Fee-Based Financial Advisors: Are They Better Than Fee-Only Experts?
You must have heard that the majority of high net worth and ultra high net worth individuals prefer working with a fee-only financial advisor instead of a fee-based financial advisor. Ever wondered why? It’s because the former are compensated solely by what their clients pay them. They don’t earn any commissions from the sale of specific financial products or transactions. This means there are no conflicts of interest involved.
If you own liquid assets worth more than $10 million, hiring a fee-only advisor may be the best choice for you for the same reasons. Access our exclusive guide to discover the best way to choose a qualified and experienced advisor for your individual needs.
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Table of Contents
- What Is a Fee-Based Financial Advisor?
- Why Are Fee-Only Financial Advisors the Best?
- Advantages of Using a Fee-Only Advisor
- Disadvantages of Using a Fee-Only Advisor
- Which is better, a fee-based or a fee-only financial advisor?
- 5 Convincing Reasons to Choose a Fee-Only Financial Advisor
- How to Find a Fee-Only Advisor
- What You Should Look for in a Fee-Only Financial Advisor
- How Much Should I Expect to Pay to Hire a Fee-Only Financial Advisor?
- Is a Fee-Based Financial Advisor Worth it?
When it comes to getting financial advice, Pillar Wealth Management has got your back. Our specialist team consists of well-equipped experts who work exclusively with wealthy clients who possess $5 to $500 million. They understand the nuances of high net worth financial planning and will leverage their knowledge and expertise to devise intelligent strategies to ensure you meet your short and long-term goals without facing unnecessary risks. Want to inquire about what we can do for you? Feel free to start a conversation today!
Read on to explore what’s it like to partner with a fee-based financial advisor vs. a fee-only financial advisor on your wealth management journey.
What Is a Fee-Based Financial Advisor?
An expert who is a fee-based financial advisor may earn commissions on the products you buy on their recommendations in addition to the fee you pay. It is easy to get confused between fee-based and fee-only financial advisors, given the striking similarities. However, if you dive into the details, you’ll find that the two approaches are poles apart – and what you choose may affect your overall experience of seeking financial advice.
In the financial world, fee-only financial services are considered to offer the highest level of transparency to clients. Contrary to other models providing a fee-based financial advisor with commissions for the products they sell, this approach allows them to earn directly from their clients only.
With a fee-based financial advisor, there’s a good chance of a conflict of interest. While the expert charges you for financial advice, they may push you to buy investment products that they benefit from.
With this in mind, you must inquire if your financial advisor is a dealer or a broker (in other words, a registered representative). If the answer is affirmative, it means they are held to a lower legal standard, meaning they are supposed to sell you “suitable” products, which may not always be the most cost-effective options. Hence, because they are a fee-based financial advisor, you can’t rely on them to help you invest in the best places for your maximum profit.
Is a fee-only financial advisor better?
A fee-only advisor is less likely to be challenged by conflicts of interest and more likely to have your best interests at heart. They are more likely to be transparent about their fees.
Should I hire a financial advisor or go it alone?
It depends. How comfortable are you with navigating the markets? If you need an expert, it’s worth considering hiring one. You may not have the time it takes to be a successful trader.
What are the cons of a fee-only financial advisor?
A fee-only advisor may be more expensive because they don’t take commissions, and to avoid conflicts of interest, they may not be able to provide all the services you need.
How long should you stay with a fee-only financial advisor?
You should stay with an advisor as long as they are meeting your needs for income growth and financial security. The longer you stay with an advisor, the better they will be able to serve you.
How are fee only advisors compensated?
Fee-only advisors are compensated by the fees their clients pay. They do not accept commissions or bonuses for selling products, so they can minimize conflicts of interest.
Is it worth it to hire a fee only financial advisor?
Yes, a fee only advisor does not earn commissions, so they can provide unbiased advice about the products they sell. Their advice should be based on helping the client achieve their financial goals.
Do millionaires use fee only financial advisors?
Any investor may use a fee only advisor because such an advisor is much more likely to be free of conflicts of interest. Besides, even millionaires may want expert advice for managing their wealth.
At what point should you get a fee only financial advisor?
Choose a fee only advisor when you think you could benefit from the financial and investment advice of a professional who will work with you to meet your financial goals.
What do fee only financial advisors consider high-net-worth?
A commonly used definition of high net worth is an accumulation of at least $1 million in investable assets, where investable assets are those that can be easily converted to cash.
What are the pros and cons of having a fee only financial advisor?
A fee-only advisor is more likely to be free of conflicts of interest and more transparent about their fees; however, they may be more expensive and may not offer as wide a range of products.
Why Are Fee-Only Financial Advisors the Best?
As mentioned earlier, a fee-only financial advisor, unlike a fee-based financial advisor, doesn’t receive payment from a mutual fund company, insurance company, or brokerage firm. The only source of compensation for them is you, the client. When you sign up for their financial advisory services, they pledge to represent you and your interests only.
