Charging for financial planning based on assets under management does create a significant conflict of interest. Financially, it is in the interest of the planner to maintain larger investment account balances; however, it is in the client’s interest to convert those investment assets into real goals. This does not mean the planner will act on hat conflict, but it is certainly there and must be disclosed as such to an consumer or potential consumer of those services.

If you re-read the post you may notice the reference *and link* to NAPFA.

Btw, I was at an event called “generation debt” in SF and one of the panelists mentioned your site as one she frequents regularly for advice. keep up the great work!

The presence of a conflict of interest does not necessarily mean that someone will act on it, but is it still important for both parties to acknowledge its existence and *potential* to influence actions.

Hindsight’s always 20/20, but planning is priceless. I hope people take this article to heart before signing up with a planner.

1. The planner will only initially talk about STRATEGY, as in cashflow management, are your investments or potential investments structured in the most tax effective way, do you have estate planning issues and personal insurance in place

2. The planner discusses how these STRATEGIES, will effect your lifestyle, will sacrifices need to be made or just minor tweaks or enhancements

3. The planner should have appropriate education ie CFP is ideal or at least a long history of being in the industry usually 10 plus years is good. I’ve been a professional adviser for a number of years, planners who don’t have adequate knowledge/education can hide for a number of years but in the long haul will always get caught out, either because they themselves get conned into providing bad advice to their clients via dodgy investments or they are “negligent” in giving bad advice.

4. Only after the first 3 have been appropriately dealt with should the FINANCIAL Planner talk about actual “Products”, as in mutual/managed fund types, direct shares, property, reits those types of things.

REMEMBER …. STRATEGIES always come first …. Products always come LAST!!!!!! GOOD planners always do it in this order no matter what … anything else and they are just salesman!!!!

1) Early on, to help set up a plan if you either don’t know a lot, or wonder if you have too much money for everything to just sit in an index or money market fund.

2) Every ~5 years to get a reality check on your progress and make sure your asset allocation and risk level is still appropriate.

3) Around major life events, like marriage, having kids, starting your own business, etc.

1) When the author says “As a percentage of assets the planner is managing (caution: this one has a built in conflict of interest)” this may not be true. If you are working with a Registered Investment Adviser they have a fiduciary duty to you even when they are paid according to assets under management. Anything potentially resembling a conflict of interest is disclosed in their ADV-II forms.

2) The author correctly notes that an RIA is a fiduciary, but it may help to know that the employees of the firm are referred to as Investment Adviser Representatives and they have the same fiduciary duty as the firm.