Common belief is that the services of a certified financial planner are only necessary if an individual has a high net worth. However, even those with small portfolios can benefit from the skills of a certified financial planner. These highly qualified individuals have passed a national test in order to demonstrate their proficiency in handling investments, taxes, retirement accounts and estate planning. Additionally, certified financial planners must follow a strict code of ethics that outlines how they are to provide services to their clients.
Financial planners provide advice to clients on a number of subjects including:
- Preparing to buy a house.
- Creating a plan to assist in getting out of debt.
- Determining the best investments to meet your financial goals.
- Managing investments in order to limit expenses.
The services of a financial planner can help you achieve your financial goals and to motivate you to stay on the correct path. Additionally, as your personal wealth grows, a certified financial planner in NJ can help you to manage your wealth.
The services of a financial planner do not have to be expensive. Understanding the type of fee structures for financial planners can help you determine the best financial planner to fit your needs. A certified financial planner in NJ will typically charge fees in one or more of the following ways:
A certified financial planner in NJ that gets paid on commission receives payment based on the type of investments you make. While there are many commission-based financial planners that provide high-quality service, a minority will provide advice that is tailored toward the investment vehicles that pay the highest commissions.
Commissions can be applied in a number of ways including:
- Charging a front-end sales load on mutual funds.
- A surrender charge on annuities.
- Commission paid directly to the certified financial planner in NJ for selling an insurance product.
It is not necessary to avoid individuals who receive commissions. In fact, many financial planners will receive compensation via commission and other methods. However, your financial planner should be upfront about how they are paid.
Additionally, the financial planner should feel at ease discussing how they are compensated for the products they offer. A financial planner who is not upfront about their commission structure or who attempts to avoid the subject should be avoided.
Percent of Account Value
It is not unusual for a certified financial planner in NJ to assess fees based on the amount of money they are responsible for managing. Financial planners that charge in this manner can do so in two ways:
- Fee Only: When a fee-only approach is used, the financial planner only receives compensation from their clients. These financial planners are not allowed to receive compensation from brokerage firms, mutual funds or insurance companies. A financial planner that is fee-only advisor is more likely to intentionally select low-cost investments. This difference can limit the amount of expenses your investments incur. Furthermore, there is no need to be concerned about the financial planner’s motives for making recommendations.
- Fee Based: Fee-based financial planners receive compensation from their clients as well as commissions paid by brokerage firms, mutual funds or insurance companies.
A financial planner that receives a percent of the account value receives more money as you accumulate more money. Therefore, there is a built-in motivation for managing your investments well and protecting your account balance. Fees for this type of certified financial planning typically range between 0.5% and 2.5% on an annual basis. The percentage rate can vary based on the financial planner, account balance and number of investments.
Additionally, be sure to verify what services you are receiving for the percentage paid. Typically, individuals can expect to pay more for planners that are providing both investment management and financial planning services.
Fee Schedule Based on Type of Service
If you have a specific investment need or require a project related to your finances, a fee schedule may be best. In these instances, clients pay a flat fee for a particular service. Because there is no direct tie to an investment or the performance of an investment, many investors feel a fee schedule provides the best way to receive objective financial advice.
When a fee schedule is used, each certified financial planner in NJ should clearly indicate what services are included. If there are additional fees for communication by phone or email, those fees should be disclosed as well.
Financial planners that are in the business of providing advice of providing options may charge an hourly rate for their services. These individuals often offer suggestions of types of investments and investment allocations during one on one sessions with their clients. The client is then responsible for using the information they received to make financial decisions. This type of arrangement may be beneficial for individuals who prefer a “do it yourself” approach and are looking for a second opinion or guidance as they manage their portfolio.
More experienced and successful financial planners will charge a higher hourly rate than their less seasoned counterparts. In general, a certified financial planner in NJ will charge from $75 an hour to $400 per hour or more.
Individuals that have complicated investments or a comprehensive portfolio may benefit from fees that are billed on a retainer. With this type of fee schedule, your financial portfolio is reviewed regularly, either quarterly or annually. The amount of the retainer is based upon the frequency of the reviews and the complexity of your portfolio.
A highly-qualified certified financial planner in NJ will be able to provide a cost for the retainer as well as a detailed list of what services are included. Depending on the financial planner and your financial situation, fees for retainer-based services can range from $2,000 to more than $25,000 on an annual basis.
In order to be in the best financial position, it is important to work with a highly-qualified, knowledgeable certified financial planner in NJ. Your chosen financial planner must be able to provide detailed information on how they receive compensation and should be comfortable doing so.