By Lee Sherbakoff, CPA/PFS™, CFP®, RICP®
Finding a financial advisor to guide you through your financial journey is an important step to reaching your financial goals. In your research for the right advisor for you, you may have come across the term “fee-only.” This term is usually used to describe registered investment advisors (RIAs) who provide services and planning that, by law, can only be in your best interest.
But what does this term mean, and why is it important?
In this article, we will discuss what “fee-only” means, outline other types of fee structures some financial advisors use, and explain the benefits of using a fee-only financial advisor.
How Advisors Get Paid
To truly understand the value of a fee-only advisor, it’s first important to understand the different ways advisors can get paid. The three most common methods include:
Commission-based advisors don’t charge fees to their clients. On the surface, this model sounds great. But these advisors have to get paid somehow, so instead they earn commissions from financial and insurance products they sell to their customers. Even if they mean well, commission-based advisors may be more motivated to sell products that will earn them the most money, rather than providing advice that is in the best interest of the client.
Fee-based advisors may sound like they’re fee-only, but they also make commissions from financial products and transactions. In addition to charging their clients fees, they earn a percentage of their revenue from selling products on behalf of brokerage firms, mutual fund companies, or insurance companies, thus placing them at the same risk for conflicts of interest as commission-based advisors.
Fee-only financial advisors are paid directly by their clients—and only by their clients. They don’t receive any type of kickbacks or commissions for recommending certain securities or investments. Their fees are typically structured as a small percentage of the assets they manage, known as assets under management (AUM) fees. Because fee-only advisors only get paid by their clients, their incentives are usually better aligned with the clients they work for than commission-based or fee-based advisors.
The Benefits of Working With a Fee-Only Financial Advisor
The National Association of Personal Financial Advisors (NAPFA) believes fee-only advisors are the most transparent and unbiased advisors you can come by. (1) They typically have one of two designations: either registered investment advisor or CERTIFIED FINANCIAL PLANNER™. If you’re in the market for a financial advisor, here are three reasons why you should choose a fee-only advisor:
1. Reduced Conflicts of Interest
No matter how pure an advisor’s intentions are, it can be difficult to provide unbiased recommendations when they know they’ll get a kickback or commission. But this isn’t the case for fee-only advisors. They have no incentive to push certain products because they don’t sell any products at all. They’re solely compensated by you.
2. Fiduciary Commitment
Fee-only advisors are fiduciaries, which means they are legally and ethically obligated to act in your best interest at all times and to disclose any potential conflicts of interest. They are loyal to you and provide objective financial advice based on your unique situation and goals.
3. Objective Advice
It’s easy to act on emotion when you’re dealing with your own money. There’s talk of a stock market crash, so you want to change your investing strategy. A family member needs to borrow money, even though you know giving it to them would jeopardize your financial security. You want to live a comfortable life in retirement, but you’re not sure if you’re on track. In situations like these, it’s nice to have someone you can go to for objective advice.
Why The Nails Sherbakoff Group Is Fee-Only
At The Nalls Sherbakoff Group, we have our clients—and our clients only—in mind. We pride ourselves on transparency and unbiasedness. We endeavor to give our clients our undivided loyalty and are dedicated to helping them reach their financial objectives.
Whether you have a specific financial concern or need help developing a solid financial plan, we’re here to guide you every step of the way. Set up a complimentary appointment so we can see if our services are the right fit for you by calling us at (865) 691-0898 or contacting us online.
Lee Sherbakoff is principal and financial advisor with The Nalls Sherbakoff Group, LLC, an independent, fee-only financial planning and investment management firm. He specializes in serving pre-retirees and retirees, helping them create and execute financial plans and retirement income plans that lead to sustainable long-term, real-life returns that meet their deepest and most important financial goals and objectives. Lee has a Bachelor of Science in Finance from The University of Tennessee and a Master of Strategic Studies from the U.S. Army War College as well as the Certified Public Accountant (CPA), Personal Financial Specialist (PFS™), CERTIFIED FINANCIAL PLANNER™, and Retirement Income Certified Professional® (RICP®) certifications. Lee spent over 31 years in the U.S. Army Reserves, including serving at the Army’s highest levels on the Department of Army staff at the Pentagon and being deployed in support of Operation Desert Storm (1991) and Operation Iraqi Freedom (2008-2009). When he’s not loyally serving his clients, Lee enjoys giving back to the community and to his profession. He served as a council member of the Tennessee Society of CPAs and is a member of the American Institute of CPAs. In addition, he is past President of the Knoxville Chapter of Tennessee Society of CPAs and past President of the East Tennessee chapter of the Financial Planning Association. To learn more about Lee, connect with him on LinkedIn.
DISCLOSURES: The information provided is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal, or tax advice. The Nalls Sherbakoff Group, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of, or reliance on the information. These indexes reflect investments for a limited period of time and do not reflect performance in different economic or market cycles and are not intended to reflect the actual outcomes of any client of The Nalls Sherbakoff Group, LLC. Past performance does not guarantee future results.