The general concepts of financial planning are heavily rooted in high moral and ethical standards. Rather than randomly investing and making general assumptions regarding one’s finances, the true purpose of a financial plan is to provide a detailed and unbiased understanding of one’s financial picture in order for them to achieve their specific goals. Establishing a foundation of financial planning has helped many clients and advisors alike bring logic and reason as to why and how to invest, helping to supplant the negative emotions of investing with a sense of financial confidence and security. With this said, one could suffice that a financial plan would be the basis for nearly all financial decisions. Likewise, it could be utilized by nearly every financial professional in helping determine proper suitability for their clients. Needless to say, all people would benefit from an objective financial analysis by a qualified professional, and these professionals would then benefit from implementing their unbiased advice. Why then should a client have to pay for financial planning services in the first place? Or, to put it more directly, why should a client have to pay a fee in an attempt to ensure that their best interests are being met? The answer is rather straight forward. Financial planning should be free.
The first question that must come to mind is, “Well then how does the financial planner make a living?”. Believe me when I tell you, they make a living, and a handsome one at that. It is not the financial planning fee from which they reap their vast rewards. When a client pays for a “financial plan” they are paying only for advice. The advisor or planner is still going to receive a commission from implementing the plan, and that is where the majority of their income is produced. So be careful of a professional who designates themselves as simply, “fee-based”. This means that they are either charging for the financial plan while also collecting a commission, or even worst, simply charging a management fee for allocating your portfolio. Unfortunately, not many financial professionals let this be readily known, and make it appear as if they are being compensated only for their expertise in the form of the financial planning fee.
So with a check already in hand, how sure can the client be that the advice thereafter is going to be truly objective? With a monetary commitment from the client, the professional is then in a position of power and is required to only fulfill an obligation, not provide true value. By paying for financial planning services the advisor is stating that the client’s best interest cannot be obtained without proper compensation. Thus, any value above and beyond what the client has paid for is not expected on the part of the advisor. So, not only is the client paying for your best interest to be met but that best interest may not be fully obtained. Remember, a financial planner is a business owner. Their time is equal to money, so with a check already in hand, the client is giving them permission to do “just enough”. They are only compelled to fulfill a contract, not add value.
Free financial planning builds a foundation of honesty. By exemplifying their services and not simply fulfilling an obligation, the financial professional must earn the client’s trust, highly raising the likelihood of the client receiving objective recommendations. Granted, many financial professionals believe themselves to be of the highest integrity, but the only way for the consumer to be sure of this is for the advisor to put their money where their mouth is. You would be surprised how many financial advisors who pride themselves on their virtues would magically change their tune when their recommendations (aka: their time and effort) must result in implementation to ensure their income.
The two main objections that a financial planner may have against free financial planning are that their time and their credibility may be compromised. To begin, it is true that a business owner’s time is their most valuable asset. In fact, their time may be more valuable than money itself. The argument follows that if they are spending their time putting together recommendations for clients who may not implement them, it can severely cut into their profitability. This ideal is flawed on many levels. First and foremost, if an advisors is lacking the confidence to offer free services in fear that their work may not be accepted, it demonstrates that the bottom line and not the clients well-being is paramount above all else. Thus they lack the confidence to properly represent the client’s needs and fulfill their objectives. However, the most obvious reason for an advisor or planner to offer financial planning as a free service is monetary. In offering their financial planning services for free, a financial planner is establishing a relationship of trust and honesty with their clients. This strong foundation will inevitably result in a multitude of referrals for the advisor, which are the life blood of their business and the ultimate maximization of their time and effort. The small percentage of income that a financial planning fee provides for the advisor pales in comparison to the financial gains experienced by a steady stream of high-quality referrals. Indeed, when a financial professional stops concentrating their efforts on instant gratification and begins to operate an honest and trustworthy business, the long-term benefits will assuredly follow.
Here, the idea that free financial planning downgrades the financial professional’s credibility is defeated. An advisor may believe that they are devaluing themselves in the eyes of the prospect by offering their services for free. However, true credibility is established by providing exemplary service, not by the fee that is charged. The truth of the matter is that by offering their financial planning services for free, the financial professional is maximizing their time and legitimizing their credibility. If they do not succeed using this method, then they are not going above and beyond for their clients, and do not deserve their business nor their referrals. It is a win-win for all parties. The client receives the objective advice they deserve, and the advisor maximizes his time and effort.
If I call my doctor with what I believe to be heart burn, I do not want to pay for cardiovascular surgery ahead of time. I want to be properly evaluated, given a professional diagnosis, and then billed accordingly. In something as vital as an individual’s personal finances, business should be completed in a similar fashion. It is absolutely imperative that an individual receive the most objective advice possible in regards to their financial future. By giving first and receiving later, the financial professional is more likely to provide that objective advice and will go above and beyond to fulfill the client’s needs. Consequently, by providing the client with the services they deserve, the advisor will be rewarded with a highly reputable and profitable business.To be sure, the public should let the experts have the opportunity to perform their duties. However, as with the majority of other professions, they should at least earn the individual’s trust through hard work and exemplary service.