Fee-Only vs Fee-Based, What’s the Difference?

| July 26, 2016

You meet with an advisor that states they are Fee-Based, another says they are Fee-Only. Is there a difference?

While the terms are similar, the key difference is in how your advisor is compensated and how that impacts the recommendations you receive.

A Fee-Only financial planner must act in their clients' best interest at all times, otherwise known as a fiduciary duty. Fee-Only advisors most often charge a fee that is a percentage of the assets under management, but some also offer retainer services. Regardless of the type of fee, a fee-only advisor is paid by the client directly and does not receive any other compensation from a brokerage firm, mutual fund, or insurance company. Advice is independent from the investments recommended.

Fee-Based financial advisors may offer similar services to a Fee-Only advisor, but they can still receive commissions from financial products such as mutual funds, annuities, and insurance. This can be a conflict of interest if there is an incentive for the advisor to recommend higher cost investments that in turn pay a higher commission. While most people assume their advisor recommends what is in the best interest of the client, the presence of commissions can make an advisor recommend what is in the best interest of the advisor.

According to NAPFA, the National Association of Personal Financial Advisors, less than 2% of advisor firms meet the strict guidelines to be Fee-Only. At  SCHWARZ DYGOS WHEELER INVESTMENT ADVISORS LLC, we are proud to meet these stringent guidelines and offer Fee-Only advice to our clients.