Fee-Only vs Fee-Based – What Option Is Better?

In the insurance brokerage business we partner with all types of financial advisors. As we meet with financial advisors we are often told stories as to the type of advisor one is. The most polarizing topic we come across is the concept of fee-only vs fee-based financial planning. We have heard hundreds of different opinions and arguments about which one is better.

We’ve listened to all of those arguments. The best advisors we have seen (and this sounds cliché) work hard to be the best financial planner possible. They are of course properly licensed and they consume information for their practice and for the betterment of their client. The point is if there is a right way to do planning, we want to know what it is. Who is serving their clients the best? But after researching the issue in depth by talking to the market and listening, we’ve come to the conclusion that fee-only versus fee-based arguments are simply about marketing. There is no right or wrong way.

The fee-only advisors would state they are more objective in their recommendations. This is because in their opinion big commissions aren’t swaying them to a particular product.

The fee-based advisors would say they are better because they are compensated directly by the companies in which they represent and so the client doesn’t have to pay as much for the advice.

So who wins the fee-only vs fee-based competition? To us, it is outrageous to think that someone cannot in good faith provide sound financial counsel simply because they are receiving a commission. We also don’t see the problem with anyone charging a fee for their services. There are fantastic financial planners in every market throughout the country receiving either type of compensation.

How an advisor gets compensated is not something the consumer needs to worry much about. What does matter is the type of work that the individual advisor does for his or her clients.

The bottom line is that each financial professional has the responsibility to act in the best interest of their clients at all times. When they do this, everyone wins. When they don’t, there are always negative consequences for all parties involved—no matter what type of compensation the advisor receives.

There are fantastic tools out there for the consumer to learn more about their advisor, including licensing, credentials, and any potential issues they may have encountered in the past. With a little due diligence, an advisor can develop the payment model that works for them, and the consumer can find an advisor able to meet their individual needs.