What's the Catch with a Free Financial Plan?
When you hear a financial advisor offering a "free" financial or retirement plan—especially one they claim is worth thousands of dollars—it can sound too good to pass up. But is there a hidden cost to this enticing offer? Let’s look at what might be going on behind the scenes.
Free Financial Plans: What's the Real Story?
First, let’s be clear: objective, high-quality financial advice is rarely free. When someone offers you a free financial plan, there’s often another motive at play. While the upfront cost might be zero, you’ll probably end up paying in other ways.
How Advisors Profit from "Free" Plans
An advisor offering a free plan is hoping to sell you financial products. These are often high-fee products, such as fixed index annuities or other investments that generate hefty commissions for the advisor. Unfortunately, these products often come with steep surrender fees, which are penalties for withdrawing your money. These fees can be as high as 15% of your investment and may last 12–15 years—and often the disclosure on these products is hard to decipher.
Watch Out for Misleading Claims of Fiduciary Responsibility
Many advisors advertising free plans might also claim to be fiduciary advisors, which means they’re legally obligated to act in your best interest. However, this claim can be misleading. While they may technically operate as fiduciaries at certain times, they might also recommend commission products (ANNUITY ALERT!) that serve their financial interests more than yours.
Be cautious and don’t assume that a fiduciary claim guarantees unbiased advice. To protect yourself, ask the advisor to sign a fiduciary oath that explicitly states they will always act in your best interest.
Limited Scope of Free Financial Plans
Another common pitfall of free financial plans is their limited scope. These plans are often high-level overviews rather than detailed, personalized roadmaps. Equally important is whether the advisor updates the plan moving forward. Financial plans are not a “one time” event but evolve as your life and circumstances change. Will the advisor do a tax planning review each year? Do they periodically review your estate plan and beneficiary designations? Do they provide on-going cash flow analysis?
Comprehensive financial planning takes time and expertise—two things rarely accounted for in a "free" offering.
Free Financial Plans are Often Like Kentucky Basketball: One-and-Done
With a free financial plan, you’re unlikely to receive ongoing support or updates as your financial situation evolves. Typically, the interaction ends after you receive the plan. Contrast this with how we approach financial planning at Ark Royal Wealth Management. We typically meet with clients twice a year—to review:
- Cash flow and tax planning
- Progress toward your goals
- Investment performance
- This ongoing relationship ensures your financial plan stays aligned with your needs.
The Quality of Financial Advice
Lastly, consider the quality of the advice. Advisors offering free plans often handle a high volume of clients, limiting their ability to dive deeply into each person’s specific situation. More often than not, the free plan serves as a tool to justify the sale of commission-based products.
How to Protect Yourself
If you’re considering a free financial plan, go in with your eyes open. Here are some tips to avoid getting caught in a sales trap:
- Request copies of all materials: Take the time to review them thoroughly before signing anything. Never sign during an initial meeting, go home and review the materials without any sales pressure.
- Insist on a fiduciary oath: Have the advisor commit in writing to always act in your best interest.
- Understand compensation: Ask for a detailed explanation of how the advisor will be compensated for any recommended products.
- Check exit costs: Confirm if there are fees or penalties to exit investments if you change your mind later.
Why We Prefer Fee-Only Advisors
For unbiased, personalized advice, consider working with a fee-only financial planner. Unlike commission-based advisors, fee-only planners charge for their expertise rather than relying on product sales, ensuring that their recommendations truly serve your best interests.
Free financial plans might seem appealing, but they often come with strings attached. By asking the right questions and staying vigilant, you can protect yourself from costly mistakes. If you’re ready for real financial guidance, give us a call to learn the benefits of working with a fee-only advisor like Ark Royal Wealth Management.