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Fee-only versus fee-based financial planning

by Robert W. Tull | September 20, 2019 | Financial Planning

In my thirty years as a Financial Planner, I am often asked, “is there really a difference between a fee-only and a fee-based advisor?”

When I began my career in 1985, I started as a commission-based representative working for a broker/dealer. Although I was sincere and always did what I thought was best for my client, at the end of the day I was only compensated by the transaction into an investment—not for the advice I was giving. My desire was for clients to pay me for my time, expertise and objectivity, not a product or transaction. This led me to fee-only financial advising.

The National Association of Personal Financial Advisors (NAPFA) is the leading professional association of fee-only financial advisors. Fee-only financial planners are registered investment advisors with a fiduciary responsibility to act in their clients’ best interests. We do not accept any fees or compensation based on product sales. That is not to say we don’t have conflicts of interest, but when we do, we are required to fully disclose them. Generally, you will find that fee-only financial planning services advisors generally provide more comprehensive financial planning advice.

So, what is the difference between that and “fee-based” financial planning services advisors? Commission-based agents have intentionally blurred the distinction by creating this new category where they charge a fee in addition to accepting a commission on the product or transaction. Research has shown that these terms are extremely confusing to consumers seeking strictly fee-only advisors. Those of us who practice fee-only financial planning prefer an environment of transparency where it’s clear we serve the client and their financial interests first. This structure also allows us to help clients with all of their financial affairs—not just investments. Another benefit is that using a fee-only financial planning services advisor allows a client to change advisors without surrender charges or lockup periods. I believe clients should be free to leave (with their money) at any time if they aren’t happy with their services.

I fully agree with and appreciate NAPFA’s compensation requirement and joined their membership rank many years ago. My advice to those looking for a financial planner is to visit their website at where they can find a list of fee-only fiduciaries in their area to interview. Going this route will allow you to be comfortable with the advice you receive as well as the method of compensation for that advice. When it comes to your hard-earned money and where it’s going, everything should be transparent.

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