Question

Methods of Planner Compensation

When a planner and client establish their relationship, an agreement will be made regarding the method of compensation.

Do you believe an ideal method exists?

Is a particular model such as fee or commission preferable or is the best option situational?

Why would you prefer your stated method if hiring a planner?

Answer 1

Essentially, there are two ways a planner can earn his revenue:

1) Getting commissions on sale of a product from the manufacturer of that product, generally is a percentage of the total investment made in that product. These commissions are paid by the make of the product and not by the client/customer. These fees are generally linked to your investment made and for the duration that investment remains with the manufacturer of the product.

2) Second method is charging a fee from the client/customer, there by this amount is usually a percentage of the total money/investment managed or could be fixed fee based upon the mutual agreement between the planner and the client/customer. The planner does not charge from the maker of the product.

In general, it is upto the client/customer what he/she is comfortable in doing business with the given planner. However, there is a general consensus in the market that feel a commission based planner is more biased upon selling products that gives the planner more income, hence it is generally preferred to hire a planner that charges you a fixed or percentage fee on your investments which results in a unbiased opinion and placing the right product that matches your need.

This practice of charging the client also results in a higher transparency between what is being offered to the client and more accountability on part of the planner, as if he/she gives wrong product can be legally driven to a dispute of what was expected and what was given.