A dose of vegetables: fee-based is not the same as fee-only

by | Aug 16, 2022 | fee-only, financial planning | 0 comments

There’s been a lot of conversation lately about “fee-based” and “fee-only” financial planning. And if you skim the articles, you may miss the very important distinction between the two. Just like so much else in traditional finance, these terms are both vague and confusing. The thing is, while these two terms sound similar, they could not be more different. And as you’re considering working with a financial planner (or advisor….more on that distinction here), it can make all the difference for your life.

What is Fee-Only?

Fee-only, quite simply, indicates that the financial professional ONLY receives compensation from their clients.  This can be in the form of an hourly, one-time or ongoing fee – or even a combination of these – but it’s that simple. The planner only receives compensation from their client in exchange for giving them professional advice (and often managing investments).

What is Fee-Based?

In contrast, fee-based indicates that the planner receives compensation from their clients, AND they receive compensation from any number of other sources – like a commission on a life insurance product, or from recommending one investment fund or another, or they may receive referral fees from or have standing arrangements with other professionals like attorneys or CPAs.

A Dose of Vegetables

In theory, both are fine ways to be compensated for the ever-important work we do as financial planners. A parallel example would be a butcher shop versus a grocery store.  Neither are bad. In fact, both are great! But a butcher shop will likely only sell meat because that’s how they get paid. Alternatively, when you shop at the grocery store, you can purchase a well-balanced cart of meat, vegetables, fruit, and bread (and more!) – and the grocer will help you find the best in each category for your preferred recipes and palette. Fee-only planners are like grocers – we want to help you find the best in each category for your goals and values.

The other concern is transparency. Most often clients don’t know which way their planner is compensated. This matters when it comes to giving advice.  If the client is working with a fee-based planner, the client likely doesn’t know when their planner is wearing their “fee-only” hat or their “fee-based” hat. As the client, you can ask, but most clients won’t, or simply don’t know to ask. A fee-only planner is never changing hats. We only have one: recommend what’s in your best interest.

Perhaps more shocking than this, is that the fee-based planner doesn’t need to tell the client when they’re wearing or switching hats. The planner can recommend one product over another and unless you ask, you may not know why they are recommending it….and it could be because it has a higher commission for them. It is required to be disclosed, but small print on a client agreement signed months or years ago satisfies this requirement.  And even if you know where to look, you may not find it.

So which one is Rising Financial?

Rising Financial is, and will always be, fee-only.

We want you to know exactly what you’re paying us and feel comfortable and proud to pay it. Like our fiduciary oath (more on that here), we want our fee to be another transparent way we are putting your best interests first. We don’t ever want you to question which hat we’re wearing or if a recommendation we make is truly best for you, or if it pays us more.


Let’s Talk more about it

If you’d like to schedule a meeting to ask us more about this important distinction or how working with Rising Financial could help you, schedule a Free Consultation here: LINK.