Whether fee based or fee only, a financial planner doesn’t just give you a plan. They actually follow through and make sure all of the parts are in place. The question often comes up about if it can be done less expensively and the honest answer is yes……but, hold that thought.
So I don’t get outside my area of expertise I’ll look at this subject strictly from a life insurance standpoint. A good financial planner can keep you from making mistakes that a do it your-selfer might well make.
I just got off the phone with a local fee only financial planner who helped me separate the two types. A “fee only” financial adviser charges a flat fee to help you set up a comprehensive plan that could include life insurance. A good fee only planner is going to have the best life insurance agents in his corner, agents that can handle anything thrown at them and come through for their client. They will already know the track record and ability of the agent. They will know if he is truly independent or just calls himself independent. They will know that agent’s opinion and advice when it comes to term insurance versus whole life or universal life. They will know if the agent can handle impaired risk underwriting. In a nutshell they can keep you out of the hands of someone who can cost you more money than you need to pay. That’s the value in their fee.
A “fee based” adviser charges a flat fee and may very well be a licensed life insurance agent as well. I’m not going to say there is anything inherently wrong with that, but it may leave you open to being charged more than you need to pay and the result may well be biased unless the adviser is also a top notch independent life insurance agent. Agents are paid a commission directly from the insurance company on sales. Those commissions come generally from the premium that you pay in the first year of a policy. So, with a “fee based” adviser you could very well be paying them a fee to advise you to use them as a life insurance agent.
As I said, I’m not ready to call fee based inherently wrong. In the right scenario it might work well. But it, and this is just my take, might also have the same feel as paying a real estate agent a fee to sell your house and then have to pony up another 6% at closing whether they met your expectations or not.
Bottom line. I can see the value in paying someone a fee to do something that you don’t know a lot about. I pay plumbers and electricians even though I could probably, eventually make everything work OK. Time is money and those guys know what they’re doing. You can end up with an agent that would negate the need for a fee, but, as I have expressed before, the odds aren’t in your favor. The percentage of agents out there that are knowledgeable, unbiased (truly independent), and honorable is I’m sorry to say, fairly low.