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What is a Fee-Only Financial Advisor?

Fee Only Means No Commissions


Fee Only Advisors

Fee only advisors have a fiduciary obligation to you.


Another word for a fee-only financial advisor would be a "no commission" advisor. Fee only advisors can only receive compensation directly from you (like a CPA or attorney) versus being paid by commissions from products they sell.

A fee-only financial advisor cannot receive compensation from a brokerage firm, a mutual fund company, an insurance company, or any source other than you. This means they represent you and your interests when giving you advice. I think it makes sense to seek out fee only advisors, after all, think about where someone's paycheck comes from, and that will tell you quite a bit about where their loyalty lies.

A fee only advisor may have a rate that is based on a percentage of the assets they manage for you, and thus debited out of your account each quarter, or it could be a flat annual fee, or an hourly rate. These are three of the six ways that financial advisors charge fees.

(To find the right advisor for you go through the seven steps in 7 Steps to Finding the Best Financial Advisor.)

Some financial advisors use the term "fee-based" to describe how they charge for their services. This is not the same thing as "fee only".

Fee-Based Is NOT The Same As A Fee-Only Financial Advisor

A fee based financial advisor can receive fees paid by you, and commissions paid to them by a brokerage firm, mutual fund company, insurance company, or investment partnership. These fees should be disclosed to you.

Many advisors who use the term "fee based" recommend something called a managed account. The investments offered inside this managed account may pay incentives to the company the advisor works for, which means it may not be as objective as it appears. 

Even though both fee-only and fee based financial advisors may have accounts they manage where they charge a percentage of the assets they manage, the investments they place inside these accounts can be very different.

Fee-only financial advisors have a fiduciary responsibility to choose investments that are in your best interest. They typically use investments that have low internal expenses such as no load mutual funds, stocks and bonds; investments that have no 12b1 fees.

Regardless of how they are compensated, financial advisors differ in the services they offer. Some offer only investment management, while others include financial planning as part of their offering, and some are specialists, such as those who specialize in retirement planning. It is important to decided what services you need. You can learn more in Financial Planning vs. Investment Management vs. Retirement Planning.

Dana Anspach, CFP®, is one of only a handful of people to hold the Retirement Management Analyst designation. She has been About.com's MoneyOver55 Expert since 2008 and is the founder of Sensible Money, LLC. You can learn more about Dana's work in her bio.

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