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What is a Fee-Only Financial Advisor?

What is a Fee-Only Financial Advisor?

July 20, 2021

The financial service industry is full of fancy titles and complicated terms. It’s easy to get confused. The good news is that the definition of a fee-only financial advisor is pretty straightforward. Fee-only advisors are advisors that get compensated ONLY by fees.

What’s interesting is that in order to achieve this there is a lot of detail, specifically:

  • To truly be a fee-only advisor, you most ONLY get paid by direct client fees.
  • You cannot hold a brokerage license.
  • You cannot hold a life insurance license.
  • You cannot be affiliated with a company that sells investments for commission.
  • And, you cannot get any “compensation” for referring clients to other people who might receive commissions on products they provide to your client.

I was a fee-only advisor for 9 years from 2011 to 2020. I held no securities licenses and received only client advisory fees.

Before that, I was a stockbroker for seven years working exclusively on sales commissions. At that time, I had a Series 7 stockbroker license and a life and health insurance license. I only got paid when clients bought or sold investments or insurance.

Currently, I am a fiduciary advisor affiliated with a broker dealer. I now have a Series 7 stockbroker license and a life and health insurance license. I provide financial planning services for a fee. I manage client money for an advisory fee. I am agent of record for my clients’ life insurance, annuities and long-term care insurance. As a fiduciary I am legally and ethically required to place my clients’ interests before my own. I am the client’s advocate at all times. Any time a client pays me we specifically discuss how that works in each case.

As an advisor who is my client’s advocate at all times – a fiduciary advisor – I am focused on low fees and a clear alignment between my client’s goals and the investments she owns. Since I am paid by my client – a fee-first advisor – I can use any investment tool I believe will help my client without restrictions or limitations. Thanks to this approach, I think my clients are better prepared to reach their financial goals than most investors.

How Do Financial Advisors Get Paid?

To understand what’s special about fee-only advisors, it’s helpful to understand all the ways that financial professionals get paid. Our industry is pretty big and it’s been around for most of a century, so there is a bit of complexity in spots:

Brokerage Ticket Charges

In the beginning, stockbrokers recommended stocks and bonds to clients and got paid a commission on each transaction. The more you buy, or sell, the more the commissions for the broker. The incentive is to buy and to sell more often. Generally, the client pays the broker as part of the price they pay to buy an investment. The amount is listed on the sales confirmation document, but you have to look for it to see it.

Sales Commissions

Then companies developed investment products like insurance contracts and mutual funds. The investment manufacturers had sales representatives who encouraged people to buy their products. The reps got paid via commission on sales. The more volume the rep sells, the more commission. Generally, the commission was delivered from the manufacturer out of the client’s investment and often the client does not see it.

Sales Incentives

As brokerage firms got larger, they sometimes provided sales incentives and awards to encourage brokers and sales reps to sell more. If you achieve the President’s Circle or the Diamond Club you get a fabulous trip to Hawaii for you wife and kids. To earn the award, you have to sell a large amount of specific products in a specific time frame. The firm pays for the awards out of the profits from client investments. Clients will not see this compensation.

Financial Planning Fees

Recently, financial planners began selling consulting services to help families create financial plans. These are typically sold like a consulting contract. A specific fee based on specific services provided. Generally, the fee is paid directly via check or credit card.

Investment Advisory Fees

Registered Investment Advisors (registered with the SEC) have long charged an advisory fee to manage client investment money. The client signs an advisory contract. Typically the fee is around 1% per year of the money under advisement and the fee is removed on a quarterly basis from the account balance. The fee will show on the client statements every quarter.

If you would like talk about how you pay for financial advice, and what that advice is worth to you, you might want to talk with a CERTIFIED FINANCIAL PLANNER™ professional.

Certified financial planner

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

  • Is the advisor always the client’s advocate – a fiduciary advisor?
  • Is the advisor paid by clients, not financial product manufacturer or distribution network? That would be a fee-first advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-only, CFP® professional can help you make great investment choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.