When do conflicts of interest arise in financial planning?
Conflicts of interest arise when the interests of an adviser (including those of the adviser’s firm) are adverse to the adviser’s duties to a client.
What is an adviser’s fiduciary duty in financial planning?
An adviser must act in the best interests of a client at all times when providing financial advice; the adviser has duty of loyalty, duty of care, and duty to follow client instructions.
What are differences among Fee-Based, Fee-Only and Advice-Only financial planners?
The answer depends on how financial planners are compensated and whether they 1) receive Sales-Related Compensation and 2) have custody of client’s investments.
- Definition of Sales-Related Compensation
Sales-Related Compensation includes, for example, commissions, trailing commissions, 12b-1 fees, spreads, transaction fees, revenue sharing, referral or solicitor fees, or similar consideration. - Fee-Based financial planners receive fees and Sales-Related Compensation.
- Fee-Only financial planners receive no Sales-Related Compensation.
- Advice-Only financial planners are Fee-Only financial planners without custody of client’s investments.
How are Fee-Only financial planners compensated?
Fee-Only financial planners are compensated exclusively by fees paid directly by clients in any of the following forms;
- Hourly fee
- Retainer and subscription fee
- Projected-based fee or
- Assets under management (AUM) fee