Before making investment decisions, it is always recommended to consult a certified financial planner. But be advised that these conversations with your financial adviser can be costing you a lot of money, and you may not even realize it.

Financial advisers do not work for free. They make money off you, the client, in one form or another. How they make their money varies, and they may not be compelled to make you any richer.

How investment advisers are paid is an important factor to understand and consider when searching for the best person to give you money advice. Typically financial planners are either commission based or charge a fee based on the workload.

• Commission Based: Commission based financial advisers are paid the sales load you are charged from products they recommend and you purchase.
• Fee Based: Fee based financial advisers are paid by a pre-determined fee for their services. This may be an hourly fee, a flat fee or a percentage of the assets they are managing.

While both pay structures have their plus and minuses, there seem to be some overwhelming benefits to using a fee-based financial planner. Take this example from Investopedia.com:

Making a $50,000 investment in a fund with 5% load would translate into the equivalent of more than 14 hours of portfolio planning undertaken by a fee-only adviser at $175 per hour! If you were to hire an adviser for 14 hours at that rate, you could expect him or her to accomplish a great deal of work that would produce a more balanced portfolio, returning a potentially higher rate than the loaded mutual fund. The fee-only type of compensation provides investors with the opportunity to get more service out of the money they spend on professional advice and stock-picking expertise.

Since commission based advisers are paid from the products they sell, they have an incentive to promote frequent transactions and recommend products that pay them the maximum trading commissions. Customer-focused commission based financial planners would want to produce a high-performance portfolio in order to keep your business, but be wary of those who are ultimately concerned with their bottom line. Their interests are with getting you to do more buying and selling.

Fee based advisers, on the other hand, are not financially vested in selling you a specific product outside their own services, and may be more in the client’s best interest. They are said to provide more objective financial advice. They could try and stretch out the time they spend working on your portfolio in order to make more money, but a good adviser will have enough on their plate to keep them busy.

When is it appropriate to use a one type of adviser over the other?

While fees and pay structure should be considered, it should not be the only factors when choosing a financial planner. A financial planner that is well-rounded, experienced and can back up his work with a history of high performance should be first and foremost. Integrity and an honest, open relationship is also important.

Otherwise, commission based financial advisers may be more suitable for people with smaller portfolios and those just starting out with their investing career. The fees and charges you incur with a limited capital to invest with will be largely insignificant in the long run.

Since fee based financial advisers are generally more capable at looking at your portfolio as a whole, including real estate, they are recommended for those who have a larger portfolio. A large investment portfolio requires more attention to detail, and frequent monitoring of asset allocation, and a fee based adviser will provide more bang for the buck. Likewise, this type of adviser may be better for those who need one-time consultation for more complex situations, such as estate and tax planning.

Millionaire Money Habit: As investment decisions are made, it is important to consider fees and tax implications when choosing an appropriate financial adviser. While the pay structure should not be the only factor to be considered, it is an important part of the details. -RT

Be sure to subscribe to the RSS feed or by email to be notified about upcoming articles in the series, How to Interview Financial Advisers and When to Fire Your Financial Planner.

Below is a list of some of the best personal finance articles from around the web. To kick start your week, spend some time digging through the Millionaire Money Habits archives and the links below to improve your financial literacy.

Financial Planning:

• How To Become A Millionaire (In 6 Easy Steps!) at Blueprint for Financial Prosperity
• Are you Saving Enough for Retirement? Check Out This Rule of Thumb at The Dough Roller
• Five Ways to Get the Best Rates for Your Money at Yahoo! Finance
• Financial Independence: Defining it and Figuring Out How to Get There at The Simple Dollar
• This is the Time that Fortunes are Made at Lazy Man and Money
• What Is A Certified Financial Planner? An Interview with Ciaran McKeever at Moolanomy
• Tips and Tricks for Financial Organization at My Dollar Plan

Investing:

• What is ‘Shorting’ a Stock? at fivecentnickel.com
• Don’t Look for Better Than Average Returns at Plonkee Money
• Redefining Risk: Your Investments Aren’t as Risky as You Think at Generation X Finance
• What Do I Do When My 401k is Losing Money? at Gather Little by Little

Spending and Debt:

• Slashing Our Budget By 25%: Our Latest Frugal Moves at The Digerati Life
• When bargain hunting is an addiction at MSN Money
• Debt Consolidation Alternatives – Fix the Problem, not the Symptom at Credit Withdrawal
• Should You Keep or Close Credit Accounts to Keep/Get Your Credit Score High? at Free Money Finance

Taxes:

• Eight Steps To Lowering Your Property Tax Bill at My Two Dollars
• Uncle Sam is Going to Suck Me Dry at beingfrugal.net

Millionaire Money Habit: To build wealth, you need to perpetually improve your financial literacy. Digest as much information as possible and stick to a plan that works for you. In addition to the articles above, browse through the suggested readings listed at the very bottom of this website’s page, and be sure to subscribe to our RSS feed or by email.

Have you ever stopped to think about how much things you purchased on your credit cards in the past are actually costing you? Month after month you continue to pay interest on something purchased years ago, possibly an impulse buy to begin with. You might even be paying interest on something that has already been disposed of or has completely deteriorated in value. How many dinners, outdated electronics and clothes, and vacations were financed by credit cards and are still being paid off? Event though the gratification in the purchase was lost months ago, the cost of the purchase continues to add up every month as you incur more interest on your credit card balance.

I purchased a rear-projection TV I purchased with a credit card many years ago. I was so proud of all the research I had done to shop around and get the absolute best price. Meanwhile, my $2,000 TV ended up costing me closer to $4,000 by the time it was paid off. Even worse, once my great buy was finally paid, that model was outdated and replaced by a slimmer, sleeker, bigger and cheaper design. Can you even buy a rear projection television anymore?

It was experiences like these that allowed me to realize that buying anything on credit without the intention of paying off the balance immediately was a very poor financial decision. It was painful to know I was continuing to pay for something that either I no longer appreciated or had diminished in value.

Imagine all of the things you pay for using credit that are continuing to cost you money. Wouldn’t it be nice to have no credit card debt and use the extra money for something more useful, such as an investment that actually makes you money? Think about if you eliminated credit card debt. How much more expendable cash would you have? How much monthly cash flow would that create for you? What would you do with that extra money?

It was when I started to ask myself those questions several years ago that I was driven to live a credit card debt-free life. I made a commitment to stop using credit cards for things I could not afford right there and then, and developed a plan to pay off all of my balances. I live by the philosophy that if I can’t afford it, I don’t really need it. If I really do need it, I better find a way to afford it. As a result I have become very creative in finding ways to increase my income and budget wisely.

I still use credit cards to take advantage of the things discussed in Don’t Cut Up Your Credit Cards, but have managed to not carry any balance forward. As a result, my credit card company regularly increases my credit limit based upon my outstanding payment history.

Millionaire Money Habit: Using credit to purchase unnecessary things you can’t afford to immediately pay off is just a poor financial decision, and diminishes your investment returns. The ability to consistently make the investment returns that make up for your debts would be an impressive track record. Avoid the interest payments all together and change the belief that the spending limit on your credit card is “additional income” rather than the noose that it is. -RT