Final answer:
Fee-based financial planners have a mixed compensation structure where the fees paid by clients are reduced by any commissions they earn, aiming to reduce potential conflicts of interest and align the planner's incentives with the client's best interests.
Step-by-step explanation:
The question refers to fee-based financial planners who operate on a cost structure where the client fees are offset by any commissions the planners earn from selling financial products. This hybrid model combines aspects of fee-only and commission-based compensation.
The goal is to reduce the potential for a conflict of interest that might arise if the planner were solely commission-based, as they might be inclined to recommend products that earn them higher commissions rather than those that are in the best interest of the client.
For example, if a fee-based planner charges a client $2,000 for a financial plan but also earns $600 in commissions from financial products purchased by the client, the client might pay a reduced fee of $1,400 for the planning services.