Updated on Jun 12 2019
When it comes to choosing the best financial advisor for you, there are a lot of factors to consider. Their reputation, their trustworthiness — and their compensation method. It’s important to consider how a financial planner is compensated because it can affect the way they advise your investments.
Learn more about how finding the best fee-only financial advisors and why considering compensation should be a major factor in finding a financial advisor.
What is a Fee-Only Financial Advisor?
When searching for the financial advisor that is right for you, it’s important that you understand how they make money, in addition to how much their services cost. It matters how your financial planner is compensated because it can affect the recommendations they make for your financial future.
Generally, there are three ways that financial advisors are compensated. Compensation methods for financial advisors are either through a commission-based model, through a commission and fee model (fee-based), or through a fee-only model. Commissioned and fee based advisors receive compensation based on specific financial products sold, which presents an inherent conflict of interest.
Fee-only financial advisors are paid directly by you for their advice. A fee-only financial advisor is often the most transparent and objective compensation model and minimizes conflict, ensuring your financial planner is acting as a fiduciary with your best interest in mind. Acting as a fiduciary, fee-only financial advisors are obligated to put the interests of their clients first.
Benefits of a Fee-Only Financial Advisor
1. Flexible payment terms
Because fee-only financial advisors are not paid by companies selling financial products and services, there is a variety of payment choices. Many charge a percentage of the amount of money they manage, others charge by the hour, have a flat fee, or require a retainer. Ask your financial advisor about their payment terms before using any services.
2. A focus on advice.
Fee-only financial advisors are paid for their advice, not for selling financial products. This means they have more time to research the best options and advise their clients accordingly.
3. Minimal conflicts of interest
Fee-only financial advisors have no incentive to pitch certain products because they are working off a fee instead of a commission. While not always possible to entirely eradicate conflicts of interest, fee-only financial advisors can explain any potential conflicts because they will arise less often than with fee-based financial advisors. This makes it easier to trust the advice of a fiduciary no-fee financial advisor.
Finding a Fee-Only Financial Advisor That’s Right for You
To find a fee-only financial advisor, search out professional groups that require its membership to be fiduciaries like The National Association of Personal Financial Advisors and the Alliance of Comprehensive Planners.
Taking steps to minimize conflicts of interest and increase trust will help you develop a financial portfolio that can improve your quality of life and boost financial success. Choosing a fee-only fiduciary financial advisor is one of the most important things you can do to positively impact your financial future. Connect with a pre-screened and qualified financial advisor today.