Fee-only financial planners are investment advisors with a fiduciary responsibility to act in their clients’ best interest. Fee-only means that they do not accept any compensation based on product or fund sales. Fee-only advisors have fewer inherent conflicts of interest, and they generally provide more comprehensive advice that is in the clients best interest. Fee only advice is now becoming the norm in many developed and regulated markets unfortunately Fee-only advice is extremely rare in the expatriate market place with most advisory companies still offering a purely Commission-Based or Fee-Based services which can be a minefield for clients.
Fee-Based Is Not the Same As Fee-Only
Commission-based agents and brokers often take offense at this distinction. Blurring the difference, they created the category dubbed “fee based,” which means they charge a fee in addition to collecting commissions from the provider of a product or fund. Studies show that even consumers seeking a strictly fee-only advisor find these terms extremely confusing especially when these commissions are often not disclosed to an investor.
The investments offered by a fee-based advisor may pay incentives to the company the advisor works for, which means a recommendation may not be as objective as it appears. Even though both fee-only and fee-based financial advisors may have accounts they manage where they charge a percentage of the assets under advice, the investments they place inside these accounts can be very different. A Fee-only advisor has a fiduciary responsibility to choose investments that are in your best interest. They typically use investments that have low internal expenses, such as no-load investment funds, stocks, and bonds which usually reduces the overall level of fees that you are paying on an investment
A fee only advisory service means “The advisor does not receive a commission or other compensation from another party based on the referral of a client or the client’s business.” Fee-only advice help reduce the conflicts of interest inherent in how an advisor is getting paid and what they recommend. Most commission-based agents and brokers are no doubt sincere people trying to do honest work for their clients. But we also believe human nature is bent, and good intentions often succumb to temptation to earn extra money and an individual advisor may not even be aware that a commission is payable to their company on a product that they are offering.
The fees of commission-based agents and brokers are tied to specific products and transactions. This model misses completely much of what clients need which is non biased advice. Although even commission-based agents can serve their clients in unique ways, product commissions seem a backhanded way to acquire comprehensive wealth management in todays world.
Another advantage of fee-only financial planning is that there are no financial hooks, surrender charges or lockup periods. Clients are free to leave at any time if they are disappointed with the performance of their investment. With commission only or Fee-based advice they may face long lock up periods which can cause unnecessary expense when a client wants to withdrawal their money.
For clients seeking insurance and protection advice and for smaller investors Intelligent Investments still offers Commission and Fee-based advice services as often the products to suit the needs of these clients haven’t yet evolved in the fee-only universe in the expatriate market place.
However for most investors we now strongly believe the best route forward for clients is to utilise our Fee-only service. This provides the clarity you need to be sure that you are receiving the best possible advice and transparency as to what we as advisors are being paid.