“Fee-Only” versus “Fee-Based”…Is there a Difference?

Fee only questionsWe have received feedback from many of our clients that they would prefer to receive the Summit Financial Planning newsletter via e-mail as opposed to a print copy. After much discussion about the advantages and disadvanages of each, we have made a corporate decision to go with an e-mail only newsletter. In this day and age of rapidly changing technology, we at Summit are continuously evaluating our internal processes, leveraging technology where it makes sense and is in the best interest of the client. So, I hope that you like it. As always, if you have any questions, please do not hesitate to call or e-mail me. 

Enjoy!  Jennifer

 

I am always impressed when new clients come into my office because they have always done their homework.  They have researched the differences between Fee-Only, Fee-Based and Commissioned Financial planners and have decided that they are most comfortable with a planner and investment advisor whose interests are aligned with theirs – a Fee-Only planner.  Oddly, although these new clients have come to a place of commitment to working with a Fee-only advisor, they often will label Summit as a Fee-Based Registered Investment Advisor instead of our true nature as a Fee-OnlyRegistered Investment Advisor.  The clients understand exactly what they are looking for, a true Fee-Only advisor, but the commission world has twisted the label that they have been presented with.

The concept of “Fee Based” is a way for commission based advisors to appear as though they too are compensated strictly by their client’s planning fees.  But the ugly truth is that they charge for putting together a financial plan and then also earn commission for implementing that plan. To me, this is the worst of all scenarios, as the layers of fees are deeper than working for straight commission, and much deeper than working with a Fee-Only advisor.

The fees involved in making investments can be very difficult to discern, and it takes some experience and education to know exactly what fees are being levied on an investment.

It is very important to understand the fees that are being paid from an investment.  After all, it is the client’s money!   The ability of an investment to grow can be greatly hobbled by unknown fees.

If a client pays the advisor a fee to put a financial plan together, and then earns a 5.75% mutual fund commission on the Class A shares that are purchased as a result of that plan, and the mutual fund has high annual expenses as well, the client’s ability to fund his or her goals has taken a back seat to the fees that are incurred.

In my opinion, that is not in any way working towards the best interest of a client.   No matter which kind of planner a client is working with, they deserve full disclosure and transparency of fees.

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