On Commission Or Fee-Only Financial Advisors: Who Do I Hire?

Are you struggling to get your finances on track or navigating complex money matters? Hiring a financial advisor would be an ideal approach, as you can leverage their experience and expertise to demystify concerns affecting your progress. However, your search for the best financial advisor can be confusing and prove to be a daunting process.  While shopping around, you’ come across fee only financial advisors and those that work a commission basis. Knowing the difference and choosing a service that best fits within your requirements can’t be stressed enough as you strive to secure your financial future. Here is a quick look at the primary difference to help you make an informed pick.

Traditional commission/AUM financial advisors

Most financial advisors charged their services on a commission or AUM (assets under management) basis in the recent past. While utilizing the commission approach, the adviser earns through the sale of a financial product or transaction completion, such as trading a stock. The main drawback to the model is that chances of conflict of interest are high, especially as advice or planning isn’t the focal point.

The advice or planning typically is ancillary to the transaction completion, noting that such financial advisors could be a key element in the services. The same case applies to the assets under management approach; the financial adviser’s earns by taking a certain percentage of the assets’ value. The advice and planning are secondary and could be included or excluded in the arrangement.

Fee-only financial advisors

As more investors continue to seek less complicated services, such as straightforward payment structure, a service designed for your particular needs, and a solution you can trust, among other considerations, more financial advisors are embracing the fee-only approach. The model entails a flat fee for the advice and planning services offered. This could be charged on an hourly basis, retainer, or through AUM basis.

Fee-only financial advisors offer a range of benefits compared to the commission basis. For starters, working directly with a service you pay, and not compensated by someone else reduces the chances of being blindsided by conflicts of interest. The advisor doesn’t have to sell a product to earn a commission, meaning that they are solely dedicated to offering reliable advice and planning. As their primary focus is offering advice, your quest to adopt an effective financial roadmap tailored professionally to your specific situation is fast-tracked, a consideration that can dramatically enhance your monetary future.

The significant drawback of the fee-only financial advisor is that they tend to be expensive compared to the on commission services. However, spending that extra buck is all you need to enjoy trustworthy services with your best interest at heart, as their focus is solely on ensuring that your undertakings are as profitable as possible.

Opting for fee-only financial advisors is more profitable. However, before you make the final call, it is advisable to ensure that you choose a fiduciary. This means that the financial advisor is obligated to act in your best interests, noting that non-fiduciary service only advises you on what’s considered suitable.