Fee-Only. Fiduciary. Independent
Sometimes working with a financial advisor can feel like handing over your house keys to a stranger—so you don’t want to choose one blindly. Not only do you need to find someone you can trust with your finances, arguably one of the most important factors of your daily life, but you also need to find someone you can build a relationship with that will hopefully span several decades on your journey to financial success.
In your research to find a financial advisor, you’ve likely come across the term “fee-only,” which is usually used to describe registered investment advisors (RIAs), who provide services and planning that, by law, can only be in your best interest. So be on the lookout for “fee-only” when searching for a financial professional.
Now you might be thinking, “Okay, but what exactly does that mean? And why is it important?”
So let’s go over what it means to be a fee-only financial advisor—and why we at Financial Management Concepts pride ourselves on this one little word.
How Do Advisors Get Paid?
To truly understand the value of a fee-only advisor, it’s first important to understand the different ways advisors can get paid. The three most common methods include:
Commission-based advisors don’t charge fees to their clients. On the surface, this model sounds great. But these advisors have to get paid somehow, so instead they earn commissions from financial and insurance products they sell to their customers. Even if they mean well, commission-based advisors are often more motivated to sell products that will earn them the most money, rather than providing advice that is in the best interest of the client.
Fee-based advisors may sound like they’re fee-only, but they also make commissions from financial products and transactions. In addition to charging their clients fees, they earn a percentage of their revenue from selling products on behalf of brokerage firms, mutual fund companies, or insurance companies, thus placing them at the same risk for conflicts of interest as commission-based advisors.
Fee-only financial advisors are paid directly by their clients—and only by their clients. They don’t receive any type of kickbacks or commissions for recommending certain securities or investments. Their fees are typically structured as a small percentage of the assets they manage, known as assets under management (AUM) fees. Because fee-only advisors only get paid by their clients, they only succeed when you succeed.
What Are the Benefits of a Fee-Only Advisor?
The National Association of Personal Financial Advisors (NAPFA) believes fee-only advisors are the most transparent and unbiased advisors you can come by. They typically have one of two titles: either registered investment advisor or certified financial planner. If your advisor has one of these titles, you can rest assured that they’re fiduciaries and have your best interest at heart.
If you’re in the market for a financial advisor, here are three reasons why you should choose a fee-only advisor:
1. Reduced Conflicts of Interest
No matter how pure an advisor’s intentions are, it can be hard to provide unbiased recommendations when they know they’ll get a kickback or commission. But this isn’t the case for fee-only advisors. They have no incentive to push certain products because they don’t sell any products at all. They’re solely compensated by you.
2. They’re Fiduciaries
Fee-only advisors are fiduciaries, which means they’re legally and ethically required to act in your best interest at all times. They’re loyal, quick to disclose any conflicts of interest, and only give advice based on your unique situation and goals.
3. You Get Objective Advice
It’s easy to act on emotion when you’re dealing with your own money. There’s talk of a stock market crash, so you want to change your investing strategy. A family member needs to borrow money, even though you know giving it to them would jeopardize your financial security. You want to live a comfortable life in retirement, but you’re not sure if you’re on track.
In situations like these, it’s nice to have someone you can go to for objective advice.
Why Financial Management Concepts Is Fee-Only
At Financial Management Concepts, we take great pride in being transparent and unbiased, and in giving our clients undivided loyalty and dedication to help make their financial goals a reality. Our clients are our number-one priority, and we don’t take our role in their financial journey lightly.
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