What is the difference between fee-only and fee-based advisors?
A fee-only advisor is 100% compensated by the fees charged directly to clients—either hourly, via a flat retainer, or based on a percentage of assets managed. Fee-only advisors are never paid commissions from selling financial products. This ensures the advisor is offering advice in the client’s best interest. Typically, fee-only advisors hold designations that hold them to a fiduciary duty, wherein they are legally bound to have their clients’ best interests at heart and to adhere to strict ethical guidelines. On the other hand, a fee-based advisor charges a fee for financial advice and also receives commissions for selling financial products used to implement that advice. This can cause conflicts of interest, as commissions incentivize advisors to push certain products that may or may not be the best choice for the client. Clients are often unaware that their fee-based advisors are working on commission and that these incentives may be influencing the advice they receive.