May 16, 2023

What Fee-Only Financial Advice Really Means – and Why It Matters

BY PAM KRUEGER

LAST UPDATED JUNE 19, 2021

You’ve probably heard the term “fee-only financial adviser," but maybe you don’t quite grasp how that works or why it’s far better than the alternatives.

Here’s the real scoop on financial planning fees.

Fee-only is about your interests, all the time

When you hire a fee-only fiduciary investment adviser to manage your investments, develop a financial plan, or both, you alone are paying a financial professional who is legally and professionally committed to acting solely in your best interests — otherwise known as the fiduciary standard.

They don’t get paid by investment or insurance companies to sell their products.

Compare them to registered representatives, or brokers, who earn their living on commissions they receive for trading stocks or selling you expensive mutual funds, annuities and insurance.

Because they’re legally allowed to recommend products that offer them highest payouts, brokers can’t honestly claim to be fiduciaries.

And don’t confuse fee-only advisers with fee-based advisers, who are registered as both investment advisers and brokers. Why is this distinction important?

Because fee-based advisers can earn commissions for selling life insurance or annuities to the same clients who pay them a fee for investment management services.

The potential conflicts of interest in this model prevent them acting as genuine fiduciaries.

OK, so, now that we’ve established what “fee-only” means, let’s talk some more about those fees.

Financial planning fees

Financial planning fees are based on complexity and time spent to develop a detailed plan.

You can expect a fee-only adviser to analyze your current and projected income and expenses (cash flow needs), and your short- and long-term financial goals and recommend ways to balance saving and spending, shrink your debts, reduce your tax bill, protect your assets and optimize your investments.

Most of these advisers are CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals.