What is a Fee-Based Advisor?
When looking for the right financial advisor, several questions should be at the top of anyone’s mind. One question we always hear when meeting with potential clients, and rightfully so, is, “How are you compensated?”. It is essential for those looking for a financial advisor to understand that advisors charge clients in a few different ways. In this article, we will look at the various compensation methods and the one you should be looking for when choosing an advisor.
Types of Advisor Compensation
Financial advisors usually follow one of two compensation structures: fee-based or commission-based. A fee-based advisor charges a flat fee based on the value of the client’s assets under management (AUM). At the same time, commission-based advisors will also charge a fee and receive additional compensation based on the products they sell to clients. This should immediately be a red flag to anyone considering hiring a financial advisor due to the conflict of interests from a commission-based advisor looking to push recommendations that enhance their own pockets rather than picking the most appropriate fund for the client. It is also important to mention that some advisors are a combination of the two, meaning they charge a fee and receive kickbacks from sponsoring companies when their products are sold. That being said, the most transparent type of advisor is a fee-only type of compensation.
How are fees paid?
The fee-based advisor will generally charge an annual percentage fee for the total AUM per client. A simple example would be that you have $1,000 ready to invest, and the advisor charges a 1% annual management fee, this may be broken down monthly or quarterly. That would be $10 broken down into twelve or four installments across the year, typically drawn directly from the client's account. This percentage fee will likely change as the client’s account changes. The fee-based advisor may offer other services outside of financial management that come at a separate charge, such as estate planning. It is important to mention that both types of advisors may offer additional services separate from the advisory fee. Here at Whitaker-Myers Wealth Managers, we can provide you with estate planning, term life insurance, and a financial coach and CPA on staff, all of which would have separate fees.
Fiduciary Responsibility
Commission-based advisors may represent a conflict of interest by pushing products that offer themselves commission to their clients. It would be wise for individuals looking to hire a financial advisor to search for an independent advisor not tied to any mutual fund company or other proprietary products and whose compensation is fee-only. They should also look for one who upholds the fiduciary standard, meaning the advisor is legally obligated to always act in the client's best interests rather than serving self-interests.
Conclusion
Whitaker-Myers Wealth Managers is a fee-only advisor because we believe it is the most transparent form of compensation. We want clients to know that we have no ties to mutual fund companies or sell any proprietary products. This allows us to pick from a wide variety of funds and uphold our fiduciary standard of always putting the client's needs first. If you are searching for a financial advisor, we have a team ready to help answer questions and plan for your future.
How Fee-Based Advisors work and the benefits to you
October 28, 2024
Ethan Berry
Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.
Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.
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