21 May What Is a Fee-Only Financial Advisor?
There are many types of financial advisors, and the terms used to describe them can be confusing or sound interchangeable. However, when you’re trying to find an advisor, it’s important to understand the differences in how they are compensated so that you can make the best choice for yourself.
The term “fee-only” means that the financial advisor receives compensation from a fee charged to clients, much like a CPA or attorney would. Fee-only advisors may charge you based on an annual percentage of the total amount of your portfolio. They could also work on a flat-fee basis, meaning they charge a specific amount for advising you, and some advisors work on an hourly rate.
Regardless of how they charge clients, a fee-only advisor cannot take compensation from another source, such as from investment or insurance companies, in exchange for selling you those companies’ products. By getting paid by you only, the advisor minimizes conflicts of interest and can act in your best interest rather than feeling motivated to recommend certain investments based on the commission they’ll earn.
Moreover, fee-only advisors generally operate as fiduciaries, meaning they are legally required to act in the best interest of you, the client. Advisors that don’t have a fiduciary responsibility are only required to recommend investments that are “suitable” to your needs. These advisors could be commission-based, meaning they receive compensation from financial companies for selling their products.
Other advisors could be fee-based, which sounds similar to fee-only but actually means that they can receive fees from you while taking commissions for selling financial products. That means a non-fiduciary, fee-based advisor could recommend to you an investment that pays the advisor a high commission, even if there’s a better option available for your situation. That’s why the National Association of Personal Financial Advisors says that the fee-only compensation model “is the most transparent and objective method available.”
Be sure to ask your advisor or potential advisor whether they are fee-only and a fiduciary so that you can decide if they are the right professional for you to work with.
Schedule a complimentary, 15-minute call with a fee-only financial advisor today to discuss your personal situation.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.