What’s the difference between a fee-based and a fee-only financial advisor?

Definition: Fee-Based

A fee-based financial advisor, financial planner or asset manager may receive part of their compensation in the form of a commission or kickback for recommending certain financial products that are provided by other financial services firms.

Definition: Fee-Only

Fee-only financial advisors on the other hand do not accept any commission for recommending a product or service that is provided by a bank, broker dealer, investment firm, mutual fund, insurance company, or from any other source other than the fees they receive from you, the client.

Being that the sole compensation for fee-only financial advisors, financial planners and asset managers comes directly from clients, their only loyalty is to clients and making sure the advice provided is the best for each client’s unique financial situation.

Independent Financial Advisors

Fee-only advisors and planners are considered “independent” advisors.

Because there is no pressure for them to sell you privately owned products or services; the expectation is that you will receive un-biased advice that is tailored to your specific needs.

Potential Conflict of Interest

There is a strong potential for conflict-of-interest when financial advisors are paid commissions for the products they recommend.

When a financial advisor gets paid commission for recommending financial products, it could only be natural for them to want to recommend more of the products that make them the most commission, …

… irrespective of whether or not such products or services are in your best interest.

What does it mean to act as a fiduciary? (Fiduciary duty definition)

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