Fee-based and fee-only may sound like interchangeable terms, but they describe financial advisors who can vary significantly in terms of how they’re compensated and how they serve you.
Financial professionals receive fees in two primary ways:
- Directly from clients for the services the advisors provide. Such advisors may charge a flat fee for services like developing a financial plan, or they may earn a percentage-based fee based on the assets they advise on. If they are fee-only, they don’t receive commissions; they are simply paid by clients.
- Commissions from financial services companies—e.g., when a mutual fund pays an advisor a commission for selling certain products to clients. Since the client might not pay the advisor directly, the investment advice may seem inexpensive. However, the commission can create conflicts of interest, and additional fees like sales charges that help pay for those commissions can cut into a client’s investment returns.
A fee-only advisor can only earn fees the first way—i.e., directly from clients for the services the advisor provides. A fee-based advisor can earn fees via client fees and commissions.
Commissions don’t mean the fee-based advisor will give you poor advice. There are many professional fee-based advisors who care about their clients. But commissions can create conflicts of interest. You might end up wondering whether the advisor’s advice is made because it benefits you most or because there’s another motivator, such as a commission if you pick a certain mutual fund to invest in.
Other Considerations in Selecting a Financial Advisor
A complement to serving as a fee-only advisor is serving as a fiduciary, meaning the financial advisor is obligated to act in your best interest at all times. We recommend that people work with a fiduciary advisor whenever they can. That way, you know the advice is designed for you, not for a company’s bottom line.
As a Registered Investment Advisor, our San Mateo- and Vancouver-based firm serves as a fiduciary to all clients. We are also fee-only. We’re committed to this structure because it helps us serve our clients best. We get to help them achieve their goals, and when they succeed, so do we.
When seeking a financial advisor, the types of services you need will often depend on your life stage and financial complexity. When you are younger and your finances are more straightforward, you may want only investment management. Later, you may want an advisor who can help you organize your entire financial picture, all the way into retirement.
Talk to potential advisors not just about their fee structure and fiduciary obligation to you, but about the services they provide and their expertise. Certain credentials, such as the Chartered Financial Analyst® (CFA) and CERTIFIED FINANCIAL PLANNER™ (CFP®) designations, indicate a high level of training and are highly regarded in the financial services industry.
How to Find a Fee-Only Financial Advisor Near You
To find out if a financial advisor is fee-only or fee-based, you can ask the advisor. You can also check the SEC’s website to see an advisor’s registration status. Generally, if you see they’re registered only as an investment advisor, they’re fee-only. If they’re registered as both an advisor and a broker (or just a broker), they’re fee-based.
You can ask a Registered Investment Advisor for their Form ADV, which discloses pay structure and other essential information.
To find a fee-only financial advisor near you, you can search databases such as the CFP Board, which can provide contact information for fee-only CFP® professionals in your area. When using a search engine, specify terms like “fee-only financial advisor in Vancouver, WA” or similar phrases for wherever you’re located. Then be sure to clarify the fee structure with an advisor once you speak with them.
Schedule a complimentary meeting with a fee-only financial advisor to discuss your situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice