How to Find a Fee-Only Financial Advisor

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on January 05, 2023

What Is a Fee-Only Financial Advisor?

A Fee-Only Financial Advisor is a professional who charges clients solely based on the services they provide. Their fee structures can offer options such as hourly fees, flat fees, or percentage of assets managed. 

Unlike fee-based financial advisors, they do not receive any commission or other forms of compensation for selling financial products, such as mutual funds or insurance policies. 

This means that the potential for personal financial gain may not influence their advice and recommendations. Thus, they can offer more objective and unbiased advice to their clients.

How to Identify a Fee-Only Financial Advisor

A Fee-only financial advisor can be identified by studying their Form ADV (Uniform Application for Investment Adviser Registration) on the U.S. Securities and Exchange Commission (SEC)’s public disclosure website. These advisors usually display the following information in their form:

Non-Transaction-Based Pay Structure

One way to tell if a financial advisor is fee-only is to check their compensation structure. A fee-only financial advisor should not receive transaction-based compensation, such as commissions or referral fees. 

When asked, they should be able to provide a clear explanation of how they are compensated, and it should be based solely on the fee they charge for their services.

Not Connected to Broker-Dealers

Another way to identify a fee-only financial advisor is to check if they also work as a broker-dealer or if they are affiliated with any broker-dealer firms. 

Broker-dealers are financial professionals who buy and sell securities on their client's behalf and may receive commissions or other forms of compensation for these transactions. 

On the other hand, fee-only financial advisors do not engage in these transactions and are not generally affiliated with broker-dealer firms.

No Sales-Based Interests With Brokers

In addition, a fee-only financial advisor should not have any sales interests with broker-dealers.

This means they should not receive compensation or incentives for recommending or selling financial products from a particular broker-dealer.

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Advantages of Hiring a Fee-Only Financial Advisor

Hiring a fee-only financial advisor has many advantages, including the following: 

Has Less Conflict of Interest

One advantage of using a fee-only financial advisor is that they have less conflict of interest. Because they do not receive any commissions or other forms of compensation for selling financial products, clients are more likely to be offered products most suited to their needs.

May Be Required to Act as a Fiduciary

Fee-only financial advisors are also more likely to be required to act as fiduciaries, which means they are legally bound to work in the best interests of their clients. This can reassure clients that their financial advisor is looking out for them and is not motivated by personal financial gain.

Can Offer Objective Advice

Since they have less conflict of interest and are often required to act as fiduciaries, fee-only financial advisors generally offer more objective advice to their clients. Thus, they can recommend the best options for their clients without being influenced by potential financial gain.

Disadvantages of Hiring a Fee-Only Financial Advisor

While there are advantages to hiring fee-only financial advisors, it is essential to note that there are also several disadvantages, such as:

Can Be More Expensive

Fee-only financial advisors can be more expensive than fee-based financial advisors because they might need to charge higher fees to make a living. In addition, potential clients might need to spend more when they obtain products, such as insurance from other providers. 

Thus, fee-only financial advisors may not be suitable for individuals or families on a tight budget or those requiring only a limited amount of financial advice.

May Provide Limited Products and Services

Fee-only financial advisors may be limited in their services and products. Since they are not affiliated with service providers like insurance companies or broker-dealers, they may not have access to the same products or services that fee-based financial advisors do.

This can limit the options available to clients. Thus, fee-only financial advisors may not be suitable for those who require a more comprehensive range of financial services.

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How to Find a Fee-Only Advisor

To find a reliable fee-only financial advisor, you can start by researching online to find candidates in your area. You may utilize trusted online resources such as the National Association of Personal Financial Advisors (NAPFA) website.

NAPFA is a professional organization that only allows financial advisors who meet their strict standards for professional conduct and independence to become members. Advisors who are members of NAPFA are required to be fee-only and adhere to a fiduciary duty.

Alternatively, you can also ask for personal recommendations from friends, family, or colleagues who have previously worked with a fee-only financial advisor. 

Whether you search online or ask for recommendations, you must perform due diligence and research your prospective advisor's credentials and qualifications before choosing one. Make sure to ask relevant questions to further check on their background.

Fee-Only Financial Advisors vs Fee-Based Financial Advisors

Fee-only financial advisors charge clients hourly fees, flat fees, or percentage of assets managed. Some are registered and required to act as fiduciaries, meaning they are legally bound to work in their client's best interests.

They also do not receive any commission or other forms of compensation for selling financial products, such as mutual funds or insurance policies. Thus, their potential for conflict of interest is low. 

 On the other hand, fee-based financial advisors offer the same fee structures, including hourly fees, flat fees, or percentage of assets managed. However, they may also receive commissions, referral fees, or other forms of compensation for selling financial products. 

They are also less likely to be registered and required to act as fiduciaries. This means the potential for conflict of interest is high, and personal financial gain could influence their advice or recommendations. 

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The Bottom Line

Selecting the right financial advisor for your individual needs is an important decision. Thus, it is essential to evaluate whether hiring a fee-only or fee-based advisor will serve you best. 

Fee-only advisors may provide more objective advice since their potential for conflict of interest is low. Some are also registered as fiduciaries and are legally bound to make decisions that prioritize their client's interests first.

However, fee-only financial advisors can be more expensive than fee-based financial advisors because they might need to charge higher fees to make a living. Since they are not affiliated with service providers, they may be limited in the services and products they can offer.

In contrast, fee-based financial advisors may offer a wider range of services and products. However, their advice and recommendations may be influenced by the potential for personal financial gain since they can accept compensation for selling financial products.

Whichever option you choose, you must perform due diligence. You can do this by researching the credentials and qualifications of your prospective financial advisor. It is also crucial to ask about their compensation structure and check for potential conflicts of interest.

How to Find a Fee-Only Financial Advisor FAQs

How can you tell if a financial advisor is fee-only?

To determine whether a financial advisor is fee-only, study their Form ADV on the SEC’s public disclosure website. Check if they offer a non-transaction-based pay structure and verify that they are connected with or receiving sales-based interest from broker-dealers.

What are the advantages of using a fee-only financial advisor?

The advantages of using a fee-only financial advisor include more objective advice, lesser conflicts of interest, and a higher possibility of being registered as a fiduciary who is required to act in the best interests of their clients.

What is the difference between a fee-only and a fee-based financial advisor?

Fee-only financial advisors charge clients hourly fees, flat fees, or percentage of assets managed. They do not receive any commission or other compensation for selling financial products. Meanwhile, fee-based financial advisors offer similar pay structures, but they also receive commissions or other forms of payment for selling financial products.

How much does a fee-only financial advisor charge?

Fee-only financial advisors typically charge a percentage of the assets they manage on behalf of the client, an hourly rate, or a flat fee. The exact cost will depend on the advisor's experience and the services they provide. Thus, before selecting a financial advisor, asking about the fee structure and any additional charges upfront is essential.

How do you find a fee-only financial advisor?

To find a fee-only financial advisor, you can research online for possible advisors in your area or ask for recommendations from trusted individuals who have previously worked with one. Whichever selection method you choose, you must perform due diligence and research the advisor's credentials and qualifications before choosing one.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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