Fee-Only Financial Advisor Rhode Island – Eliot Rose Wealth Management

Fee-Only vs. Fee-Based Advisors

Last updated 10/13/2023 • By Jason Siperstein, CFA, CFP®, RMA®

Fee-Only vs. Fee-Based: What's the Difference

People often tell us that they want a “fee-based” advisor.
Fee-Only vs. Fee-Based_ What's the DifferenceHowever, when they start to describe this advisor, they are actually describing a “fee-only” advisor!

Having a clear understanding of this difference is essential. Not only will you have a better understanding of the industry, but you will be better armed to ask the right questions should a potential conflict arise.

Home Icon Logo

OUR TAKE: A fee-only financial planner sounds strikingly similar to a fee-based financial planner – but there is a big difference in how they get paid, and thus the accompanying recommendations and outcomes.

Fee-Only: A fee-only financial planner is compensated only by the clients and not by commissions earned from a sale of a financial product. An advisor compensated only by fees is called fee-only. The fee-only planner charges a fee that is one of the following:

One of the major benefits of working with a fee-only advisor is that they have no inherent conflicts of interest and typically provide more comprehensive advice. The National Association of Personal Financial Advisors is the leading professional organization for fee-only advisors. NAPFA is distinguished both by the competence of its advisors and their method of compensation. Another great resource to learn more about advisor compensation is The Fee Only Network

Typically, fee-only advisors conduct their business under a “fiduciary duty,” which means by law, they must have their clients’ best interest at heart. Many fee-only advisors carry professional designations that hold them to strict codes of professional and ethical conduct.

Fiduciaries must make sure their recommendations are based on accurate and complete information. That means they are required to thoroughly analyze your accounts, goals and circumstances before recommendations are made. Fiduciaries must then monitor their recommendation to make sure that it remains appropriate for their client on an ongoing basis.

A fiduciary advisor will help you minimize fees, avoid conflicts of interest and put you at the center of any financial advice. If your current financial advisor doesn’t seem to model these behaviors, consider finding one who does!

Fee-Based: A fee-based advisor also known as a “fee and commission” advisor is generally compensated by both fees for advice and commissions received from the investment company. Most fee-based advisors hold licenses that allow them to sell investment products or insurance for a commission.

Fee-based advisors generally do not have a “duty to disclose” their method of compensation and this can confuse clients who may not understand that the advisor is also working for commissions. There is an inherent bias with commission-based advisors. Anytime someone is paid on a commission basis, there is going to be a natural motivation to sell products that pay out the highest commissions (which can be costly to the client).

Home Icon Logo

OUR TAKE: Judge the advisor as a person, not just by his/her business model. If you have been working with a fee-based advisor that has served you well for many years, there may be no reason to change. However, if you find yourself needing a new advisor, we strongly recommend starting your search with fee-only advisors.

By Jason Siperstein, CFA, CFP®, RMA®

Jason Siperstein is a fee-only financial planner that specializes in retirement planning. He is based in Rhode Island and serves clients locally and across the country. Jason is called on by local and national news to share his insights.

Scroll to Top