What is a flat fee financial planner?

Primary service models for financial advisors

There are so many different terms for “financial advisor,” it could make your head spin!  Financial advisor, financial planner, fiduciary financial advisor, wealth management advisor, financial consultant, flat fee financial advisor, financial therapist, and the list goes on. 

To make things simple, professionals providing financial advice can be categorized into one of three ways:

1. Broker/Commission Based Advisor:  These advisors sell products to the consumer for a commission paid by the insurance or investment company they are representing.

2. Fee-Based Advisor:  These advisors can sell products for a commission and provide investment and financial planning advice for a fee.  The fee is typically a percentage of assets under management, and the commissions vary widely depending on the product.

3. Fee-Only Financial Advisor:  These advisors don’t receive any compensation from an insurance or investment company, and work directly for the client within the scope of their financial planning and investment advisory agreements.   There is a sub category within the Fee-Only space known as a Flat Fee Financial Advisor or Flat Fee Financial Planner

I will cover all of these definitions later in the post.

There are also professional designations like Certified Financial Planner (CFP), that consumers might believe is a type of financial advisor.  The reality is, not all CFPs are created equal, and they can work under any of the three primary service models listed previously.  A designation, like a CFP, is meant to describe the education and experience an advisor has within the industry.

While the CFP is the mostly widely recognized and respected from a consumer standpoint, there are other designations that are well respected within the industry. 

Just to name a few:

Retirement Income Certified Professional (RICP) designation is for those who specialize in retirement income planning. 

Chartered Life Underwriter (CLU) is for those who have an in-depth knowledge around life insurance. 

Chartered Financial Analysit (CFA) is for those specializing in investment analysis and portfolio management.

These designations are of course helpful when determining if a prospective advisor can serve your needs.

Just remember, the designation doesn’t describe the service model, and ultimately how the advisor is compensated, which are both important factors when choosing who to hire.

Broker, or Commission Based Advisor

If you’ve ever seen movies like Boiler Room or Wolf of Wall Street, brokers portrayed in them give financial professionals a bad reputation.

Stocks can now be traded for zero commissions, and the traditional/old school brokers are becoming less and less sought after by the consumer given the distrust.

Nowadays, the most popular products that are sold for commissions are mutual funds, annuities and insurance.  I would argue that annuities and/or insurance products should be used in the majority of financial plans.  

Commission based mutual funds, however, are being phased out with the rise of no sales load ETFs and no load mutual funds.  These products perform just as well, if not better, for a fraction of the cost.  However, there are still brokers and even fee-based advisors that sell these types of loaded mutual funds. 

One of the most important factors to note is that a broker is not a fiduciary.  The fiduciary standard requires that the advisor always puts the client’s interests ahead of their own.  In the case of a broker, he or she is representing the firm they sell the product for, not the client. 

Some of these brokers will engage in limited financial planning, but most don’t. 

Another issue at hand is that the Broker/Dealer might limit which products they can or cannot sell.   Additionally, certain products might pay a higher commission than others, even if the products are identical.

These are just a few of the reasons why consumers look to other service models if they wish to engage in a long term, mutually beneficial relationship.

Fee-Based Financial Advisors

Fee-based advisors can charge both commissions and advisor fees for investments and/or financial planning.  This language is often misconstrued with the term “fee-only financial advisor,” which I will explain next.  Fee-based advisors oftentimes charge a percentage of the assets their firm is managing, hence the term “fee-based.”  Additionally, they can sell insurance, annuities or other investment products for commissions paid by their broker/dealer. 

The cost will typically range anywhere from 0.75% – 2% for the assets under management fee, and anywhere from 3%-12% for commissions on other products. 

Some of these advisors do comprehensive financial planning extremely well.  However, many do not do financial planning at all, given their fee is technically for managing the investment assets only. 

Here is the confusing part. 

Fee-based advisors act as a fiduciary…sometimes.  When providing advice for assets their firm is managing, they are a fiduciary.  However, other services in which they engage through their broker/dealer are not part of the fiduciary standard. 

Oftentimes, you might hear these advisors claim they are fiduciaries, but really they are a fiduciary “sometimes.” 

This makes it extremely difficult for the client who thinks they have hired someone to look out for their best interests, when in reality they are representing a third party instead.

Fee-Only Financial Advisor

Fee-Only Financial Advisors are fiduciaries throughout the entire relationship, period.  There are three ways these advisors can charge clients:

  • Percentage of Assets Under Management (anywhere from 0.75%-2%/year)
  • Ongoing retainer fee or flat fee (monthly or quarterly) ranging anywhere from $100/month – $2,000/month
  • One-time financial planning arrangement (ranging from $1,000 – $10,000)

These advisors are often much more comprehensive when it comes to the financial planning relationship than a fee-based advisor or broker.  The reason is because the fee they charge is for financial planning and investment management, not for selling a product for a third party.  Here are some examples of services fee-only financial planners provide that fee-based advisors and commission based advisors typically do not:

  • In Depth Retirement Planning Analysis
  • Income Distribution Planning
  • Social Security Optimization
  • Tax Optimization
  • Objective Long-Term Care and Life Insurance Review
  • Roth Conversion Analysis
  • Charitable Giving
  • Medicare Planning
  • Pension Maximization
  • Required Minimum Distribution Planning
  • Major Asset Purchase or Sale
  • Estate Planning Coordination
  • Debt and Cash Flow Analysis
  • Mortgage Review

Clients appreciate this dynamic because if they need a certain product that requires paying a commission, such as life insurance or long-term care insurance, their advisor’s compensation is not tied to the product!  It creates a relationship where they decide what they need together, as opposed to a cliche’ sales pitch.

Many clients who are doing their research are gravitating towards these types of planners, and they can be found on third party association websites like:

These advisors are not affiliated with any broker dealer, wall street company or insurance company, and therefore no compensation is received by anyone other than the client.

They will typically sign a fiduciary oath where if breached, they could be penalized monetarily or lose their license to practice as such. 

flat fee financial planner

Flat Fee Financial Advisor, Flat Fee Financial Planner

A  flat fee financial planner is a type of fee-only financial planner.  The difference is the fee is not based on a percentage of assets the firm is managing. 

Many of these firms charge based on what their hourly rate is, or based on your financial complexity. This method of compensation is gaining a lot of traction.

The reason is simple.  If you have two similar prospective clients.  One has $1 million of assets and the other has $2 million of assets.  The question is, are you doing twice the work for the client who has $2 million? 

The response from flat fee financial planners is a simple “no.”  In fact, the workload is likely the same for both of those clients, so how can the fee be justifiably twice the amount?

Some flat fee financial advisors do not manage investments, and these are known as advice-only planners.  They simply give you a second set of eyes on your situation, or help you create a roadmap on how to get where you want to go.  The client is presumably comfortable with the implementation and maintenance of those recommendations on a go forward basis.

There are other flat fee financial advisors that will manage investment assets, but it’s inclusive of the overall flat annual/quarterly fee that is charged.  Unlike the asset-based advisor’s fee, as your investment account grows, your fee doesn’t go up because of it.  Conversely, if your investment account goes down, your fee doesn’t go down either. 

This keeps the focus on financial planning and doing what is right for the client, regardless of the amount of assets under management. 

Why did we choose to be a flat fee financial planner?

flat fee financial advisor

After starting in the broker world and moving to fee-based, I decided the best way to serve my clients was as a flat fee financial planner/flat fee financial advisor

My firm, Imagine Financial Security, is a flat fee financial planning firm that includes investment management. 

We have two separate offerings:

  1. Ongoing retirement planning, tax optimization, and investment management.  We serve those who are close to retirement, or have recently retired and need help with their retirement income plan, Roth conversion strategy, investment management, and estate planning strategies.  The majority of our clients end up in this engagement as they prefer to live their best lives in retirement instead of spending time in the weeds of personal finance.
  2. One-time engagements.  This offering is best suited for those who prefer to implement their retirement income and investment strategy on their own, but want a professional second set of eyes to reveal any opportunities or blind spots.  Alternatively, this could serve as a great way to experience our value proposition before signing up for ongoing planning.

In addition to serving “traditional families” planning for retirement, we also have a niche that serves blended families planning for retirement.  These families have children from previous marriages, assets accumulated before marriage, wider age gaps, and other challenges that make the financial picture slightly more complex. 

I find the flat fee financial planner model allows our firm to focus on comprehensive financial planning without conflicts of interest that are inherent with other service models.  

Resources to find a flat fee financial advisor or financial planner

I’ve compiled a few links below that include other flat fee financial planners who are doing great work in the financial planning community. 

Tenon Financial has a list of flat fee financial planners who specialize in retirement planning and investment management.

7 Saturdays Financial has a list of flat fee financial planners who specialize in working with younger accumulators.

Wealthtender has an article about flat fee financial advisors.

Sara Grillo interviewed Andy Panko on the flat fee financial advisor movement.

Measure Twice Financial has a list of advice only financial advisors who do not provide ongoing investment management.

In summary

Your situation is unique, so hiring an advisor who specializes in working with others with your profile is extremely important.  Additionally, understanding how advisors are compensated should help you determine how you want to be served.

There are good and bad players in every industry, and financial services is no different. 

There are also good and bad advisors in each fee model, and simply hiring an advisor solely based on their fee structure may not be prudent. 

There are high quality advisors doing great work in each category, even the commission-based world. 

However, we recommend hiring someone who has a deep understanding of how to serve people like you, and who can always look out for your best interests.

 Here are three simple questions (among others) you should ask a potential advisor:

  1. Which service model do you fall under?
  2. What credentials/designations do you currently hold, or are currently pursuing?
  3. What is your firm’s niche?

Here is a link for the CFP Board’s 10 sample questions to ask a prospective financial planner.

I hope you found this information valuable as you look for the right partner to help you achieve financial independence. 

If you have any questions or want to schedule a call with me, click the link below to coordinate our schedules. 

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Kevin Lao

I am the founder of Imagine Financial Security. We are a Flat Fee, Fiduciary Financial Advisor based in Jacksonville, FL. We specialize in retirement planning for blended families, tax optimization and investment management. We can work with you locally in Jacksonville or St Augustine, as well as virtually anywhere in the United States.