Fee-Only vs. Fee-Based Financial Planner: Key Differences

When your financial planner’s interests conflict with yours, you want to know they’ll do what’s best for you. So it’s important to know what might be motivating certain recommendations. That could come down to how your advisor makes money.

A fee-only financial planner sounds strikingly similar to a fee-based financial planner, but there's a big difference in how they get paid.

» New to this? Learn what a financial advisor is and what they do

Fee-only vs. fee-based financial advisor: Which type is best for you?

What is a fee-only financial planner?

A fee-only financial planner is paid directly by clients for their services, be it a flat fee, an hourly rate or a percentage of assets under management. Their fee-only pay structure means they do not receive commissions or other payments from the providers of financial products they recommend to clients.

Fee-only financial planners that charge a percentage of assets typically charge around 1.05% of a client’s portfolio value each year. For a $100,000 portfolio, that works out to about $1,050 per year.

What is a fee-based financial planner?

A fee-based financial planner gets paid by the client but also via other sources, such as commissions from financial products that clients purchase. This can set up a conflict of interest, as the advisor charges you for advice while steering you toward investment products from which the advisor profits.

Ask if your financial planner is a broker or a dealer, also known as a registered representative. Compared to fiduciaries, these planners are generally held to a lower legal standard, which simply requires them to sell products that are “suitable” for their clients.

How much does a fee-only financial advisor cost?

Some advisors charge a percentage of the amount of money they manage for you. Others charge an hourly rate, a flat fee or a subscription. Some require a retainer, which gives you ongoing access to the advisor as needed. Under these varied structures, fees range widely.

Robo advisors — digital services that provide low-cost investment management — weren’t included in the study. But fees for those services tend to be about 0.25% of the assets they manage for you. On a $50,000 account balance, 0.25% works out to $125 a year.

» Dive deeper: As you look for a planner who fits your needs, compare financial advisor costs and services before choosing one, and ask these 10 questions before you hire any advisor.

Is a fee-only financial advisor better?

Financial planners are paid in a variety of ways, but understanding if your advisor is getting payments for steering you toward certain mutual funds or other financial products is important — and raises questions about conflicts of interest. A “suitable” investment for you may not necessarily be the most cost-effective option.

That's why we recommend choosing a fee-only financial planner who follows the fiduciary standard. There are several professional groups that require members to abide by the fiduciary standard. Those include the National Association of Personal Financial Advisors, Garrett Planning Network, XY Planning Network and the Alliance of Comprehensive Planners.