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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. |
