Arbor Wealth explains fee-only relationship with clients

Published: Thursday, October 24, 2013 at 03:03 PM.

Answer:  The Latin root is fiduci. The term originated in the 1500s and grew to mean, over time, someone who held property or goods in a trustworthy manner for the owner.  Attorneys, CPAs, physicians and fee-only investment advisors serve as fiduciaries in the modern era.  A fee-only investment advisor is someone who is charged with a legal, moral and ethical obligation to act only in their client’s best interests.

Question: So some investment advisors are fiduciaries and some are not?

Answer:  Correct.  Fee-only advisors serve as a fiduciary to their clients.  Fee-based advisors and stockbrokers do not.  Stockbrokers and fee-based advisors can technically act as a fiduciary if they separate their practices into a hybrid model, one part fee-based and one part fee-only.  How clients determine when the advisor is acting as a fee-only fiduciary and when the advisor is acting as a fee-based non-fiduciary is one confusing aspect of this model.  The SEC is presently scrutinizing this approach, and has suggested that this business model presents multiple conflicts. 

Question: Do fee-only advisors also face conflicts of interest?

Answer:Occasionally, such as when telling a client whether it is in their best interests to pay off a mortgage, which may mean fewer assets under management for the advisor.  But the fee-only advisor must act in the client’s best interests and fully disclose any conflicts of interest.

Question: If fee-only advisors don’t sell products and don’t accept commissions, how do they get paid?

Answer:  Most charge a fee based on the amount of assets a client has under management with the advisor. Usually, the larger the aggregate of assets, the lower the fee. Many firms also offer financial planning services as well.

1 2 3

Reader comments posted to this article may be published in our print edition. All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

▲ Return to Top

Local Faves