 |
The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page. |
Fee-Only financial advisors in the USA, as defined by the review materials for the Certified Financial Planner exam and the National Association of Personal Financial Advisors, are compensated solely by the client, typically achieved through a combination of hourly fees (including retainers), financial planning fees, and asset management fees. Neither advisors nor affiliates may receive commissions, rebates, awards, finder’s fees, bonuses or other forms of compensation from others as a result of a client’s implementation of the individual’s planning recommendations.[1] The fee-only model of compensation reduces the potential for conflicts of interest between the advisor and the client in that the advisor is not beholden to insurance companies, particular investments, and other financial companies.
A clear distinction should be made between brokers, who often refer to themselves as "Fee-Based" (receiving both fees and commissions) and Fee-Only (someone who never receives commpensation or incentives from a third party.)
A fee-only advisor may reduce conflicts of interest such as:
- advising a client to buy products and make investments when holding cash and other liquid assets may have been a more suitable recommendation at that time.
- an incentive to generate commissions through the unnecessary buying and/or selling of securities (also known as churning).
- an incentive to convert non-cash assets such as real estate and collectibles to cash and securities so that the advisor can generate a commission.
- an incentive to make recommendations that pay higher sales commissions to the advisor when a less expensive alternative may have been available.
Working on a fee-only basis allows the advisor to:
- Customize an investment portfolio that is designed to help the client realize short-term and long-term investment goals.
- Provide simplified performance reporting, making it easy for clients to monitor their accounts.
- Support the client with ongoing professional advice, timely information about accounts and updates on the world’s financial markets.
- Manage a client's portfolio and make investment changes--without commissions--as a client's objectives or the economic climate changes.
It is worth noting that:
- Operating on a fee-paying basis may make the advice too expensive to obtain for the broader market otherwise catered for by commission-based advisers. If a client must pay a flat fee of $1000 to his adviser as a lump sum, this is less manageable for all but the wealthy, rather than the more manageable option of paying through regular charging and commissions. However this is not to say that fee-only is more expensive than paying by commission; commissions earned by brokers can add up over the course of a year, especially if many changes are made. It is worth noting that many fee-only advisors charge an annual fee that is deducted on a quarterly basis.
- On the other hand, if an advisor charges a flat percentage (e.g. 1% of total assets under management) for all clients, the advisor may not be able to afford to service clients below a minimum net worth.
- Asset based advisors may have the prerogative of managing all of a client's manageable monies. Although this is a particular bias for asset-based advisors, this can also lead to a more streamlined and efficient working relationship and service.
- While fee-only advisers cannot accept commissions, they may still have personal favorites amongst product providers and investment houses that lead to one provider being specifically favored over another when competing advice is given.
- If certain restrictions are not in place, there can be an incentive to take too much risk in a portfolio to generate additional gains that translate into "raises" for an asset-based advisor.
See also
- Registered Investment Advisor
- Certified Financial Planner
- Financial planner
- List of Securities Examinations
References
External links
 |
This bank, insurance, or other financial services corporation article is a stub. You can help Wikipedia by expanding it. |
This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
