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How to Find a Real "Fee-Only" Financial Advisor (Don't Settle for an Imitation)

"Up to 11% of certified financial planners who work at big firms call themselves 'fee only' when, by definition, they can't be."


The "Fee-Only" business model of delivering financial advisory services has garnered a lot of positive press in recent years.  Financial journalists frequently recommend that consumers look for "Fee-Only" financial advisors to minimize the conflicts of interest inherent in the more traditional and prevalent commission-based business models.  Minimize conflicts of interest and you maximize the chances that you will receive professional, objective financial advice.


In response to this groundswell of accolades for "Fee-Only" financial advice, commission-based advisors and their employers have devised a number of ways to protect their turf.  Most of these are meant to confuse the consumer.


As an example, the term "fee-based" has been devised.  Now consumers (and even advisors as we shall see) frequently and mistakenly use the two terms interchangeably.  While it certainly sounds like "Fee-Only", a "fee-based" advisor is simply one who accepts both commissions and fees.  Unfortunately in practice, the client rarely knows which of these compensation models holds sway at any given time, nor which accompanying standard of care to expect, the "suitability" standard, or the much more stringent and client-oriented "fiduciary" standard.


The CFP Board of Standards is the organization responsible for enforcing the education, examination, experience, ethics and other requirements for being a CFP® practitioner.  On its website, it clearly states that:


A [CFP®] certificant may describe his or her practice as "fee-only" if, and only if, all of the certificant's compensation from all of his or her client work comes exclusively from the clients in the form of fixed, flat, hourly, percentage or performance-based fees.", and that "... if a related party receives commissions, the definition of "fee-only" is not satisfied, and the CFP® professional may not describe his or her compensation as "fee-only."


Clearly then, advisors employed by brokerage firms and insurance companies are not "Fee-Only".  That CFP® certificants from so many of these firms (Morgan Stanley, UBS, JPMorgan Chase, Bank of America Merrill Lynch, Wells Fargo, LPL Financial Holdings, RBC, Raymond James Financial, and Ameriprise Financial were all cited in the article) would falsely claim to be "Fee-Only", whether out of ignorance or willful disregard of the rules, and right on the CFP Board's own consumer website to boot, should raise serious questions among consumers of financial advisory services.


An unanswered and potentially bigger question is: How many financial advisors who aren't CFP® professionals are falsely claiming to be "Fee-Only"?  One would think that those without the ability to use the CFP® certification to help court potential clients would be even more tempted to misrepresent themselves as "Fee-Only".


So how can you be sure that your current or future financial advisor is truly "Fee-Only", that he/she isn't trying to "trick" you?  The first way is to ask to see their Form ADV disclosure brochure.  If they don't have one, or if one hasn't been offered to you as a client or prospective client, that in itself should raise your suspicion.  All registered investment advisors are required to offer a Form ADV to prospective clients and to provide one annually to existing clients.  And I can't think of a way that an advisor could be "Fee-Only" without being a registered investment advisor.


The next step is to look for disclosures within the Form ADV relating to compensation in any form from, or to affiliation with, (as an agent, employee, or owner) broker-dealers, mutual fund companies, or insurance firms. You as a cautious consumer might wonder whether these disclosure documents could themselves contain false claims since it's the advisor, or the registered investment advisor (RIA) that employs him/her, that is responsible for completing the Form ADV.  However, this document is also on file with the SEC or state regulator, and to misrepresent your RIA's business practices on it would invite sanctions from them.


But the easiest way to see if your current or future financial advisor is truly "Fee-Only" is to go to NAPFA's website, napfa.org.  The National Association of Personal Financial Advisors is THE membership organization for Fee-Only financial advisors, and they vet the Form ADV's of prospective members so you don't have to.  So give yourself a "treat", go to NAPFA's "Find an Advisor" website, and hire an honest-to-goodness "Fee-Only" advisor.