Should I Seek A Fee Only Advisor?
How Does a Financial Advisor Receive Compensation?
There are two basic ways in which a financial advisor could receive payment for their services. The first is through a commission based model where some or all of their income is derived from sales incentives. The second type is a fee only model. In this type of arrangement, the advisor earns their income solely from the fees their clients pay to them for their services.
Avoiding a Conflict of Interest
When an advisor receives compensation based on a financial product they sell, they have incentive to sell it. This results in a conflict of interest as they must decide if they should financially gain from the recommendation or put your best interests above their own. By working with a fee only advisor, you eliminate the question of whether or not your advisor is personally gaining from the advice they give you.
Benefits of a Fee Only Advisor
Sales Loads: An example of a potential conflict of interest is the charges you pay to a firm or advisor for certain mutual funds. These are known as “loads” and may be charged when you purchase a fund (Front-end load), when you sell a fund during the charge period (Back-end load), or during the duration you hold the fund (Level load). Although sometimes these funds could be the best option for the circumstances, a fee only advisor will look for other low cost alternatives that will meet your needs.
Commissions: Commissions are the compensation paid to a salesperson for selling a product such as an annuity or insurance policy. Commissions typically range from 1% to 10% of the value and are built into the price of the contract, so it may not be easily evident. A fee only advisor does not accept commissions.
Fiduciary Standard: A fee only advisor upholds the fiduciary standard and makes recommendations that are in the client's best interest. They are required to disclose any potential conflicts of interest and provide recommendations that are prudent and cost effective.
Fee Transparency: A few ways a fee only advisor could be paid include an hourly rate, a retainer, or as a percentage of the assets under management (AUM). The method depends on the agreement with the advisor. By knowing these fees up-front, you will have clarity on the amount you are paying for their service.
Professional Financial Management is a Fee Only Advisor
As a fee only advisor, Professional Financial Management provides advice that is in your best interest. We deliver customized financial plans that are based on your objectives and timeline. Contact us today to learn more about how we can be a trusted partner in your journey to achieving your retirement goals.