There are generally only two types of financial planners…advisors who are fee-only and paid solely on the work they do for you, and the other group of advisors who receive commissions on the investments they recommend for your purchase. The difference between the two is that a fee-only advisor has no inherent bias to steer you one way or the other because they have no self-interest in the products they suggest…except to do their best for you so they retain you as a client.
This does not mean that a commission-based advisor would willfully misdirect your investments because they also have self-interest in wanting your portfolio to perform well so you’ll retain their services as well, but human nature can be subtle if only subconsciously, and selecting a fee-only advisor could be the better choice for you.
Let’s back up a square. A registered investment advisor, or RIA, is a financial advisor with a fiduciary responsibility to act in the best interests of his or her client, which means they are required to put your financial interests above their own. Not all financial advisors are fiduciaries, but all RIAs, who are regulated by the Securities and Exchange Commission (SEC), are fiduciaries and must perform their duties with undivided loyalty and the highest good faith dedicated to their clients.
There are three ways RIAs are typically paid: 1) a flat or hourly rate for work performed; 2) fees for a particular service; 3) a percentage of the funds being managed. A fee-only RIA does not earn commissions on sales or trading fees, so their compensation is not dependent on the investments they recommend for your portfolio, keeping their opinions independent of the pressure to sell you self-serving investment products. For this reason, fee-only advisors have less inherent conflicts of interest.
Recently there has been some confusion in the industry as commission-based advisors have used the term “fee based” when they charge a fee as well as ALSO receiving a commission, so investors need to be aware and clear about these terms when interviewing a financial advisor. The difference between “fee-only” and “fee based” could mean a lot to your bottom line!
The leading professional association of fee-only advisors is the National Association of Personal Financial Advisors (NAPFA), and this agency is widely and highly regarded for the expertise of its members and their forms of compensation. A portion of the fiduciary oath NAPFA members annually sign states, “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.”
By contrast, the sales commissions the non-NAPFA advisors receive come from the sale of specific investment products (mutual funds, stocks, bonds…) that may or may not be precisely suited to the investment goals of your portfolio or your needs for wealth management. If an investment product is not completely aligned with your investment goals, as stated in your Individual Investment Plan (IPA), or is not a good fit for the combination of investments you own and which work together as a single well-structured investment system, why would you purchase it? Being aware of the difference goals of the fee-only and fee-based advisors can give you a serious investment edge! Wouldn’t you rather have the money you’d pay in commissions go instead to the productivity of your portfolio?
The achievement of your portfolio depends upon the foresight and strength of an integrated plan that weaves the synergized strands of wealth-building, risk protection, tax strategies, fee limitations, retirement planning, insurance, alternative assets, and estate planning.
This is why meeting periodically with an experienced fee-only Registered Investment Advisor acting solely on your behalf as your fiduciary can be so significant…providing you with a portfolio that’s customized to your precise financial situation and attuned to your specific goals for security and a comfortable lifestyle.
We hope this article about the advantages of working with a fee-based RIA was informative. If you’re ready to meet with an expert who can guide your interests, please contact us and make an appointment to consult with an RIA today so we can review the possibilities available to you for building and safeguarding your personal wealth while enhancing your retirement. Thank you!
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
Synergy Financial Management, LLC
13231 SE 36th Street, Suite 215
Bellevue, WA 98006