What It Means to Work with a Fee-Only Advisor
Jonathan M. Gardey, MBA, CFA®, CFP®
President and Chief Executive Officer
Has your financial situation recently become more complicated? Or has a major life change catalyzed/instigated the need for professional financial advice? Maybe it’s neither, but you know that making poor financial decisions could be costly and you’d feel better if your portfolio was monitored and adjusted by professionals so you could focus on enjoying life.
No matter how you arrive at the search for a financial advisor, there are some important questions you should ask each potential candidate that will help you find the right fit. Arguably one of the most critical concerns is how your financial advisor is compensated.
What Diamonds, Cars, & (Some) Financial Services Have in Common
Before we dive into the nitty gritty on financial advisor compensation models and how they affect the advice you will receive, let’s start with an analogy that many of us will relate to right away—jewelry sales and car sales. Diamonds, like cars, are notoriously marked up at the seller’s arbitrary discretion in order to earn the maximum commission on the sale.
Of course, as buyers, we are always skeptical in these types of situations because we know that the main motivation of the commission-based salesperson is to earn the maximum amount on each sale rather than to connect you with the diamond or car that best fits your needs and budget. Their own personal gain overshadows any concern they have in giving appropriate recommendations. This is precisely why so many consumers dread making these types of purchases. They never know if they are getting taken for a ride.
What Compensation Reveals About the Service You Can Expect to Receive
Would you be surprised to learn that the same commission-based sales models exist in the financial services industry? Well, if you didn’t know, consider this fair warning. The way your advisor is compensated will reveal much about the quality of advice you receive.
Advisor compensation structures vary, but the three most popular models are:
1) Commission-based
2) Commission & fee
3) Fee-only
Both commission-based and commission plus fee advisors are compensated based on the specific financial products they sell you. If the advisor is solely commission-based, he or she receives payment from the financial or insurance products clients purchase through them. In the commission plus fee model, the advisor receives a commission on sales and charges the client a fee.
The problem then becomes the same problem consumers encounter when they are purchasing fine jewelry or a new or used car. How do you know if the products being recommended are really the best choice for you or are simply being offered because selling them will fill the advisor’s pockets?
These models are inherently flawed. There is too much conflict of interest. When any individual’s compensation is linked to the type of service they are providing, there is simply no way to ensure whether the advice offered is in your best interest, or theirs.
Fee-only Compensation Models are Objective & Transparent
Fee-only advisors are compensated directly by their clients for their advice, financial planning, plan implementation, and/or the ongoing management of assets either by charging an hourly rate, a retainer, or a percentage of the client’s Assets Under Management (AUM). Under the AUM model, the advisor charges the client a percentage of the assets they manage on the clients’ behalf.
Not only does this model minimize the conflict-of-interest present in other models, but ensures that your advisor is operating as a true fiduciary, putting your needs and goals above all else. If you are unfamiliar, the Fiduciary Standard is the highest standard of financial care under US law and dictates that an advisor “act solely in the client’s best interest when offering personalized financial advice.”
Any advice given is provided with the pure intent of helping you succeed. There are no alternative motivations threatening the advisor’s ability to provide the best service they can. Perhaps the best part about working with a fee-only advisor, then, is knowing your fee-only advisor is there to help you with your finances, not their own.
An Advisor You Can Trust
At Gardey Financial Advisors, we are keenly aware of the personal nature of the services we provide. After all, it is your financial situation that will most dramatically impact your future.
We do not take our fiduciary responsibility lightly, which is why we are proud to be fee-only advisors. This model has worked for our clients for over 36 years, and in that time we have yet to see a more objective and transparent way to conduct this highly personal business.
If you are searching for a financial advisor you can trust with you and your family’s financial future, Gardey Financial Advisors could be the solution you are looking for. We serve individuals, families, and small business owners in need of the highest level of financial care. Contact us today to learn more.
Publication Disclosure:
To better understand the nature and scope of the advisory services and business practices of Gardey Financial Advisors Inc., please review our SEC Form ADV Part 2A and ADV Part 3 (Form CRS) available via the SEC's website, www.adviserinfo.sec.gov. (Click on the link, select “Investment Advisor Firm,” and type in the firm name. Results will provide you with both Part 1, 2 and 3 of the Gardey Financial Advisors Form ADV.) Statistics from third-party sources are deemed to be accurate but have not been confirmed by Gardey Financial Advisors.
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