Be sure that you understand the various ways in which a financial professional can be compensated. How compensation is received may create hidden conflicts of interest that may affect the advice you receive. The three most common models of compensation are:
Fee-Only Compensation. This model minimizes conflicts of interest. It is the required form of compensation for members of NAPFA (National Association of Personal Financial Advisors). A Fee-Only financial advisor charges the client directly for his or her advice and/or ongoing management. No other financial reward is provided by any institution which means that the advisor does not receive commissions on the actions they take on the clients' behalf. Compensation may be based on an hourly rate, a percent of assets managed, a flat fee, or a retainer.
Fee-Based Compensation (fee and commission). This form is often confused with Fee-Only, but it's not the same. Fee-based advisors charge clients a fee for the advice delivered, but they also sometimes receive payments for products they sell or recommend. In some cases, commissions are credited towards the fee, giving the appearance of a lower-priced option, but any outside compensation lessens the advisor's ability to keep the client's best interests first and foremost.
Commission. An advisor who is compensated through commissions is primarily a salesperson. A client working with a commissioned sales person must always ask himself: Is this advice truly in my best interest, or is it the most profitable product for the advisor? Unfortunately, often the answer is the latter. In fact, a commissioned advisor usually is required to put the best interests of his employer ahead of the best interests of his client.
Fee-Only 401(k) Consulting and Investment Management
Gasber Financial Advisors, Inc. will generally act as an ERISA 3(38) advisor to a 401(k) plan providing investment management services. Gasber Financial Advisors, Inc. may also consult with plan sponsors on compliance issues, provide group enrollment and education services and individual participant consultation. Fees for 401(k) consulting and investment management are calculated as a percentage of assets under management, are billed quarterly and are deducted directly from the 401(k) plan assets under management.