What's the difference between fee-only financial advisors and fee-based? Is one necessarily better than the other? What's the best financial advisor company?

June 10, 2014

Advisor answers

Brian Frederick

Brian Frederick

JD, CLU, ChFC, CFP®

Speaking broadly, there are two ways that financial advisors get paid. The first way is that they get paid for providing advice, and the second way is that they get paid for selling you a product such as a mutual fund, managed account, or insurance policy. When an advisor is 'fee-only' they only get paid for their advice, but when an advisor is 'fee-based' it means that they get paid both for providing advice as well as selling you a product.

Most advisors (including myself) who answer questions on Ask An Advisor are fee-onl...

Chris Winn

Chris Winn

MBA, CDFA, CFP®

Great question! This can be a confusing topic for those outside the investment industry. I've worked as a fee-based advisor, commission only advisor and now work as fee-only advisor. The easiest way to explain this is to review all three side by side.

The first difference is compensation.

Fee-only advisors work for their clients and ONLY get paid directly from them in one of three ways: an hourly rate, a fixed annual retainer or a percentage of the investment assets they manage for their clients.

Com...

First, there is not guarantee that one is better than the other. It will boil down to which you work the best with.

Fee-Only: Cannot be compensated by any other source except directly from the client. No commissions, insurance sales, or investment company funding.

Fee-Based: Can be compensated by a fee as in the above scenario. Also may be compensated by commissions, insurance sales, or investment company funding.

If I were you I would interview multiple advisors to find the right fit. Look on CFP, Paladin, or NAP...

Bernard Kiely

Bernard Kiely

CPA, CFP®

A fee-only financial advisor works entirely on an hourly, project or asset based fee. A fee-only advisor is paid directly by the client. A fee-basedadvisor charges a fee to prepare a financial plan and then receives a commission. In my opinion a fee-only advisor has no inherent conflicts of interest. I am a fee-only financial advisor. I get paid the same regardless of what I recommend that the client do. A fee-based advisor has inherent conflicts of interest. Their commission varies based on w...

All these answers are excellent. I want to speak to the question of the best company to work with. You want to find an advisor who you feel comfortable with. One advantage of a smaller firm is that you will have an advisor who you work closely with. With larger firms, you won't have your own advisor unless your asset level is very high. I believe that independent advisors are the most objective and they make decisions based on your best interest. The NAPFA website can help you find someone near you.

Charlo...