What’s a Fee-Only Advisor? It’s an advisor who is compensated only by the client. He receives no compensation based on the purchase or sale of a financial product. He receives no commissions, rebates, awards, finder’s fees, bonuses or 12B-1 fees (“mutual fund trailers”) or other forms of compensation from others.
The typical “broker” is paid by commissions to buy or sell stocks, bonds, mutual funds, life insurance, annuities, partnerships or other investment products. Some of these commissions and fees are disclosed, many are hidden in the fine print and not obvious to the client. This creates an obvious conflict of interest on the part of the investment professional. They are under pressure to get their clients to do something even when the best course of action is to do nothing. There is also an incentive to sell high commission products like partnerships, annuities or other insurance products and mutual funds with front end loads.
The fee-only financial advisor has no incentive to do anything but grow his clients’ assets because he is usually compensated by a fee based on a percentage of the assets he manages, thus aligning his objectives with that of the client. Our RIA firm is fee-only.