Fee-Only. Fiduciary. Independent
You’ve decided to find a financial advisor to partner with on your journey to financial success—congratulations! During your search for a financial advisor, you’ve probably come across the term “fee-only.” This term is usually used to describe registered investment advisors (RIAs), who provide services and planning that, by law, can only be in your best interest. So keep your eyes peeled for “fee-only” when searching for a financial professional.
But what does it mean? And why is it important?
Below we discuss what it means to be fee-only, outline the different types of compensation for financial advisors, and highlight the benefits of using a fee-only financial wealth management company—and why we at Harvest Asset Group pride ourselves on offering our services this way.
Compensation Structure for Financial Advisors
To truly understand the value of a fee-only advisor, it is important to understand the different ways advisors can get paid. The three most common methods include:
Commission-based representatives typically don’t charge fees to their clients. Instead, they earn commissions based on the insurance or investment solutions they recommend. Not surprisingly, the clients of commission-based financial representatives can find themselves owning products that pay commissions to the producer who sold them. Under this model, it’s hard for the client to really know whether the recommendations made for them were in their best interest, or simply earned their rep strong commissions.
Fee-based advisors typically work for big investment companies. “Fee-based” is often confused with “fee-only,” but there are important differences. Fee-based advisors do charge clients a fee (typically a percent of assets under management), but they also can make commissions from financial products and transactions. They earn part of their revenue from selling products on behalf of brokerage firms, mutual fund companies, or insurance companies, thus placing them at the same risk for conflicts of interest as commission-based representatives.
Fee-only financial advisors are paid directly by their clients—and only by their clients. They don’t receive any type of incentive or commission for recommending certain securities or investments. Their fees are typically structured as a small percentage of the assets they manage, known as assets under management (AUM). Some fee-only advisors offer hourly planning services or an annual fixed fee for ongoing services as well. Because fee-only advisors only get paid by their clients, they avoid many of the conflicts of interest that can get in the way of clients receiving advice that is in the clients’ best interest.
The Benefits of Working With a Fee-Only Financial Advisor
The National Association of Personal Financial Advisors (NAPFA) believes fee-only advisors are the most transparent and unbiased advisors. (1) They typically have one of two titles: either registered investment advisor (RIA) or CERTIFIED FINANCIAL PLANNER™. If you are in the market for a financial advisor, here are two reasons you should choose a fee-only advisor:
1. Reduced Conflicts of Interest
No matter how pure an advisor’s intentions are, it can be difficult to provide unbiased advice if they have a financial incentive to recommend action steps, products, or services that will increase revenue and profits. Fee-only advisors have no financial incentive to push one product over another, thus avoiding a common conflict of interest.
2. Fiduciary Commitment
Fee-only advisors are fiduciaries, which means they are legally and ethically obligated to act in their clients’ best interest at all times and to disclose any potential conflicts of interest. If you’re their client, they are loyal to you and provide objective financial advice based on your unique situation and goals.
Why Harvest Asset Group Is Fee-Only
We choose to offer our services under a fee-only business model in order to minimize any conflicts of interest which can compromise the advice you receive from us. We pride ourselves on transparency and offering advice in our clients’ best interest. We serve as a professional partner to help clients navigate important financial choices that impact their lives. With an intimate understanding of our clients, and specialized skills and resources, we help identify opportunities and coach actions/behaviors which can benefit them.
Want to learn more? Set up some time to have a conversation to see if we might be a good fit for your needs and preferences. To get on our calendar, you can schedule a meeting here or email us at email@example.com to get started.