What Is a Fee-Only Financial Advisor?
Written by
Andrew Lisa
Edited by
Emily Gadd
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Fee-only financial advisors are compensated only by the fees their clients pay them for the services they provide. It’s a crucial distinction from advisors who receive sales commissions. Since fee-only advisors have no financial incentive to push financial products on their clients, there is no potential for conflicts of interest and those they serve can take their advice as objective.
There is a common misconception that financial advisors are always expensive and that they all use the same fee structures. The truth is that their services can be affordable, and they can charge their clients in several different ways.
Understanding Fee Structures
As the name implies, fee-only advisors earn money only from the fees they charge their clients. They can structure those fees in several ways.
- Assets under management (AUM): Advisors charge a percentage of the assets they manage, typically 0.25% to 2% annually. This framework is usually for high-net-worth clients or those with large portfolios.
- Hourly: A set rate per hour, typically between $120 and $300. This structure is common for advice or planning sessions for needs like debt management, estate planning, tax strategies and claiming Social Security.
- Flat or fixed fees: A single dollar amount for services like creating a comprehensive financial plan, regardless of how long it takes or the client’s portfolio size, generally ranging from $1,000 to $3,000.
- Retainer: An ongoing retainer for a predetermined set of services typically costs between $6,000 and $10,000 annually.
Alternatively, fee-based advisors — a term many industry watchdogs consider misleading — charge a fee, but also collect commissions from selling their clients financial products like:
- Annuities
- Mutual funds
- Insurance
- Stocks and bonds
- Alternative investments, like private equity or hedge fund offerings
Benefits of Fee-Only Advisors
Since they receive commissions for the products they sell, even the most scrupulous and ethical fee-based advisors — or less commonly, commission-only advisors — have a direct financial incentive to encourage clients to buy those products, even if they might be better off with something else or nothing at all. That creates an inherent conflict of interest — or at least the perception of one — that fee-only advisors avoid.
According to the National Association of Personal Financial Advisors, “the fee-only method of compensation is the most transparent and objective method available.”
Fee-only structures provide greater transparency in how the advisor is paid, but more importantly, they ensure the advisor has a fiduciary responsibility to the client. In plain English, fiduciary responsibility is an obligation to act only in the client’s best interest at all times.
Potential Drawbacks
Consider the potential downside of fee-only advisors before you make your decision.
- Fee-only advisors tend to charge more upfront to compensate for not having commissions.
- Fee-based advisors are not all hucksters and many of the products they sell could be valuable and beneficial — and a fee-only advisor simply might not ever offer them to you because they’re not incentivized to do so.
- It might be hard to find one willing to work with smaller accounts and lower-value portfolios.
- Those with an AUM fee structure are incentivized to urge clients to keep assets in their portfolios instead of cashing out some or all of their holdings.
- No access to insurance products.
Fee-Only vs. Fee-Based Advisors Comparison Table
| Feature | Fee-Only Advisor | Fee-Based Advisor |
|---|---|---|
| How They’re Paid | Flat fee or % of assets | Fees + commissions |
| Fiduciary Duty | Always | Sometimes |
| Product Recommendations | Unbiased | May include commission bias |
| Conflict of Interest | Minimized | Possible |
When Should You Hire a Fee-Only Advisor?
Fee-based advisors exist because they’re right for some people in certain situations. Here’s when you should go the other way and consider a fee-only advisor, instead:
- You want objective financial advice
- You don’t want to be pressured to buy financial products
- You’re looking for long-term planning rather than just a one-off visit with product sales
- You prefer full transparency regarding fees and your advisor’s compensation
How to Find a Fee-Only Advisor
There are many different kinds of financial advisors who serve a broad range of clients and needs. Here’s how to find the right fee-only advisor for you.
Start by Choosing Your Preferred Designation
Their professional certifications indicate their specialties, background, training and areas of focus. The following are three of the most common and credible.
- Certified Financial Planner (CFP): Widely considered to be the gold standard of financial planning, a CFP designation requires a bachelor’s degree or higher, completion of the CFP exam, thousands of hours of apprenticeship and professional experience, continuing education and adherence to a strict ethical code.
- Chartered Financial Consultant (ChFC): These professionals adhere to similarly rigorous educational, testing, experience and ethical standards, but tend to have more specific areas of focus, like estate planning, compared to the broad range of services offered by CFPs.
- Chartered Financial Analyst (CFA): These advisors are also trained and vetted through exhaustive educational standards, testing, background requirements and ethical standards, but they focus on investment management.
Check Backgrounds and Fee Structures of Anyone You’re Considering
Not all CFPs, ChFCs and CFAs are fee-only, so it’s important to research not just their fee structures, but also their backgrounds, designations, certifications, history of sanctions or suspensions and registration status by running their names through sites and databases like:
- FeeOnlyNetwork
- National Association of Personal Financial Advisors (NAPFA)
- BrokerCheck by FINRA
- Investment Adviser Public Disclosure (IAPD) from the SEC
You’re the Employer — Conduct a Job Interview
Ask the following questions before you give any financial advisor your business or your trust:
- How are you compensated?
- How will we work together, interact and communicate, and how often?
- What services do you provide?
- What is your financial philosophy?
- What professional experience and certifications do you have?
FAQ
- What does "fee-only" mean in financial advising?
- Fee-only advisors do not collect commissions for products they sell and are instead paid only through the fees they charge clients for the services they provide.
- How do fee-only advisors charge for their services?
- They can charge an hourly rate, a flat fee, a percentage of assets under management, through an ongoing retainer or some combination of them all.
- Are fee-only advisors more expensive than others?
- Fee-only advisors often cost more because they don’t collect commissions.
- How can I verify if an advisor is truly fee-only?
- Resources like the FeeOnlyNetwork and the National Association of Personal Financial Advisors (NAPFA) have searchable databases of fee-only advisors.
- What are the benefits of working with a fee-only advisor?
- Fee-only advisors have a fiduciary responsibility to serve their clients’ needs without the conflicts of interest that are inherent to the commission-based selling of financial products that clients may or may not need.
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