The Benefits of Working with a Fee-Only Advisor
When it comes to picking a financial advisor, it can be hard to differentiate one service provider from another. What should a consumer look at to help decide on the best fit? Of course, a number of factors should be taken into consideration when choosing an advisor—such as who that advisor specializes in working with and the scope of services they provide—but one fundamental differentiator is how each advisor is compensated. With our extensive experience in the financial industry, we believe that the fee-only model most benefits our clients from both the personal and financial standpoints.
Looking at the way an advisor is compensated can reveal a lot about the way they provide service. Essentially, there are three main advisor compensation models: commission-based, fee-based, and fee-only. Commission-based advisors are compensated based on the sale of investments or other financial products. Fee-based advisors are often paid by the client as well as receive commissions.
The problem with these two models is that the advisor’s compensation is either dependent upon their ability to execute transactions on behalf of their clients, not necessarily provide the best financial advice. This personal motivator can skew the advisor’s advice to benefit their bottom line, rather than the client’s.
How does working with a fee-only advisor help to eliminate these problems?
1) You receive unbiased advice for your situation.
Fee-only advisors are paid a fee from the client based on the advice, investment management, and wealth planning services provided. As a result, fee-only advice is free from the conflict of interest that commissions and sales can put in the way of your financial success. Your fee-only advisor benefits when your financial plan succeeds for you.
2) You can save on hidden or unnecessary fees.
Because commission-based and fee-based advisors get paid for executing sales and transactions, they may be prompted to buy or sell your investments more often than necessary in order to increase their income. But with transactions come fees and these fees are deducted from your portfolio. Oftentimes, consumers aren’t even aware they are paying these fees or how much of a drag the fees are putting on their portfolio’s growth. Fee-only advisors have no motivation for buying and selling your investments unnecessarily unless it is what is best for your financial plan.
3) They act as your fiduciary advocate.
When the issue of compensation is taken off the table with the fee-only model, you get a financial advocate who is dedicated to act in your best interest. Because most fee-only advisors are also fiduciaries, they are not only ethically bound to this standard, but are legally bound, as well. This higher standard keeps your goals at the top of your advisor’s priority list and increases your probability of success.
Next Steps
Choosing the right financial advisor can be critical to your success, so make sure you take the time to research each candidate’s education, experience, credentials, and compensation models before making a commitment.
We pride ourselves on providing fee-only services that eliminate financial conflict of interest, help save you money on fees, and give you peace of mind about your future.