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- Fee-only financial advisors give financial planning advice for a flat rate fee or percentage of your assets.
- They are often fiduciaries and don't receive commissions from the sales of products.
- Fee-only and fee-based advisors have several differences to consider when deciding which to work with.
Seeking a professional to help you manage your money is a great step to achieving your financial goals. But not all financial advisors are the same; some may offer varying services — and more importantly, they may have different fee structures.
A fee-only financial advisor will be one option you'll come across during your search. While many financial advisors are adopting the fee-only structure, some advisors still prefer traditional commissions.
Here's everything you need to know about fee-only financial advisors.
What is a fee-only financial advisor?
A fee-only financial advisor is an advisor who's paid a set rate based on the services they provide a client, rather than being paid based on commission. These types of advisors are often fiduciaries, meaning that they're required to make recommendations that are in a client's best interest.
While that seems like common sense, a lot of other advisors only act on a suitability basis, meaning that they only have to provide recommendations that are suitable for a client's situation.
Fee-only advisors provide the following services:
- Listening to and giving advice on a client's financial situation
- Create budgets
- Portfolio building and diversification advice
- Estate planning
- Assist in retirement planning and goal building
- Implementing the client's plan
- Managing the client's assets on an ongoing basis
Read our guide to the best online financial advisors
Fee-only fiduciaries
Fee-only advisors are usually fiduciaries. Fiduciaries advisors are advisors who are legally bound to make financial decisions on a client's behalf instead of their own self-interest. Fiduciary duties include the duty of care, the duty to act in good faith, and the duty of loyalty.
Fee-based financial advisors typically can't be fiduciaries since they earn commissions on certain investment products and services (aka putting themselves before the client).
While Certified Financial Planners (CFPs) can also have fee-only practices, it's important not to confuse the two. Although CFPs take a fiduciary oath to put their client's needs first, they may still be able to receive commissions depending on the firm that they work for. This can cause a potential conflict of interest, as selling certain products or services to a client will provide income to the advisor.
Pros and cons of fee-only financial advisors
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Advantages of fee-only advisors
Since a majority of fee-only financial advisors operate as fiduciaries, there are fewer conflicts of interest. Some fee-based advisors may be required to sell certain products from their employers regardless of whether or not it's a good investment strategy for you. While everyone carries their own internal bias, you won't have to be concerned that a fiduciary is selling you financial products for their own benefit.
Fiduciaries also can't accept payments on the recommendations or sale of investments and insurance products, so fee-only advisors are only able to make recommendations solely for your benefit.
Another big perk of using a fee-only advisor is the transparent fee structure. Clients can access hourly rates, ongoing fees, flat fees, or the percentage of assets under management ahead of time. That way individuals can better assess whether or not a specific advisor is in their price range.
Disadvantages of fee-only advisors
While many fee-only advisors are bound to fiduciary duty, you should still be critical of the quality of the advice you're being given. Advisors are still subject to their own internal biases that may skew investment advice. And while many fee-only advisors are fiduciaries, not all of them are. It's important to do your own research, talk with friends and family who have met with this advisor, and double check their credentials before using their services.
Fee-only financial advisors also tend to be pricier. In trying to earn the same amount as fee-based advisors who also earn commissions for selling products, fee-only advisors tend to charge higher fees. For those who need basic saving or budgeting advice, or want to purchase an investment or insurance product and don't mind paying fees, it may be less expensive to work with a different type of advisor.
You may also need to find financial products, such as insurance products and additional services like trading, elsewhere.
"Fee-only advisors don't typically sell insurance, so they refer clients to a third-party insurance broker or salesperson. A fee-based advisor can often sell insurance directly to clients (although it might not be the best policy for the client)," states Matthew Jenkins, CFP and president of Noble Hill Planning, a fee-only financial planning firm.
What's different between fee-only and fee-based advisors?
There are a few differences between fee-only advisors and fee-based advisors. Fee-only advisors do not receive any product sale commissions, such as those through the sale of life or disability insurance, mutual funds, or annuities. They charge clients a fee for their expertise and advice, and the opportunity to work together.
Fee-only advisors can be paid in a number of ways including:
- An hourly rate: Advisors are paid per hour for services provided.
- A retainer fee: Clients pay an ongoing fee to continue the advisor-client relationship.
- A percentage of assets under management (AUM): Advisors take a certain percentage, such as 1%, of all assets a client has under their management.
- A flat fee: Some advisors choose to charge a flat fee, typically paid monthly, semi-annually, or annually.
Fee-based advisors can be paid in a number of ways including:
- Commission-based model: Fee-based advisors can receive a fee from the sale of insurance and investment products.
- A combination of a commission and fee model: Fee-based advisors can receive a fee from the sale of products as well as a fee to give the client advice.
- Through a percentage based on assets under management (AUM): Like fee-only advisors, fee-based advisors can also charge a fee based on the number of assets they manage for a client.
- Through an hourly or retainer model: Like fee-only advisors, fee-based advisors can also charge an hourly or ongoing fee for their advice.
There are often downfalls of working with fee-based advisors, mostly because they can still make commission off of product sales.
"One [drawback] of working with a fee-based advisor is that there exists an inherent conflict of interest," says Scott Turner, CFP and fee-only advisor at Rockstar Financial Planning. "You can't tell if they are offering the best products, or they are only limited to selling their own proprietary/limited products offered by the company they work for or represent."
How to find a fee-only advisor
The best way to find fee-only financial advisors is through popular organizations like the National Association of Personal Financial Advisors (NAPFA). You can search on NAPFA's site for fee-only advisors across the country based on zip code, specialization, and rates.
Another popular professional organization of fee-only financial advisors and planners is the Garrett Planning Network. You can advisors based on services and specialties, as well as browse the network's list of virtual advisors.
The Certified Financial Planner Board also provides a directory of financial advisors. But keep in mind that not all of those advisors are fee-only advisors. Advisor profiles include compensations classification, like fee-only and commission-based.
What does a fee-only advisor cost?
Prices for a fee-only advisor tend to vary based on region, expertise, services offered, and years of experience. There's no standard cost or fee adopted by all fee-only financial advisors, but most advisors charge based on assets under management (AUM). AUM is a fee structure that charges you based on how much an advisor is managing for you, typically as a percentage. Percentages often range from 0.25% to 1% per year.
For example, a 0.25% management fee with a $10,000 investment will pay $25 per year.
Financial advisors may decide to charge a yearly or hourly flat fee instead. Flat fees tend to charge between $2,000 and $7,500 yearly, or between $150 to $400 hourly.
Some advisors may charge more depending on their fee structure and the size of your portfolio.
Should you hire a fee-only financial advisor?
Working with a fee-only financial advisor can be a great way for clients to get fiduciary financial advice that's in their best interest. However, not all clients will be able to afford the fee to work with an advisor or can justify the fee they may charge to manage the client's assets.
"Working with a fee-only advisor minimizes conflicts of interest, but just because someone is a fee-only advisor does not inherently mean they have the particular expertise you are looking for," says Brandon Renfro, CFP and owner of Belonging Wealth Management. "You still need to vet a fee-only advisor to make sure they have the appropriate education and training to help you."
While working with a fee-based advisor is also an option, potential clients need to understand the fees they charge and how they get paid in order to determine if it will be a good fit.