Consumers are frequently confused between the terms "Fee-Only" and "Fee-Based," assuming they mean the same thing. These terms refer to how your financial advisor is compensated and have vastly different meanings. Whether your financial 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 financial 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 a financial 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.