Investors who are interviewing potential advisors are doing so with an increasingly impressive knowledge of the difference between fee-only vs. fee-based advisors. 

As many investors now know, a fee-only advisor accepts no commissions of any kind, from any source. A fee-based advisor or stockbroker can accept a commission for placing a client’s assets in a particular fund. For instance, a fee-based advisor can place client assets in a parent-company mutual fund and receive a sales commission, in addition to his/her management fee.

Another basic difference between the two is that fee-only advisors do not sell products of any kind. A fee-based advisor or stockbroker may sell annuities, life insurance policies or other financial products that generate additional commissions. 

Most investors are familiar with the term fiduciary. Fee-only advisors, like physicians, CPAs and attorneys, serve as a fiduciary to their clients.  Fee-based advisors and stockbrokers do not. Savvy investors who are interviewing potential advisors often begin with the question, “Are you a fiduciary?” 

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 a confusing aspect of this model. In fact, the SEC is scrutinizing this approach, and has suggested that “this business model presents multiple conflicts.” 

Fee-only advisors occasionally also face conflicts of interest, such as 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, acting as a fiduciary, is charged with a legal, moral and ethical obligation to act in the client’s best interests, regardless of the financial implications for the advisor.

“Today, in effect, individual investors must be their own investment professionals,” says Phyllis Borzi of the Department of Labor, “and most of them don’t have the training necessary to make the best decisions regarding important investment decisions … That means investors are increasingly reliant on the advice they receive, and while an investor may assume his advisors are putting his interests first, we know that’s not always the case.

“… We know that there are many good, honest advisors who provide excellent advice,” Borsi says, “but we also know that today’s investors are more reliant on that advice than ever before, and the old laws don’t provide adequate protection in the current investment marketplace. Our agency’s goal is, first and foremost, to ensure that America’s workers and their families can enjoy the retirement they worked and saved for.

“Assuming that all things are equal,” says Borzi, “I think the average person would prefer to work with people who are legally required to provide unbiased investment advice and put the client’s interests first.”

Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121—, a fee-only registered investment advisory firm near Sandestin.