Let me attempt to set the groundwork for this discussion on fee based investment advisers compared with commission based. The fee-Only advisor usually charges a fee to provide advice and/or ongoing management. The Fee-Only advisor concept attempts to minimize the conflict of interests by removing the sales piece from management portfolio emphasizing a model where the advisor has your best interest in mind and it doesn’t matter the asset class and investment vehicle. Conversely the commission based adviser will make money on the types of investment. For instance a commission based adviser may make 3% from selling you mutual fund “A” or 5% from selling you mutual fund “B”. This often makes it difficult to know if the adviser is selling you mutual fund “B” because it’s better or because they make more money from it.
NOTE: Beware there is a clear distinction between Fee-Only and Fee-Based advisor.
– Charges a fee from you directly for advice and/or ongoing management
– Model minimizes conflicts of interest
– Fee is based on hourly rate, % of assets, flat fee or retainer
– Only thing they sell is their knowledge and experience
– Paid directly by you.
– Charge a fee for advice given AND for products sold
– Paid by you AND from the products sold (investment house, mutual funds, etc)
– Often confused with “Fee-Only” advisers
– Paid a commission from the products sold (investment house, mutual funds, etc)
– Model provides incentive for advisor to sell higher commission products
– Arguable a salesperson
For more good information about fee-only advisers check out http://www.napfa.org. Make sure you do your homework and ask the right questions. Be aware of the pressures of being sold an investment.