What Is a Fee-Only Financial Advisor & Why Does it Matter?
If you’ve spent any time researching financial advisors, you’ve probably come across the term “fee-only.” It’s used to describe registered investment advisors, and it’s one of the best words you can hear when searching for a financial professional.
But what does it mean? And why is it important? Take a look at the different types of compensation for financial advisors and the benefits of working with a fee-only financial wealth management company.
As a fee-only fiduciary financial advisors, our only compensation comes from you, our client, as a fixed percentage of assets under our management. We believe working on commission, as opposed to fee-only, introduces an inherent conflict of interest.
This is because recommendations carry relative financial gains for the advisor, and call the ability to provide comprehensive financial advice into question. Our fee-only compensation model helps ensure the right business decisions for us and the appropriate investment decisions for you do not conflict.
How are financial advisors compensated
To truly understand the value of a fee-only fiduciary financial advisor, it’s first important to understand the different ways advisors can get paid. The three most common methods include:
Commission-based advisors don’t charge fees to their clients. On the surface, this model sounds great. But these advisors have to get paid somehow, so instead they earn commissions from financial and insurance products they sell to their customers. Even if they mean well, commission-based advisors may be more motivated to sell products that will earn them the most money, rather than providing advice that is in the best interest of the client.
Fee-based advisors may sound like they’re fee-only, but they also make commissions from financial products and transactions. In addition to charging their clients fees, they earn a percentage of their revenue from selling products on behalf of brokerage firms, mutual fund companies, or insurance companies, thus placing them at the same risk for conflicts of interest as commission-based advisors.
Fee-only financial advisors are paid directly by their clients—and only by their clients. They don’t receive any type of kickbacks or commissions for recommending certain securities or investments. Their fees are typically structured as a small percentage of the assets they manage, known as assets under management (AUM) fees. Because fee-only fiduciary financial advisors only get paid by their clients, their incentives are usually better aligned with the clients they work for than commission-based or fee-based advisors.
The Benefits of Working with a Fee-OnlyFinancial Advisor
The National Association of Personal Financial Advisors (NAPFA) believes fee-only advisors are the most transparent and unbiased advisors you can come by. They typically have one of two titles: either registered investment advisor or CERTIFIED FINANCIAL PLANNER®. If you’re in the market for a financial advisor, here are three reasons why you should choose a fee-only fiduciary financial advisor:
1. Reduced Conflicts of Interest
No matter how pure an advisor’s intentions are, it can be difficult to provide unbiased recommendations when they know they’ll get a kickback or commission. But this isn’t the case for fee-only advisors. They have no incentive to push certain products because they don’t sell any products at all. They’re solely compensated by you.
2. Fiduciary Commitment
Fee-only advisors are fiduciaries, which means they’re legally and ethically required to act in your best interest at all times. They’re loyal, quick to disclose any conflicts of interest, and only give advice based on your unique situation and goals.
3. Objective Advice
It’s easy to act on emotion when you’re dealing with your own money. There’s talk of a stock market crash, so you want to change your investing strategy. A family member needs to borrow money, even though you know giving it to them would jeopardize your financial security. You want to live a comfortable life in retirement, but you’re not sure if you’re on track.
In situations like these, it’s nice to have someone you can go to for objective advice.
Why Ferguson Johnson Is Fee-Only
At Ferguson Johnson Wealth Management, we have our clients—and our clients only—in mind. We pride ourselves on transparency and objectivity. We give our clients our undivided loyalty and are dedicated to helping them reach their financial objectives.
Whether you have a specific financial concern or need help developing a solid financial plan, we’re here to guide you every step of the way. Reach out to us at 301-670-0994 or by emailto get started.