Why Fee Based Financial Planners are Best Suited to be Financial Advisors for a Self Directed IRA

If you have a self directed IRA account, chances are you use a financial advisor who charges you a fee for services. Depending on the type of client, financial planners have different ways of being compensated for their services. It could be fee only, fee based, commission based, salary based, or a combination arrangement and each has its own merits. Of these, fee only financial planners are considered the most practical. A fee only financial planner’s compensation comes solely from the client as a fixed or flat fee that could be hourly, a percentage or performance based.

What a fee only planner can help with

The financial planner’s advice is not restricted to retirement planning, self directed IRAs and non recourse loans. You also get help with setting investment goals and making a budget, setting targets for savings, calculating the amount of insurance you need, establishing retirement savings accounts, tax planning, home financing, IRA loans, and investment decisions.

Fee only planners usually state their fees up front, so there is no ambiguity. They offer you a price list that indicates their fees for work done by the hour or by the task. Some planners also offer money management services and charge a percentage on a specific amount which relates to the size of the investment they manage. Some planners can also base their fee on the client’s total net worth. These planners give comprehensive services.

Because they specialize in planning and investment, you have the freedom to identify where you want to invest. They do not sell products. Once you pick your investment choices, your financial planner helps allocate the appropriate funds in each choice. Your planner can also help you decide which retirement account is right for you. If you decide to invest in real estate, they will advise you about IRA non recourse loans and their advantages.

Often, most of these financial advisors are people who have worked with traditional brokerage houses and may not be aware of all the investment options available. A majority tends to stick with securities. For instance, they may not be aware about what you can do with self directed IRA loans or that you can invest in property with a non recourse loan.

For self directed IRA holders, the financial planner should be aware that they can enjoy a return on investments by making IRA loans to others. With a real estate IRA you can also buy existing mortgages and promissory notes.

Fee-only and fee-based
There is a hairline difference between fee based and fee only financial advisors. Fee based advisors differ from the fee only planners in that they sell products and earn a commission from sales of these products. So you may end up incurring a fee for services and commissions for products. How much you pay will depend on what you invest in. You may also be offered a fee offset where they deduct the fee from the commission paid by you. Since commissions are variable you may not realize that you have paid more than you should have. Consult upfront fee disclosures to ensure payment is made for the proper amount.

So how do you save by opting for a fee only financial advisor?

Fee only financial advisors receive their fee from their clients. Since they do not promote products there are no commissions or sales incentives involved from investment partners. This results in savings for you, the investor and client, because commissions can sometimes reduce your return on investments. If the advisor promotes products, they could be biased about which ones to offer you.

The goal of a financial advisor or planner is to help you get the maximum return from your investments. It is therefore critical to do a little research before identifying a competent and well-informed certified financial advisor who can help you leverage your investments.