Recently we have received more calls from prospects indicating they are looking for a “fee-only” advisor. This is terrific news for us, and consumers in general, as it shows that the public is becoming more educated about what type of financial advice is in their best interest. However, I wonder if they understand exactly what “fee-only” means.
Discerning whether an advisor is fee-only and serves in your best interest is one of the most important determinations to make before entering into an advisory relationship.
What is Fee-only?
The definition of fee-only is that an advisor is compensated solely by the client. Neither the advisor nor any related party to the advisor receives compensation contingent on the purchase or sale of a financial product. Such compensation includes commissions, rebates, awards, finder’s fees, or 12b-1 fees. In essence, the advisor (and the advisor organization) has no ties to an organization that sells or promotes financial products.
Fee-only Equals Transparency
Part of the appeal of the fee-only approach is that there is transparency as to what compensation the advisor receives. This method enhances the independence of the advisor and encourages objectivity.
One thing to keep in mind is that even fee-only advisors will disagree on what constitutes the best strategy or financial product for any one client. But at least, as a client, you know that their compensation does not drive their views. To be honest, fee-only advisors can be driven by motives other than compensation which may involve familiarity, ease of use, but does not result in a financial gain.
Not No Fee or Necessarily Low Fee
Lastly, it may be helpful to understand what “fee-only” isn’t. It does not mean “low fee” or “no fee.” What it really means is “transparent” fee. Whether a fee-only advisor is cheaper than another alternative requires investigation, which can be difficult as the fees for advisors who are not fee-only can be hard to discern.
How to Determine if an Advisor is Fee-Only
In their quest for the right fee-only advisor, we encourage prospects to use as a resource professional groups that require its members to be fiduciaries and fee-only, like The National Association of Personal Financial Advisors (NAPFA). Individuals may also find the firm’s disclosure document (ADV Part 2 brochure) on the SEC website. This document provides key information on the firm’s services, other financial activities and affiliations, investment personnel and compensation.
HTG is Fee-only
HTG has been fee-only and independent for its entire 25-year history. We are transparent about fees and accept revenues solely from clients, not commissions related to the buying and selling of products.
With rapid changes in the industry and murky compensation arrangements, we believe more than ever that the fee-only structure is in the best interest of clients. If you would like to learn more, give us a call, or use this tool from NAPFA to compare advisors you are interviewing.