Fee-Only vs. Fee-Based Advisors:
Do not confuse Fee-Only and fee-based advisors. The terms sound similar, but there are important differences. Financial advisors are currently regulated under two different standards of conduct.
Fee-Only advisors charge a one-time or ongoing transparent fee, depending on the types of services they provide. They are registered with the SEC or a state securities regulator as fiduciaries, subject to the duty of loyalty and due care with their clients. They are expected to act in the best interest of their clients. If they don’t, they can be sued in the court of law. Horizons Wealth is proud to be held to the Fiduciary Standard, but 75% of financial advisors are held to a much lower ethical standard called the “Suitability Standard.”
Fee-based advisors hold licenses that allow them to sell investments or insurance products for commissions. Stockbrokers, broker-dealers, insurance agents, and others who are not Fee-Only are regulated be the private-sector organization (FINRA) or by state insurance regulators and are only subject to a “suitability” standard of conduct. Fee-based advisors do not have a duty to disclose their method of compensation, which can create a conflict of interest between what is best for you and what is best for the advisor.
Over the past few year, financial-service companies have realized that their costumers want objective advice, so they are moving away from the commissioned-based compensation model towards a strictly fee-based structure. However, the big financial companies aren’t ready to abandon their commission-based sales model or commit wholeheartedly to the Fiduciary Standard. This is why investors should be very cautious of the term “fee-based.”
When you work with a Fee-Only Financial Planner, the result is unbiased financial advice from a professional who is committed to acting as a fiduciary in a client-centered relationship.