In general, these experts charge a fee based on a specific percentage of your assets under management, but they are a fee-only advisor, not a fee-based financial advisor. They may ask you to pay on a quarterly basis or charge an hourly rate or a flat annual fee. Make sure you discuss the fee structure in detail and ask any payment-related questions that you may have in mind during the first meeting with an advisor. A reliable professional won’t hesitate to answer your questions and explain how they get paid.
A fee-only financial advisor has a fiduciary duty to act and give advice in your best interest under all circumstances, which is a responsibility a fee-based financial advisor may not have. A fee-only advisor will be committed to helping you choose the best investments that minimize your costs and maximize your returns in the long run. Typically, they focus on choosing products with low internal expenses, including stocks, bonds, no-load mutual funds, and other investments without any annual distribution or marketing fees.
For more information on the services of fee-only financial advisors, call us now.
Advantages of Using a Fee-Only Advisor
Fee-only advisors do not earn commissions or other incentives to sell certain products, so they are much less likely to be subject to conflicts of interest. By defining themselves as fee-only advisors, they are obligated to disclose any conflicts of interest that arise, so the client can decide whether or not to buy that product.
As fee-only advisors are often held to the fiduciary standard (e.g., CFPs and RIAs), they will always put the interests of their clients above their own. Thus, they are obligated to offer not only a product that is “suitable” but the best product available to meet the client’s requirements.
A fee-based advisor is obligated to offer a suitable product, that is, a product that meets the client’s requirements but is also good for the advisor’s bottom line.
Disadvantages of Using a Fee-Only Advisor
Because fee-only advisors cannot benefit from commissions on sales, their product offerings may be restricted, particularly insurance products. Thus, the client is forced to look elsewhere to buy insurance, costing time and money. However, by disclosing the conflict of interest, the advisor and client could come to an arrangement.
Another issue is that to compensate for not earning commissions, fee-only advisors may charge higher fees, which could be cost-prohibitive for some investors, but not for wealthier clients. It’s also important to keep in mind that even when an advisor is fee-only, it doesn’t guarantee that they are the best advisor for you. So, you still need to do your due diligence when selecting an advisor.
Which is better, a fee-based or a fee-only financial advisor?
A fee-only advisor may be better if you are looking for exceptional transparency and a minimum of conflicts of interest, even if you have to pay more for these qualities. And the advisor may only offer some of the products you may need.
In contrast, a fee-based advisor may cost less and be able to sell a broader range of products. In either case, it’s wise to hire someone that you can trust, for example, a fiduciary, who is dedicated to working for only your best interests.
5 Convincing Reasons to Choose a Fee-Only Financial Advisor
- They Possess Exceptional Financial Knowledge
- They Bring Undivided Loyalty to the Table
- They Offer a Transparent Fee Structure
- They Can Help with Financial Matters Other than Investing
- They Are Fiduciary Experts
If you want an expert whose financial advice you can trust in a heartbeat, choosing a fee-only financial advisor is the way to go. Below are the top benefits these experts offer to high net worth and ultra high net worth individuals, in contrast with a fee-based financial advisor.
1. They Possess Exceptional Financial Knowledge
Trusting a fee-only financial advisor with your personal finances is an excellent option if you don’t have time to manage money or lack the knowledge of critical financial concepts. Rest assured that your advisor will know the ins and outs of high net worth investing and financial planning.
A fee-only financial advisor will help you look at the bigger picture and bring a fresh set of eyes to your financial situation. By offering a deeper perspective, they will help you identify any blind spots and make emotionless decisions. With them, you can expect to learn some fundamental financial concepts and industry-best techniques to enhance the performance of your investment portfolio.
We have put together a guide to enable you to gain an in-depth understanding of how affluent individuals should optimize their portfolios.
2. They Bring Undivided Loyalty to the Table
Trusting someone with your wealth is a big decision, no matter how experienced and reputable they are. There’s always a margin of doubt and uncertainty, especially when the financial advisor earns commissions from the products they sell to you.
With a fee-only financial advisor, you can rest assured that they will help you meet your goals in the best way possible since they work for a flat fee. The only thing they’re supposed to sell is their advice. Partnering with one of these experts eliminates conflicts of interest from the equation, ensuring that your financial plan is in good hands.
3. They Offer a Transparent Fee Structure
When you choose to work with a fee-only expert over a fee-based financial advisor, you set yourself up for a smooth, hassle-free experience. Since there are no commissions involved, you’ll know exactly how much you’re paying for their advice. On the other hand, with traditional experts, you’re always left guessing how much they may be earning in commissions.
Transparency is always a good thing. It’s easier to trust an advisor who’s honest about their fee structure.
4. They Can Help with Financial Matters Other than Investing
Considering the fact that fee-only financial advisors aren’t focused on convincing you to purchase certain investment products, unlike a fee-based financial advisor, they tend to possess more knowledge about critical aspects of your finances outside your investment portfolio.
