• Question
  • Differences between fee only, fee based, and fee based with commission

    Asked by someone from Brookfield, WI on 1/28/2013

    I am planning to retire soon. I am looking for a financial advser. What are the differences between fee only, fee based and fee based with commission advisers. I do invest in the market and have a fair knowledge of investments What is the best adviser that you recommend for me. Thank you.

  • Categories: Financial Advisors, Retirement Planning


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  • You need to ask yourself some questions first,
    How often do I want to meet with an advisor?
    Do I need tax planning?
    Do I need investment (stock) mutual fund advice?
    Am I a buy and hold guy?
    How much time is your advisor going to need to spend with you.
    A typical fee for a fee based account can be .75% (75 basis points) per year $1,000,000 and above to 1.5% for smaller accounts. Some charge 2.5% but that is difficult to justify.
    If you are going to buy a product that has the choice of 5% upfront or 1.5% fee based account every year the choice is simple. Typical fee based accounts are losing popularity because the fee is not adjusted for actual performance. Why should you pay an advisor extra for advice if the performance of your portfolio does not exceed the comparable index?
    Fell free to question more jamieheadfinancial.com

  • Login to rate this answer:   Answered on 1/29/2013
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  • Excellent definitions above. I've been on the side of commission with fee and fee only. I'd have to say as an adviser on the fee only side now, I would not go back to commissions. I know and act 100% in the clients' interest and "sit on the same side of the table".

    Feel free to check out our website at www.dionmm.com to learn more about fee only advisers.

    Greg Britton

  • Login to rate this answer:   Answered on 1/29/2013
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    San Francisco, CA

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  • Congratulations on your upcoming retirement.

    We are happy to match you to an advisor that we think suits your needs. Best of all, we can arrange a free phone consultation where you can meet with the advisor, get a few questions answered and see if they are a good fit for you.
    --> Free Consultation: https://www.newretirement.com/free-retirement-consultation.aspx

    I would also recommend that you use the NewRetirement Calculator for a free automated online assessment of your retirement. The calculator can be a great thing to do before meeting with an advisor since it will give you some ideas about the pros and cons of your retirement finances.
    --> Automated Online Retirement Assessment: https://www.newretirement.com/retirement-calculator/default.aspx

    There is actually a lot more to retirement planning than adequate investment returns.

    To answer your specific question about the different compensation plans offered by advisors, please review below:
    1) Fee Only Financial Planner
    A fee only financial planner is compensated entirely by fees. The fees may be determined by a variety of arrangements:

    Flat Fee: One charge for the project or predetermined services. Rates vary tremendously – a retirement plan might cost $1000.
    Hourly: You might expect a Certified Financial Planner to charge a median fee of about $100 per hour.
    Fees Determined as a Percentage of Your Assets: Sometimes financial planners determine how much you pay based on how many assets you have –
    assuming that the more assets the more complicated and vice versa.

    Many people prefer a fee based financial advisor, since there is little opportunity for a conflict of interest. The advisor is not earning a commission from the products they sell you – so you can be sure that they are recommending the products and services that best meet your goals and risk tolerence.

    From this point of view, a fee based on a percentage of assets may be the best for you during early retirement planning – the more the retirement financial planners can help you grow your assets, the more they are paid. Your financial advisor would also have an incentive to ensure asset protection once you enter retirement.

    2) Commission Only Financial Advisor
    Commission-based advisors earn their money by selling stocks, bonds, mutual funds, life insurance, annuities and other investments. Most retirement financial planners working under this model are ethical and will try to keep your best interests in mind – but they may be prejudiced by higher commissions on one product or another and lean toward selling you products that may not be in your best interest.

    In a commission only setting, the risk of being subject to unethical financial advisors fraud could be higher. Nonetheless, the good news is that there is no charge for the financial planner's advice or guidance.

    3) Fee Based Financial Planner – Charges Fees as well as Earns Commission
    Retirement financial planners may charge you a fee for retirement advice and retirement planning as well as earn commissions for selling you products that are part of the plan. Sometimes the financial planner will reduce the amount you pay – essentially reimbursing you with their commissions.

    Whichever type of fee structure your financial advisor uses, you should be sure to understand all of their incentives. It is important to ask your financial advisor if they might have any conflicts of interest and find out if they earn bonuses or other awards in return for recommendations.

    We wish you all the best!

  • Login to rate this answer:   Answered on 1/28/2013
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.