Financial life planning: a job, a career, or a calling? – Part 2

In part one of the article, we took a look at the distinction between a job, a career and a calling and now we look at the correlation to compensation models of fee-only and fee-based financial planning firms, according to Contributor on Advisor Perspectives, Rick Kahler, MS, CFP®, CFT-I™, CeFT®, CCIM and founder of Kahler Financial Group.

Compensation models

“Fee-only financial life planners provide holistic financial guidance and are compensated solely through client fees, whether by hourly rates, flat fees, or a percentage of assets under management (AUM). They are required to maintain a fiduciary standard that puts clients’ best interests ahead of their own. They openly disclose their fees and potential conflicts of interest, ensuring that clients receive unbiased advice that is not influenced by commissions or product sales,” he says.

Fee-based financial planners, according to Kahler, receive compensation from both client fees and commissions from financial products they recommend or sell. “This dual-compensation structure can potentially create conflicts of interest depending on what percentage of gross revenue comes from commissions.”

“Advisers at fee-only financial life planning firms often earn less than fee-based financial planning firms, for two reasons. First, their income is directly tied to client fees instead of the more lucrative sale of products. Fees charged to clients are obvious, while commissions on financial products are usually obscure and out of sight. Second, providing personalised financial life planning services often requires working with a smaller client base. Because fee-based firms earn much more money, they are widely known in the profession for being able to pay higher salaries, often 50% to 200% more, than fee-only firms,” he adds.

This difference is a key aspect of why fee-only life planning is seen as a calling, Kahler says. “The commitment to providing advice without personal financial gain at the forefront demonstrates many fee-only advisers’ dedication to clients. Their calling is rooted in being an advocate for their clients' best interests, transparency, integrity, and unbiased advice. They are willing to make the trade-off of lower profit margins and income potential for the fulfilment and satisfaction they gain from advocating for and making a difference in the lives of their clients.”