What Does it Mean to be a Fee-Only Financial Life Planner?
A common theme in financial life planning is intentionality. Living our best lives means first knowing what makes us happy so that we can do more of that. Only then can you be intentional about your actions so they are fulfilling your purpose.
In paying for financial advice, intentionality is also a good thing. Let me ask you this: Does it matter how your financial advisor is paid? We think it certainly does. A lot of people don’t realize this, but not all financial advisors/planners charge the same way. There are generally three ways advisors get paid.
Commission-based. In this setup, advisors make money by recommending you products like mutual funds, annuities and life insurance. These products pay the advisor a commission and, therefore, they must continuously recommend (cough, cough, sell) products to you in order to get recurring revenue.
Fee-and-Commission. Under this method, advisors get paid by the fees you pay them for their services plus any commissions they get from selling you products. And while this approach allows for more alignment between the service they provide and their compensation, they are still incentivized to sell you products in order to increase their income.
Fee-only. Advisors are compensated only by their clients for the advice they provide. No commissions, kick-backs, referrals or any third-party compensation allowed here. Therefore, there is no incentive to sell you anything. Only honest advice in return for a pre-arranged fee, usually hourly, as a retainer or as a percent of assets managed.
As you can see, the way in which your advisor is compensated can make all the difference in the recommendations they make for you. Because of the conflicts of interest inherent in recommending products with commissions attached to them, commission-based and fee-and-commission based advisors may have difficulty putting the client’s interest above their own. So their clients may wonder, “Is my advisor recommending this product because this is actually the best thing for me right now, or are they doing it to get a commission.” By working with a fee-only advisor, you can rest assured that if your advisor recommends a product, then it is something you actually need.
However, fee-only advisors aren’t completely free of conflicts of interest. For example, if they charge as a percent of the assets they manage for you, they might recommend you don’t pay off your debt with invested funds. That way the funds stay invested and they can collect the same fee. (As fiduciaries, however, they should at least disclose this conflict of interest to you.) But compared to the other two methods, fee-only advice provides the most transparency and objectivity in the recommendations they make.
The surprising thing is that, according to The Wall Street Journal, out of the roughly 285,000 “advisors” in the U.S., only 2% are fee-only. And you generally won’t know how they charge unless you dig deep into their Form ADV. And to make matters even more confusing, fee-and-commission advisors use tricky words like “fee-based” to describe their compensation method and give the appearance of being fee-only.
Our Approach to Fee-Only Financial Life Planning
At the Coleridge Group, we believe in complete and total fee transparency. By visiting the pricing page on our site, you can see a breakdown of our fee-only structure, which we’ve also intentionally kept simple. With us, you pay for our unbiased advice about what’s best for you. That’s it. We don’t receive commissions, kick-backs or any other third-party compensation.
So now that you know these differences, do you think it’s worth being intentional about how you pay for financial advice?
Interested in learning more about our fees and our approach to fee-only financial planning? Please visit the pricing page on our site. And if you’re ready to get started, click below to schedule a free consulation call. We’re excited to get to know you.
