Fee-Only vs. Fee-Based

Consumers are frequently confused between the terms "Fee-Only" and "Fee-Based," assuming they mean the same thing.  These terms refer to how your advisor is compensated and have vastly different meanings. Whether your advisor is "Fee-Only" or "Fee-Based" will have a huge impact on the type of advice you are provided and the types of investment products that are recommended to you.

"Fee-Only" means the only source of compensation your advisor receives is from fees paid directly to the advisor from clients. This could be in the form of an hourly fee, a retainer fee or a percentage of the assets under management.  No commissions are received.  No financial products are sold.  Advice is totally independent of the financial products recommended.

"Fee-Based" is a term the brokerage community developed to counteract the success of the Fee-Only classification. "Fee-Based" can be misleading in that not only does an advisor receive fees under a Fee-Based compensation system, but they can also accept commissions from financial products recommended or annuities and insurance sold.  Needless to say, this system creates the potential for a huge conflict of interest.

 

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