Understanding The Difference Between A Fee-Only And Fee-Based Financial Advisor

Choosing a financial advisor is an important decision. Whether you are looking for a financial professional for the first time or reviewing your current advisory relationship, one factor you may encounter is how an advisor is compensated.

Terms such as fee-only and fee-based are commonly used throughout the financial services industry, but they are often misunderstood. While both compensation models may provide financial planning and investment management services, there are important distinctions that individuals may wish to understand when evaluating financial professionals.

Learning how different compensation structures work can help you ask informed questions and better understand how various advisory relationships are structured.

What Does Fee-Only Mean?

A fee-only financial advisor receives compensation directly from clients for the advisory services they provide.

Depending on the advisory relationship, compensation may be based on:

• Assets under management
• A flat financial planning fee
• An hourly fee
• Another clearly disclosed advisory fee structure

Fee-only advisors generally do not receive commissions for recommending investment or insurance products.

Many fee-only advisory firms, including Registered Investment Advisers (RIAs), provide advisory services under a fiduciary standard, meaning they are generally required to act in their clients’ best interests when providing investment advice.

What Does Fee-Based Mean?

The term fee-based is sometimes confused with fee-only, but the two are not interchangeable.

In general, a fee-based advisor may receive compensation from more than one source.

Depending on the firm’s business model, compensation could include:

• Advisory fees
• Commissions from certain investment or insurance products
• Other forms of compensation permitted under applicable regulations

Because business models vary, individuals may find it helpful to ask how an advisor is compensated and whether commissions could apply in certain situations.

Why Understanding Compensation Matters

Understanding how a financial professional is compensated does not necessarily determine whether one advisor is a better fit than another.

However, knowing how compensation works may help individuals better understand:

• The services being provided
• How advisory fees are calculated
• Whether commissions may apply
• The advisor’s role in different types of transactions
• Questions to ask before entering into an advisory relationship

Because compensation structures can differ, many individuals choose to learn how an advisor is paid as one factor when evaluating a long-term advisory relationship.

Understanding The Fiduciary Standard

Many individuals researching financial advisors also encounter the term fiduciary.

Generally speaking, a fiduciary is required to act in a client’s best interest when providing advisory services.

Registered Investment Advisers typically provide advisory services under this fiduciary standard. However, regulatory requirements can vary depending on the services being provided and the registration status of the financial professional.

Because these distinctions can sometimes be confusing, individuals may find it helpful to ask questions about an advisor’s role, responsibilities, and compensation structure.

Questions You May Wish to Ask a Financial Advisor

Whether meeting with a financial professional for the first time or reviewing an existing advisory relationship, individuals may find it helpful to ask questions such as:

• How are you compensated?
• Are there situations where commissions apply?
• What services are included in your advisory fee?
• Are you acting as a fiduciary when providing advisory services?
• How are ongoing financial planning services provided?
• How often will my financial plan be reviewed?

These conversations can help individuals better understand how an advisory relationship is structured before making financial decisions.

Choosing The Right Financial Advisor

Every individual’s financial situation and planning needs are different.

Some people may prioritize comprehensive financial planning. Others may be looking primarily for investment management, retirement planning, estate planning coordination, or ongoing financial guidance.

Understanding how an advisor is compensated is one consideration that can help individuals evaluate whether a particular advisory relationship aligns with their financial goals, communication preferences, and planning needs.

Asking questions about compensation, services provided, fiduciary responsibilities, and the overall planning process can help individuals better understand how different advisory firms operate.

How We Operate

Choosing a financial advisor is an important decision, and understanding how advisory relationships are structured can be a valuable part of that process.

Advisors Management Group is a fee-only Registered Investment Adviser. This means we are compensated directly by our clients for the financial planning and investment advisory services we provide. We do not accept commissions or compensation from investment products, mutual funds, or third-party providers based on where client assets are invested or which investments are recommended.

Because our compensation comes directly from our clients, our focus remains on providing guidance based on each client’s goals, financial circumstances, risk tolerance, and long-term objectives. As part of our advisory process, we review portfolios and financial plans with consideration for changing market conditions, evolving financial priorities, and each client’s broader financial picture.

Whether you are evaluating financial advisors for the first time or reviewing an existing advisory relationship, understanding how compensation fits into the planning process can be an important part of making an informed decision.

Contact Advisors Management Group

If you would like to discuss your financial goals, review your current financial plan, or learn more about Advisors Management Group’s financial planning services, please contact us.

Our experienced team works with clients to develop personalized financial plans that take into account retirement planning, cash flow, investment management, education savings, inheritance considerations, healthcare planning, and other long-term financial goals.

Advisors Management Group, Inc. is a registered investment adviser whose principal office is located in Wisconsin. Opinions expressed are those of AMG and are subject to change, not guaranteed, and should not be considered recommendations to buy or sell any security. Past performance is no guarantee of future returns, and investing involves multiple risks, including, but not limited to, the risk of permanent losses. Please do not send orders via e-mail as they are not binding and cannot be acted upon. Please be advised it remains the responsibility of our clients to inform AMG of any changes in their investment objectives and/or financial situation. This commentary is limited to the dissemination of general information pertaining to AMG’s investment advisory/management services. Any subsequent, direct communication by AMG with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of our current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request.