By: James Brown
For many Americans, working with a financial advisor is an important part of their wealth management process. By offering guidance on investments tailored to their individual financial goals, a financial advisor can be a major asset in making such goals a reality.
However, not all financial advisors are created equal, and investors should generally seek the help of a fee-only advisor. I recently spoke with Ramsey Brock, president of Brock Asset Management, who offered greater insight into what sets fee-only financial advisors apart.
What Is a Fee-Only Financial Advisor?
“When you work with a fee-only financial advisor, that means they do not earn any commissions based on the financial products they sell or the transactions they make,” Brock explains.
“Instead, they typically charge an hourly or flat rate fee for their services. Usually, the rate charged will vary depending on the level of financial advice provided during a given meeting. In some cases, particularly for larger accounts that involve more intensive financial planning, fee-only advisors may charge a percentage fee based on the assets under management — such as a fixed one percent fee.”
It is worth noting that fee-only advisors differ from “fee-based” advisors, who are often compensated using a mix of fees and commissions. Fee-only ensures that commissions are never involved in an advisor’s recommendations or advice. If unsure, ask how much the advisor or firm is compensated through commissions. With a fee-only advisor, the answer will always be zero.
It should also be noted that the available fee structures and services will often vary based on the size of the client’s account. Many advisors who are paid based on a percentage of assets under management typically focus on larger accounts due to the scope of the work required with these accounts. Individuals with smaller accounts are more likely to be charged an hourly or flat rate fee with a smaller scope of services, particularly if they only seek periodic support.
Creating Trust and Transparency
Regarding the advantages fee-only advisors can offer over commission-based or fee-based advisors, Brock quickly cites the enhanced trust and transparency these advisors offer.
“With a fee-only advisor, you can have confidence that their recommendations are truly unbiased and based on your unique financial goals and situation,” he explains. “Because a fee-only advisor’s income depends entirely on client fees, they aren’t motivated to push specific investment products, which can often happen with a commission-based approach. This prevents conflicts of interest where an advisor might recommend an investment that benefits them personally due to the commission, even if it isn’t a great fit for the client.”\
That level of trust is an essential element in choosing a financial advisor. Indeed, a survey from YouGov found that 60% of US adults rank trustworthiness as an important factor in this choice, making it the top-cited attribute — even outpacing other traits like the cost of services and qualifications.
“Working with a fee-only advisor means that clients can know exactly how much they will pay for their financial services and what type of service they will get for each fee,” Brock says.
“This level of trust and transparency is essential when working with your money to help you achieve your financial goals. When you work with a fee-only advisor, that advisor will typically act under a fiduciary duty, meaning they are legally obligated to act in your interest whenever you go to them for a service.”
Focusing On Long-Term Relationships
With the foundation of trust and transparency fostered by clearly defined fees and
unbiased financial advice, Brock notes that fee-only advisors are also better suited to developing long-term relationships with their clients.
“When an advisor receives sales commissions, this can cause them to develop more of a transactional mindset with their clients — which usually means the relationship is short-term,” he explains.
“On the other hand, the goal of a fee-only advisor is to develop a long-term relationship with their clients. Their focus is understanding their client’s unique financial situation and helping them make the right investment decisions for different stages of life. This allows them to understand individual goals and needs better and develop a more personalized strategy that accounts for risk tolerance, target date timelines, and other elements.”
While one-time commissions can still be obtained with fee-only advisors (particularly with smaller accounts), investors will likely see the best results when they focus on developing a lasting relationship with a qualified advisor who can manage their account according to their goals and preferred investing strategy.
Take Control of Your Financial Future
Planning for retirement or other major financial goals can be intimidating, even when seeking professional assistance. However, by working with a fee-only financial advisor, investors can have greater confidence that they receive honest, unbiased advice that avoids conflicts of interest.
While making investments is never guaranteed, the personalized support that a fee-only financial advisor can provide can go a long way toward helping you make smarter investing decisions.
Disclaimer: This content is for informational purposes only and is not intended as financial advice, nor does it replace professional financial advice, investment advice, or any other type of advice. You should seek the advice of a qualified financial advisor or other professional before making any financial decisions.
Published by: Nelly Chavez
