How Certified Financial Planners Work

Types of Certified Financial Planners

Outside financial advice can help you manage your money -- but first, find out how your CFP gets paid.
Outside financial advice can help you manage your money -- but first, find out how your CFP gets paid.
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So you've decided that your bottom line would benefit from the expertise of a certified financial planner. Now comes the hard part -- choosing one. CFPs are categorized based on how they charge for their services: by fee, or by commission.

Fee-only CFPs charge a set hourly fee for providing financial guidance. Their fees can range from around $125 to around $350 per hour [Source: MacDonald]. That may sound like a lot, but remember, it's all fee-only CFPs earn. If they recommend a financial product such as life insurance, they don't receive any reimbursement from the insurance company. As a result, their advice is generally unbiased.

Impartial advice is a big plus. In fact, many financial experts recommend trying to find a fee-only CFP so you can get the most objective information available. Services such as the National Association of Personal Financial Advisors help people find fee-only CFPs in their area [Source: NAPFA]. Unfortunately, many fee-only CFPs only accept clients with lots of money and assets [Source: Womens Finance].

Commission-only CFPs provide financial advice, of course, but they also try to sell financial products. That's how they earn their pay -- they get commissions when they sell you certain products. Commission-only CFPs can be smart, experienced and talented, but they can also be swayed by their own financial concerns. In general, they earn commissions of around .5 percent to 1.25 percent of their sales [Source: MacDonald]. As a result, commission-only CFPs face a potential conflict of interest. Insurance or mutual funds might be good investments for you, for example, but your CFP may suggest annuities -- because the annuities will pay the largest commission [Source: Womens Finance].

Often, commission-only CFPs work for banks, brokerage houses or insurance companies [Source: Womens Finance]. A CFP who works on commission for a bank, for example, can provide good financial advice, but it will be in his or her interest to try to sell you that bank's financial products -- even if that's not in your best interest.

­In addition to these two big categories, there are some hybrids. For instance, some CFPs charge small hourly fees -- smaller than those of fee-only CFPs -- and also earn commissions. Still other CFPs charge on a per-project basis. If you have a lot of complicated assets and need a significant amount of advice, you might want a CFP who charges a flat fee for a financial plan. Your cost could range from $2,000 to $5,000 [Source: MacDonald].

Once you've decided on the type of CFP you want to work with, it's time to turn to choosing a planner. Not all CFPs are created equal, so how can you find the best CFP for your particular needs? Find out on the next page!