Newburyport Office
50 Water Street
The Tannery Mall, Mill #1
Newburyport, MA. 01950
Phone: 978-463-8771
Fax: 978-463-8774

Wakefield Office
599 North Ave #6
Wakefield, MA. 01880
Phone: 781-246-8771
info@resolutefinancial.com

 

 
 

How do you define "fee-only"?

The financial industry has a jargon all its own, and there is one term that every consumer should learn, and that is the term “Fee-Only”. However, we often hear the term “Fee-based” used interchangeably with “Fee-Only”, and they are quite different. This is the definition from Wikipedia as of May 2010:

“A further distinction should be made between "fee-based" and "fee-only" advisers. Fee-based advisers both charge fees and collect commissions. Fee-only advisers do not collect commissions, and thus do not face a conflict of interest created by commissions or referral fees paid by other product or service providers.”

Below are the thoughts of some of the leading public figures in financial planning today:

“It’s important to ensure the person you choose is qualified, and you can do that by checking their credentials with the Certified Financial Planner Board of Standards (cfp.net). Once you know who’s legit, concentrate on fee-only advisers over those who work on commission. No commission means no conflict of interest. A fee-only planner who’s paid either by the hour, the plan or by a percentage of assets they’re managing won’t be tempted to line his or her pockets by selling you an investment you don’t need.” Jean Chatzky, author, and frequent television guest.

“Which type of CFP is best? Someone whose livelihood doesn’t depend on selling financial products. This rules out CFPs who take sales commission. They may be lovely neighbors but they can’t make a living (or keep their jobs) unless they can persuade you to buy.

Instead, you want what’s known as a fee-only planner. These advisers sell no products and earn no sales commissions. They charge only for their services. You might pay $150 to $300 an hour for tuneup advice, a flat fee per project, an annual retainer or 1 percent of assets for money management.

Be alert to planners calling themselves “Fee-based” or ‘Fee-offset”. They charge sales commissions as well as fees, and commissions are generally where the real money lies. You are safest with planners who sell no products at all” Jane Bryant Quinn, Newsweek columnist and author.

“The biggest pitfall is the conflict of interest arising from fees and commissions, paid indirectly by you. But rest assured that you will pay these costs just as surely as if they had been lifted directly from your wallet. You will want to ensure that your advisor is choosing your investments purely on their investment merit and not on the basis of how the vehicles reward him. The warning signs here are recommendations of load funds, insurance products, or separate accounts. The best, and only, way to make sure that you and your advisor are on the same team is to make sure that he is “fee-only”, that is, that he receives no remuneration from any other source besides you. Otherwise, you will wind up paying, and paying, and paying, and paying… “ William Bernstein, author of 4 finance books, lecturer, PhD in chemistry, and MD.

“Do They Charge Fees Only?

To avoid such conflicts, consult a fee-only adviser. They do not receive any commission, which reduces their incentive to churn a portfolio or to recommend unnecessary products.”
Susan Garland, AARP

“People want some consumer protection. They’ve been to these free lunches and want some balanced information from someone who’s not selling a product”
Anita Salustro, who leads educational luncheon seminars for AARP in Michigan.

“Okay, this bears repeating: if a prospective adviser makes money from commissions on your investments, then they fail my litmus test on that fact alone. There’s simply too much conflict of interest. I want you to stick with fee-only planners; they charge a set fee for their services, rather than relying on commissions.”
Suze Orman, television host for CNBC.