According to the National Association of Personal Financial Advisors, and the review material that is included in the Certified Financial Planner examination, a fee only advisor will be compensated completely by payments from their client. These compensations may be gained from the combination of the hourly fees that the person charges the client, along with asset management fees they apply for each asset they take care of, and the fees they charge for developing the budget plans for the individual.
When a person working in this field says they are a fee only worker, then them or anyone associated with them are not allowed to take a commission, rebates, awards of money, finder’s fees, or any other method of receiving money as a result of putting into action the client’s recommended strategies. This type of planner has fewer conflicts of interest with their clients.
Fee only planners reduce the conflict of interest by not advising a client to buy products, or to make investments, when holding onto their cash may have been the best choice for the client. They do not have any incentive to generate commissions through buying or selling of securities unnecessarily. This is a common practice, and in the business world is known as churning. They have no incentive to generate commissions through converting non cash assets like real estate or collectibles.
You should be made aware that there are some financial planners who advertise their services as being fee based, not as fee only. Fee based services charge you a fee like the fee only planners do, and they also collect a commission off of the investments they make for you that earn a profit. Make certain you are clear on exactly how your planner will be charging you for their services, before you agree to hire them.
Fee based wealth management is not always a bad way to go, the differences in how you pay for the services provided are something that must be measured from person to person. What works best for one person may not be the answer for another.