As the featured fee-only fiduciary practice, it was an honor to be profiled in December’s NAPFA Advisor magazine.
https://www.naylornetwork.com/napf-nwl/articles/index.asp?aid=857106&issueID=102206
NAPFA stands for the National Association of Personal Financial Advisors (www.napfa.org). It’s the largest nationwide network of financial planners who are strictly fee-only. In order to become a member, advisors must:
- have the CERTIFIED FINANCIAL PLANNER™ designation (see https://www.cfpboard.net);
- have a peer review of their ADV disclosure document to ensure all compensation comes strictly from clients, never from third parties such as mutual funds or insurance companies;
- have a sample financial plan reviewed and approved by a peer review committee; and
- take a fiduciary oath to always put clients’ best interests first.
What exactly does fee-only mean?
The term “fee-only” means that an advisor only receives compensation directly from clients. It’s currently estimated that out of over 1 million professionals who call themselves financial advisors, roughly 11,000, or .1%, are truly fee-only. The rest also accept compensation from third parties, such as insurance or mutual fund companies.
Commonly confused with “fee-only”, the term “fee-based” typically means that an advisor receives compensation from both clients and third-party companies. Due to the similarity with the term “fee-only,” CFP™ certificants are no longer allowed to use “fee-based.” Instead they must describe themselves as “commission-and-fee” when they are compensated by both methods.
What about other terms used to describe advisor compensation?
Fee-only advisors may charge a few different ways:
- fees as a percentage of the investments they manage (called “AUM” for “Assets Under Management);
- as a fixed fee for investment management, financial planning, or both; or
- hourly.
“Fee-based” as it was formerly used, and for those advisors who still use it, means that an advisor can charge a fee to the client while also making commissions on products they select for those clients. Usually the client is charged a “planning fee” for planning services, and then the advisor makes commissions on products sold or money managed. Sometimes it can mean that the advisor charges a fee for managing money, while also receiving compensation for products purchased in client accounts. Often this type of program is called a “wrap fee” program and is required to be disclosed in an advisor’s ADV. If you see an advisor advertising they are “fee-based,” or “commission-and-fee” ask them directly about all the ways they are compensated. To help out, you can ask them to complete this compensation disclosure form.
If you are not sure whether an advisor is fee-only, the National Association of Personal Financial Advisors (https://www.napfa.org) is the nationwide association that vets financial advisors for true fee-only business models. If an advisor is a member of NAPFA, you can consider them to be fee-only. If they are not a member, you might ask the reason why not, or, review their ADV Disclosure Brochure found at https://brokercheck.finra.org/ to check for compensation from third parties.
How is advice-only different from fee-only?
A fee-only advisor may manage a client’s investments. An advice-only advisor is a type of fee-only advisor who only gives advice and does not manage investments. Advice-only advisors may give advice solely about investments, or they may do more holistic financial planning, or a combination.
What type are you?
We are fiduciary fee-only, advice-only, and hourly. At this time we do not accept investment-only advice engagements. All engagements must begin with a financial plan in order to incorporate investment advice.
For more on what to expect from the financial planning process, see: https://www.hollydonaldsonfinancialplanner.com/financial-planning/
To learn more about what to expect from a complimentary initial consultation call, see: https://www.hollydonaldsonfinancialplanner.com/contact-us/
