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 or advisor sounds strikingly similar to one that’s fee-based, but there's a big difference in how they get paid.

At a glance: Fee-only vs. fee-based financial advisors

What is a fee-only financial planner?

A fee-only financial planner is a financial planner who 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. Their fee-only pay structure means 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.

Ask if your financial planner is a “fiduciary,” which would obligate them to put their clients’ interests first. You may opt to look for a registered investment advisor or a certified financial planner — both types are fiduciaries.

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.

What is a fee-based financial planner?

A fee-based financial planner is paid by the client but may also receive commissions from financial products that clients purchase. This can create a conflict of interest, as a fee-based advisor may charge you for advice while potentially steering you toward investment products from which the advisor personally profits.

Ask if your financial planner works for a broker-dealer. These planners are also known as registered representatives. Compared to fiduciaries, broker-dealers are generally held to a lower legal standard, which simply requires the planner to sell products that are “suitable” for their clients.

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.