- January 13, 2020
- Posted by: Parker Evans, CFA, CFP, CMT
- Categories: Brokers, Financial Planning, life insurance
Here’s what the CFP Board wrote regarding “Fee-Only” advisors:
A CFP® professional may describe his or her or the CFP® Professional’s Firm’s compensation method as Fee-Only only where: (a) the CFP® professional and the CFP® professional’s Firm receives no Sales-Related Compensation; and (b) Related Parties receive no Sales-Related Compensation in connection with any Professional Services the CFP® professional or the CFP® Professional’s Firm provide to Clients.
Link to CFP Board Paper
In other words, a financial advisor claiming to be “fee-only” must not receive sales-related commissions.
For example, a life insurance agent who accepts commissions from an insurance agency or an insurance company is not a “fee-only” only advisor. Likewise, a Series 7 Registered Representative paid a sales commission by a Broker-Dealer for selling investment products.
Here’s why “Fee-Only” matters:
It’s an unfortunate fact that some commission-paid financial advisors make recommendations that stress high-commission products and too frequent trading (churning).
A fiduciary advisor’s recommendations must focus on improving a client’s risk-adjusted returns, not investments that maximize “yield-to-broker.”
That’s why we believe the “Fee-Only” method of compensation to be the most transparent and objective model for advisor compensation.
The “Fee-Only” model reduces conflicts of interest and helps ensure that your financial planner acts in your best interest when making investment recommendations.
Fee-Only planners are compensated directly by their clients for advice, not by insurance companies or product sponsors.
By the way, “Fee-Based” is a misleading marketing term that means fees and commissions.
The bottom line, if you’re seeking a financial advisor, your best bet is a “fee-only” fiduciary advisor with serious credentials.