Fee-Only vs. Fee-Based Financial Planner: Key Differences
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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.
“Fee-only” sounds strikingly similar to “fee-based,” but there's a big difference.
At a glance: Fee-only vs. fee-based financial advisors
Fee-Only Financial Planner | Fee-Based Financial Planner |
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What is a fee-only financial planner?
A fee-only financial planner is paid directly by clients for their services. The payment may be a flat fee, an hourly rate or a percentage of assets under management. They do not receive commissions or other payments from the providers of financial products they recommend to clients. Under these varied structures, fees range widely.
What is the average cost of a fee-only financial advisor?
Three of the most common fees that fee-only financial planners charge are AUM fees, flat fees and hourly fees. You usually don’t pay all three fees (the AUM fees is the most common method), but you may also encounter other fees when you hire a financial advisor.
Fee type | Commonly associated with | Typical cost |
|---|---|---|
Assets under management (AUM) | Managing your portfolio of stocks, bonds and other investments. | 0.25% to 0.50% annually for a robo-advisor; about 1% for a financial advisor. |
Flat annual fee (retainer) | Special projects, such as analyzing whether to buy or sell your business. May also provide more access to the advisor. In some cases, advisors may substitute flat fees for AUM fees. | Typically $2,500 to $9,200. |
Hourly fee | Special projects, such as helping create a financial plan for a specific situation, such as a divorce. | $200 to $400. |
Per-plan fee | Creating a detailed, written comprehensive financial plan for a client. | Typically $3,000, but varies by service. |
Transaction costs and expense ratios | Fees that trading platforms charge the advisor to use, or fees that mutual funds, ETFs and similar instruments charge. | Varies; expense ratios may range 0.05% to 0.75%. |
Custodial fees | Fees that the custodian charges you to hold your assets. | May be around 0.10% to 0.15%, but varies by account size, asset type, transaction activity and custodian. |
Bundles the firm’s investment management services and related custodial transaction costs together for one price. | Varies by account size and type. | |
Commission | Money earned from financial institutions for buying or selling certain products to clients. | 3% to 6% of investment transaction amount. |
To compile this information, we reviewed industry studies on average rates among financial advisors. Those studies included:
We also reviewed fees charged by providers reviewed by the NerdWallet investing team. | ||
Ask if your financial planner is a fiduciary. Fiduciaries are legally obligated to put their clients’ interests first. Registered investment advisors (RIAs) and certified financial planners (CFPs) are both types of fiduciaries.
Be sure to compare financial advisor costs and services before choosing an advisor, and ask these 10 questions before you hire anyone.
What is a fee-based financial planner?
A fee-based financial planner is paid by the client but may also receive commissions from other companies for selling certain financial products. This can create a conflict of interest, because a fee-based advisor may charge you for advice while potentially steering you toward investment products that personally benefit them.
Ask if your financial planner works for a broker-dealer. These planners are often registered representatives. Compared to fiduciaries, broker-dealers are generally held to a lower legal standard, which simply requires the planner to recommend products that are “suitable” for their clients.
Read your advisory firm’s Form ADV filing with the U.S. Securities & Exchange Commission. The document includes information that spells out how advisors at the company are compensated.
Is a fee-only financial advisor better?
Understanding whether 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 best investment for your or the most cost-effective option.
Choosing a fee-only financial planner who follows the fiduciary standard is usually a better choice for most investors. Several professional groups require members to abide by the fiduciary standard, including The National Association of Personal Financial Advisors, Garrett Planning Network, XY Planning Network and the Alliance of Comprehensive Planners.<br>
» Read more: Learn how to choose a financial advisor