A fiduciary financial advisor has the legal obligation to put the client’s best interest before their own. Registered investment advisors (RIA’s) are legally considered fiduciaries, brokers and agents are not fiduciaries under the law.
Being independent allows a financial advisor to consider all options that would be beneficial to the client’s unique situation. There is no company pressure to push one product over another. Also, being independent gives the financial advisor a wider variety of options to consider when helping client’s achieve their goals. Being independent gives client’s access to multiple institutional providers rather than one. This enables advisors to recommend the best low-cost products
- Fee-Only Compensation – The advisor charges the client directly for advice and/or ongoing management. The advisor does not receive commissions or any other financial reward for the actions they take on the client’s behalf. Educated consumers often choose fee-only financial advisors because they want to know how much they are paying for financial services and paying fees is more transparent than paying commissions for financial products. Additionally, paying fees for services lowers the potential for any conflict of interest between the advisor and the client. Compensation is based on an hourly rate, a percent of assets managed or a flat fee.
- Fee-Based Compensation (fee and commission) – This form of compensation is often confused with Fee-Only, but it is not the same. Fee-based advisors charge clients a fee for advice delivered, but they can also receive commissions for products they sell or recommend. Because the amount of outside compensation varies based on the products the advisor recommends, this can cause a conflict of interest and lessen the advisor’s ability to keep the client’s best interest first and foremost.
- Commissions – The majority of client’s that work with advisors who are compensated through commissions do not understand how they are compensating their advisor. A commissioned advisor does not charge the client a fee for advice delivered but gets compensated based on the products they recommend. This creates a conflict of interest because often the advisor will recommend the most profitable products rather than recommending products that are in the best interest of the client.
If you would like assistance with your pursuit of an experienced fee-only financial advisor, we recommend using this guide provided by the National Association of Personal Financial Advisors (NAPFA) and this guide provided by the Certified Financial Planner (CFP) Board of Standards as resources. All of our Certified Financial Planners on staff are also NAPFA-registered financial advisors.