Recently we have been receiving more calls from prospects indicating they are looking for a fee-only advisor. This is good news for us and great news for consumers, as it shows that the public is becoming more educated about what type of financial advice is in their best interest. There is confusion about what fee-only means, however.
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’s firm) 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. The fee-only model enhances the independence of the advisor and encourages objectivity.
Fee-only advisors may disagree on what constitutes the best strategy or financial product for any one client. They may be driven by motives other than compensation which may involve familiarity, or ease of use, but that does not result in financial gain. That said, as a client you know that their compensation does not drive their views or actions, and this important differentiator cannot be overemphasized.
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.
In addition, fee-only does not mean that the advisory relationship is based on a single interaction, i.e. one-time financial plan. Financial planning is a process, not a transaction. Nor does fee-only mean that the advisor does not charge a percentage of assets under management. More often than not, they do.
How to Determine if an Advisor is Fee-Only
In the 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), or websites such as FeeOnlyNetwork.com that only lists advisors who are fiduciaries and fee-only. 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 30-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.