What is a “Fee-Only” Financial Advisor and Why is it Important?

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.