Why are more and more financial advisors fee-only? It comes down to philosophy. Advisors are increasingly choosing a business model that promotes a trusted, ongoing relationship with a client, rather than just a sale.
Would you rather meet with an advisor, or a salesman? A fee-only advisor has every motivation to be your financial consultant and help you manage the investments you have chosen. Does a transaction-based advisor have similar motivation?
The transaction-based business model is built on selling you a product. When a client buys an investment, the broker gets paid a commission upfront. So this model inherently encourages an investment broker to hunt down the next sale. What if you don’t buy any more investment products? Will the broker still stick around and financially consult you for years to come? Maybe â€“ but that’s not what the business model is about.
My interests are aligned with yours. The fee-only business model focuses on a relationship â€“ the ongoing supervision of the client’s assets under management (AUM), with part of the advisory fees dependent on the performance of those assets.
In the fee-only business model, when you do well, the advisor does well. This encourages a sense of partnership and collaboration in planning your financial future, as opposed to just selling you an investment product here and now.
As a fee-only advisor, I have the same goal you have â€“ the goal of growing your assets. We both succeed when that happens.
In the bear market downturn, as the value of client assets declined, so did advisor fees: financial advisors lost some of their own personal wealth and income.
I feel fee-only based is better. A caution is in order. Many advisors are now referring to themselves as “fee-based”. It is a play on words as these advisors will also be able to receive commissions. It’s like saying “I will be tempted only some of the time!”. I offer my clients exclusively the fee-only relationship because I feel better about advising them in this way. My conscience and my ethics have guided me toward this business model â€“ and through it, I can provide what I believe to be better guidance for my clients.