Financial advisors can get paid a few different ways, with fee-only planners getting paid solely through an agreed-upon fee—either a percentage of the assets being managed, an hourly rate, or a flat fee. This differentiates them from fee-based planners, who make a commission off of products they sell you. Learn whether a fee-only financial planner is the right choice for you, your money, and your future.

What Is a Fee-Only Financial Planner?

A fee-only financial planner will charge you a fee for their services, usually based on a percentage of your assets being managed, though sometimes calculated as an hourly or project-based rate. This is different from fee or commission-based advisors, who can earn a commission or referral bonus from any products they sell you. In other words, fee-based planners are incentivized to sell you products that benefit their bottom line, whether or not the products are the best fit for your particular financial situation.

Make sure to ask any financial planner you’re planning to word with how they get paid. It will likely be one of these ways:

• Hourly or flat fee: They might charge by the hour, as an attorney would, or price their work based on a particular project or task—such as determining how to invest a windfall of money you just inherited. Sometimes these advisors charge a monthly flat fee, as opposed to hourly.
• Percentage: Some planners charge a percentage based on your assets under management, or AUM.
• Commission-based: These advisors will earn some kind of referral bonus for the purchase of certain products, like stocks.
• A combination: To make things a little more confusing, there are planners who charge based on a combination of the fees described above. This model is typically used by planners who wish to have set fees for particular projects but also have a plan for long-term advice and services.

Fee-Only or Commission-Based: Key Differences

The biggest difference between fee-only financial planners and commission-based or fee-based planners is that fee-only advisors act under a fiduciary responsibility—in other words—they must put your best interests ahead of their own, and make decisions and offer advice that will benefit you. They do not receive commissions, bonuses, kickbacks, or any other sales-based financial incentives to make recommendations to you.

Commission-based brokers get paid on bonuses received after trading stocks or selling mutual funds, annuities, or insurance. They can recommend any product to you, whether or not it will benefit you in the long-run—for this reason, commission-based brokers might suggest products that help them more than they help you, creating a conflict of interest.

Fee-based advisors can earn commissions for selling some products, like life insurance, while also collecting a fee from you for asset management planning services. Fee-based advisors and commission-based advisors have no responsibility to act as fiduciaries.

Advantages & Disadvantages of Fee-Only Financial Planners

Still debating whether to hire a fee-only planner? Here’s some pros and cons to consider.

Pros

They Are Fiduciaries

As fiduciaries, a fee-only financial planner must offer unbiased advice. They cannot suggest products just for the end goal of a bonus or commission in their pockets.

They Offer Predictable Fees

More times than not, fee-only planners will have very predictable, easy-to-understand fees. You’ll either pay an hourly rate, a flat rate, or a percentage of your AUM. That said, if the flat fee is $1,000 and you’re only trying to manage $8,000 of assets, that $1,000 is a lot of money—in these instances, it might be better to look at robo-advisors, which are tailored towards those just starting to build wealth.

They Develop Comprehensive Plans

A financial planner is there to give you a broad understanding of your financial picture and where to go, in contrast to a broker, who serves to sell you financial products. Your planner should be able to advise on a number of topics, such as taxes, estate planning, saving for college, and more.

Cons

No Financial Planner Is Perfect

Just because a planner acts with fiduciary responsibility doesn’t mean they will always make the best decision. In addition, they might have implicit bias against simple strategies, since this approach might negate the need for you to continue retaining their services. Research any suggestions on your own, and make sure you feel comfortable moving forward.

Could Be Biased Against Withdrawal

If your fee-only financial planner is paid based on your AUM, they might be biased against you making any withdrawals, as that will ultimately lower their fee.

Final Thoughts

The process of finding and hiring a financial planner is a big deal—these professionals handle your assets and wealth, and tied to those things are a lot of emotions and plans for the future. It’s important to choose someone, whether fee-only or fee-based, who you feel comfortable with and you think will have your best interests at heart.

Frequently Asked Questions

What Does a Fee-Only Financial Advisor Cost?

There’s a lot of variance in how much an advisor costs, as it depends on their fee structure. Those who get paid in a flat fee usually cost between $2,000 and $7,500 per year, while those charging based on AUM will ask for between .25% and 1% each year, depending on the size of your account balance. A client who invests $20,000 with an advisor charging a .50% fee will pay $100 each year, while someone who has $100,000 invested will pay $500. Hourly rates can be $200 to $400 on average, with per plan fees running between $1,000 and $3,000.

What Does a Commission-Based Financial Advisor Cost?

For advisors paid on commissions, the fee varies based on the investment, but on average the commission runs about 3-6% of the sale.

How Do I Find a Fee-Only Advisor?

Lucky for you, you can start right here at Retirable; all of our dedicated advisors act as fiduciaries and specialize in a range of topics, including income, healthcare, housing, and more. In addition, the National Association of Personal Financial Advisors (NAPFA) is a good resource, as well as the Garrett Planning Network—both have searchable directories on their websites.

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