When looking for a financial advisor, many people confuse the terms “fee only” and “fee based.” Although they sound alike, they are structured quite differently. A fee-only advisor is compensated exclusively by the fees he or she directly charges clients. Often, the fees are based on a percentage of the total assets under management (AUM). Another option is to charge a flat fee or an hourly rate for financial planning services. These types of fees are only paid by the client and do not come from other sources.
A fee based advisor may also charge the client a fee, but they are also compensated additionally through other means such as commissions from selling financial products like mutual funds, brokerage commissions for executing trades, or commissions from selling insurance. These commissions present a conflict of interest in fee based financial advice. A fee based advisor may feel pressure to sell you products that are not in your best interest to make a sales quota or earn additional compensation. In addition, fee based advisors may not be fully transparent about how they are compensated.
What is a fiduciary duty?
All fiduciary advisors are fee only. Fee only financial advice does not have the same inherent conflicts of interest found in fee based financial advice in Minneapolis. Fiduciary, fee only advisors are obligated by law to serve the client’s best interest. Fiduciary advisors also strive to make sure their recommendations are based on the most complete and accurate information as possible. Transparency is also increased because they are also required to fully disclose how they are compensated and to reveal any potential conflicts of interest.
