I was a recent guest on a local podcast and was asked if there is a difference between fee-based and commission-based advisers. Cue my entrance to talk about focusing on the term fee-only when it comes to hiring an adviser in comparison to those terms. This is a topic that is dear to me because there are a ton of financial services professionals and we all fill various rolls and needs for clients. While some argue that there are conflicts in every arrangement, clients really need to understand what they are paying for and how they are paying their adviser.
So, is there a difference? You bet there is; and it could cost you! The financial services industry seems to be laden with jargon and titles that sound similar, but in reality, have very different meanings. Are you hiring an adviser, a wealth manager, a broker, or being sold insurance under the guise of investment planning? It can be very confusing for clients. When it comes to your adviser, you need to know the terms fee-only and fee-based because it determines how the adviser is compensated.
Generally speaking, fee-only financial planners are usually registered investment advisers and act as a fiduciary in the client's best interest. Fee-only advisers do not accept any compensation based on product sales, i.e., no commissions. Fee-only advisers are viewed as having fewer conflicts of interest and are seen as providing more comprehensive advice. Services generally go far beyond just wealth management.
Conversely, a fee-based adviser may not always have to disclose how they are compensated to a client. Many fee-based advisers do offer hourly fee-for-service but they may also offer commission-based products (insurance, annuities, etc.) to clients. Fee-based advisers may not disclose that they will receive a commission based upon their recommendations. Further, fee-based advisers generally have to work in their firm’s best interest first, and not necessarily the client’s. Conflict of interest, anyone? That being said, many fee-based advisers may offer great service to their clients. Just be very aware of what you are paying for as a client.
Be direct when asking your adviser about their compensation. Ask how they are paid and if they receive any form of commission.
Admittedly, I am biased in favor of the fee-only model and run my practice this way. Many fee-only planners have also obtained the Certified Financial Planner™ designation and act as a fiduciary for their client. However, you do not have to be fee-only to be a Certified Financial Planner™. If you would like to learn more about fee-only planners, you can research the following websites for information and use their Find an Adviser function: National Association of Personal Financial Advisors (NAPFA), the Garrett Planning Network, or the Certified Financial Planner Board of Standards.
For disclosure, I am not a member of NAPFA or Garrett Planning Network at this time. I am however, a fee-only, independent CERTIFIED FINANCIAL PLANNER™ and a member of the East Bay FPA and the XY Planning Network. I can help you with financial decisions, budget for debt, save or invest for retirement, investment allocation and much more. Contact me and let’s get started. #talktometuesday #getstarted #HowIcanHelpYou #GetHelp #Hireaplanner #feeonly #feebased #commission #fiduciary #CFPPro