This means that they are the right person to reach out to when you’re struggling with tax management or retirement planning. They may even help you develop tangible goals and create an effective cash flow plan among other non-investment matters.
5. They Are Fiduciary Experts
Fee-only financial advisors are legally obligated to prioritize your interests above everything else at all costs. This means you can trust them without having to question their motives every step of the way. The whole idea of hiring a financial specialist is to take things off your plate, enjoy peace of mind, and focus your attention and efforts on other important issues in your life.
You should set up meetings with different experts before choosing one, whether they are a fee-only or fee-based financial advisor. Our guide will help you make the right decision in this regard.
How to Find a Fee-Only Advisor
You can find a fee-only financial advisor through a matching service such as Zoe Financial, which matches advisors with new customers; advisors are vetted by the service.
On its website, the National Association of Personal Financial Advisors (NAPFA) has a search feature for finding an advisor. All NAPFA advisors are fee-only fiduciaries.
The CFP board is the certifying body for certified financial planners (CFPs). The Board website provides a detailed description of the CFP’s qualifications, training, work experience, and code of ethics. The site includes a search function to find a CFP in your area (click on FIND A CFP PROFESSIONAL at the bottom of the home page).
The Garrett Planning Network is a network of fee-only fiduciary financial planners. Sheryl Garrett’s mission is to make competent financial advice available to everyone.
Network members pay an initial fee and an ongoing monthly or annual fee for their membership in the organization.
Member advisors offer financial planning and investment advice on an hourly, as-needed basis. They must be accessible to individuals from all walks of life, with no minimum requirements for income, assets, or net worth.
They are either a CFP or a licensed CPA with the Personal Financial Specialist (PFS) credential, and they adhere to the Fiduciary Oath.
What You Should Look for in a Fee-Only Financial Advisor
There are a few things you must keep in mind when looking for a fee-only financial advisor. For starters, you’d want to ask about their qualifications, skills, and experience in the field. See if they have a good reputation among ultra high net worth clients. You should be able to go through client testimonials and reviews on their website and social media pages.
Secondly, you should inquire about their approach to investment portfolio optimization. As an affluent individual, you must avoid taking unnecessary risks that can come in your way of achieving a financially secure future. Like all smart ultra high net worth individuals, you should strive to maintain a balance between performance and risks. The key is to invest in products that bring long-term benefits so that you can grow your wealth over time. This guide will go over five additional shifts every individual must make to achieve their financial goals with little to no obstacles.
Moreover, you should discuss what strategies your advisor will use to ensure optimal wealth protection for you and your family. They will help you take the correct route and make the most of the available opportunities based on your unique financial circumstance. Check out how important it is to have the right investment strategies in place in our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies For Families Worth $25 Million To $500 Million.
How Much Should I Expect to Pay to Hire a Fee-Only Financial Advisor?
Check out the standard fee structure of a fee-only financial advisor below.
|Fee Type||Average Cost|
|Percentage of assets under management||0.5-2% annually|
|Hourly rate||$200-$300 per year|
|Fixed fees||$1500-$25000 per hour|
Generally, the more experienced and qualified an expert is, the higher you’ll have to pay for their services. When interviewing multiple advisors, make sure you discuss their fee structure in detail and convey your concerns before making a decision.
Is a Fee-Based Financial Advisor Worth it?
If you possess investable wealth worth $5 to $500 million and have a large investment portfolio, working with a fee-only financial advisor is the best option. They will help you allocate your assets smartly in order to maximize your profits and cut down your costs in the long haul. On the flip side, a fee-based financial advisor works best for a smaller portfolio that requires less active management.
You just need to know why your advisor recommends an investment product. Find out if they are committed to representing your best interests or suggesting a product just because they’ll get a commission out of it.
You can talk to our financial advisors to understand what’s in store for you by booking an initial consultation today.
Get in Touch with Qualified and Experienced Fee-Only Financial Advisors at Pillar Wealth Management
Fee-only financial advisors have gained a lot of clouts lately – and for good reasons. Hiring them to manage your finances is one of the best decisions you can make if your liquid assets are worth more than $5 million. A fee-based financial advisor may be more suitable for people who don’t fall into the category of high net worth or ultra high net worth individuals.
Pillar Wealth Management is a one-stop shop for affluent clients who want to grow their wealth and achieve all their financial goals in a timely manner. Our experts are dedicated to exploring your problems, identifying your needs, and assessing your risk tolerance so that they can develop a solid financial plan to help you create the financial legacy of your dreams. We work exclusively with affluent clients and assist them with enhancing their portfolio performance with little to no risks involved. And yes, there will be no conflicts of interest whatsoever! So, now that you understand the key differences between a fee-based financial advisor and one who is fee-only, you have the knowledge you need to make an informed decision.
To book a no-strings-attached consultation, contact our team today.
To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.
We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.
You see, our goal is to only accept 17 new clients this year. Clients who have from $5 million to $500 million in liquid investable assets to entrust us with on a 100% fee basis. No commissions and no products for sale.
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