Financial Advisor: Which One to Choose- Fee-based or Fee-only?
FAQ 103
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Getting sound financial advice can mean the difference between growing and wasting your newfound wealth. There are two ways in which a financial planner or financial advisor earns his/her income: Fee-only and Fee-based. But finding a good, honest, competent planner requires some work. Regardless of which compensation structure an advisor uses, they are typically all Registered Investments Advisors (RIAs), either at the federal level with the SEC or at the state level.
Some might assume all financial advisors have a requirement to give advice that is in their client's best interest, but that's not always the case. A majority of the financial advice industry operates on a "suitability standard." Suitability means a recommendation must be appropriate based on your financial status and goals, but if one product pays the advisor more than another, and both are suitable, the advisor can recommend the product that pays them a higher commission, even if it might not be the best choice for you out of the two options.
Key Considerations When Choosing
There are a few important terms everyone needs to be familiar with when it comes to selecting which financial professional to work with:
Fiduciary Duty: Consider whether the advisor is a fiduciary and bound by law to prioritize your interests. Fee-only advisors operate under this standard, providing you with a higher level of assurance that their recommendations are unbiased and aligned with your goals.