Fee-only Financial Professionals

 

Fee-Only financial advisors or planners , as defined by the review materials for the Certified Financial Planner (CFP) exam, are compensated only by their clients and accept no commissions or compensation from other sources, such as insurance products or investments; rather, fee-only advisors charge only hourly or fixed fees (including retainers). Many confuse "fee-only" with "asset-based" advisors who charge a fee calculated as a percentage (e.g., 1%) of assets under management. The fee-only model of compensation reduces the potential for conflicts of interest between the advisor and the client in that the advisor is not beholden to insurance, investment, and other financial companies.

While asset-based advice is an improvement over traditional commission sales of financial products, a true fee-only advisor reduces conflicts such as:

• an incentive to take too much risk in a portfolio to generate additional gains that translate into "raises" for the asset based advisor
• an incentive to convert non-cash assets such as real estate and collectibles to cash and securities so that the advisor can generate a fee
• an incentive to minimize necessary trades because this may result in additional costs to the advisor if trading costs are included in the asset-based fee

Working on a fee basis allows the advisor or financial planner to:

• Customize an investment portfolio that is designed to help the client realize short-term and long-term investment goals.
• Provide simplified performance reporting, making it easy for clients to monitor their accounts.
• Support the client with ongoing professional advice, timely information about accounts and updates on the world’s financial markets.
• Manage a client's portfolio and make investment changes--without commissions--as your objectives or the economic climate changes.

The U.S. National Association of Personal Financial Advisors (or NAPFA) is an organization that was created in 1983 to aid the field of Fee-Only financial planning, but does allow members who charge a percentage of assets under management to use their "Fee-only" designation.