Hourly rate planning is easy to explain. You pay by the hour for time spent working together. The planner may also bill for doing research or analysis of your unique situation. The rate charged will vary by expertise and overhead. You can request an estimate of time involved to do the project in advance. A retainer or flat fee approach means you pay a predetermined fee for work done for you during a fixed period of time or for a specific project. The contract you sign indicates what services are included. They can be comprehensive planning or a smaller project. Additional services may be added at an extra cost. AUM fees are determined as a percentage of the value of your portfolio. This is a simple way to calculate fees—but you need to check the contract to be sure if financial planning services outside of portfolio management are included. While all NAPFA members are required to offer comprehensive financial planning, they may charge separately in addition to the AUM fee for investment management. In regard to investment decisionmaking you also need to clarify several additional terms. If you are a collaborator and want to be involved in the investment process with your planner, you should request non-discretionary investment management. This means you will place the trades as recommended by your planner—or with the planner’s assistance. If you prefer to delegate all investment management decisions to your planner, you should request discretionary investment management. Some NAPFA members offer both types of service and will offer you a choice. You may find fee-only planners that use a hybrid approach or mix and match the compensation methods listed above. There is no right or wrong choice. In all cases the NAPFA member is a fiduciary working with you to meet your goals. |
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