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Fee-Only vs. Fee-based

Investment Advice

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Many consumers of financial services (and even industry practitioners) struggle with the difference between the terms "Fee-Only" and "fee-based".  These terms are frequently used interchangeably, but the differences between the two are like night and day.

In recent years, the SEC has required that brokerage firms offering fee-based advice make the following disclosure to its clients: 

"Your account is a brokerage account and not an advisory account.  Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest.  We are paid both by you and, sometimes, by people who compensate us based on what you buy.  Therefore, our profits and our salespersons' compensation may vary by product and over time."

Obviously, this stands in stark contrast to Fee-Only advisors who are required by law to place client interests before their own at all times, and to transparently disclose potential conflicts of interest via their Form ADVs.  A survey by TD Ameritrade revealed that the disclosure requirement imposed on broker-offered fee-based accounts has been useless in changing investor perceptions.  After reading the previous disclosure, 79% of investors surveyed say that they would be less likely to go to a brokerage firm for financial advice.  Obviously fee-based clients are not receiving this message.

The Consumer Federation of America and National Institute for Consumer Education have co-produced an informative guide on the differences between Fee-Only and fee-based advice, and it's available by clicking here.  And you can read the complete TD Ameritrade survey on investor misperceptions here.


I know I want a "fee-only" adviser and not a "fee-based"adviser.  (There's a big difference; the former tends to have fees that are easier to understand.)  And I know I want an adviser who acts as my "fiduciary," who puts my financial interests ahead of his or her firm's. (All financial advisers are not created equal: certified financial planners, brokers, insurance agents and "financial counselors" can have very different obligations and agendas.  Failing to understand these distinctions is asking for trouble.)

- an excerpt from an article by Glenn Ruffenach in the Wall St. Journal's Encore section.


By some measures, there are over 600,000 financial advisors in various guises in this country.  Fewer than 3,000 of these are Fee-Only members of NAPFA, the National Association of Personal Financial Advisors.  NAPFA is the foremost professional association of Fee-Only financial advisors and ensures that its members are indeed Fee-Only by vetting their Form ADV disclosure brochures.