As I started marketing my firm, I specifically emphasized, and continue to, that my firm is a fee-only comprehensive financial planning firm. Then I started thinking “what if people do not know what ‘fee-only’ means?” Thus, this blog is written to provide context behind what “fee-only” means and how it separates me from other financial advisors.
In the financial advising profession, there are two ways financial advisors can get compensated. One way is by commissions. This can be from the sale of stocks, bonds, mutual funds, life insurance, etc. In this case, the advisor is paid by the company that sells the products listed above. The second way a financial advisor is compensated is by the client paying a fee directly to the advisor for services provided. The client pays the advisor's fee because the advisor manages assets for the client, the client receives advice on an hourly basis, and the client pays the advisor for ongoing advice. So why should fee-only matter to you?
As mentioned above, if a financial advisor is paid a commission, they're being paid by a company for selling a product to you. These advisors could be paid by commission only or by commission and fees. Receiving commissions isn't necessarily bad; however, the financial advisor is not considered to be acting in a fiduciary capacity to the client when the advisor can be paid a commission. A fiduciary is one that acts on behalf of another person or persons, putting their clients' interests before their own. If a financial advisor can receive commissions, they would also have a conflict of interest and need to disclose that conflict. That’s not to say that financial advisors that receive a commission cannot act in your best interest; however, they are not considered fiduciaries and will not be held to a fiduciary standard.
A financial advisor that only receives a fee for service is considered a “fee-only” financial advisor. As mentioned above, the client pays the fee directly to the advisor for their services. Since the financial advisor does not sell any products, the fiduciary standards will apply to the financial advisor. The client does not have to be as worried about whether or not the advisor is acting in their best interest (I say "as worried" since there are no guarantees in the world we live in today).
As a financial advisor, the fee-only model was appealing to me. When I started in the industry, I was licensed to sell any insurance: life, health, disability, property, casualty, long-term care, and medicare. However, I didn't appreciate having to sell client(s) on products and wanted to provide a service to them without the conflict of interest. I will never forget an interaction I had at a previous firm I worked at; I was sitting in a meeting with the lead advisor, and he told the client that when selling them a product, they don't have to be a fiduciary. Since then, I have felt that fee-only was the path that I needed to take. I did not ever want to put a client in a situation in which they had to guess if what I was telling them was in their best interest.
I chose this profession and this fee structure for my firm to be a fiduciary, and to be someone that my clients can trust to do what's in their best interest, not my own. If you feel that you are not accomplishing your goals or not living the life you want to live because financial decisions are difficult for you, please reach out; I would love to assist you in any way that I can.
Sincerely,
Travis Tracy, CFP®, EA