Fee-Only financial planners work solely for their clients, and are compensated only by a previously agreed upon fee. Therefore, they can be completely objective in their evaluation. They can recommend a course of action based only on their client's financial considerations.
Fee-Only planners do not accept commissions or receive any other compensation for recommending specific products.
Fee-Only planners develop and implement a plan that shows clients how to attain their financial goals.
Because investment alternatives are often greater, there may be an opportunity for better investment selection. A Fee-Only planner has thousands of additional investment opportunities that are not commission driven.
The result is an unbiased overview by professionals who are working solely for their clients.
Other forms of compensation
Some planners are compensated entirely by commissions from the providers of products recommended and sold. Others, referred to as "Fee-Based" or "Fee-Offset," charge both a fee and receive commissions from selling products. "Fee-Only" planners use neither method.
The greater the advisor's dependence on commission income, the greater the conflict. In the end, that conflict can cost you, both in out-of-pocket expenses and the quality of advice you receive.
NAPFA - National Association of Personal Financial Advisors
A NAPFA-Registered Financial Advisor must have the following qualifications:
- Uses Fee-Only compensation with all clients, all of the time.
- Has an advanced, broad-based financial education.
- Holds a bachelors degree or its equivalent.
- Shows compliance with federal and state Registered Investment Advisor regulations.
- Has at least three years' experience offering comprehensive financial planning services.
- Has submitted a sample comprehensive financial plan to a peer review.
- Submits documents that show that the planner is Fee-Only, does not work for a firm that sells financial products and does not receive any compensation for recommending specific products or services.
- Agrees to follow the NAPFA Fiduciary Oath.
NAPFA Fiduciary Oath
The advisor shall exercise his/her best efforts to act in good faith and in the best interests of the client. The advisor shall provide written disclosure to the client prior to the engagement of the advisor, and thereafter throughout the term of the engagement, of any conflicts of interest, which will or reasonably may compromise the impartiality or independence of the advisor.The advisor, or any party in which the advisor has a financial interest, does not receive any compensation or other remuneration that is contingent on any client's purchase or sale of a financial product. The advisor does not receive a fee or other compensation from another party based on the referral of a client or the client's business.
Following the NAPFA Fiduciary Oath means I shall:
- Always act in good faith and with candor.
- Be proactive in disclosing any conflicts of interest that may impact a client.
- Not accept any referral fees or compensation contingent upon the purchase or sale of a financial product.
"The most selective credential is membership in the National Association of Personal Financial Advisors, whose 750 members have agreed not to take commissions on the investments they recommend. This avoids conflicts of interest: too many planners make their money by suggesting only investments that reward them for their recommendations."
Jane Bryant Quinn
"Financial Planners who take commissions have a built-in conflict of interest. . . even with disclosure, my choice would be a fee-only planner."
"Start with the general practitioner. . . a Financial Planner whose compensation should be from fees alone."
"The most important matter is how the planner is compensated. Hire the planner who. . . has no financial stake in your investments."