There are hundreds of thousands of financial advisors throughout the United States offering a wide range of products and services, from investment management and tax planning to products that provide a set monthly payment for life. However, not all groups operate the same way—each may have different compensation structures, philosophies, and approaches to client care. With so many choices, finding the right financial advisor near you can feel overwhelming.

One of the most important questions to ask when evaluating a financial advisor is: How are they compensated?

Understanding how your advisor gets paid can help you identify potential conflicts of interest and find someone who puts your interests first. In this post, we’ll take a closer look at fee-only financial advisors, define the difference between fee-based, commission-based, and fee-only compensation models, and explain how both an advisor’s payment structure and standards can significantly impact the advice you receive.

What Does Fiduciary Mean and Why Does It Matter?

An advisor’s compensation structure can influence the advice they provide, but the standard under which they operate determines whether that advice is truly in your best interest.

A fiduciary is a person or organization that is legally obligated to act in the best interest of another. They must put their clients’ needs above their own. Here at Milestone Financial Planning, we operate under the fiduciary standard.  As a registered investment adviser and a firm with multiple Certified Financial Planner® professionals, we are legally obligated to act as a fiduciary on behalf of all our clients.  But not all advisors are held to this standard.

You may wonder how advisors can get away with offering services or products that are not in the client’s best interests. The reason lies in the difference between two standards: the suitability standard used by broker-dealers and the fiduciary standard followed by registered investment advisers. Under the suitability standard, advisors working for broker-dealers can recommend commission-based products as long as they are deemed “suitable” for the client’s situation — even if they’re not the best option. This creates a gray area, as what’s “suitable” doesn’t always align with what’s truly in the client’s best interests. In many cases, advisors may be motivated by higher commissions, which is why they might recommend a suitable, but suboptimal, investment.

Fee-only vs. Commission vs. Fee-based: Understanding the Differences

1. Fee-only: these advisors are typically fiduciaries, and the only fee the advisor receives is for their advice. Fees can be charged as a percentage of managed assets (known as “AUM”); hourly or flat-fee. They do not receive commissions for recommending financial products or investments, which aligns with the fiduciary standard.
2. Commission: these advisors are paid a commission from selling products, either mutual funds, preferred stock, annuities or other financial products. The amount they earn is typically based on the sale or recommendation of these products, which can create potential conflicts of interest. Because they are paid based on sales, the advisor’s incentives may not always align with the client’s best interests, as the focus can shift toward selling products that generate the highest commissions, rather than the most suitable options for the client’s financial goals.
3. Combination: Some advisors can wear both hats, depending on what service they are providing. This can get confusing for the client. This is often referred to as “fee-based” (not to be confused with fee-only!) While they may still act as fiduciaries, the dual compensation structure can create potential conflicts of interest.

What Does the Term “Fee-Only” Mean?

Fee-only, as defined in #1 above, means the only fee the advisor receives is for their advice. Milestone Financial Planning, LLC, is fee-only and does not sell any products or receive commissions of any kind. The term “fee-only” means that we are paid directly by our clients on a transparent and predefined payment arrangement. This type of arrangement reduces conflicts of interest because advice is not driven by commission potential. All our advisors are members of the leading fee-only professional association, the National Association of Personal Financial Advisors (NAPFA), and adhere to NAPFA’s very strong code of ethics.

What Is a CFP®?

All of our advisors are Certified Financial Planner® professionals, meaning they carry the premier certification in the financial services industry. Achieving the CFP® certification requires proof of financial education and experience, and we are also subject to strict ongoing ethical and continuing education requirements. We also, of course, abide by the CFP® Board’s Code of Ethics and Professional Responsibility.

Not all CFP® practitioners are fee-only advisors, and not all fee-only advisors are CFP® practitioners. If you want to search for an advisor near you who is both fee-only and a CFP® practitioner, you can use the “Find an Advisor” tool. You can also search for CFP® practitioners at http://www.letsmakeaplan.org/ and screen by compensation method for “fee-only.”

In addition to CFP® certification, you may want to find an advisor with personal income tax expertise to assist you with integrating all the areas of your financial life. This is what makes Milestone Financial Planning, LLC different – all our advisors and planning associates are trained by a CPA in tax planning (and many are also trained in tax preparation).

If you’re looking for a fee-only advisor with their CFP® and personal income tax knowledge, Milestone has you covered. Reach out to one of our advisors today to learn more about the benefits our work can have for your financial health.