When it comes to money advisors and managers, there are really two main types: fee based and commission based. While most people hate to pay someone to manage their money, the reality is… these individuals are doing a job and need a way to make a living.
Which one should you chose? First, accept the fact that if you hire someone to do something, you will have to pay them. Commission based money managers can be as expensive or more than fee based. Often the main difference is how you pay them.
Commission based planners and stockbrokers take their money from yours directly. Therefore, you often can’t truly see the transaction. The money is missing from your profits, but it isn’t so obvious as writing a check. Fee based planners and fund managers charge you a bill, which can come from your bank account or your managed profile. These charges tend to be more obvious.
For some, they hate to feel like they have to write out that $500 check. They would prefer not to “feel” like they are paying for this manager’s time and advice. In turn, with a fee based money manager, you know the rate and you know what to expect. Nothing is “hidden” from view.
Another less obvious difference between fee and commission based financial managers is their incentives. A stockbroker, who earns a commission each time he buys and sells, has some motivation to keep buying and selling. Thus, whom is he working for? You or himself? Commission based financial planners aren’t necessarily putting their clients needs ahead of their own. They are often steered by which funds and assets pay them the most in commissions.
A fee based manager can’t fill his pocketbook by playing with your money. Their money is a flat rate. Many clients feel that a fee based planner will represent their best interests first. That may just be worth the discomfort of writing that personal check.
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