The True Value of a Fee-Only Advisor - Rodgers & Associates

The True Value of a Fee-Only Advisor

During a recent conver­sation with a client it became apparent to me that even someone working with a fee-only advisor may not fully appre­ciate what they have or what it means. The client had perceived that we must be getting some fees or commis­sions from the invest­ments we recommend. ‘No way, really?’ he remarked. I think I was even more shocked that he believed this to be true than he was that there are no hidden fees. Rodgers & Associates is a Fee-Only Advisor.

Here are the 3 most common models of compen­sation according to The National Associ­ation of Personal Financial Advisors (NAPFA)*:

Fee-Only Compen­sation – This model minimizes conflicts of interest.

It is the required form of compen­sation for members of NAPFA. A Fee-Only financial advisor charges the client directly for his or her advice and/or ongoing management. No other financial reward is provided by any institution—which means that the advisor does not receive commis­sions on the actions they take on the clients’ behalf. Compen­sation is based on an hourly rate, a percent of assets managed, a flat fee, or a retainer.

Fee-Based Compen­sation (fee and commission) – This form is often confused with Fee-Only, but it’s not the same.

Fee-based advisors charge clients a fee for the advice delivered, but they also sometimes receive payments for products they sell or recommend. In some cases, commis­sions are credited towards the fee, giving the appearance of a lower-priced option, but any outside compen­sation lessens the advisor’s ability to keep the client’s best interests first and foremost.

Commis­sions – NAPFA has always maintained that an advisor who is compen­sated through commis­sions is primarily a sales­person. A client working with a commis­sioned sales person must always ask himself: “Is this advice truly in my best interest, or is it the most profitable product for the advisor”? Unfor­tu­nately, often the answer is the latter. In fact, a commis­sioned advisor usually is required to put the best interests of his employer ahead of the best interests of his client.

As you can see, it is essential to under­stand how your advisor is compen­sated for the advice you receive and if they face hidden conflicts of interest.

* NAPFA Pursuit of a Financial Advisor – Field Guide