Financial Education Is the Key to Any Healthy Financial Future

Fee Only Financial Services don't gum up the works with hidden commissions or fees
Fee Only Financial Services don't gum up the works with hidden commissions or fees. getty images

I have written quite a bit about the need to educate yourself when it comes to annuities. This attitude should really carry over into any financial arena you are considering using in your portfolio. Yes, we expect our financial planners and advisors to know everything-that’s why we pay them! Still, it is really in your best interest to stay engaged in the situation.

Most of my time is spent developing ways to provide information to people interested in annuities.

I write articles, speak at conferences and in front of classes, and most recently have developed informational websites where financial consumers can go to learn more about what annuities are available to them.  The most recent website developed branches out from strictly annuity information into all kinds of financial areas.

My friend Jimmy Dot Direct explains very well the method behind the madness that is incomeinvestor.direct: “Income Investor is a newsletter created to help people go through the gamut of available dividend driven income for investors. Whether you're retired or not is irrelevant.  You can find information about bonds, dividend-type ETFs or mutual funds, REITS, or MLPs for example. Throughout the newsletter we talk about, write about and cover anything that drives income.”

Recently, Jimmy Dot Direct (Jim Farrish) and I met with Steve and Adam Van Wie to make a podcast about their way of doing business as financial planners.

They will be regular contributors on incomeinvestor.direct. You can listen to the podcast in its entirety, but here I want to focus in on their method of doing business. It struck me as being very much aligned with my way of approaching the annuities realm.

There is a difference between fee-based and fee-only financial advising.

What struck me right off the bat about the Van Wie method is how similar their approach to fees and commissions are to my own.

If you have read anything I have written about the “normal” commission structures attached to most annuities sold today, you are aware that I consider some of those structures nearly criminal. In fact, I only sell annuities that don’t have ongoing fees or commissions. In part, I do this so that consumers know right off the bat what they are getting into. Kind of that “keep it simple, stupid” approach. The Van Wie guys are fee-only financial advisors. I asked them to elaborate on the terms fee-based vs. fee-only financial planning. It seems that people often don’t understand there is a difference.

I asked during our podcast, “Can you explain the difference between fee-based and fee-only financial planning? A lot of people only hear fee, not distinguishing between fee-based and fee-only. They think it's the same thing. Tell what the difference is and the reason it's important.”

Fee-based advising allows for commissions to be paid

Steve Van Wie answered, “Stan, fee-based means that commissions could be paid in this relationship. Now I'm going to quote a recent SEC fine placed on a major brokerage house, and it says, "The workings of the wrap fee program, a version of 'fee-based advising,' is to disguise commissions from the customer." Notice it said customer.

Fee-only businesses are just that, fee-only with no commissions.

We have clients; the fee-based people have customers. The difference is there can never be a commission paid on a true fee-only business. Therefore, we have eliminated all of the potentials for conflict of interest using our fee-only business. It really is not more complicated than that.”

No commissions also means the potential for conflict of interest is limited.

[I would add here that it is significant that the SEC is recognizing an effort to “disguise commissions”. I have been talking for years about this problem in the annuity industry. It is one of the reasons I focus heavily on education. It is harder to pull the wool over a financial consumer’s eyes when they know what to look for, as in hidden fees or commissions.]

[The question, “How does Van Wie Financial implement a fee-only structure?” still needed answering.] I asked, “From just a fee standpoint, Adam, explain to the people how the fee only process works with you managing their money, etc.

For example, someone walks in with x amount of money and says, "We want Team Van Wie to handle this." What happens?”

Fee-only structure aligns the financial advisor’s motivation right with the consumer.

Adam: Absolutely. The fee-only structure really puts our interest in-line with our client's best interests. The more money of theirs that we manage, the more money we make. Conversely, if we lose their money, we are actually hurting ourselves as well. So, we really have the same end goal as our clients in mind, which is to grow our client's wealth. We're very, very transparent about our fees, publishing them right on our website. It's right there online for everybody to see. You'll never pay anything else besides what you see on our website.

It's a sliding scale that starts at 1 percent and goes up to 2 percent. We bill four times a year, we take a quarter of the fee and bill that on the account balance at the last day of the quarter. It's as simple as that.

Stan: I think that's the way the industry is definitely moving for sure.

[I have been trying to push the annuity industry that direction, for the same reasons. It is important for consumers, customers, and clients to know what they are getting into at the get go, and ongoing.]

I recommend you check out vanwiefinancial.com to listen to their weekly financial hour podcast. I listen locally on Saturday in the Jacksonville area. I like the cadence of how they approach things. It is a family owned father and son business, and they do something very unique in the financial planning business.