Should you seek a planner who's on fees, commission -- or both?

Can you afford to pay a fee for financial planning? Some observers might suggest that a more important question is, Can you afford not to?

One of the longest-running debates in the field of financial planning is whether it is better to work with a fee-based planner or one who works on commission. And then there are planners who get both fees and commissions.

Some firms -- notably brokerages and insurance companies are branching out into financial planning -- provide free planning and more or less frankly admit that they expect to make their money on product sales. But planners earning their keep from commissions may be tempted to solve your financial problems mostly by selling you something, and product sales are not the solution to every problems. So say critics on one side.

On the other side of the debate are those who say, ``If planners make their living solely from fees, the fees they will have to charge will be prohibitive.''

The debate won't be settled here. But some observers feel it doesn't matter if a planner earns commissions, as long as the actual planning is done for a realistic fee.

Connie Chen, a financial planner in New York, says that fee-based planning is ``absolutely'' the way to go. ``Financial planning must be done on a holistic, comprehensive basis, with no biases.''

She also says, ``Financial planning should not be a cost center, it should be a profit center.''

Part of the problem, she suggests, is semantic. `` `Personal financial planning' is the most overused term in the language -- it's been used as a means to an end to sell products -- insurance, mutual funds, stocks, and other investments.''

It's been only in the last 10 or 15 years that financial planning has come into its own as a profession, she says. Too often the term is a sort of euphemism for a low-key sales approach.

A financial plan must not be ``a lure'' to entice clients into the purchase of stocks and other investment products, Ms. Chen stresses. Nor should the planner charge less than full fees, with the idea of making up the loss in commissions. ``Absolutely no rebates!'' Otherwise there is an ``inherent conflict of interest.''

On the other hand, she says, ``This does not mean product has no place. On the contrary, timely, strategic implementation is essential.''

A few years back she found she was turning clients loose with carefully worked-out plans -- and those plans were not getting carried out. (This is a problem a broad range of planners face.)

And so once the basic plan is established, she now guides her clients through a separate second stage -- carrying out the plan. She is compensated for this work on the basis of fees, like planning fees, and commissions, as appropriate.

When it is time to hook up clients with some other professional, such as a lawyer or an accountant, Ms. Chen, who has served on the ethics committee of the board of the International Association for Financial Planning, makes a point of giving clients a choice: ``We refer them to at least three lawyers, at least three accountants, and so on.'' This is true even when clients need a service her own firm can provide itself -- ``We provide full and fair disclosure on all these things.''

In sum, the critical points are these: realistic, not discounted, basic planning fees; a clear separation between planning and execution; and offering lots of options to clients.

Jay Rabinowitz, vice-president and manager for financial planning services at Merrill Lynch, offers another perspective: ``Just because a firm made money [from a commission], that doesn't mean the client was done a disservice.''

He is in charge of the Pathfinder Financial Service, Merrill's entry into the (relatively) mass-market financial planning field. For $250, the client gets a questionnaire to fill out, with help, if needed, from a real live human planner, reachable by a toll-free number in New York. The client sends it in, and a Merrill Lynch planner maps out a strategy; then a second planner reviews it.

The plan gets sent back to the client, who is then ``encouraged,'' Mr. Rabinowitz says, to review it with a broker for suggestions on how to use it.

There's no requirement that anyone be a Merrill Lynch client to avail himself of Pathfinder. ``What I anticipate happening is that we get some additional business'' from Pathfinder clients who go to Merrill Lynch brokers to carry out suggestions from their plans.

He hesitates to call the Pathfinder program a ``profit center'' but says instead, ``It works on a self-sustaining basis.'' He notes that the planners who work on the program are salaried; they are not brokers on commission. He further notes that a full-service brokerage like Merrill Lynch handles such a broad range of investments that a client is less likely to get steered toward something just because that's what the broker has for sale.

Rabinowitz acknowledges a need to ``watch out for selling pitches'' in the financial planning area, but observes, ``From my reading, this whole concept [the debate over fees vs. commissions] has been painted with too broad a brush.''

But another financial planner, who works in a regional office of a Wall Street firm and works only for commissions, concedes privately that he would be more comfortable working on a combination of fee and commissions.

``Even a nominal fee would enhance the planner's credibility and make the client more comfortable.'' As it is, he appreciates that by working on commission, he has more incentive to nudge the client into following his financial plan.

He says he finds the commissions he earns in connection with financial planning compare with what other brokers earn ``dialing for dollars'' in the traditional way, making a lot of cold calls. ``And this is so much more satisfying.'' He also observes that much of his business is referrals from other clients -- who presumably wouldn't be making referrals if they felt they were getting rooked.

But still, he feels, the planning itself shouldn't be a total freebie. ``What other professional do you know that you can take a lot of time from and get a lot of service from without writing a check?''