Why Fee-Only?

How you pay a financial advisor for their services is a very important consideration. This is because it will largely dictate their ability to provide you with objective advice.

How do financial advisors get paid?

Currently, there are three primary ways that a financial advisor can get compensated for the services they offer. These pricing models vary and will largely determine the type of advice you will receive.

*Note that the term financial planner and financial advisor will be used interchangeably.

Commission

Commissioned advisors receive compensation whenever they sell a financial product, whether an investment or insurance product. Examples of commission-based products include: annuities, life insurance, and mutual funds. Because their compensation is largely tied to selling these products, their advice is typically only tied to the product and may not be in your best interest.

Commissioned advisors were formerly held to a “suitability standard” which meant they could sell products to customers as long as the products were “suitable” for the client. However, this didn’t necessarily mean that the product was in the client’s best interest. Today, these advisors function under the new “Regulation Best Interest” rule, the Securities and Exchange Commission’s attempt to get brokers-dealers to avoid conflicts of interest.

Whenever the sale of a product determines compensation, potential conflicts of interest remain.

Fee-Only

All advisors at the Christian Financial Advisors Network are fee-only. Fee-only advisors are held to the highest standard of care in the financial services industry, which requires them to put their client’s interests ahead of their own AND to openly disclose any conflicts of interest they may have. By operating under this standard, fee-only advisors are bound by ethical and legal obligations to put their client’s needs first, or risk personal liability.

Fee-only advisors are compensated directly from their clients for the advice they provide and don’t receive any commissions, undisclosed fees, or compensation from third party agreements. The advice you receive from a fee-only financial advisor is based solely on your values and needs; there is no financial incentive for your advisor to recommend a particular product.

Fee-Based

Fee-based financial advisors are a combination of both the aforementioned options. They charge fees for the financial planning and investment management they provide, but they also receive commissions for selling investment or insurance products. Additionally, they may receive commissions from third parties for referrals or other services related to their advice.

Why should I hire a fee-only financial planner?

Fee-only advisors are the minority within the profession right now. That means that most financial advisors out there aren’t held to the highest standard of care when providing their clients with financial advice. Most advisors are prioritizing their interests above their client’s interests, which is wrong. Are there good commissioned-based advisors out there? Sure. Are their bad fee-only advisors out there? Probably. However, if you want objective advice that’s in your best interest, then the odds are largely in your favor by choosing a fee-only advisor.

How do fee-only financial planners charge clients?

There are a few different fee models that fee-only advisors can incorporate into their practices. Advisors in the Christian Financial Advisors Network utilize at least one of these options but may utilize all three. Here are the options:

Hourly

The hourly fee model is simply paying for “hours” of the advisor’s time. This model is comparable to how you would hire an attorney. This model is mostly seen with engagements that are limited in scope and nature (financial plan, check ins, projects, etc.). This typically isn’t used for ongoing service.

Assets Under Management (AUM)

This model is currently the most prevalent “fee option” in the profession for advisors managing investments. This fee is assessed as a percentage, typically around 1%, of the assets the advisors manages on behalf of the client. However, you’ll often find varying services that are included with this option based on the advisor. Finally, you will typically see fee “breakpoints” to lower your overall fee percentage as your investment balance grows.

Flat Fee

This model is just as the name sounds, a flat fee. This fee is a pre-defined amount that the client pays for the service they receive. Service may range from a financial plan to a project or for ongoing service. No matter what the route, you’ll always know what you’re paying. Depending on the advisor, they may charge every client the same fee OR they may charge a fee based on the complexity of the client.