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Knowing the Difference Can Make a Difference

The word ‘Fee’ has become a larger part of our planning and investment conversations, and I believe that’s a good thing.  As a client, you need to know the context to know the meaning.  This post deals with the difference between fee-only and fee-based advice and why you might choose a fee-only advisor.

(Investment fees have become more transparent in the last few months due to regulatory changes.  See my previous blog: Get There However You Choose)

Fee-Only Advisors are paid based on the amount of planning work that they do for you.  Fee-Only Advisors help answer your questions around meeting your goals, retirement timing, wealth transfer.  The fee is usually calculated on a per-engagement or per-hour amount.  Fee-Only Advisors are not paid based on the investment products that they sell you; often they are not licensed to sell you product.  Fee-Only advisors can help with a portfolio review and risk tolerance review, but they do not hold your investments and do not have a fiduciary duty to you in that area.

Fee-Based Advisors do sell you product and hold your investments; their compensation is a percentage of the assets that you hold with them.  The advisor is responsible for giving suitable investment recommendations and managing the investments according to your goals, risk tolerance, and risk capacity.  The fee may or may not include financial planning.

Why would You choose to work with a Fee-Only Advisor?

You Prefer to Work with Specialists.  A Fee-Only advisor makes everyone’s job very clear to you as the client.  Your planning doesn’t get pushed aside by a portfolio review- you have 2 separate meetings with 2 separate advisors for these areas.  You have the opportunity to have joint meetings- if you are making a significant change or a big decision, you have a team who can put the pros and cons on the table for discussion and arrive at the best decision for you.  Any biases that your advisors have are made clear by the role division, making it easier for you to see why a recommendation is being made.
You Only Need Planning Advice.  If you are comfortable and successful in managing your own investments or have a good relationship with an investment advisor, you may only need the planning advice.  Working with a Fee-Only advisor gives you that advice, as well as an objective sounding board for your questions.
Circumstances.  There are times when you need advice directly tied to a specific situation or decision point.  For example: decisions related to a severance package; sale of a business; or receiving an inheritance.  Divorce is another time when you may benefit from planning to guide your decisions around division of assets.  Your investment advisor may not be the best person to help in these cases if you are unclear whether there are biases on the advisor’s side; in the case of divorce, your advisor may not have specialized training.

To further review whether a Fee-Only Advisor would benefit your situation, please contact Sara at 519-569-7526 or [email protected]